KIAMS’ Prof. V. S. Pai co-authors case study accepted by Asian Case Research Journal
by Vikesh Swami Content WriterThe lessons that Indian companies can learn from Kraft’s
acquisition of Cadbury have been highlighted in a recent paper co-authored by Kirloskar
Institute of Advanced Management Studies’ professor, Dr. V. S. Pai.
The case study, to
be published by the Asian Case Research Journal, University of Singapore,
concentrates on the central question: How can a company extract value from an
acquisition?
In brief, United
States-based Kraft Foods, Inc. (KFI) acquired the United Kingdom-based Cadbury
plc, gaining entry into the Indian market. The aim was to use developing
markets to achieve a five per cent organic growth rate and hope that Cadbury
India’s strong position would expand Kraft’s presence in the Indian market. But
nearly a year after the acquisition, Kraft was moving slowly in India and
appeared content to consolidate Cadbury’s market presence.
Obviously, change
was in the air. Kraft had to decide whether to continue consolidating the
Cadbury brand in India or use Cadbury’s strong market presence to launch brands
from Kraft’s global portfolio. Kraft bought Cadbury for $18.5 billion, a 70 per
cent premium over Cadbury’s stock price. It’s common knowledge that when a
company pays a premium rate to acquire another company, the acquisition has to
help the acquirer grow and increase its profits.
The paper
co-authored by KIAMS’ Dr. Pai examines Kraft’s attempts to grow the India
market through its Cadbury acquisition, with a view to: examining the
motivations for an international acquisition, evaluating the effectiveness of
an acquisition decision, critically examining the value of a firm’s resources
and identifying ways to use resources to create value in an acquisition.The
authors contend that the Kraft-Cadbury case offers several lessons to be learned
by Indian companies considering mergers or acquisitions. According to them, a
firm should carefully evaluate an acquisition by using the attractiveness, cost
of entry and better-off tests; they noted that while the Cadbury
acquisition passed the attractiveness test, both the cost of entry and
better-off tests are still unanswered.
Secondly, they
point out, a resource-based strategy calls for carefully evaluating a firm’s
key resources and deploying them in the right context. They believe that in all
likelihood, Kraft hasn’t fully deployed Cadbury India’s valuable resources to
launch its own brands.
And finally, they
say an acquisition is only as good as its integration, which is a key to making
it a success, and in the year since the acquisition, Kraft has been rather slow
in integrating the Kraft and Cadbury units in India.
Dr. Pai has more
than 27 years of academic experience and has conducted research in strategic
management, guided three Ph.D. scholars successfully, completed an ICSSR, New
Delhi-funded research project and published several research papers. His
publications, which number around 70, have appeared in refereed journals,
business magazines and national business newspapers. The business cases he has
written have been uploaded to the European Case Clearing House (ECCH),
Cranfield University, UK and have won prizes in international case competitions
held in Canada.
Co-author of the
paper, Dr. Ram Subramanian is a professor with the Department of Management and
Information Systems, School of Business, Montclair State University, New
Jersey, U.S.A.
A Ph.D. from the
University of North Texas, Denton, Texas, he has published research papers in
several refereed international journals of repute.
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