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GEOGRAPHIC REACH
This is when you buy a company that makes the same or similar products but sells them in different geographic markets.
Advantages include the following:
- You can rapidly penetrate new markets without new investments.
- There are potential cost savings, in terms of consolidating facilities, staff, and advertising expenses.
- Management already has experience in the industry of the target.
- The acquisition results in the elimination of a competitor.
- The new, larger company might gain volume discounts on supplies.
Disadvantages include the following:
- It may be difficult and expensive to manage companies in two (or more) locations, especially if they're far apart, such as transcontinental or trans global.
- This is a relatively high-risk approach; a better first step might be to engage in a strategic alliance or joint venture.
Example: Smithfield Foods purchased Moyer Packing in April 2001 (for an undisclosed amount). Though Moyer was a relatively small company in the beef processing industry (with about 1.3% of the U.S. market), it had a strong presence in the Northeast -- a region in which Smithfield was weak.
