Question at position 6 La Fragancia is a well-established player in the fragrance market, known for the breadth of its flavor, fragrance, and cosmetic portfolio. They are considering an acquisition to enter the growing eco-conscious and younger consumer market. La Tierra, a small, innovative international company with a unique line of eco-friendly, organic fragrances, has been identified as a potential target. Which of the following best describes the primary acquisition strategy they are pursuing in this scenario?LicensingHorizontalVerticalCross-border

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Question at position 6 La Fragancia is a well-established player in the fragrance market, known for the breadth of its flavor, fragrance, and cosmetic portfolio. They are considering an acquisition to enter the growing eco-conscious and younger consumer market. La Tierra, a small, innovative international company with a unique line of eco-friendly, organic fragrances, has been identified as a potential target. Which of the following best describes the primary acquisition strategy they are pursuing in this scenario?LicensingHorizontalVerticalCross-border

BlackTom AI · Accepted Answer

The question presents a scenario where La Fragancia, a large player, is considering acquiring La Tierra, a smaller innovative company with eco-friendly fragrances, in order to access a growing eco-conscious and younger consumer market. Now, let’s evaluate each acquisition type in turn.

Licensing: This option would involve granting rights to use La Tierra’s products, brand, or technology to La Fragancia (or vice versa) without acquiring the company. Licensing is a form of collaboration that expands reach without ownership, but it does not constitute an acquisition and does not create full control over the target’s operations, brand, or integrated product portfolio. Since the scenario centers on an acquisition, licensing does not align with the described strategic move.

Horizontal: Horizontal growth refers to expanding within the same industry and at a similar stage of the supply chain, typically by acquiring or merging with another company that operates in the same market or offers similar products. La Fragancia’s interest in acquiring La Tierra, which operates in the fragrance space and targets the eco-conscious/younger segment, represents expanding product lines, customer bases, and geographic reach within the same industry. This fits the classic horizontal integration pattern because both firms are players in the fragrance/cosmetics market and the move aims to broaden market share and diversification within the same industry.

Vertical: Vertical integration involves acquiring a supplier or distributor to gain greater control over the supply chain, such as purchasing a raw material producer or a retailer. The scenario describes acquiring another fragrance company rather than a supplier or a distribution channel partner. There is no explicit claim of targeting upstream (raw materials, manufacturing inputs) or downstream (retail, distribution) capabilities, so vertical integration is not the best match here.

Cross-border: Cross-border simply refers to a transaction across national borders. While the target, La Tierra, is described as an international company, the core strategic rationale emphasized is market entry via acquisition rather than the international nature of the deal itself. The cross-border attribute is more about geography than the fundamental strategic type of the acquisition. Since the primary aim is expanding within the same industry to reach a new segment, cross-border traits do not define the main strategy.

In sum, licensing is a non-ownership arrangement, vertical would imply supply-chain control beyond merely acquiring a peer, and cross-border pertains to geography rather than the strategic nature of the move. The situation best aligns with horizontal integration, where the acquirer expands within the same industry by acquiring a peer to reach a new market segment (eco-conscious, younger consumers) and broaden its fragrance portfolio.

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