Degusa Essay

1508 Words Sep 19th, 2013 7 Pages
Degussa is one of the top ten chemical companies in the world (#1 in specialty chemicals) with large production facilities in over 50 countries and sales and marketing offices worldwide. In March 2005 the company committed to increase their EBIT by 2008 through four priorities: solutions to customers, site excellence, human and corporate excellence and make China happen (Source: Degussa 2008 Program). The strategic plan for China was to triple the sales from $300 to $900 million by 2008 and capture a major share of the Chinese market for specialty chemicals. One of the high growth potential areas would be the segment of stabilizers (growing at least 7-9% per year in China and Degussa owned only 10% market share of it). The
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Institutions such as legal framework and its enforcement, property rights, information systems and regulatory regimes play an essential role in economy to support the effective functioning of market mechanism (North, 1990; Peng, 2008). In China such institutions are relatively weak. ‘JVs provide a means to access resources held by local firms, including resources such as networks that may help to counteract idiosyncrasies of a weak institutional context (Delios and Beamish, 1999). Entry by acquisition is particularly sensitive to the efficiency of the markets, especially financial markets and the market for corporate control (Antal-Mokos, 1998; Peng, 2008). Transactions in financial markets are greatly facilitated by an institutional framework that ensures transparency, predictability and contract enforcement, as well as general liquidity of the markets (Peng & Heath, 1996; Beim & Calomiris, 2003; Lin et al, 2008). Keeping all this in mind, country-level factors seem to justify JV over acquisition.
Table 1 | Acquisition | JV | Greenfield | Firm-level factors | | size / experience | big | big | small | international experience | much | moderate | little | need to integrate into existing ops | low | low | high | need for speed to market | high | moderate | low | resource needs | new |

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