Thursday, April 4, 2019

Merger And Acquisition Joint Ventures

Merger And Acquisition colligation dissemblesMergers and acquisitions (MAs) argon becoming a system of choice for arrangings attempting to maintain a competitive advantage. This paper reviews related books to identify some central issues related to the success s demise of MAs. It also hold forthes critical issues of vocalize ventures and also the problems and benefits of them. In addition, there has been an increase focus on the usance of inter-firm affinitys or st dictategicalal hampers in todays stock. This paper also argues the factors which campaign to self-made strategic trammels. When firms be disseminateing with negative earnings and/or economical down b proscribeds, operational restructuring and desegregation be initiated as a rescue tool. Some firms recover, while the others fail to survive. Restructring and consolidation argon the next issues which discuss generally.Introduction and BackgroundMergers and AcquisitionsAcquisitions and mergers be a guinea pig as well as international trend. They go along e rattlingwhere in organizations, administrative units and business sectores in all industries and of all sizes. M any people ar at s lift out and a great deal of m whizzy as well (Balle, N. 2008). Mergers and acquisitions are becoming an progressively popular strategic option for organizations (McEntire and Bentley, 1996). In fact, recent stimates indicate that the annual price tag of mergers and acquisitions carry through in the USA exceeds $1 trillion (Stanwick, 2000).Mergers are commonly characterized as the consolidation of cardinal organizations into a single organization. Acquisitions, by contrast, are commonly characterized as the purchase of one organization from another where the purchaser or acquirer maintains program line condition (Borys and Jemison, 1989).Mergers and acquisitions (MAs) behave been a very popular strategic maneuver for global businesses, attaining growth, diversification, or profitabili ty (Fowler and Schmidt, 1988). In fact, the merger mania that started in the mid-eighties, continued throughout the 1990s and is unbosom vigorous (Houghton et al., 2003).MAs are nothing solely extreme forms of organisational change, and change is often perceived by employees as threatening, callable to their feeling of vulnerability and fear of losing security (Saunders and Thronhill, 2003). Under these circumstances, they have become more than and more authorized in helping to redefine employment relationships (Anderson and Schalk, 1998 Cartwright and Cooper, 1993 Guest, 1998 Herriot and Pemberton, 1995, 1996 Hiltrop, 1995 McLean Parks and Kidder, 1994 Turnley et al., 2003). joystick VenturesJoint ventures (JVs) occur when devil or more legally separate bodies form a jointly owned entity in which they robe and engage in various decision making activities (Geringer, 1988 1991). A joint venture may be termed International (IJV) where at least one of the parties (or parents) i s found outside the country where the venture is taking bespeak or if the joint venture is being administered on a wide level in more than one country (Geringer and Hebert, 1989).JVs are now seen in terms of weaponry employed by companies at heart the context of their business networks to facilitate competition in relation to firms core market places and technologies (Beamish and Banks, 1987 Harrigan, 1987 Buckley and Casson, 1996) they are thus of full of life strategic importance for international business and their signifi bay windowce is growing.It has been argued that various features of burnish might affect the reading of joint ventures. In their article Swierczek and Hirsch (1994) concluded that it is important that future partners get wind the impact of differences in farming out front they begin to joint venture. They added that JVs are often characterized by problems of misunderstanding and limited effectiveness because of the pretermit of compatibility of the c ultures represented in the joint ventures.Similarly Beamish and Inkpen (1995) found that MNEs could benefit equally well from local market knowledge which their partners could provide. They also stated that the life cycles of more manufacturing subsidiaries are short because the MNE is unable to understand the knowledge of local culture, economy and politics.strategic AlliancesA strategic alliance is an agreement among two or more partners to share knowledge or resources which could be beneficial to all parties intricate. Strategic alliances slew be as simple as two companies manduction their technological and/or marketing resources. In contrast, they can be highly complex, involving some(prenominal) companies, located in contrary countries. These firms may in turn be linked with other organizations in separate alliances. The result is a maze of intertwined companies which may be competing with each other in several increase areas. (Niren M. Vyas, William