Mergers and acquisitions in a globalisation context

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Mergers and acquisitions in a globalisation
context

• -Internationalisation
• -Globalisation
• -Entry Mode
• -New Business Trends in The Global Economy

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Purpose

• The aim of the course in Mergers
• and acquisitions in a globalisation
• context is twofold
• To provide insight into theories of
  internationalisation and understanding of
  globalisation and
• To present tools for and approaches to handle
  mergers and acquisitions for companies who are
  working international where we combine
  theoretical understanding and insight with
  practical answers how to do questions.

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Internationalisation- a micro perspective
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Internationalisation...

• A step-by-step process of international business
  development whereby a firm becomes increasingly
  committed to and involved in international
  business operations through specific products in
  selected markets. (Luostarinen, 1994, p 1)

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The nine strategic windows
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Types of Internationalisation
Upstream internationalisation
Downstream internationalisation
importoutsourcing
market entry
outwardinternationalisation
inwardinternationalisation
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Porters value chain
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Outward/Inward int.
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Internationalisation approach

• Stages Models
• Contingency Models
• (Inter) Action Models

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The stage model
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Modes of entering an int. market

• Stage 1. No regular export activities (sporadic
  export).
• Stage 2. Export via independent representatives
  (export modes).
• Stage 3. Establishment of a foreign sales
  subsidiary.
• Stage 4. Foreign production/manufacturing units.

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Analysis the degree of int.

• Sales objects (what?) goods, services, know-how
  and systems.
• Operations methods (how?) agents, subsidiaries,
  licensing, franchising management contracts.
• Markets (where?) political/cultural/psychic/physi
  cal distance differences between markets.
• Organisational structure export department,
  international division.
• Finance availability of international finance
  sources to support the international activities.
• Personnel international skills experience and
  training.

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The strategic approach
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Porters Diamond Model
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Porters 5 forces
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Porters generic strategies
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Action Model
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Internationalisation of a firm
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The internationalisation map
Stages Models
Uppstream internationalization
Downstream internationalization
Contingency Models Action Models
importoutsourcing
market entry
outwardinternationalization
inwardinternationalization
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Globalisation- a macro perspective
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Global drivers
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Tendency in the global economy...

• Production
• Focus on core business and outsourcing.
• Mass production and specialisation.
• Just-in-time production.
• ISO and TQM.
• Flexibility.
• External partners
• Outsourcing.
• Supply chain management and networking.
• Masscustomarisation
• Management
• The flexible organisation.
• The learning organisation.
• Change management and speed management.

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Competition at micro level
HorisontalVertical
Organisation
Drivers in the industry
Competencies
Networking
Intensity of competition
Technology Skills
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Entry Mode
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Entry Mode - visual...
The Danish company
border
Indirect exportDirect exportNetworking Direct
foreign investment
WholesaleRetail level
End-user in county x
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Market Entry Modes

• Traditional export
• Indirect
• Exporting Trade House
• Exporter
• Piggy Backing.
• Direct
• Direct to end-user.
• Agent.
• Importer.
• Sales Office
• Subsidiaries .
• Turnkey Project.

• Company contracts
• License
• Franchising.
• Contract production.
• Management contracts.
• RD strategic alliances.
• Foreign direct investments
• Joint Venture.
• Manufacturing subsidiaries

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Entry Mode decision
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Strategic alliance
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Collaboration possibilities
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Strategic alliance

• A strategic, long-term voluntary collaboration
  between two or more companies and institutions,
  the aim of the collaboration being to attain
  individual or mutually defined objectives through
  common activities, risk sharing, and access to
  partner resources.

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Types of strategic alliances...

• Equity
• Majority Joint-Ventures.
• Minority Joint-Ventures.
• Non-equity
• License and franchising.
• Management contracts.
• Production contracts and.
• Collaboration between companies.

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Stages in joint-venture formation
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Analysis of prospective partners
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Mergers and acquisitions in a globalisation
context

• - Definition of Mergers and Acquisitions
• - Cultural Due Diligence

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Definition of Mergers and Acquisitions
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M A

• View on MA
• The topic is broad
• Focus Soft issues of MA
• Critical factor - Successful post-merger
  integration

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Cross-border MAs vs Domestic MAs an insight
into the national level of culture in mergers

• Research study by Rikard Larsson Anette Risberg
  on cultural clashes in MAs
• Targeted MAs in the study
• Domestic mergers involving companies with similar
  corporate cultures
• Domestic mergers involving companies with
  different corporate cultures
• Cross-border mergers involving companies with
  similar corporate cultures
• Cross-border mergers involving companies with
  different corporate cultures
• Focusses of the study
• Degree of achieving successful acculturation
• Employee resistance
• Synergy realization

