The Level of Competition in the Global Economy - Essay Example

Causes and Consequences of Cross-borders Mergers and Acquisitions CHAPTER 0 LITERATURE REVIEW The level of competition in theglobal economy has progressively intensified especially in the last two decades (Larsen, 2007). The heightened competition leaves cooperates with no choice other than to devise adaptation strategies in order to ensure they are still in the profitable business niche (Saigol and Politti, 2007). Even though adaptation strategies are diverse, most companies result to Mergers and Acquisitions as the best alternative (Moeller and Schlingeman, 2005). According to Sirower (1997), Mergers and Acquisitions are one of the key strategies most multinational companies adapt during consolidation, expansion, and diversification. The 2006 record high of global acquisitions indicates the rampancy of Mergers and Acquisitions in the recent past (Saigol and Politti, 2007). The value of worldwide acquisitions stood at more than 4 trillion US dollars in this year. Out of the 4 trillion US dollars, 1.3 trillion US dollars worth of acquisitions were cross-border Mergers and Acquisitions (Saigol and Politti, 2007). The consistency of the trend spread to the first fiscal quarter of 2007 when acquisitions were valued at 1.13 trillion US dollars; making this fiscal quarter the busiest in the history of acquisitions (Henry, 2002). The value of completed acquisitions in the past two decades exceeds that of completed deals in the prior 30 years (Child et al., 2001). However, this recent upsurge comes along with the fact that about 80 percent of acquisition deals are unsuccessful (KPMG, 1999). Most empirical studies suggest that the reason for the immense failure in acquisitions is majorly the acquirers’ poor anticipation of the most probable challenges in the post-acquisition stages (Shimizu et al., 2004). The high failure rates coupled with the simultaneous high rampancy of acquisition transactions makes the concept of Mergers and Acquisitions an unexplained paradox (Arika, 2004). Academic and economic research efforts indicate that despite the failure of most acquisitions to achieve the objectives set in the pre-acquisition stage, Cross-border Mergers and Acquisitions continue being popular and remain the main strategy multinational corporations use to invest directly in foreign countries (Rottig and Reus, 2005). The concurrent successes and failures of Cross-border Mergers and Acquisitions beg for a well-targeted research study to examine the main causal factors for the high failure rates (Larsson and Risberg, 1998). Additionally, while numerous research hours have been devoted to the study of Cross-border Mergers and Acquisitions, these efforts have not kept up with globalization and the escalating cross-border activities all over the world. Very and Schweiger (2001) suggest that assessing the effect globalization has on Cross-border Mergers and Acquisitions plays a significant role in the development of strategies to mitigate the effects of failures in acquisition transactions. Such studies will shed light on the cultural perspective of international acquisition and its effect on performance. Uhlenbruck (2004) and Kanter and Corn (1994) argue that cultural distance creates a workplace cultural clash among employees. Consequently, the commitment and corporation among employees reduces and at the same time, the rates of voluntary turnover especially in the top tier management increases (Krug and Hegarty, 1997). Both of the aforementioned problems complicate the post-acquisition integration process. However, research on this dynamic of the acquisition process focuses mainly on the direct relationship between the performance of acquisitions and cultural distance (Kanter and Corn, 1994). Additionally, studies in this field have culminated to mixed and inconclusive output; some studies indicate the negativity of the direct relationship between cultural distance and acquisition performance while others show the positivity of the same (Markides and Ittner, 1994). Some of the studies also disapprove the claim that cultural distance has a direct effect on acquisition performance. Such studies also place cultural distance at the lowest tier of significance in terms of effect on performance (Gaughan, 2002). The high level of contradictions in the results of such studies necessitates the need for further research into the relationship between culture distance and globalization in general to the performance and success of Cross-border Mergers and Acquisitions. CHAPTER 2.0 RESEARCH QUESTION AND RESEARCH OBJECTIVES 2.1 Research Question Empirical data indicates that most top tier executives believe that Cross-border Mergers and Acquisitions present higher risk levels compared to domestic acquisitions. The higher risk comes along as a result of the problems and obstacles presented by international legislation and terms which jeopardize the probability of a Cross-border acquisition being successful. Despite the knowledge of the risks involved, the same top tier executives vent for opportunities in foreign countries on the verge of expansion and diversification. For the risk involved with international mergers to be reduced or contained, further research studies ought to be done to identify the factors that drive the failure of acquisitions. The contradictory findings of empirical studies indicate that the relationship between cultural distance and the performance of acquisitions is far more complex than anticipated. For this sole reason, this research study aims at developing a conceptual understanding of the role of culture and globalization in Cross-border Mergers and Acquisitions to boost the vast existing and inconclusive data on the impact of cultural distance on the performance of acquisitions. 