Effects of mergers and acquisitions on international Business

1.1.Effects of mergers and acquisitions on international Business:

[1]International business cannot survive in the modem economically turbulent environment unless there is a serious strategic support through mergers and other forms of business combinations. It has become almost impossible for traders to go international without the real support of others either through the ordinarily mergers and amalgamations or through piecemeal support of others in the internationalization exercise. This in fact justifies the reason why businesses are increasingly merging and amalgamating in the international environment. It is  very important her to note there is as much need  for mergers in the present day as there is need for an auxiliary business support in the business of any person may it be a corporation or a partnership or a sole proprietorship (Kotter, 2006).

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In the international context, several limitations have so far been noticed when it comes to the issue of merging businesses. Some are universal whereas others are out of personality differences between the managers of the different organizations that have an intention to merge. But as much as there are limitations in the international business context, there are still some strengths band numerous reasons that justify for the need for mergers. These are discussed in the proceeding paragraphs but the point I would like to emphasis is the fact that the need for mergers is on the surge upwards and is usually at the peak in times of crisis in the international markets. Valkanov in a journal ‘regulatory requirements by international governments to accept international banking http:www.bankingmergers.com/’ is of the sentiments that the regulatory capital requirements instituted by international governments have played a very key role in determining the rate at which international firms and more especially banks are merging in order to be accepted to conduct their international businesses. He says that international banks especially in the United States have resorted to mergers in order to meet the high capital regulatory framework set by the United States government. This in  fact one f the reasons that justifies the essence of merging in the international business  context, that is, in order to meet that stringent capital regulatory framework that is put in place by these international governments. The regulatory capital hypothesis is what I am trying to discuss here.

1.1.Mergers in the international business context

[2]The scope of international business has rapidly increased and grown over the past few years and this has called for both amalgamations, mergers and acquisitions on companies so that they can form large corporations that can compete favorably in the current dynamic business world. It is inevitable and so necessary that such combinations should be exercised otherwise the individual companies are not going to make full use of the available business opportunities (Drucker, 1999).

“As productivity rose, the labor market changed. Fewer people held blue-collar jobs, and more did white-collar work. Employment grew rapidly in the service sector, which includes sales work, office work, and government jobs. More American wage earners worked for large corporations or for state or federal agencies than in small enterprise. Businesses expanded by swallowing weaker competitors, as happened in the steel, oil, chemical and electrical machinery industries. Corporations formed huge new conglomerates (mergers of companies in unrelated industries). In addition, companies offering similar products or services in many locations, known as franchises have increased, mergers and acquisitions have also been on the increase…”- Kaysen, Carl K. The American Corporation: Yesterday, today and tomorrow. Oxford University Press, (1996; pp 200), when talking about the history of mergers and acquisitions in America.

[3]For example in April 2000, Pharmacia and merged with Monsanto in a deal valued at 27 billion dollars. The resultant firm became to be called Pharmacia Corp which was later acquired by Pfizer Inc., one of the world’s largest drug companies. The aim of this merger according to the CEOs of the resulting firm; Pharmacia was to combine the capital of the different firms in order to boost business end enable the firm to compete favorably in the drug manufacturing and distribution business. It would enhance international business in the sense that a firm that is large enough could face the other competitors in the field basing its competitive advantage on the fact that it has a large capital base and is therefore able to offer goods and services at comparatively low price than small firms.

1.2.Reasons for business mergers.

[4]Firms have also been known to merger for several reasons; others are business-genuine whereas others are out of the business ID and greediness of entrepreneurs. An eminent business writer has tried to expound through an explanation why firms go for mergers, acquisitions and sometimes takeover; both hostile and mutual agreement based; Kotter, John P. in the book titled Leading Change:  mergers, Acquisitions and takeovers. Harvard Business School, (2006; pp 21). He says;

“In addition to investing in projects, firms also buy and sell entire businesses. Sometimes this takes place with a mutual agreement to merge or combine two companies into one. In other cases one firm, the buying firm, goes against the wishes of another firm’s management, the target firm, and attempts a takeover. For example, a company can appeal directly to the target firm’s shareholders by offering to buy their stock. If the buying firm acquires enough of the target firm’s stock, it can control the target firm’s activities. Increased control is a basis o empowerment in decision making capabilities and this provides an opportunity to go global for smaller firms. Takeovers that are exercised at home country enable the firm that results from the combination to hold a larger market tan when it operated as a single firm.”