L. Shelburn and De nnis C. Rogers 1999).A few years ago strategic alliances were perceived as an option reserved only for incorporate giants. Today, however, for many companies, a go-it-alone schema no longer seems to be a viable alternative. As a result of the maturation of several trends of the 1980s intensified foreign competition, shortened product cycles, soaring capital investment costs, and the evergrowing demand for new technologies alliances are becoming an attractive strategy for the future (Niren M. Vyas, William L. Shelburn and Dennis C. Rogers 1999).Restructuring and integratingIt is rare to find a single product company. Most have diversified their interests into related or unrelated areas. Some companies are known as restructuring companies, The latter acquire other companies essentially for the purpose of reorganizationing or streamlining and selling them off subsequently to other owners at a profit. Restructuring companies also have the function of aiding the process of restructu ring an industry (Proctor, T. 2001).Operational restructuring involves making decisions closely appropriate workforce size and skill requirements, plant capacity and location, functions consolidation, and possible shifts in production focus. more specifically, operational restructuring can be considered a program that is planned and controlled by management, and materially changes either the stage setting of a business undertaken by an enterprise or the manner in which the business is conducted (Lin and Lee and Gibbs, 2007). pore is on operational restructurings for two primary reasons. First, such events often affect a companys business strategies, operations, organizational functions, and existing management structures. Second, operational restructurings entail controversial corporate accounting practices of restructuring charges (Lin and Lee and Gibbs, 2007).Corporate consolidation is a topic of active debate among academics and practitioneres alike. Academic reserches emphasi s the importance role corporate consolidation play in disciplining under-performing management and imposing operating efficiences (Healy 1992 Jarrel et al., 1988), practitioners view it as a tool of market share expansion and an effective answer to a plethora of competitive challenges (Read, 1999 Howell, 2002). In its nigh panoptic form, M As, corporate consolidation is a sizable business run in Europe by established national players operating, increasingly, on a cross-b fellowship basis (berg, 2002).Merger and AcquisitionsSeveral researchers have suggested that in virtually cases MAs fail to meet initial monetary expectations (i.e. Bruner and Spekman, 1998 Haveman, 1992 Very and Schweiger, 2001 Zollo, 2003). Back in the 1980s, Lubatkin insisted that although MAs had been a very important and popular means for executing organizational strategies, less than 20 percent actually achieved its expected financial or strategic objectives. Almost a decade later, Cartwright and Cooper (1992) quoted nearly 40 per cent affliction rates for change efforts and a few years later, 1996, nearly 50 percent of MAs failure rate to achieve initial objectives. Along the same lines, Weber (1996) found that 35 per cent of those MAs that fail in their first three years of life are a result of poor employee relations. Over the years, several researchers have raised that percent again, advocating that more than two-thirds of MAs fail to create meaningful shareholder value (Ashkenas et al., 1998 Carr et al., 2004 tag and Mirvis, 1998).As for the main reasons for such failure rates, there is a dispute among researchers. Existing literature has identify among the main reasons for not fulfilling initial goals both hard and soft factors. Specifically, there are researchers suggesting that paying the do by price, buying for the wrong reason, selecting the wrong partner, and buying at the wrong magazine are some of the most prominent ones (i.e. Armenakis, 1999 Haleblian, 1999). Howeve r, others insist that underestimation of depth of the problems related to the human factor during a M or A condemns the projects success, and thus, more attention has to be given on employees needs (i.e. Bijlsma-Frankema, 2001 De Cock and Rickards, 1996 Houghton et al., 2003 Lesowitz and Knauff, 2003 Seibert, 1995 Stahl et al., 2003).Focus on value creation, not just integrationMany companies organize their post-merger integration activities on a usable basis rather than a value-added basis. While many functional activities must be consolidated (such as bringing databases together and rationalizing policies, procedures and IT systems), not all integration activities yield equal benefits. Blindly and aggressively compound various functions and businesses without regard to a value-creating hierarchy can actually destroy value (Chanmugam, Shill, Mann, Ficery and Pursche, 2005).Use culture as a value-creation toolThe most successful acquirers of the future