2.2 Research Objectives In order for the effort put into this research study to produce relevant, feasible and precise output, the researcher developed a main objective of the study; to find out the role of culture and globalization in international acquisitions. For the different stages of the study to correlate, the researcher split the main objective into several correlated specific objectives as outlined hereinafter: a) To find out the dimensions of culture in relation to acquisitions b) To find out the efficacy of acculturation in boosting the performance of international acquisitions c) To find out the relationship between globalization, culture and Cross-border Mergers and Acquisitions d) To assess the importance of Mergers and Acquisitions to multinational corporations CHAPTER 3.0 METHODOLOGY 3.1 Philosophy of Research Design With regards to the problem at hand, it is very evident that a lot of research hours have been invested in the verge of clearly understanding the effect of cultural distance on the performance of acquisitions. However, most of these research studies are descriptive hence merely outline the dynamics of the problem and degenerate to abstracted empiricism (Mills, 1999). Therefore, such studies culminate to contradictory findings due to the mindless gathering of facts that blurs the focus of the studies. Despite the weaknesses of descriptive research in this field, the prior studies have an upside; the studies provoked “why” questions. To sufficiently understand why the rate of failure in international acquisitions is very high, an explanatory research ought to be done. This type of research involves the fabrication of causal explanations which argue the relation between two main variables and explain how one affects the other (Magnusson, 1991). According to the researcher, the explanatory type of research perfectly synchronizes with the research question at hand thus is the best alternative. For the explanations given in the research findings to be accurate and consistent, the researcher opted for a longitudinal survey research design (Magnusson, 1991). The initiation and integration of Cross-border Mergers and Acquisitions take place over a period of time. Since the problem at hand does not occur at one point in time, multiple observation sessions ought to be carried using the same research method (Magnusson, 1991). Most studies in the past use short-term research study designs hence do mot capture the full dynamism of acquisitions. For instance, most researchers measure the performance of Cross-border Mergers and Acquisitions based on a standard event survey of the acquisition’s stock market standings. Using this method, researchers employ the market model in the computation of the abnormal returns of the acquired company over short event windows to determine the wealth changes of the different shareholders (Boateng et al., 2008). Such methods do not measure realized performance. Instead, the methods measure the investors’ expectations which are not a direct measure of an acquisition’s stockholder value (Malhotra and Zhu, 2011). For this research study, the same samples selected for data collection will be used over extended periods of time as this will clearly indicate the trend followed by the changes in the Cross-border Mergers and Acquisitions over time (Montfort, 2010). Considering the main objectives of Cross-border Mergers and Acquisitions are to diversify the market and to secure strategic assets, long-term performance assessment is the best alternative since these objectives take time to attain (Knoerich, 2010). This study will employ long-term performance assessment measures like cashflows, income statements and return of assets. Tracking these changes will play a significant role in relating them to different variables in the course of fabricating explanations to why the changes occur (Montfort, 2010). Therefore, the output of this research study will describe the patterns of change and point out the priority areas for action with respect to the magnitude of the causal relationships. Tracking the changes that occur during international acquisitions will also facilitate the projection of the expected outcomes in the future based on the models developed from the study of earlier factors. This will save multinational corporations a significant amount of financial resources. 