The Arguments for and against Global Mega-Mergers - Essay Example

?International Business Table of Contents Question One A: Critically Debate The Arguments For And Against Global Mega-Mergers And Whether you Think They Are Beneficial Or Not. 3 Introduction 3 Arguments For and Against Global Mega-Mergers 3 Conclusion 6 Question One B: Discuss the Measures Firms Should Take To Reduce the Risk of Failure in both the Pre-Merger and Post-Merger Phases 7 Introduction 7 Mitigating the Risks 7 Conclusion 11 Question Two 12 Introduction 12 Expatriate Management 12 Conclusion 17 References 19 Question One A: Critically Debate The Arguments For And Against Global Mega-Mergers And Whether you Think They Are Beneficial Or Not. Introduction Mergers and acquisitions (M&A) can be considered as an integral part of corporate finance. Mergers tend to take place when two companies belonging to the similar range concur to work as a single new company instead of remaining separately owned and operated (Qiu & Zhou, 2003). With the growth in the competition and with the rising trend of globalisation, it has been found that most of the companies are merging together in order to avail several advantages. These mergers are the result of the strategy to become world market leader in certain sector or at least to reach a critical mass. There is significant growth in the international mergers and acquisitions that are taking place across the boundaries of any particular country (Einy & et. al., 1995). Arguments For and Against Global Mega-Mergers The international mergers and acquisitions are conducted for the purpose of gaining strategic benefits in the market of a particular country. Salent & et. al. (1983) stated the fact that when an industry is oligopolistic with identical goods and cournot competition along with constant marginal cost and linear demand then in such circumstances a merger tends not to be gainful unless and until it encompasses more than 80 percent of the firm (Salant & et. al., 1983). Mergers in case of Cournot oligopoly is recognised to be quite lucrative if both the merging companies possess asymmetric information regarding market demand (Das & Sengupta, 2001). It has been argued that the cross border M&A is the key to flow of foreign direct investment. Greater share of the total merger tasks tend to be performed largely across international borders (Clarke, 1983). International mergers & acquisitions are a trend nowadays. Most of the top managements of the companies argue the fact that international mergers lead to benefits of scale, high shareholders’ value, access to new markets as well as low overheads. However, it can also be argued that mergers lead to cultural differences, in terms of organisation culture along with national culture as well which is considered to be the biggest challenge in such integration. It has been noted that successful integration of an international merger is quite a long method which is assisted by a sense of equality and common management goals, programs and tasks (Olie, 2002). The new form created because of the merger activity is anticipated to possess increased market share that may facilitate to minimise competition. Although the minimisation in the completion is harmful for the public interest, it can assist the firm in earning more profits (Otchere & Mustopo, 2006). Mergers can assist the firms in dealing with the threats of multinationals and struggle on an international scale. It has also been argued that mergers might permit high investment in Research & Development (R&D) since the new firm is expected to garner significant profits. This will result in better quality of goods for the consumers. Mergers have been found to be quite advantageous in a deteriorating industry where the firms are facing problems to stay buoyant. It has been argued that in case of conglomerate mergers, two firms belonging to distinct industry merge together. Therefore, one of the benefits received in such mergers is sharing of knowledge that is generally applicable to distinct industry (Gal-Or, 1988). The arguments against global mega-mergers is that when the two companies merge together, the consolidated company becomes too big which at times leads to high unit cost which the companies are on occasion not prepared for. Conflicts are likely to arise in merging two distinct set of workers who come from completely different companies and after merging are required to work as one. In case the merging company is incapable of dealing properly with the clashes, then in such circumstances, the productivity as well as efficiency of the workers are hampered greatly (Ghemawat & Ghadar, 2012). However, it has been recognised that the mergers and acquisitions bring about value creation for the company. It is anticipated that the shareholder value of the firm post mergers and acquisitions might be higher in comparison to the shareholders values of the parent companies. When the companies are withstanding tough times, mergers can prove to be highly beneficial. Cost savings is one of the noteworthy benefits, which was apparent in case of Daimler-Chrysler merger which gained the benefit of US$3bn of cost savings. However, it can be argued that mergers are also at times considered to be immoral since they tend to hurt people and most of the employees fear for their jobs as they struggle with new ways of performing their assigned roles (Financier Worldwide, 2008). A few of the authors argue the fact that merging firm might be capable of more effectively utilising working capital as well as fixed assets in the target firm which minimises capital requirement and thus improves the profitability. This is more apparent in cases when the target firm possesses outmoded assets that may be divested. The cost of debt is observed to be minimised with the merger of two firms. The merged firms will normally possess minimised variability in its cash flows (Reuer & et. al., 2003). Cross-border mergers and acquisition have become one of the main ways of internationalisation for the companies. As in other internationalisation modes, it can be apparent that the foreign acquisition might face the issues related to acquirer’s “accountability of foreignness” in the form of low acquaintances with the target country. In context of M&A, the multinational firms might also not be acquainted with potential targets and with the integration process appropriate in the target environment. It is because of this fact; noteworthy inefficiencies can permeate the international M&A markets. It is because of the risks associated with the mergers, most of the firms may chose to opt for other forms of investments such as