The Implications of Cross Border Merger and Acquisition of Market Economies - Research Paper Example

Applied Research Methods for Business and Management Table of Contents Table of Contents 2 Introduction 3 Research Question 3 Research Objectives 4 Literature review 4 Research Design and Methodology 7 Sample Questionnaire 8 Methods of data collection 9 Methods of data analysis 11 Ethical Issues 11 Limitations of the study 12 Conclusion 12 References 14 Introduction Cross border merger and acquisition impact market economies in various ways. Global economies over the years have integrated in order to leverage each other’s resources to grow and expand. It refers to the inorganic growth as companies expand not by leveraging its own operational capacity, but by converging or acquiring with companies across the globe. Researches are conducted in order to find effective ways to find the positive and negative impacts of such mergers and acquisitions. Though there are various qualitative and quantitative ways to approach a research problem, the most effective and efficient way will be decided upon the availability of data. The nature of merger and acquisition also influence the research design. If the merger or acquisition takes place in an industry where market data is limited then the research methodology would be different. It would be more of qualitative nature than quantitative. More of primary data will be required in this case than the use of secondary data. Primary data becomes critical when merged or acquired companies management perception has driven such change. Different situation affects the research techniques. Mergers or acquisition of companies in same industry as compared to different industry also impact the research technique. Greater emphasis and in depth research is required to investigate the causes and impact of mergers between companies of different industries and different countries. Research Question The research question includes the implications of cross border Merger and Acquisition on market economies. Research Objectives The objective of the research is aimed at supporting the research question. It outlines the literature review critically at a strategic and operational level of cross border merger and acquisition. It further includes a research design and methodology and tries to explain and justify the philosophy of the design and methods use to support the research question. The methods of data collection and analysis are also explained in the research report along with the key issues and limitations of the investigation. Literature review According to the authors Vanitha and Selvam (2007), mergers and acquisitions across nations lead to complications that might have disastrous consequences on the business and markets. Cross border mergers benefit companies with cheaper alternatives compared to organic growth strategies. M & A are expansion and growth strategies of companies. It helps to increase the production of companies. Companies take advantage of the acquired or merged company’s technology and supply chain to increase its productivity. The authors also explain the benefit of M & A by citing an example where Walmart has acquired South Africa based Massmart to increase its productivity and market space. Following the acquisition Walmart has achieved lower per unit cost by buying and producing in bulk quantities. It leveraged Massmart’s existing supply chain metrics to achieve greater market access. This led to new market access for Walmart in the African region and also strengthened its brand. There are cultural implications of cross border M & A. Acquiring or merging with companies Trans nation help companies to access local talents with high skill sets. Greater professional diversity is also observed that benefits the company with new ideas and ways to achieve its goals and objectives. Though there are host of benefits associated with cross border merger and acquisition it is equally subject to certain limitations. The authors explain that the different labour, tax and other regulatory issues hinder the merger and acquisition process. Emerging economies though have high market growth potential, but have underdeveloped market structures that might lead to complications in the merger process. The author Showalter (2000), describes the drivers for cross border merger and acquisition on strategic and operational level. On a strategic level it benefit companies from market access, wider reach, greater recognition. Market access refers to the entry of new companies in the home country. Company’s which have limited resources to attract new segments show immense potential for companies of other countries to acquire or merge. Business saturation in one country influences the decision of companies to move to new countries. Companies owing to high resources but limited market space leads to successful cross border merger and acquisition. High demand of products and services are also other determinant that leads to strategic M & A. The process of M & A often takes place in same industry, but it can also take place across different industries. The author further explains that mergers across industries strategically help companies to diversify its resources. According to the authors Selcuk and Yilmaz (2011), companies engage in cross border M & A not only to enjoy strategic market opportunities but also operational advantage. Merger and acquisition help companies to leverage the existing resources of countries to enjoy lower unit cost. A company in UK which merges with a company in US would benefit from its existing