3.2 Key Methodological Issues The researcher aims at applying a longitudinal survey research design to address the research question at hand. However, this design presents some setbacks especially due to its longevity (Saldaña, 2003). One of the main methodological issues tied to this design is the length of the study period. Longitudinal research studies are very time-consuming for both the participants of the study and the researcher. Since such a design requires a lot of time, logically, a lot of financial resources are also required (Saldaña, 2003). Therefore, longitudinal surveys are very expensive not only due to the longevity but also due to the resources required to conduct the study over the extended periods of time. For instance, if questionnaires are being used, the researcher has to print numerous copies every time a survey is conducted. Additionally, if assistance is required, training the assisting parties also requires financial resources (Saldaña, 2003). Another issue pertaining to this research design is the inconsistency of data collection methods. Even though the research tool used in such a design might remain the same, there are bound to be some inevitable changes in the data collection method (Montfort, 2010). For instance, if a researcher uses a questionnaire, the initial questionnaires might be semi-structured. With time, this might change to a structured questionnaire as the researcher unravels new dimensions to the problem hence seeks more specific answers. This jeopardizes the consistency of the output and might create unpredicted complications to data analysis (Montfort, 2010). The longevity of longitudinal research design also presents a challenge to the integrity of the selected samples. Since the study takes place over extended periods of time, the integrity of the originally selected samples might be compromised. Some of the participants in the longitudinal survey might lose their capacity to participate in the study due to chronic illness or death. Moreover, some of the participants in the survey might develop reluctance due to boredom thus the rates of corporation might fluctuate (Montfort, 2010). The participants’ contact information and physical addresses might also change over time. Consequently, the consistency of the data collected is put at risk. The assumption that current trends remain constant over time presents a very high risk to the accuracy of the output from this research design. For instance, the management of an acquisition might change after a certain period of time. This change might result in the development of new organizational ideological which alter the characteristics of the company’s culture. The success or failure of such an acquisition might be the result of the managerial change and not the successful acculturation within the company. Additionally, some of the participants in a longitudinal survey might subliminally alter their qualitative responses to make it more relevant and beneficial to the researcher’s objectives; the process of the study alters the opinion of the participants on the problem at hand. Capturing these dynamics might pose a problem to the researcher hence the output from this research study might be compromised. The longitudinal research design also presents a challenge to the researcher who might lose interest in the study with time (Montfort, 2010). The main reason for the loss of interest is the fact that the researcher is required to wait for extended periods of time to see the final empirical findings of the study. In addition to the suspense, the researcher is also mandated continuously to train the participants and any assisting experimenters to ensure the data is as consistent as possible. This might pose a monotony risk that reduces the researcher’s interest in the study. This research design also necessitates qualitative research data in the explanation of fluctuations in the findings. This creates an extra step in the data analysis stage of the study hence present an extra effort requirement from the researcher. CHAPTER 4.0 DATA COLLECTION METHODS This chapter highlights and describes the procedures the researcher employs to collect data and gather information on the research problem at hand. First, this chapter indicates the types of data collected to satisfy the requirements of the research question. Next, the researcher outlines the main sources of data for the study and highlights the demographic properties of the participants. Once the criterion for the selection of participants has been discussed, the researcher outlines the data collection methods applied in the study and the tools used to collect the data in the field. 4.1 Types of Data The data collected during the survey was both qualitative and quantitative. Since the research problem relates to business and accounting, quantitative data ought to be collected. The nature of quantitative data is numerical and mathematically computable hence the researcher collected nominal data on different racial representation within new and existing Cross-border Mergers and Acquisitions, and different types of companies (Olsen, 2012). The nominal data can be scaled up to ordinal data which the researcher will use to classify the different acquisitions into successful and unsuccessful. On the other hand, the researcher collected qualitative data on the role culture plays within new and existing acquisitions. This set of qualitative data is not numerical hence is highly descriptive. The researcher recorded this set of data in words and audio recordings. For the newly formed Cross-border Mergers and Acquisitions, the main sources of data for this research study are primary sources (Phillips and Stawarski, 2008). For the existing internal Mergers and Acquisitions, secondary data on the financial trends, returns on stakeholder values, cashflows and returns on assets formed the main data source. 