Introduction
Merger and acquisition have become an essential strategies that businesses use to gain competitiveness in the marketing environment. There are various cases of mergers and acquisitions of companies from either one line of business or different lines of businesses in recent years. The main reason behind the merger and acquisition strategy is to enable the organization to increase its competitiveness, as well as gain significant markets share (Hussey 133).
The pharmaceutical sector has reported cases of various mergers and acquisitions in recent years. The joint venture of Sandoz and Ciba-Geigy to form a new company known as Novartis in 1996 took the drug industries by surprise. The merger of Sandoz and Ciba-Geigy made them become the second-largest pharmaceutical company in the world. At that time, Novartis was the largest merger at a value of USD 80 billion (Schmidt & Edwin 224).
Background of the Companies
Ciba-Geigy
Ciba was a joint venture company formed in 1884 and based in Basle, Switzerland. The company was originally manufacturing dyes and at that time it employed 230 individuals. In 1889, the company embarked on a diversification program and started to manufacture pharmaceutical products. In 1954, the company again started the production of pesticides. Ciba later merged with Geigy in 1970, a company based in Basle. Geigy, on the other hand, started operation in 1758 as a company trading in chemicals and dyes and later it started to manufacture chemicals and dyes and textile chemicals in 1925 (Schmidt & Edwin 224).
Ciba and Geigy merged in 1970 to create the leading manufacturer of dyes in the world. After the merger, Ciba-Geigy embarked on the biotechnology business and created the first biotechnology department in collaboration with Chiron, a US company in 1980.
Sandoz
Sandoz was established in 1886 as a dye manufacturing company in Basle. In 1895, it became a joint-stock company. In 1911, it started a pharmaceutical business and went ahead to start a chemical business in 1929. The company then established an agrochemical business in 1940 and a biotechnology business in 1963 (Schmidt & Edwin 224). From 1969, the company diversified its product portfolio into various fields that include nutrition, healthcare, seeds, chemicals and constructions.
Strengths of the Companies
The strengths of an organization determine its level of competitiveness in the market. It enables organizations to become competitive in the market. Ciba-Geigy and Sandoz had unique strengths in the market that made them gain a competitive advantage as opposed to other firms in the industry.
Ciba-Geigy major strengths relied on its strong financial base. The company was having a strong financial base having merged with other major companies in the past years. Due to the previous mergers, Ciba-Geigy accumulated a strong asset base. It also had a large market share in the market as well as a good image and reputation in the market.
Sandoz major strength was as a result of its diversification program. The company was manufacturing different products, and this reduced the risks associated with dealing with one product line. The other strength of Sandoz was that it had an effective leadership style that supported its business structure. Its leadership and management style was effective, and this was the main reason that explains why the company formed after the merger of the two companies adopted the management style of Sandoz.
Weaknesses of the Companies
Weaknesses associated with organizations can hinder their operations and business strategies. It is appropriate for organizations to work towards reducing their weaknesses while at the same time leveraging on their strengths. The two companies had unique weaknesses that make them less effective in the market.
The major weakness of Ciba-Geigy was that its management and leadership style was poor. Ineffective and poor leadership style at the company made it make wrong or delayed decisions hence impacting negatively on its performance.
Sandoz, on the other hand, was having a major weakness as a result of low market capitalization. As a result of low market capitalization, Sandoz was unable to invest in programs that could enable it to gain a competitive advantage in the marketplace. It also had a low reputation in the market as compared to Ciba-Geigy, and this made it have a competitive disadvantage in the market.
Importance of Merger to the Companies
The merger between Sandoz and Ciba-Geigy was essential in a number of ways. Each of the companies was to benefit from the merger in a number of ways. The main benefit of the merger to the companies is that it helps them to increase the level of their investments (Hussey 133). The companies’ investments in key areas such as research programs increased as a result of the merger. Due to the increase in research and development, the new company competitiveness in the market will significantly improve. The other benefit of the merger is that it will allow the companies to have broader and efficient marketing strategies.
Both Ciba-Geigy and Sandoz will use their facilities and presence in various locations across the globe to enhance their marketing and distribution channel. The merger also reduced the cost of financing and increased the liquidity of the companies. The companies will also benefit from a lean organization structure, and this will also reduce the production cost and increase the profitability of the firms.
The Future Strategic Focus of Novartis
Strategic direction can enable the organization to succeed in the market and ensure sustainable competitiveness (Hussey 133). There should be constant evaluation of the organization’s performance so as to determine the direction to take in the future. Novartis should make an appropriate decision regarding its future focus to ensure that it remains relevant and competitive in the market.
The future strategic focus of the company is research and development programs. There is a dynamic change in global business environments and organizations can only survive if they can offer competitive products. Focus on research and development programs can lead to the development of new products. Since innovation can improve the performance of the organization, the focus of Novartis to embark on a research and development program can improve its performance in the market. They can also focus on acquisition and merger programs to make them gain significant market share.
The strategic focus of innovation is important since it will ensure that the company develops new products that are competitive. The strategic focus of merger and acquisition will increase the market share of the company in the global market.
Work Cited
Hussey, David. “Merger and acquisition.” Strategic Change 8, no. 3 (1999): 133-134. Print.
Moeller, Sara B., and Frederik P. Schlingemann. “Global diversification and bidder gains: A comparison between cross-border and domestic acquisitions.” Journal of Banking & Finance 29, no. 3 (2005): 533-564. Print.
Schmidt, Sascha, and Edwin RĂźhli. “Prior Strategy Processes as a Key to Understanding Mega-mergers:: The Novartis Case.” European Management Journal 20, no. 3 (2002): 223-234. Print.