customer base and supply chain entities. This would the UK company better operational leverage. The existing demand for the US Company’s product and services would help the UK Company to produce in bulk that will lead to lower unit cost of production. The US Company would benefit from increased profitability and the UK Company would also benefit from increased profit through cost minimization. The US Company benefits from additional funds from the UK Company whereas the UK Company benefits from lower cost advantage and wider market space. The author Schoenberg (2007) opines that despite such positive impacts of cross border merger and acquisition there are inherent and external limitations that inhibits the M & A process. There are various regulatory, tax and cultural issues that are critical to the success of the merger or acquisition. Regulatory measures i.e. the government policies or monetary policies influence the decision of M & A. If a company is in a country where there are poor fiscal policies that are detrimental for the company of other country it will affect the M & A in the long run. Stricter fiscal policies are also there to protect domestic countries from foreign domination. Foreign companies which have huge resources and technological advantage will try to acquire small companies in different countries to exercise power. This leads to monopoly in the domestic country. The author describes that tax problems are another issue that discourages cross border merger and acquisition. Corporate tax rates might be higher that would significantly reduce the profitability of the companies that plan to acquire or merge with companies in other countries. Government might intentionally impose higher or differential corporate tax structure for foreign companies to prevent wealth drainage. Imposition of caps on foreign investment capital also impedes the merger and acquisition process. Political influence is another factor that might cause problems prior to the merger and acquisition process and post merger or acquisition. Labour, wage rate and unemployment problems are a major deterrent for the M & A process. Cultural factors across nations also deter the process of merger and acquisition. Conflicting cultures will lead to lower employee productivity. This will reduce the organizational effectiveness. Successful merger and acquisition is driven by cultural binding. Differentiating culture helps in fostering cultural diversity but at the same time it poses challenges for the acquired or acquiring companies. Cultural differences arise due to many factors. Gender diversity and discrimination affect the companies engaged in the merger or acquisition. Low men to women ratio in certain countries will lead to adverse productivity. If a workforce has more women than men, it will have to ensure proper safety and security, maternity leaves, work flexibility, etc that will affect the overall profitability of the company which plans to merge or acquire a company in another country. The authors Kumar and Bansal (2008), state that differing levels of skills will also affect the M & A process. Companies in a country with low professional expertise will affect the productivity of the acquiring company of another country. Not only will the productivity fall it will also face reputational issues. Stricter environmental issues of one country will affect the production process of another country. Certain countries have strict regulations regarding the use of certain chemicals or inputs in the production process that will induce companies to streamline its process resulting in adversities that will affect its output and earning level. Research Design and Methodology The research design is based on the critical review of the literature. The review of literature is discussed to frame the research question. Literature review signifies the views and discussion of various authors on the research topic. The research objectives are then established that will support the research question i.e. causes and consequences of cross border merger and acquisition on market economies. Following the objectives the methodology and data collection are determined that will suit the needs of the research. The research report concludes by giving a brief explanation of the methods of analysis, ethical issues followed by limitations of the report. Methodology of the research report implies the way the research will be conducted. There are mainly two broad categories of research methodology which are quantitative and qualitative. The former is used where responses are required on a large basis to probe the research question. In the case of cross border merger and acquisition qualitative method will be most effective. The qualitative approach would include in depth interview of managers of companies which have been merged or acquired (Bryman, and Bell, 2015). Owing to a small sample size, qualitative method would bring out the desired responses as it is flexible, has a direct face to face contact, helps in getting rich data because it aims to collect cognitive response. The interview will be conducted at managerial level to address the research question, thus using qualitative method would highly justify the research methodology. Though some secondary quantitative data will be required to measure the performance of companies’ pre and post merger situation. The data would mainly include profit margins, taxes, dividends and stock prices pre and post merger/acquisition periods. Out of the total population a sample would be drawn as it is not possible to interview each and every manager