Lager international firms have also been known to merge into one in order to avoid the from competing unfavorably whereby it has been observed that such competitions leads to losing instead of gaining in terms of business profitability. Losses occur due to the fact that each of the firm tries to win the market and make as much sales as possible and beat the other. This move requires a lot of capital and serious promotional campaigns and advertisements which are very costly especially when conducted across the boarders of countries that is in international levels. Instead, such moneys could be used to expand business and boost production if the competing firms merge into a single corporation. For example there have been two international rivals in the IT industry in the world; they are America Online Inc. and Time Warner. The two firms, America Online, Inc. (AOL) and Time Warner merged in 2000 to form AOL Time Warner, Inc., (present-day Time Warner Inc.) a massive corporation that brought together AOL’s Internet franchises, technology and infrastructure, and e-commerce capabilities with Time Warner’s vast array of media, entertainment, and news products. This merger was one of the largest in the American history of IT mergers and it enabled the resulting firm to be even more profitable than when the two were operating solely. There was a combination of both capital and manpower and all the assets of the two firms were all focused towards one objective and that is going into international business now that by tat time the American market had been saturated due to the many small firms that were operating in the region. They targeted the un-entered African continent which they were as a cash cow and in fact it was. But it is clear here that was it not for that merger the firms could have taken a lot of time before they entered the market and in the same e way they might have finally entered when other large corporations ha established themselves in the region. This is the divine advantage of mergers; that the firm becomes so large and able to go international easily. – The commercial site for a list of the 100 largest corporations on the World Wide Web, http://www.metamoney.com/w100/

The other purpose which makes firms merge is that they may be able to form monopolies. As  Bagdikian, Ben Haig. In the book; The World Monopolies. 5th ed. Beacon, (1997; pp 567). Describes monopolies that result from mergers, he says

 “[5]Sometimes business calls for economic situation in which only a single seller or producer supplies a commodity or a service. For a monopoly to be effective there must be no practical substitutes for the product or service sold, and no serious threat of the entry of a competitor into the market. In the dynamic business world today, this is only practicable through mergers, acquisitions and other forms of business combinations that eliminate the threats of competition. This enables the seller to control the price of the goods he deals with (Bagdikian, 1997)”

[6]Fundamentally, a business organization that wants to go international must al leas have a clue what the market it is entering in looks like. Thus is has to collaborate with the local firms in order that it gets reliable and accurate information about the market and what it expects to meet in terms of risk in the course of doing business. This is actually what most international businesses have capitalized in and it is really doing then a great deal of good things; they are able to go into the international business with a more open mind and a more focused perspective. For example Vodafone UK has an history of ever merging its international subsidiaries with any local operators may it be government or private in the industry it is interested in and the manager when asked why the firm was using this tool as a window in internationalization said that it give the firm the confidence because the operations are usually piloted by a person; in this context a corporate personality well acquainted with the local business environment.

1.3.Merging motives and strategies.

[7]One or more of the following elements are of great importance in establishing a monopoly through mergers and other forms of business combinations in a particular industry:

1.        Control of a major resource necessary to produce a product, as was the case with bauxite in the pre-World War II aluminum industry in which only a single firm controlled all the resources that were badly needed in war. Thus it could charge any price on these commodities since no other firm was able to question it nor did it fear losing customers to other competitors since they never existed.

2.      Technological capabilities that allow a single firm to produce at reasonable prices all the output of a particular commodity or service, a situation sometimes described as a “natural” monopoly. But even man can creat natural monopolies if they seek to join hands and form a single corporation that could make use of the available technology to produce in a way that no other firm can because of size and capital base. This was the case with AOL and Warner merger but their aim was not for the formation of a natural monopoly due to the fact there were other very many firms in the same industry.

3.      Exclusive control over a patent on a product or on the processes used to produce the product. This is only possible when only a few firms exist or existed long before others and thus they had established themselves in the market so firmly. They can merge and operate as a single firm using one mane and a particular patent right.

4.       A government franchise that awards a company the sole right to produce a commodity or service in a given area can expand by inviting others into its business in the from of mergers in order to make good the use or expertise which is usually in the hand s of the private sector to exploit a particular area. Fro example a national Airline which is given franchise to operate can merge with small private sectors but under its name so that it can provide services more efficiently and profitably. Braudel, Fernand. Civilization and Capitalism, 21st Century. 3 vols. Harper & Row, 1984-2005. Reprint, 2 vols. University of California Press, 2007.