4.2 Participants In order to fully understand the dynamics involved in Cross-border Mergers and Acquisitions, a study of both existing acquisitions and new acquisitions has to be done concurrently. From this, the researcher identified both new and existing international acquisitions. The participants of the research study were selected from these international acquisitions. The problem at hand is multi dimensional in the sense that it involves managerial activities, employee relations and the overall performance of the acquisitions. To fully understand these dynamics, the researcher sampled participants from both managerial and employee tiers of the new and existing international acquisitions. From the managerial tier of the acquisitions, the researcher selected 8 participants; 4 from each company, using convenience sampling since the research is explanatory and the researcher is interested in getting an inexpensive method of finding out the role of culture in an acquisition. The participants in the managerial positions were selected on the basis of convenience. The convenience was in terms of their accessibility and availability. This ensured the researcher avoided incurring financial costs and time consumption at a larger scale. The participants under this category had a gender representation of 50 percent to nullify the effect of bias and difference in managerial styles. Using judgmental sampling, the researcher selected a group of 40 participants; 20 from the existing international acquisition and 20 from the newly formed acquisition. Judgment sampling worked best in this selection since the participants had to be from different cultural backgrounds, and the researcher had to judge on their level of cooperation from casual pre-survey dialogs. These participants also had a 50 percent gender representation for the aforementioned reasons. 4.3 Data Collection Methods 4.3.1 Questionnaires The researcher will issue an initial survey questionnaire to the managerial staff in both the existing and the newly formed international acquisitions during their casual working activities. This questionnaire will be highly flexible in order to accommodate any rejection or test by the study’s participants or individuals outside the sampled group. Borrowing advice from Bell (2007), the design of the questionnaire will ensure it is quick enough to be filled within five minutes and easy for the participants to complete without self-doubt or intimidation after viewing the questionnaire as a means used to test their competence. The questionnaire will ask several questions that involve the simple ticking of boxes with a very small amount of questions requiring written answers. This will ensure the questionnaire is as comfortable as possible. The data acquired from the questionnaire was compiled and analyzed, and the results can be found in the next chapter of this dissertation. The questionnaire will be used to get the amount of data at a particular point in time with the sole intention of providing a description of the nature and currently existing conditions (Cohen and Manion, 2010). From this first questionnaire, the researcher will identify the group of participants that was ready to complete another questionnaire even if it required more of their time and a little more detail in the responses. Once identified, these participants would be used for the more detailed study. Questionnaires will be distributed to the participants in the companies and collected from them at the end of the casual day to day work activities with the aim of finding out the role of culture and globalization in international acquisitions. This step will very important in gauging the extent to which culture affects employee relations and performance in international acquisitions before the implementation of coping and adapting strategies to boost the success rate of these companies. The initial questionnaire will request the participants to indicate their names and from this list, the willing parties will be identified. The researcher promises full discretion and anonymity in the report. 4.3.2 Interviews The work on the field will form a very “distinct and discrete phase of the investigation” (Johnson, 2007). During this time, the researcher will make trips and visits to the existing and the newly formed international acquisitions and carry out an interview with eight managerial staff members with the assistance and guidance of a follow-up questionnaire. With interviews being very adaptable (Bell, 2007), the researcher might decide to ask some of the participants some one-on-one questions. All the interviews will be semi-structured. The main agenda of the interviews will be to gather additional information on the strengths and weaknesses of international acquisitions with respect to integration during the post-acquisition stages. The interviews will also focus on finding out what the managers and employees plan for the future in terms of the improvement of their methods of coping and adapting to culture distance. The interviews will help the researcher determine the reasons as to why international acquisitions fail despite them being the main expansion strategy applied by multinational corporations. All the interviews will be recorded on tape and set aside for analysis. 