strategic alliances (Economy Watch, 2010). Conclusion From the above discussion, it has been apparent that global mega-mergers are quite beneficial for the economy as it leads to benefits of scale, high shareholders value, access to new markets as well as low overheads. Furthermore, mergers might lead to cost savings and might assist the merging firms to share the technology. It also assists in improving the profitability of the firms and leads to greater flow of foreign direct investments in the country. Question One B: Discuss the Measures Firms Should Take To Reduce the Risk of Failure in both the Pre-Merger and Post-Merger Phases Introduction Since the past two decades increased rise in globalisation has encouraged the companies to look for new market opportunities so that they can grow and administer their competitive advantage. Globalisation has been escorted by the flow in international mergers and acquisitions. According to a research, it has been recognised that nearly seventy percent of the mergers and acquisitions have failed in the recent times and subsequently most of them also failed to enhance shareholders’ value. The main objective of the paper is to demonstrate the mitigating measures in order to minimise the risks of failures of both pre-merger and post merger phases (Communicaid, n.d.). Mitigating the Risks The senior personnel of number of companies have stated that culture and communication face two main dimensions that are found to be quite challenging. This is corroborated by a survey of Fortune 500 Chief Financial Officers (CFOs) where nearly 45% credited M&A failure to unforeseen post-deal people issues. One of the vital questions associated with the mergers and acquisitions is related to the failure rates of nearly 70% (Communicaid, n.d.). Research suggests the fact that merging companies are not capable of addressing the culture and communication issues which are considered to be the most significant ones for the integrating organisations (Lodorfos & Boateng, 2006). The different national culture in context of cross-border M&A provides high scope but also high risk from within and outside the organisations. It is quite significant for the merging firms to have an evaluation of these cultural risks. Skewed expectations, behaviour, process, structures might lead to aggravation, employee separation and slowly it might as well lead to loss of key talents (McCarthy, 2011). It is quite significant for the merging firms to identify the external challenges such as differences in attitudes to problems such as corporate governance, litigation, ethics and social responsibility and thus deal with them at the early on stages so that major problems can be resolved. It has further been observed that nearly forty percent of the revenues of the companies are spent on human capital and approximately fifty percent of the managers leave the job after a year of merger taking place. This implies that it is vital for the merging organisations to look after their human resources and thus involve adequately with both cultures. There are greater risks related to human capital when mergers take place internationally as employees feel concerned and hesitant regarding their future. Leadership team needs to comprehend how to involve, inspire and motivate the newly incorporated workforce and thus develop an ambiance of respect, enthusiasm and trust so that the workplace becomes a better place (Communicaid, n.d.). It is also significant for the senior leadership team to place larger weight upon the communication planning as one of the main strategies and allocate certain time to communicate the vision, arrangement and approach of the merger throughout both the organisations rapidly and perceptibly. By making use of numerous communication channels, it will be possible for the merging companies to involve large number of employees. By identifying and adapting to distinct communication styles and anticipation of the cultures involved will also assist in minimising feelings related to mistrust as well as concern among the employees, clients as well as stakeholders in the new markets (Alaranta & Henningsson, 2008). It can be stated that successful international mergers are those espousing cultural diversity as an imaginative and productive source of new ways through which work can be done. Good international mergers are also considered to be those that are capable of creating a new culture which is shared by all the employees and preferred by the external stakeholders. Understanding of language, attitudes, cultural values and behaviours are the main success factors of the incorporation process. The most significant step in the pre-merger action is related to the decision of which model of organisational culture will be put into practice (McDonald & et. al., 2005). In case the cultural disparities between the combining top management team is quite higher, the lower will be the efficacy and lower would be the financial performance of the combining entities. One of the crucial ways to execute the merger along with alteration in culture in a successful approach is by being open and honest. It is quite significant for the organisations who are involved in international mergers to possess a clear comprehension of sympathy, often unseen and unspoken values and a capability to settle cultural differences and play greater emphasis upon similarities in order to generate positive results for the new organisation. If the organisations fail to do so then it will minimise the likelihood of success (Cartwright & Schoenberg, 2006). It is worthy of mentioning the fact that for any kind of post-merger integration of change management tends to play a significant role and thus it is crucial for the organisations to address this issues in advance. Once the integrating companies are capable of identifying the gaps and the blockages, it becomes quite essential to create a clear vision related to new shared company culture (Noble & et. al., 2002). Successful post merger integration comprises alteration and learning for both the companies that are merging. It will require an open-minded approach that is keen to challenge suppositions and thoroughly inspect the realities of the contexts, instead of just assuming theoretical synergies. Strategic communication is significant to the integration of the two companies which further assists in keeping the organisation determined upon customers and output. The ultimate success or letdown of a merger might be hard to determine in the years instantly following its completion. It is because of the fact that turnover rate of senior managers is quite high after the merger