There are many famous service companies worldwide. ”Thomas Nationwide Transport” and ”United Parcel Service” are two of them. TNT is an international express and mail delivery service company with headquarters in Hoofddorp, Netherlands. It was founded in 1946 in Australia. It has 155,000 employees. On the other hand, UPS is an American global company headquartered in United States. It was founded in 1907. It has 398,300 employees. This essay will be a discussion of advantages and disadvantages of merging TNT with UPS from financial resources and growth and expansion.
Financial resources and growth and expansion are two of the most important advantages of merging TNT with UPS. After merger, the companies will have adequate financial resources. The combined assets of the merged company will help to Increase the credit worthiness of the companies in the financial markets and Increase the bargaining power to obtain loans at a subsidized rate of interest. Moreover there are tax advantages. For example, if one of the firms involved in the merger has previously sustained net losses, those losses can be offset against the profits of the firm that it has merged with.
One writer states, “An important financial reason often given for merger is economies of scale. Economies of scale simply mean that the cost of doing business, whether in manufacturing or the aforementioned operating economies, will be lower in the combined business firm,” (Financial resources advantages, 2009). Merger helps the two companies to grow and expand their business activities. This growth and expansion are achieved by making strong presence in the domestic market and entering into various foreign markets. Companies that operate internationally tend to develop at a much faster pace than those that operate locally.
Internationally operating company like TNT and UPS has been able to source raw materials or work at lower prices. Doing business in the international market allows companies to improve the quality of their products in order to gain a competitive advantage. Companies offer international business with opportunities in new markets. These new markets offer more opportunities for expansion and growth and income. A larger market means more customers, increase revenue, a larger profit margin, and allowed to work on achieving economies of scale.
Financial resources and growth and expansion have also their own disadvantages. There are several disadvantages associated with merging TNT with UPS from financial resources and growth and expansion. First we will start with financial resources. Ownership capital makes you responsible to a group of shareholders who have partial ownership rights. Also, financial resources are limited and once you sell off your assets or spend your savings, you will need new resources. When TNT merge with UPS additional costs will be incurred like taxes, commission applied costs and operational costs.
Moreover, when these two companies merge with each other there will be no competitive advantage because the two companies will produce the same goods and services and this lead to produce inferior or bad goods. Therefore, the demand for these products will decrease and the profit will decline as well. Growth has its own limitations also. Business firms cannot grow indefinitely. The merger will permit for the two companies to be a big firm. Sonia Sabharwal reports, “due to the growth management loses personal touch with employees and customers. Motivation and moral tend to be low resulting in inefficiency,” (Limitations of growth, 2006).
The Growth increases the functions and complexities of operations. As the number of functions and departments increase, coordination and control become very difficult. If the organization and management structure is not capable of accommodating them, growth may be harmful. Under the growth, a firm enters new industries and new markets about which the managers know little. CEO Managers find it difficult to find and develop managers who can quickly handle new units and improve their earning potential against heavy odds. Many growing firms could not succeed because their managers felt that they could manage anything anywhere.
In conclusion, there are many advantages and disadvantages of merging TNT with UPS from financial resources and growth and expansion. Financial resources can be results in increase revenue, profit and net income. Conversely, the huge financial resources lead to incur additional taxes and costs and there will be no competitive advantage. Growth also has its own benefits and limitations. Growth increases the number of products, customers and opportunities to achieve economies of scale. However, it can create stuff relations problems, management problems and lack of knowledge.