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Cross-border MAs vs Domestic MAs an insight
into the national level of culture in mergers

• The non-intuituve results of the study
• successful acculturation is more likely to occur
  in international mergers than in domestic ones
• Lower degree of employee resistance to merger
• Higher degree of synergy realisation

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MAs in the future

• EU, ASEAN, WTO NAFTA
• create the opportunity for global mergers
• place the focus on societal cultures
• the acculturation process becomes even more
  complicated thus vital
• CEOs must be cable of controlling an even higher
  level of management

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MAs in the future
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MAs in the future
Modes of FDI
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MAs in the future

• Trends
• 1990s has been the discovery of seeing MAs as a
  competitive collaboration instead of a lose/lose-
  or win/lose-situation.
• MAs have to provide the atmosphere for
  cooperation and collaboration.
• Understanding of cultural processes has therefore
  become even more essential
• CEOs must possess the skills to negotiate
  acculturation process.

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MAs in the future

• FUTURE MERGERS ACQUISTIONS
• STRATEGIC ADVANTAGE
• Product Lines
• Market Penetration
• Consolidate Expenses
• REDUCE COMPETITION

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Cultural due diligence
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Cultural due diligence

• A practical step-by-step approach
• Cost-effective cultural measurements
• Poor cultural due diligence in the pre-merger
  stage
• Result of difficulty later in the post-merger
  stage

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Major problems for failure

• Lie in transaction-cost-theory -related issues
• Lack of social capital
• Negligence of the CEOs
• Tackling the human-related affects

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Due Diligence

• 55-77 MAs either abandoned outright,
  considered unsuccessful, or seen to have resulted
  in severe and unanticipated problems
• Due Diligence intensive searching for facts,
  thorough analysis, and constant reevaluation
• Financial and Legal Due Diligence
• Cultural Due Diligence
• Greater efficiencies and growth potential

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Cultural Due Diligence

• Definition a practical step-by-step approach for
  making rapid cost-effective cultural assessments
  of both the acquirer and the target
• Conditions of running a Cultural Due Diligence
  would be a benefit
• Due Diligence or pre-merger period
• Lack of detailed information
• Differences between merging organisations
• Cultural heterogeneity among multiple business
  units/facilities/operations
• Post-merger
• High turnover among critical personnel
• High level of conflict
• Significant drop in productivity

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Cultural Due Diligence

• Procedure
• Pre-acquisition screening
• Establish a palette of target companies
• Complete self-assessment analysis
• Comprehensive cultural assessment
• Assessing the target and the acquirer cultures
• Identification of conflict, risks, opportunities
  and costs
• Design and implementation of post-merger
  integration action plan
• Acculturation mode
• Post-merger monitoring and validation of findings

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Cultural Due Diligence

• How to do it

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Co-operation focus
Relationship management
DK company
Co-operation partner
Culture clash
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Relationship Management
Focus on the transaction goods versus prices
Short-term
com. B
com. A
Relationship performance
per. B
per. A
Long-term
Focus on power, ownership, legal contracts,
routine conversation
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Collaboration possibilities
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Organisational issues

• Describe the organisational culture.
• Pinpoint people who have to interact
  international.
• Describe the competence level.
• Interaction sequences.

Co-operation partner
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The cultural competence gab

• Hofstede og Hall

Power distance
The culturalgab
less major
less major
DK company
Co-operation partner
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Local management

• Focus on the relation between
• DK management and local management.
• other co-operation relations.
• Indirect management via
• motivation
• distance management.

Conflict area
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DK management

• Focus on the relation between
• DK manager and local employees.
• Direct management via
• motivation
• management.
• leadership

Conflict area
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Mix management

• Focus on the relation between
• DK manager og local management.
• The potential conflict is located to the
  management.
• Direct management via
• motivation
• management.
• leadership

Conflict area
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Layers of culture
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Hall High and low-context
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Hoffstede
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Analysis

• Presentation of relevant data.
• Evaluate pros and cons.
• Decision of management set-up .
• Highlight the cultural conflict areas

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Diagnose 1

• The content of the analysis
• TCA aspects.
• Culture
• Intercultural competence.
• Management
• Organisational culture.

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Diagnose 2

• Ranking of the cultural conflict areas
• Short-term
• Long-term.
• Organisation and departments
• Management Management Organisation design.
• Individual level
• Intercultural competence combined with ordinary
  skills.
• The diagnose should give a clear picture of the
  situation and the ranking of cultural conflict
  areas..