or acquisition takes place, talent appraisal needs to be conducted before any kind of alterations take place to determine the managerial ability needed for future success (Quah & Young, 2005). Conclusion Steps can be taken in order to make sure that the organisational talent will be plentiful after the merger. Post-acquisition management processes need to be categorised into various steps possessing defined objectives and actions. Due diligence can be considered as the best method in conducting an assessment of possible merger and acquisition intentions. Training plays a significant role when cross border mergers take place. The companies must offer its employees with adequate training so that negative feeling with regards to the skill of the employees in the new system can be avoided (Appelbaum & et. al., 2000). Question Two Introduction Human resource management can be considered as the structure within other systems. One of the most complex systems among these has been the international business environment. Since the 1990s, there has been rise in the foreign direct investments, world trade as well as global mergers and acquisitions. Multinational corporations are found to be operating in numerous countries of the globe. However, in the present times there is high trend towards the internationalisation of various enterprises which has led to high interest in the international human resource management. International human resource management can be described as a series of management roles, methods and activities which consist of consideration of more than one national situation. The main objective of the paper is to identify the human resource management issues in international environment and to determine the management of international human resource management as a major determinant of success or failure in international business. The study will endeavour to evaluate the above aspects in relation to expatriation in multinational corporations (Chew, 2004). Expatriate Management In the present times, businesses are no longer reserved to national confinements. Most of the global chief corporations conduct a major portion of their tasks outside of their home countries. As most of the firms continue to develop and strengthen their presence in the international markets, they are also confronting high failure rates amongst their international managers. Most of the companies tend to underestimate the complexities involved in the international operations which ultimately lead to business failures in international arena. This aspect is linked to poor management of human resources. One of the significant issues is related to dealing with cultural differences. Coping up with cultural differences and identifying how and when these differences are relevant tend to be a constant challenge for international firms. Performance appraisal of the international assignees is also characterised to be one of the complex issues in the context of international human resource management. Performance assessment of global assignees is noteworthy since expatriates are pretty costly and most of the global assignments are not flourishing because of premature repatriation of expatriates. One of the major challenging features of administering human resource management in most of the MNCs is related to the multicultural nature of their workforce. HRM generally takes place in vacuum however within the largely inner organisational setting and the outside national as well as international context in which the company operates. In international companies, it is crucial to comprehend the causes of high expatriate failures so that the human resource managers can take certain anticipatory measures (Dessler, 2003). There are generally six factors that lead to failures of the expatriates. They are career obstruction, insufficient cross cultural training, culture astonishment, family issues, greater emphasis upon technical qualifications and a tendency to utilise international assignments as one of the methods to get rid of the problematic employees. The selection of employee for any sort of international assignment is one of the significant decisions. It is because of the fact that most of the expatriates are supposed to work under negligible supervision in far locations. Fault in selecting the expatriate is likely to go unnoticed. In order to select the best employees for the job, it is quite significant for the management to place greater emphasis upon cultural sensitivity and thus create a selection board for the purpose of expatriates. It is a well known fact that expatriates are likely to be successful if organisations are capable of offering them with adequate training in order to work in international environment. Lack of training to the expatriates might lead to their failures. Cross cultural training has a noteworthy role to play in the international markets. Such training will assist the expatriates to prepare themselves to live and work in a distinct culture and thus cope up with a new environment (Caligiuri, 1997). Expatriate managers are found to work in various fields such as international joint ventures, alliances and wholly-owned subsidiaries. The capability of expatriate managers to deal with culturally multifaceted settings tends to have an impact upon the success or failure of international business. The expatriate technicians are sent to work in numerous MNCs in order to fill the technical gaps and thus share technical knowledge with host country. Such expatriates have a crucial role to play in spreading the technical knowledge across the firm’s international market. Failure of expatriate is a grave issue which arises from the incapability of the expatriates to comprehend and acclimatize to foreign traditions. It is through effectual workforce diversity management, the cost linked with appointing insufficient expatriate employees can be minimised to a considerable extent (Baruch & et. al., 2002). Those expatriates possessing good diversity capabilities are capable of adjusting themselves quickly and perform with greater efficacy in their assignments. Good diversity management in the context of business dimensions of expatriation help a company to attain international business success. It is worthy of noticing that the efficacy of global teams and their capability to coordinate with the objectives is generally dependent upon the synergy it can accomplish notwithstanding the issues and setbacks that arise from the working of the intercultural groups. It is quite apparent that when the expatriates are not managed properly then in such circumstances, it can lead to failure of the international