Friday, April 19, 2013

Berkshire Hathaway: Aggresive but Selective Strategy

Berkshire is a benchmark company for new entrant investment funds (4) . It is a company with invaluable assets and has received numerous awards. It is listed at # 9 on the Forbes top 100 (5) and it’s one of the top 15 biggest holding companies (2). Admittedly, this growth is unprecedented,  and one plausible question that could arise is how? How does Berkshire grow?

The business strategy of Berkshire is expressed in two major ways: acquisitions and investment. Both of these strategies have some standards in order to proceed. More precisely, the owner, Warren Buffet, prefers large acquisitions (5-20 billion range), that have offering price, management in place, and no complicated technology6. Buffet is closely linked with his company. On one hand, some believe this is an indisputable asset; so the strategy is a reflection of his character and we can appreciate that Buffet is an aggressive but selective player. On the other hand, some claim that the involvement of Buffet is a weakness of the company due to his age7.

Its recent acquisition of Heinz is a great example of the way that Berkshire Hathaway moves; this strategic movement has to do with the private equity buyouts  of companies with  strong brand loyalty. Heinz is a favorite brand of U.S. consumers which implies success. Moreover, Heinz  Ketchup, which is the flagship of Heinz,  is the fundamental sauce of U.S. cuisine. So, by either acquiring a player or investing in large stakes of a well-positioned product or service, can eliminate a potential lose. The more utilities and manufacturing products BH has the more predicable investments we have. Apart from the diversified products and services that BH has, the core of the business is the products with a successful past, secure present, and promising future. Heinz and  Coca Cola, are some acquisitions that, whatever the crisis, are unshakable  due to their perfect marketing mix of product, price, place, and promotion.


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