4.3.4 Analysis of Financial Reports This will be the main source of information for the trends followed by the existing international acquisition. The researcher will analyze the financial statements from companies before the acquisition and those of the merger after acquisition. This will provide information on the financial trends that occurs before, during and after the acquisition takes place in order to identify the loopholes that need to be given priorities to ensure Cross-border Mergers and Acquisitions succeed and achieve the pre-acquisition objectives. CHAPTER 5.0 ETHICAL ISSUES In order for the research study to run efficiently without unpredicted and unnecessary setbacks, the researcher has to identify some of the ethical issues behind the research activity. The research question at hand presents a highly controversial topic since it not only deals with globalization and its effect on Cross-border Mergers and Acquisitions, but also culture. With culture comes race, tribe, ethnicity, norms and ethics hence this research topic is very delicate. First, to ensure the research study runs effectively from beginning to end, the researcher aims at acquiring all the required permits from the international acquisitions (Gregory, 2003). These permits will allow the researcher to access some of the financial records of the company and to involve the management and employees in the study without infringing on the privacy of the company and its resources. This will also ensure the researcher does not come across the challenge of denied access once the permits have been issued (Gregory, 2003). Considering most of the research involves primary collection of data, the researcher has to ensure that no physical or emotional harm is subjected to the participants of the study through the questionnaires and interviews. The development of the questions in the questionnaires and the interview should be well thought and planned to maintain the simplicity, clarity and sensitivity of the data collection tools (Hammersley and Traianou, 2012). During the whole study period, the researcher should maintain a bias-free practice. This can be achieved by making sure the researcher does not give personal opinions and does not direct the response of the participants either directly and indirectly. Both questionnaires and interviews do not have answer schemes hence all the responses from the participants are correct and equally important. The researcher should also strive to maintain the anonymity of the participants. When the anonymity of a participant is at risk, the researcher should ensure the participants know prior to actively participating in any research activity. In such an instance, all the participants’ responses should be put into the appropriate context (Hammersley and Traianou, 2012). CHAPTER 6.0 DATA ANALYSIS All the field notes, questionnaires and interview recordings will be collected and classified according to the acquisition from which the data was collected. The files will be kept centrally even after the study is complete in case accountability for the investigations is required. From the preliminary projections of the research study, the questionnaires are more likely to produce a mixture of data sets. Some of the data will be analyzed quantitatively and some qualitatively. The quantitative data on the percentage racial representation within the international acquisitions will be plotted out into Excel spreadsheets in the verge of identifying the cultural diversity within these companies (Cramer, 2003). From this, the relationship between cultural diversity and acquisition performance can be identified if it exists. Quantitative ordinal data on the sizes of the company from the analysis of the financial statements could be used to project the rates of success or failure if the acquisition was done domestically. This will indicate the major variables involved in the relationship between culture and the performance of international acquisitions. The data from the interviews will be used to assess the role management culture plays in the performance and productivity of a company. The interviews will indicate the practices the top tier management in these acquisitions put in place to promote acculturation and employee harmony in post-acquisition integration stages. By the merging the projections of the relationship between management and performance, and the racial presentation within the international acquisitions, the role culture and globalization plays in affecting the performance of Cross-border Mergers and Acquisitions can be determined. Other parameters like how employees in international acquisition perceive their bosses, their colleagues and the measures put in place to promote employee harmony will be analyzed qualitatively. Most of this data will be from the interviews with the employees. The results from the quantitative analysis of the collected data can also be used in the qualitative analysis of the role of culture in Cross-border Mergers and Acquisitions (Miles and Huberman, 1994).  . References Arikan, A.M. (2004) Cross-border mergers and acquisitions: What have we learned? in Punnett, B. J. & Shenkar, Oded, editors (eds.) Handbook for International Management Research, The University of Michigan Press: Ann Arbor, MI. Child, J., Falkner, D., Pitkethly, R., 2001. The Management of International Acquisitions. Oxford Univ. Press, Oxford, UK. Cramer, D. (2003). Advanced quantitative data analysis. Philadelpha, PA, Open University Press. Gaughan, P.A. (2002) Mergers, Acquisitions, and Corporate Restructurings, Wiley: New York. Gregory, I. (2003). Ethics in research. London, Continuum. Hammersley, M., & Traianou, A. 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(2004) Developing acquired foreign subsidiaries: the experience of MNEs in transition economies, Journal of International Business Studies, 35: 109-23. Very, P. & Schweiger, D.M. (2001) The acquisition process as a learning process: Evidence from a study of critical problems and solutions in domestic and cross-border deals, Journal of World Business, 36(1): 11-31. Read More