 I would like to state here that as business is dynamic and ever changing, managers of especially             international business have been forced to improvise survival tactics and the ultimate solution to them has been to merge with either competitors or even rivals in the global markets. It has become a common phenomenon therefore to see and hear or mergers here and there as managers try to make ends meet though the minimal resources they may be having. It has also become so difficult to do business without collaborating and shouldering each others problems and burdens. [8]This has in fact force many international businesses to merger so that they can form a common front and a common platform on which they can handle the problems facing their international businesses as one body (Kaysen, 1996). Such problems include the stringent requirements based on the capital requirement by the state governments in which the businesses are to establish themselves through foreign direct investment or through indirect investments in which case selling agents and commissioners are used to market the products to the targeted final consumers.

Sometimes also in the international business, it has become so necessary and so demanding that any foreign firm wanting to enter into the local market of another must form a joint venture or join with local firms as an indication of goodwill. Mergers are one of these business combinations on the international levels that have been called for seriously by these situations.

As I have said, there are merits and demerits that are attached t these kinds of combinations. [9]Apart from the issue of the fact that the control power and decision making influence is diluted and weakened through mergers, there are other so many advantages especially when the firms are merging to for  a monopoly kind of business. In this case the firm is enabled to take advantage of economies of scale and hence lower their costs of production and realize greater profits in their international undertakings. This is the real essence of mergers and other kinds of business combinations- that the resulting firms may have more power and capability to undertake business profitably, conveniently and more profitably.

1.4.conclusion

Lastly, I would like to say that merger have became the order of things today and the    international business could not move at the pace it is moving now were it not for the combinations tat have been experienced in the world today, in fact many firms wanting to start international business bust  have a good capital base and much of this is only enabled through combining the capital of different firms, their expertise and capabilities of their human resource in order r to compete favorably in the business environment.

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[10]Mergers will continue to rule the business empire as long as there is need for more products that are consumer friendly and as the cost of entering into inert national business continue to shoot due to stringent requiems by foreign firms in which these firms wanting to go international encamp an establish themselves. The role of mergers here is therefore to empower the firms to exploit the opportunities with maximum profitability.

References:

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2.    Bagdikian, Ben Haig. In the book; the World Monopolies. 5th ed. Beacon, (1997; pp 567).

3.    Bagdikian, Ben Haig. The Media Monopoly. 5th ed. Beacon, 1997.

4.    Bain, David Haward. (1999) Empire Express: Building the First Transcontinental Railroad. Viking Penguin.

5.    Braudel, Fernand. (2007) Civilization and Capitalism, 21st Century. 3 vols. Harper & Row, 1984-2005. Reprint, 2 vols. University of California Press.

6.    Dauphinais, G. William, and Colin Price, (1998) Straight from the CEO: The World’s Top Business Leaders Reveal Ideas That Every Manager Can Use. Simon & Schuster.

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9.    Friedman, Milton. (1972) Capitalism and Freedom. University of Chicago Press, 1972

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12.Karier, Thomas Mark. (1993) Beyond Competition: The Economics of Mergers and Monopoly Power. M. E. Sharpe. An economic analysis.

13.Kaysen, Carl K. (1996) The American Corporation: Yesterday, today and tomorrow. Oxford University: Oxford University Press, pp 200.

14.Kotter, John P. (2006) Leading Change: mergers, Acquisitions and takeovers. Harvard Business School; pp 21

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[1] Kotter, John P. (2006) Leading Change: mergers, Acquisitions and takeovers.
[2] Drucker, Peter F. (1999) Management Challenges for the 21st Century.
[3] Dauphinais, G. William, and Colin Price, (1998) Straight from the CEO: The World’s Top Business Leaders Reveal Ideas That Every Manager Can Use.
[4] Kotter, John P. (2006) Leading Change: mergers, Acquisitions and takeovers.
[5] Bagdikian, Ben Haig. In the book; the World Monopolies.
[6] Kaysen, Carl K. (1996) The American Corporation: Yesterday, today and tomorrow.
[7] Kotter, John P. (2006) Leading Change: mergers, Acquisitions and takeovers.
[8] Kaysen, Carl K. (1996) The American Corporation: Yesterday, today and tomorrow.
[9] Kotter, John P. (2006) Leading Change: mergers, Acquisitions and takeovers.
[10] Kotter, John P. (2006) Leading Change: mergers, Acquisitions and takeovers.

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