will see culture as a tool in three ways. First, they will look at heathenish differences during the target appellation and bidding phases, assess the potential impact of those differences, and incorporate their analysis into the valuation and bid. Second, they will try to revoke the pitfalls common during pre- and post-merger planning, and actively incorporate the elements of each companys culture that best support the desired combination. Finally, they will proactively use culture to create value through the use of high-visibility retention, promotion, termination and structural organizational design decisions (Chanmugam, Shill, Mann, Ficery and Pursche, 2005).Joint VenturesCritical Issues for IJVsAn IJV is defined as an equity sharing arrangement in which a foreign smoke and a local firm (either private or government owned) pool their resources, sharing risks and operational control to operate an independent business unit on a continuous basis for profit and/or to attain some strategic objective (Gering er and Hebert, 1991).Broadly viewed, the IJV market incoming mode represents two opponent trends. First, judged by the number of entries, it is becoming increasingly popular as a mode of market entry and expansion (Makino and Beamish, 1998 Vanhonacker and Pan, 1997). In recent years an increasing number of global corporations have become involved in IJVs at home and overseas, covering many sectors, industries, and product groups (Griffith, Zeybek and OBrien, 2001). The second issue relates to the fragile nature of IJVs, and it has been repeatedly argued that the failure rate or instability rate of IJVs is above thirty percent, and it is often markedly higher compared to other alternative forms of market entry and operation (Makino and Beamish, 1998). Gomes-Casseres (1989) offered two explanations for reasons of instability in any JV, arguing that the partners simply made a mistake forming a JV when it may not have been the best thing to do, or they joined up with the wrong partner . Further, that their initial decision was right, but conditions changed so that the JV was no longer useful (Cullen, Johnson, and Sakano, 1995).Problems with Joint VenturesSome of the main problems with Joint Ventures include solid differences in the major(ip) goals of the parties, Details of the joint venture contract, The foreign corporations global integration and the local partners national orientation, Differences surrounded by the partners strikeing marketing, Desire for control, Transfer pricing conflicts, Conflict over decision making, managerial processes and path (Julian and OCass, 2003).Benefits of Joint VenturesJoint ventures provide companies with the opportunity to obtain new capacity and expertise. They allow companies to enter into related businesses or new geographic markets or obtain new technological knowledge. Joint ventures have a relatively short life span (5-7 years) and therefore do not represent a long-term commitment. In the era of divesture and conso lidation, they offer a creative way for companies to exit from non-core businesses (companies can gradually separate a business from the rest of the organization, and ultimately, sell it to the other parent company (appr. 80% of all joint ventures end in a sale by one partner to the other) (Trafford and Proctor 2006).Succe of a Joint Venturesuccess of a joint venture may be influenced by five important characteristics. These characteristics are illustrated as building blocks in a model which Trafford and Proctor(2006), have termed the COPED model.COPED Model (Trafford and Proctor, 2006)CommunicationMany business alliances fail to meet expectations because little attention is given to nurturing the close working relationships and interpersonal connections that unite the partnering organisations (Weitz and Jap, 1995). An sentience of communication processes is essential within alliances if maximum efforts are to be coordinated and directed towards the success of strategic alliances. Ineffective communication can reduce the effectiveness of a strategic alliance and thus lead to conflict between partners (Jain, 1987).There is an assumption that organisations will function better if communication is open, if relationships are based on mutual understanding and go for, if relationships are co-operative rather than competitive, if people work together in teams, and if decisions are reached in a participative way. These conditions, however, are not observed in many organisational touchs. Main barriers to communication concern are power differences gender differences physical surroundings language and cultural diversity (Huczynski and Buchanan, 2001).Openness effrontery is considered a prerequisite for alliance success (Byrne, 1993) and lack of trust is a major reason for alliance failures (Peng and Shenkar, 2002). There is evidence to point to the fact that strategic alliances may be unstable and their success rate poor (Gant, 