of companies engaged in merger and acquisition (Singh, 2008). Moreover such extensive in depth interview would not only add to the cost, but it will also take substantial time. A sample size of 100 would be highly effective to draw out fair responses that will address the research question. A statistical hypothesis would be done to gauge the responses of the total population. Thus selecting the sample becomes highly critical as they would represent the total population (Kothari, 2004). Sample Questionnaire Question No: Sample Questions Allocation 1 Name of the Company: 3% 2 Year of Incorporation: 3% 3 Type of Industry A. Manufacturing B. Service C. Others 5% 4 Designation of respondent: 6% 5 Year of merger/ acquisition: 3% 6 Were the merger/ acquisition of the company in the same industry? A. Yes B. No 5% 7 If No, could you please state the industry? 10% 8 What were the factors that influenced the decision of cross border merger/ acquisition? 15% 9 Could you please discuss the criticality of the factors? 20% 10 How would you rank your company’s performance based on the stated factors on a scale of 10? 1 being the least and 10 being the maximum. 30% Methods of data collection Data collection is an important part of the research study that would satisfy the research question. Data collection methods are categorised in two parts i.e. quantitative and qualitative. The basic difference between the two methods lies in the source and the type of research. In this case the research aims to find out the causes and consequences of the cross border merger and acquisition on market economies. Such research question can be best answered by qualitative data that can be taken from secondary sources or in depth interviews as discussed in the earlier section. Quantitative methods cannot be used in this case as the research report aims to find management response of merger and acquisition which can be obtained by using qualitative methods. It does not aim to find the response of masses, thus quantitative technique of collecting data would be ineffective. There will be two parts to the method of collection data for the research report. The first part would include an in depth interview with the managers of different companies which have merged and acquired foreign entities and also those which have been merged or acquired by foreign companies. A semi structured questionnaire will be highly effective in this case. The questionnaire will aim to find the response of the managers regarding the profitability of the company post merger or acquisition. The data would include the changes in inventory level, gross profit, EBIDTA, EBIT, EBT, Taxes, Dividends, Stock Price, etc. The changes would aim to define the research question. The changes mainly include the pre merger and post merger level of profit. The second part of the data collection would include industry data that would be procured from secondary sources like business journals, books, publications, business periodicals, magazines, web source, etc (Pawar, 2004). The secondary sources would include all the industry data where individual companies will be compared with its peers as well as industry benchmarks. Market comments and expert opinions would be an effective source that will complement the research question (Axinn and Pearce, 2006). Moreover the data collection method discussed above has certain pros and cons. In depth interview would benefit the research study in numerous ways. It provides the richest data compared to all other methods of data collection. There is direct contact with the interviewee which helps in eliminating any doubts or clarifications regarding the framed questions. This will result in effective recording of responses. It offers more flexibility to the interviewer and the interviewee in making in depth conversation and better communication. This would also help in recording cognitive responses from the respondents that would augment the research question. Though the benefits of the research methodology outweigh the negatives, still adequate measures should be taken in conducting such in dept interviews (Stawarski and Phillips, 2008). Methods of data analysis Data analysis will have two parts. The first will include the statistical analysis of the data collected through in depth interview (Johnson and Christensen, 2010). The second part would comprise the comparative analysis of the company based on secondary data. This would mainly include the financial ratios of the company pre and post merger/ acquisition. Individual allocation is provided in the sample questionnaire that signifies the relevancy of each question. Hypothesis of the responses will be done to find out the response of the population. The responses would include the factors with high allocation (Ott and Longnecker, 2008). In reference to the case it would be questions 8, 9 and 10. Further a co relation would be drawn between the factors stated by the respondent that would help address the research problem more accurately. The financial ratios obtained from the secondary sources would also help to compare the performance of the company with its peers and industry benchmark. The above mentioned data analysis methods would critically assess the causes and implications of cross border merger and acquisition (Flick, 2013). Ethical Issues The research study has ethical considerations that need to be addressed prior to investigating the research question or problem. There should be prior approval or consent from the individual who is to be interviewed (Hammersley and Traianou, 2012). Details of the interview