Identify any company that you are interested in and choose one corporate move that relates to horizontal diversification, outsourcing or vertical integration. For that move, trace back how they entered (acquisition, internal growth etc.), provide details - what reasons were provided for this action, eg., details of the acquisition, what was media reaction at that time. What is your evaluation of this strategic decision and its subsequent implementation? Provide your analysis by using your knowledge of corporate strategy. Think about the value added (or not) with the diversification, use the attractiveness test and consider if entry was into a blue or red ocean. Or check out the discussion relating to outsourcing and vertical integration. It is essential to incorporate ideas from your learning from this topic here.
You can find the history or timeline of a firm from its website or wikipedia. Here is a timeline for GE. You can study GE if you wish. GE:https://en.wikipedia.org/wiki/General_Electric_timeline
You can find examples of vertical integration or outsourcing from published sources. You are welcome to use your own firm for this discussion. As always, let me know if the ideas are yours or from other sources.
General Electric's Strategic Decision for Horizontal Diversification: Acquisition of Baker Hughes
Introduction
General Electric (GE) is a multinational conglomerate that has been at the forefront of various industries for over a century. Throughout its history, GE has made several strategic moves to diversify and expand its business operations. One such move is the acquisition of Baker Hughes, which represents a significant step towards horizontal diversification for GE. This essay will explore the details of this strategic decision, including the reasons provided for the acquisition, media reactions at the time, and an evaluation of its implementation.
Background
In 2017, GE announced its intention to acquire Baker Hughes, a leading oilfield services company. The acquisition was seen as a bold move by GE to expand its presence in the oil and gas industry and diversify its portfolio. GE's core business had traditionally been in areas such as energy, healthcare, aviation, and transportation. By acquiring Baker Hughes, GE aimed to enter the oilfield services sector and tap into the growing demand for oil and gas exploration and production services.
Acquisition Details and Reasons
The acquisition of Baker Hughes was structured as a merger between GE's oil and gas business and Baker Hughes. The deal involved GE contributing its oil and gas business and $7.4 billion in cash to Baker Hughes in exchange for a 62.5% stake in the combined company. As a result, GE became the majority shareholder, while Baker Hughes shareholders held the remaining stake.
GE cited several reasons for this strategic move. Firstly, it aimed to create a stronger and more competitive company by combining GE's technological expertise with Baker Hughes' industry-leading capabilities in oilfield services. The merger would enable both companies to offer a comprehensive suite of services to their customers, including drilling, completions, production, and digital solutions.
Secondly, GE sought to capitalize on the expected recovery in the oil and gas industry after a prolonged period of low oil prices. By entering the oilfield services market, GE aimed to position itself for future growth and take advantage of the increasing demand for advanced technologies and services.
Media Reaction
The media reaction to GE's acquisition of Baker Hughes was mixed. Some analysts praised the move as a strategic step towards diversifying GE's business and entering a lucrative industry. They noted that GE would benefit from Baker Hughes' strong position in the oilfield services market and gain access to new revenue streams.
However, there were also concerns raised by critics. Some questioned whether GE was overextending itself by entering an industry with significant volatility and cyclical downturns. Others raised antitrust concerns due to the consolidation of two major players in the oilfield services sector.
Evaluation
From a strategic perspective, GE's acquisition of Baker Hughes can be evaluated using concepts from corporate strategy. Firstly, this move represents horizontal diversification for GE, as it expands its operations into a new industry that is related to its existing business lines. By entering the oilfield services sector, GE aims to leverage its technological capabilities and establish a strong presence in an attractive market.
The acquisition of Baker Hughes also aligns with the concept of vertical integration. GE's existing businesses in energy and aviation have significant synergies with the oilfield services sector. By integrating Baker Hughes into its portfolio, GE can capture value along the entire value chain, from upstream exploration and production to downstream equipment manufacturing.
In terms of the attractiveness test, entering the oilfield services industry can be considered a blue ocean strategy for GE. While it is a mature industry with established players, there are still untapped opportunities for innovation and growth. By combining GE's technological expertise with Baker Hughes' industry knowledge, the merged entity can differentiate itself from competitors and create value for customers.
Subsequent Implementation
The implementation of the GE-Baker Hughes merger faced challenges due to market conditions and regulatory scrutiny. The oil and gas industry continued to face headwinds, with fluctuations in oil prices affecting investment decisions. Additionally, the merger faced antitrust concerns from regulators, which required divestitures and adjustments to ensure fair competition.
Despite these challenges, GE has made progress in integrating Baker Hughes into its operations. The merged company, known as Baker Hughes, a GE company (BHGE), has achieved synergies through cost reductions and operational efficiencies. BHGE has expanded its product offerings and strengthened its position as a leading provider of oilfield services.
However, it is worth noting that the subsequent performance of BHGE has been impacted by market conditions and industry dynamics. The downturn in the oil and gas industry has affected demand for services, leading to lower revenues for BHGE. This highlights the inherent risks associated with entering cyclical industries and the need for continuous adaptation to changing market conditions.
Conclusion
General Electric's acquisition of Baker Hughes represented a strategic move towards horizontal diversification for the conglomerate. By entering the oilfield services sector, GE aimed to leverage its technological capabilities and tap into the growing demand for advanced solutions in the energy industry. The acquisition was met with mixed reactions from the media, with some praising the move as a strategic step towards diversification while others raised concerns about potential challenges.
From a strategic perspective, the acquisition aligns with concepts such as vertical integration and blue ocean strategy. It allows GE to capture value along the entire value chain and differentiate itself from competitors. The subsequent implementation faced challenges due to market conditions and regulatory scrutiny but has shown progress in achieving synergies and expanding product offerings.
However, the performance of BHGE has been impacted by industry dynamics, emphasizing the need for continuous adaptation in cyclical industries. Overall, GE's strategic decision for horizontal diversification through the acquisition of Baker Hughes represents a bold move towards expanding its presence in an attractive market but also highlights the challenges associated with entering new industries.