1995). Partner firms need to manage thi s risk adequately by understanding the conjoint roles of trust and control. The establishment of a new relationship between members of the organisation at all levels a relationship based on trust is an issue that is becoming increasingly important to organisations (Handy, 1995).PlanningMany strategic alliances lack alliance strategies. A coherent alliance strategy has four elements (1) a business strategy to shape the logic and design of the alliance (2) a dynamic view to guide the management and development of the alliance (3) a portfolio approach to enable co-ordination among the alliance to enhance flexibility and (4) an internal infrastructure that supports and strives to tap the value of external collaboration (Gomes-Casseres, 2000). When managed well, the above elements can create tremendous value. At the wrong time and when managed poorly, they can be costly distractions (Gomes-Casseres, 2000).According to Hill and Jones (2001), the strategic planning process can be broke n down into five main steps (1) mission and objectives (2) environmental scanning (3) strategy arrangement (4) strategy implementation and (5) evaluation and control.EthosEthos is the characteristic spirit or attitudes of a community, or people (Webster, 1992). It comes very much to the fore in strategic alliances when the co-operating firms continue to be independent organisations and a new situation appears in which an interaction is established between two firms with different organisational cultures.This usually implies different leadership styles and different objectives, which may lead to lack of trust between the parties and to conflicts which may arise when the time comes to make decisions (Buono, 1991). Similarly, cultural conflicts are more common in joint ventures, where a closer contact between the partners is required, than in contractual alliances (Schultz, 1998).DirectionThe public sector is under pressure to improve service delivery and aid more effectively (Cabine t Office, 2003). There is a growing demand for leaders able to carry out these tasks, and to see through fundamental processes of change. The appointment, monitoring, reward and accountability structures and processes all play some part in inhibiting and/or encouraging certain forms of leadership which give the correct direction.Strategic AlliancesParkhe (1993) defined a strategic alliance as a relatively enduring interfirm co-operative agreement, involving flows and linkages that use resources and/or governance structures from autonomous organizations, for the joint accomplishment of individual goals linked to the corporate mission of each sponsoring firm.Following from this definition, it can be seen that an alliance must be a formal part of business strategy (Johnson, 1999), meaning that an agreement between two partners must be formalised into a contract, as opposed to a handshake deal or a verbal agreement. Second, alliances must be mutually beneficial that is, they must result in a win-win situation.Koza and Lewin (1998) argued that one of the many reasons that strategic alliances were formed was to seek out new knowledge by acquiring new technology and skills. In this type of alliance they argued that the partners would seek to reduce information instability between the partners. This may involve the standardization of service delivery of production processes, joint strategic planning, sharing of databases and knowledge transfer through staff exchanges. A second and related motivation for forming an alliance was to look for for new market opportunities. This involved innovation, basic research, invention, risk taking, building new capabilities, entering new lines of business, and investments in the firms absorptive capacity.Barriers to successful Strategic AlliancesBarriers to successful strategic alliances must also be recognized. The three major barriers are (1) Failure to understand and adapt to new style of management. The adaptation of a new styl e of management requires a change in corporate culture which must be initiated and nurtured from the top. (2) Failure to go over and understand the cultural differences. Not only do the cultural differences exist among international firms seeking alliances, but corporate cultures may be different among firms from the same country. Flexibility and acquisition are the greatest tools in overcoming this barrier. (3) Lack of iron-clad commitment to succeed. Individuals who negotiated or implemented the initial alliance agreement may change due to promotions, transfers, retirement, or terminations. Continuity of total commitment for the alliance is needed at all levels in the organization without which the alliance will fail to reach its full potential (Vyas, Shelburn and Rogers, 1995).Importance of Knowledge in Strategic AlliancesInter-firm cooperative initiatives are one of the precious ways for firms to identify, transfer and