Does Expanding through Alliances vs. Mergers and Acquisitions Matter? The Example of the Global Retail Industry

Though alliances and mergers and acquisitions (M&A) are both extensively used by companies seeking to achieve the benefits of greater size and scale, strategy research has rarely examined these two moves as alternative courses of action. Indeed, the size-performance relationship has long been a major research topic both in industrial organization and in strategy. In the late 1960s, it has given rise to such famous strategy concepts as the so-called “experience curve”, but has since generated only limited interest. More recently, much research has been devoted to examining mergers and acquisitions on the one hand, and inter-firm alliances on the other hand. Both these moves significantly affect a firm's scale and are thus likely to have an impact on performance. However, the work on M&A or on alliances very rarely compares these different modes of growth to one another in their ability to deliver scale benefits. Our research specifically aims at analyzing the relative scale effects achieved when growing through either M&A or alliance, using organic growth as a baseline scenario. In this chapter we develop arguments on the relative impact of these two alternative modes of growth in terms of economies of scale, bargaining power, and overall performance effects. Our empirical analysis of the global retailing industry (through a sample of 82 firms observed between 1984 and early 2000s) reveals that M&A enhance bargaining power, while alliances fail to deliver the expected benefits.