Sun Tzu cautions hostile takeovers

Defending an open hostile take-over bid is a prerogative every victim company has and must be proceeded with. There are several defensive postures that could be made by the victim company to forestall such hostile takeover. By the same token, the bidding party too has filial duty, if we are to believe master strategist Sun Tzu:

A number defensive counter moves are available in the annals of business strategy. Chief amongst these are poison pill defence and white knight defence. In the case of former the victim company calibrates the poison pill as a flip –in and flip-out versions.

A "flip-in" pill version allows the company to issue preferred shares that only existing shareholders may buy, diluting the hostile bidder's potential purchase. "Flip-over" pills allow existing shareholders to buy the acquiring company's shares at a significantly discounted price making the takeover transaction more unattractive and expensive. (Here)

White Knight defence, on the other hand is employed only if victim company cannot prevent takeover bid on her own strength and needs to corral in a friend or ally of the business as a sort of white knight to buy controlling interest in the company just before  hostile bidder does that in a stock exchange or otherwise.

The worst case scenario is reducing the company worthless in the eyes of an attacker. The defending company and its stakeholders can get together to legally dissolve the company, denude its valuable assets, exit from primary markets, dispose  brands and patents and do everything that amounts to asset and value stripping to render the targeted company per se as an useless portfolio to be acquired by the attacker, in the event of bid going through.

This Samson option is the type of desperate move or Hara-Kiri step as the Japanese say that must be avoided at all. Sun Tzu the master strategist begins with the following command in his magnum opus “Art of War” Chapter 3 titled “Attack by stratagem”: “In the practical art of war, the best thing of all is to take the enemy's country whole and intact; to shatter and destroy it is not so good. So, too, it is better to recapture an army entire than to destroy it, to capture a regiment, a detachment or a company entire than to destroy them”.

Understandably, either the attacker or the defender has the ability to destroy assets according to their own judgement. The only question is “Cui bono” (Latin for whose benefit). The destruction of company by its own stakeholders before falling on the hands of aggressive opponent is counterproductive because neither party stands to benefit.

Sun Tzu, quintessentially in his business strategy element, cautions the attacking company to avoid pushing the victim company stakeholders desperate. In this case sweetening the bid with conditions and caveats that are beneficial to the present stakeholders need to be incorporated in the bid document. To put in another way, the bidder enters into entente cordiale with the present stakeholders that that bidder stands to honour all his terms in the post- takeover phase.

Predictably, this gesture would put the victim in ease and dissolves whatever   doubts that remain. What is more, as Sun Tzu broaches over the subject of continuing employment of generals & soldiers in the victor’s army in elsewhere in his book, the bidder too should give some kind of guarantee that present managers & employees could continue to stay in their present jobs as they so wish!

 

Cheers!

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail:   cosmicgems@gmail.com

Blog:   Business Strategist

 

 

Marketing dominance, Xiaomi style

Xiaomi Incorporated a mobile & Internet company founded in 2010 grew steadily in the newly minted e-commerce platform called Mi Market. Today it is the fourth largest company in mobile phone industry and busy swallowing up market dominance in Asia. Xiaomi follows time tested Sun Tzu’s Art of War principles of entering, surviving and succeeding in business competition:

In the Art of War, Chapter One on Laying Plan Sun Tzu says: “Now the general who wins a battle makes many calculations in his temple ere the battle is fought. The general who loses a battle makes but few calculations beforehand.”

In crafting business strategy to succeed well competing and dominating in fiercely fought-out mobile instrument segment Xiaomi just followed the master strategist Sun Tzu and did lot of homework as regards to understand the market and make all the calculations regarding foray into the market, how the completion would unravel and how to transform the initial entry into ultimate market dominance.

Understanding the entry with a brand new product, Xiaomi realized that it must have definitive advantage on two pronged leadership in terms of cost & technology. This done the next is to bring in different type of models under the umbrella of Xiaomi name. The idea is to create differentiation not only in terms of price but to cater to different consumer segments that crave for different aspects including design, user friendliness, heaviness of the instrument and  accompanying colours and features.

There are three brands: Mi, Redmi, and Poco earmarked In order to cater to diverse audiences looking for very different things from their phones. Mi was targeted for premium segment, being the flagship of Xiaomi. Redmi on the other hand looked at the budget buyers, to be sold at affordable price and facilitated moving out in large quantum due to its expected deep penetration in the market. Poco fits in between, fairly a high end performance product that is fairly priced neither cheap nor expensive according to the pricing levels prevailing in the retail market.

To support all these three brands and the segments that are being catered to Xiaomi stressed three factors that could work for them: one is all their products are user-friendly and conform to android technology and alternatively may be used with Huawei Harmony OS2. Secondly the mobile instrument as well as any replaceable parts are available in plenty at anywhere and anytime. In addition to logistics the company assures prospective consumers seamless service as regards to the continuation of supporting software.

After market share is obtained Xiaomi extended its arch in order to get more transactions taking place in a wide spread manner so that along with the volume goes up customer loyalty to Xiaomi and to the respective brands Mi, Redmi and Poco. Distribution of mobile products is coordinated in such manner that retailors have sufficient quantum at hand to be displayed and delivered within short notice.