business. Human resources are the key determinants of success of an organisation. If the MNCs are incapable of administering the human resource policies in an adequate way, they are likely to fail in short period of time. Most of the organisations that send expatriates abroad for one or two more years to create global competencies are dependable with their strategic human resource plan. Most of the expatriates feel that global assignments offer them with developmental experiences. They further state the fact that they acquire tangible skills which offer greater value to their organisations. Along with professional growth for attaining global ability, expatriate assignments are considered to be the method for control and coordination between a foreign subsidiary as well as parent organisation. The domestic employees are placed in leadership positions abroad by the MNCs. In such leadership roles the expatriates are capable to ratify the way of doing things by the parent company. The mission of the international human resource has a major role to play in the success of the multinational corporations in a foreign market. It is because of this fact organisations are placing greater efforts to enhance the chances of success of expatriates in the markets abroad (Shen, 2004). Retention of expatriate employees is also considered to be one of the biggest global talent management challenges for the MNCs. There are many researches that suggest the fact that MNCs are continuously adopting an ad-hoc method towards the repatriation procedure. They further state that most of the expatriate managers are experiencing the repatriation method which does not meet their expectations. Repatriation has been considered as one of the significant human resource issues for most of the multinational companies. It can be observed that in light of the issues related to dealing with problems faced by expatriates, managers in the near future will not be ready to offer any kind of international assignments. However, as it is a normally accepted fact that the retention of the expatriates is a grave issue and costs related to the turnover of the expatriates in the multinational corporation are high, most of the international companies have not been capable of creating repatriation policies or programmes that can be beneficial for the career development of the expatriates (Mendenhall, 2006). Altering characteristics of careers in international situation can also be considered as one of the major issues in international human resource management. It is significant to comprehend the changing attitudes towards careers since these movements might impact readiness to accept assignments and contexts under which the assignments are accepted along with retention post assignment. There are two main trends associated with these facts, one of them has been the altering characteristic of careers in the labour force and specifically the greater significance placed upon career mobility as well as declining commitment to particular organisations. The second trend is related to the evolving importance placed upon self-started international assignments or assignments started by the individuals without any assistance from the organisations. It has been observed that most of the organisations while employing the expatriates are greatly concerned with the improvement of their marketability and employability in wider labour market instead of restraining their capabilities and developments in the organisation in which they work (Australian Centre for International Business, 2001). There are generally three forms of skills which need to be paid due attention by the expatriates for the purpose of surviving in the new culture. They are skill associated with maintenance of self, skills associated with fostering relationship with the host nations and the skills stimulating a right view of the host environment as well as its social systems. In the context of international business, the way in which the staffing phases are managed depends upon the firm’s strategy along with the staffing policy. There are essentially four main alternatives in the strategy such as the ethnocentric approach along with the polycentric approach, the geocentric approach and the regiocentric approach. Regardless of the staffing policy adopted by the firm, it generally poses certain parent-country nationals who are responsible to serve in foreign positions essentially at the managerial levels. The success of the expatriate manager is quite vital for the success of the company. Formation of selection parameters predicting the success of the expatriate manager working with the multinational corporation is quite significant. Selection of the possible expatriates is quite difficult method in comparison to the selection of the domestic employees because along with the anticipation of successful job performance, the human resource manager is also trying to gauge the capability of the expatriate to adapt himself in the distinct cultural environment. Conclusion The companies aiming at growth are paying attention upon grooming their employees so that they can achieve success in the international markets. Companies are training their corporate leaders to direct the operations in an effective mode on a global scale. Those companies operating on an international level are faced with the issues related to employing overseas employees for their organisations. Expatriates management has been a significant issue in the present times for the human resource management. The success or failure of a company especially an MNC is largely dependent upon the way in which expatriates tend to perform. The failure of the expatriates may be because of various issues such as cultural differences, lack of motivation, lack of career growth opportunities in the place of work and lack of training among others. Therefore, it is quite significant for the human resource manager to pay due attention towards minimising the gaps that restrain these expatriates from performing well in the multinational corporations. Proper communication as well as adequate management of the flow of information to the expatriates is vital in order to resolve the international human resource issues. Communication will assist in minimising cross cultural conflicts and the overall objective of the company can be best attained within the stipulated period of time. References Appelbaum, S. H. & et. al., 2000. “Anatomy Of A Merger: Behavior Of Organizational Factors And Processes Throughout The Pre- During-Post-Stages (Part 1)”, Management Decision. Vol: 38, Iss: 9, pp: 649-661. 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