i.e. date, venue, purpose, etc should be intimated to the managers prior to the interview. The interview should be scheduled only upon receiving the assent of the prospective interviewee. There should not be any kind of pressure or coercion in participation in the interview (Gregory, 2003). It is the managers’ discretion whether they intend to participate in the interview or refuse it. Researcher should ensure and respect the autonomy of the individual managers while conducting the interview. The data should be kept confidential by all means and should not be exploited to the interest of related parties that would result in reputational risks of the company (Miller, Mauthner, Birch and Jessop, 2012). Limitations of the study These are the shortcomings of the study. They are inherent and cannot be eliminated completely, but can be reduced with certain level of precaution and expertise. Owing to the qualitative nature of the research the respondent size was restricted to 100. If the respondents are not carefully chosen it might lead to wrong hypothesis which will result in research failure. Qualitative interviews are time consuming and expensive. Information provided by the managers might be suppressed owing to confidentiality issues that might lead to wrong supply of information. It requires professional expertise as the respondents are managers of companies who are to be dealt with extreme caution so that they are not offended by unwanted or rhetoric questions. High flexibility results in erratic and inconsistent responses from the respondents. The source of secondary data cannot be validated as they are provided by various agencies which work in best interest of the company (Flick, Kardoff and Steinke, 2004). Conclusion The applied research techniques used to critically evaluate the causes and consequences of cross border merger and acquisition will complement the research question. Critically evaluating individual responses would be impossible if there is no benchmark to compare. Applied research techniques used in this case uses uniform statistical metrics across all the respondents. There is no accepted research technique, but researches are conducted on the basis of the desired outcome. The review of literature of the topic would help in framing the research problem or the question that will further guide in deciding the research technique. In finding the impact of cross border merger and acquisition a mass survey or observation would be in effective rather a qualitative approach would supplement the situation. The best responses could be collected from individuals in the management thus a detail interview with the managers would help address the research question (Thomas, 2003). As the sample size is small, statistical methods would prove to be beneficial to extrapolate the results of the sample to the population. The applied research techniques that are intended for answering the research problem are highly incumbent on the level of skill and professional expertise of the researcher. High accuracy is imperative for research studies as data and responses are to be transcribed into values that will be measured to project the results which will guide companies in future cross border mergers and acquisitions (Marshall and Rossman, 2010). References Axinn, G.W. and Pearce, D.L., 2006. Mixed Method Data Collection Strategies. UK: Cambridge University Press. Bryman, A. and Bell, E., 2015. Business Research Methods. UK: Oxford University Press. Flick, U., 2013. The SAGE Handbook of Qualitative Data Analysis. London: SAGE. Flick, U., Kardoff, V.E. and Steinke, I., 2004. A Companion to Qualitative Research. London: SAGE. Gregory, I., 2003. Ethics in Research. London: A&C Black. Hammersley, M. and Traianou, A., 2012. Ethics in Qualitative Research: Controversies and Contexts. London: SAGE Johnson, B. and Christensen, L., 2010. Educational Research: Quantitative, Qualitative, and Mixed Approaches. London: SAGE. Kothari, R.C., 2004. Research Methodology: Methods and Techniques. New Delhi: New Age International. Kumar, S. and Bansal, L.K., 2008. The Impact of Mergers and Acquisitions on Corporate Performance, Management Decision, 46(10), pp. 1531-154, Marshall, C. and Rossman, B.G., 2010. Designing Qualitative Research. London: SAGE. Miller, T., Mauthner, M., Birch, M. and Jessop, J., 2012. Ethics in Qualitative Research. London: SAGE. Ott, R. and Longnecker, M., 2008. An Introduction to Statistical Methods and Data Analysis. USA: Cengage Learning. Pawar, S.M., 2004. Data Collecting Methods and Experiences: A Guide for Social Researchers. UK: Sterling Publishers Pvt. Ltd. Schoenberg, R., 2007. Measuring the performance of corporate acquisitions: an empirical comparison of alternative metrics, British Journal of Management, 17(1). pp. 361-370. Selcuk, A.E. and Yilmaz, A.A., 2011. The Impact of Mergers and Acquisitions on Acquirer Performance: Evidence from Turkey, Business and Economics Journal, 22(1), pp. 1-8. Showalter, D., 2000. Strategic Debt: Evidence in Manufacturing, International, Journal of Industrial Organization, 17(3). pp. 319-333. Singh, K.Y., 2008. Research Methodology: techniques & Trends. New Delhi: APH Publishing. Stawarski, C. and Phillips, P.P., 2008. Data Collection: Planning for and Collecting All Types of Data. California: John Wiley & Sons. Thomas, M.R., 2003. Blending Qualitative and Quantitative Research Methods in Theses and Dissertations. USA: Corwin Press. Vanitha, S. and Selvam, M., 2007. Financial performance of Indian manufacturing companies during pre and post merger, Journal of Finance and Economics, 12(1), pp. 7-35. Read More