Finally with the up-tick in the market share the revenue to the retailors go up in leaps and bound assuring repeat orders coming out from them on daily basis. Regional supply centres are to work 24/7 to ensure supply lines operate without being interrupted.

Well. Xiaomi achieved market dominance using the right business strategy and following Sun Tzu dictum to the letter!

 

Cheers!

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail:   cosmicgems@gmail.com

Blog:   Business Strategist

 

China business strategy, four negatives

Spellbound by the geoeconomics progress made by China, global reaction to its business strategy is of mixed nature. Whereas the west is harping on human rights violations & business manipulations, developing world is awed by the stellar performance of China and line up to work more with her. Independent observers, however observe several negatives. Four of these negatives are culled for your reading pleasure:

Topping as number one is the selfish image of Chinese businessmen that irritates business partners be in east or west. “China never compromises”, is the refrain many are singing across the globe who have dealt with Chinese negotiators. Give and take as an ingredient is awfully short in China business menu. The famous Hugo Grotius dictum “pacta sun servanda” (agreement must be kept) is strictly followed by them. Even after the clause “Rebus sic stantibus” meaning unenforceability due to changed circumstances is added they would not compromise on their stand of strict performance.

Secondly, an item that detractors always spotlight is China does not forgive debt like the West. Once you are in debt, China requires you to borrow more from them to pay the existing debt with interest due. Known in the west as “Debt Trap” more countries are converted to hard core debtors across the globe. According to Hayward Business Review “In total, the Chinese state and its subsidiaries have lent about $1.5 trillion in direct loans and trade credits to more than 150 countries around the globe. This has turned China into the world’s largest official creditor — surpassing traditional, official lenders such as the World Bank, the IMF, or all OECD creditor governments combined”(Here).

China is not seen as an honest business partner when it comes to striking business deals is often highlighted by contenders. Hobnobbing with corrupt politicians and autocratic national leaders China gives them blank check to write the amount as they please. Known as “check book diplomacy” this type of largesse bestowed on politicians end in the country concerned losing valuable assets. Tajikistan was forced to part with almost one thousand kilometres of Pamir valley recently as part compensation for writing off debt that remained unpaid. Dramatizing the famous Shylock scene asking for the pound of flesh in William Shakespeare’s Merchant of Venice, this incident is self-explanatory.

Fourth and final negative is the singularity of the purpose of Chinese business which demand that other partner conforms to its demands in pursuing the goals & objectives of the China business rather than common objectives. In a critique on the unsavoury conditions that could emanate consequent to the funding by China for Gwadar Port of Pakistan by F.S. Aijazuddin published in the Dawn newspaper on August 29, 2013, the writer warns: “They have without blinking made unimaginable commitments to provide all the resources necessary — monetary, materiel and manpower — to make Gwadar a functioning reality. They have calculated the risks. They have quantified the costs. They are clear what dividends to expect (Here)”.

Needless to say, that unravelling Chinese business strategy at the backdrop of geoeconomics is the need of the hour now!

 

Cheers!

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail:   cosmicgems@gmail.com

Blog:   Business Strategist

 

China business strategy winner compensates loser

It was economist Paul Samuelson who came out with the classic dictum in international trade saying “winners can compensate losers”. In every business deal that China makes there is an underlying idea of sharing benefits. Domestically or abroad China business strategy opts for win-win relationship rather the lopsided win– lose.

In fact over the past centuries, Confucian culture & Taoism have tempered the  Chinese psyche by practicing yin-yang dynamics. Let us examine an outcome where winner takes it all, not leaving the other party anything. This breaks the equilibrium of yin-yang that should exist between the two parties harmoniously.

The winning party gets wealth along with arrogance. The losing party erodes his wealth and gets vengeance towards the winner. Multiplication of this scenario finally ends up where there is social division, dissension, dissatisfaction leaving a bad state of affairs to prevail in the society as a whole. During the Warring States Period (476 to 221 B.C.), China underwent throes of crisis both militarily and economically due to this.

Even in military adventures, Sun Tzu the famous strategist insisted that collateral damage be minimised on the part of the enemy at the same time losses are cut down from the proponent’s side as well. Sun Tzu went little further and enjoined the dictum that losing party be treated as humanely as possible.

Captives were treated with food & provision. In persuasion of war objectives if there is an escape route available in the horizon for the losing party Sun Tzu commanded not to block that exit route. Significantly, as regards to warfighting per se Sun Tzu recommended winning without fighting as the noble option as, war anyway results in death & destruction.

Applying the same principles in business strategy China is always willing to share spoils equitably. In the case of massive trade surplus built up in trade with USA, China was ready & willing to invest in US Treasuries to prop-up the value of Dollar on one hand and plough back surplus into US economy on the other.

However, USA is not relenting at all, because its business strategy dictates winner takes it all and the loser must be condemned as the Latin expression goes, “Vae Victis” meaning woe to the conquered. American society is driven by the single minded purpose of accumulating wealth to oneself. Their leitmotif is to be an absolute winner in every endeavour. 

A change of heart is now necessary to uplift the millions of people in America who are below the poverty line. As a policy measure America must opt for equitable distribution of wealth along with the economic imperative of “winner compensates loser!” 

 

Cheers!

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail:   cosmicgems@gmail.com

Blog:   Business Strategist