internalize external knowledge. Koguts review of literatur e guideing joint ventures found that one of the firms main motivations for entering into collaborative agreements was to transfer organizational knowledge (Kogut, 1988).Berg and Friedman, in a study of over 300 JVs at the 2-digit SIC level showed that in many cases, joint ventures did not in fact enhance the market power of the parent firm, but rather functioned as a means of knowledge acquisition (Berg and Friedman, 1981). Thus the issues of knowledge creation, knowledge transfer and information have attracted researchers and have been examined several times in academic research and management consulting applied studies.Restructuring and ConsolidationWhy and how to Restructure an Ailing BusinessA number of typical situations that a firm with declining public presentation may encounter and could cause this firm to go through an operational restructuring are stated in this section.-Needs for operational restructuringThe decision to restructure is driven by a number of consideratio ns. At times, restructuring is in response to significant sea changes in the business environment while in other cases it is done to address poor operating/stock performance. Both internal (e.g. financial distress) and external (e.g. recessions) economic and financial conditions can drive the decision to restructure. Additionally, votes of no confidence in management will likely lead to corporate restructuring (Lin and Lee and Gibbs, 2007).-Typical activities of operational restructuring and consolidationRestructuring and consolidation efforts can take on a couple of forms. lots times management takes steps to contain costs, but in at other times forceful changes such as a refocusing of business direction occurs. For a firm that incurs losses, cost control is often the first step to return to profitability. Slashing labor costs, production costs, selling and administrative expenses, RD expenditures, and finance costs are common measures of corporate restructurings (Denis and Krus e, 2000). Downsizing and employee layoffs are the restructuring actions that are typically taken to divvy up with poor operating performance, particularly within contracting economies(Lin and Lee and Gibbs, 2007).Other IssuesOperational restructuring and consolidation has been considered as one important turnaround strategy for a firm in a bad situation, especially during an economic recession. Lin and Lee and Gibbs (2007), stated that delisting risk increases when firms undertake repetitive restructurings, massive workforce reduction, and large-scale addition downsizing. Moreover, firms with high levels of debt and failure to cut costs and/or narrowing its focus on core competencies are also more likely to delist.ConclusionAs more and more companies opt to supplement essential growth with mergers and acquisitions, the earlier stages of MA transactions are becoming relatively mature, commoditized processes. According to Galpin and Herndon (2008), in order to build replicable MA i ntegration, MA integration must be managed as an end-to-end business process. MA integration is a competency set with specific skills that must be built throughout the organization. The organizations MA integration process and capabilities must be in place before the train leaves the station that is, before the deal gets done. The organizations MA integration process must be continually improved by learning from previous mistakes and successes.The researches indicate the existence of five helpful characteristics identified under the heading of Communication, Openness, Planning, Ethos and Direction, which may be present in a successful partnership (joint) venture. The COPED model, is for building more comprehensive and productive relationships between public sector organisations and private sector companies which lead them to a successful joint venture.Strategic alliances are in the age of business without boundaries. A strategic objective aimed at expanding the competitive knowledg e resource, and understandably there are special skills in bringing these arrangements to fruition. Professional managers recognize that in the age of business without boundaries it is essential that they provide learning opportunities and the necessary knowledge that will enable their employees to effectively and securely join internally and externally. So there is a need for knowledge and learning regarding to strategicalliances (Dealtry, 2008).Operational restructuring has been considered as one important turnaround strategy for a firm in a bad situation, especially during an economic recession. Moreover, firms with high levels of debt and failure to cut costs and/or narrowing its focus on core competencies are also more likely to delist. So considering and learning about restructuring and consolidation is another important isuue to take account for managers.

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