Things to Consider When Doing Cross Border Mergers & Acquisitions
Cross border mergers and acquisitions are becoming a consistent trend in business and economic cycles. Thanks to globalization, now it is possible for businesses in different countries to come together as a single entity with the sole aim of pushing their business agenda in the global market.
Through cross border mergers and acquisitions, businesses have been able to easily spread their operations into other countries that due to market and logistical demands it could have been very difficult to set up a business. However, the success of cross border mergers and acquisitions depends on a number of factors that ought to be fully met in order to guarantee that success will be realized and maintained all through the years of operation in this new market.
Cross border mergers and acquisitions depend on a number of success factors that ought to be extensively considered if all the ambitions of the involved businesses are to be fully met. Logically, there must be differences in the way business is conducted in either side of the borders where the mergers and acquisitions are to take place.
In this article, we look at some of the factors that need to be considered when initiating and implementing cross border mergers and acquisitions. These include 1) proper management, 2) cultural integration, 3) business policies, 4) taxation, and 5) general business conditions in the country.
1. PROPER MANAGEMENT
As Mark Jamrozinski states, cross border mergers and acquisitions ought not to be scary. If you get scared with cross border mergers and acquisitions you will end up messing everything up and due to the panic that will come up, the involved transactions will fail to live up to the aspirations held. The scary bit regarding to mergers and acquisitions ought to be eliminated with the initiation of proper management strategies. Just like any business transaction, cross border mergers and acquisitions demand that they be undertaken with proper techniques of management in all the aspects of the involved business. Some of the critical management areas that demand keenness in their handling include market analysis, human resource aspects and product integration and development.
In market analysis, it is obvious that in either side of the border where such cross border mergers and acquisitions are to take place; there exist unique markets, with mostly unique demands and structures. Therefore, it is a critical demand that the management techniques to be initiated provide a guideline detailing how to conduct an extensive market analysis before the cross border merger and acquisition exercise comes to effect. It is a demand that this market analysis takes a comparative approach in the sense that both of the involved businesses have their markets fully analyzed then comparisons drawn with an aim of explaining their demands and structures. It is only after the market analysis has extensively been done that proper management can be attained.
Proper management must involve the aspects of human resource. In fact, cross border mergers and acquisitions will on a very large scale rely on human resources if sustainable success is to be attained. Human resource aspects directly give a notion of employees who work for the involved firms. There is always the issue of job security that comes up when cross border mergers and acquisitions come up. Often, employees develop the notion that they may have their participation in the businesses that are merging terminated due to a number of reasons, however realistic or unrealistic they maybe. Such employee notions hurt employee productivity and the failure gets directly related to human resource management. Therefore, when initiating cross border mergers and acquisitions, it is a demand that the proper management factors gets to understand the plight of human resource aspects in such transactions.
Product development and integration is another topic of concern when dealing with the topic of proper management in cross border mergers and acquisitions. Logically, the involved business in a cross border merger and acquisition exercise has their unique products that they deal with. When such businesses will have merged, they will effectively become a single entity and in such a case, the products will need to be integrated in a way that will reflect that there actually was a cross border merger and acquisition exercise. Integrating the product and developing it is one of the most challenging tasks in cross border mergers and acquisitions. Therefore, it calls for utmost keenness when trying to streamline all the thorny issues that are often incurred in product development. In the end, it is only through proper management that effective product development and integration can be realized in cross border mergers and acquisitions.
2. CULTURAL INTEGRATION
The topic of culture is always a complex one in cross border mergers and acquisitions. In most cases, as Zhang Rong states, cross border mergers and acquisitions are transactions involving large sums of money which take in widely varied cultures. The term culture in cross border transaction elicits different definitions from among the involved players. In most cases, you will find that players from one side of the border hold a different view of the business culture while another set of players from the other side of the border have their own view. Entering into a cross border merger and acquisition exercise without fully integrating these differing views on business culture will be a mistake of dire consequences that those involved will have done. In fact, business culture is a wide topic which in most cases will include the different business and market philosophies held by the two or more merging businesses in a cross border merger and acquisition transaction. It will be proper only when a team is set up to strategize on how cultural integration will be conducted.
Some of the topics that the team set up to strategize on cultural integration will have to handle will include business philosophies and market strategic positioning. Every business always has its own philosophy from which all its strategies and ambitions stem up from. Therefore, it may be quite a daunting task in trying to have the cross border businesses to with draw their philosophies given the fact that almost everything in regard to management will remain intact regardless of the merger and acquisition exercise. The team set for cultural integration purposes in cross border mergers and acquisitions will have to ensure that a new business culture is developed that will be inclusive of all the aspects as previously held by the cultures of the involved businesses. This will certainly be a tough task but the involved businesses ought to do everything in their power to ensure that a single but effective business culture is adopted which will help the newly born business entity attain its ambitions as per to the terms and conditions of the merger.
3. BUSINESS POLICIES
Every country has its own business policies. These policies often outline how business should be conducted while in specific areas. The policies determine how successful or unsuccessful business becomes in the markets of such countries. For instance, in cross border merger and acquisitions, the involved businesses come from different countries with unique business policies. For business A which has all along operated in a specific country, it may have learned to adjust itself in the best way possible in order to meet its own ambitions as per to the policy guidelines stipulated and set in that country. This scenario also repeats for business B which has operated in a specific country. When these two businesses will merge and start operating in any one of the involved countries, it is possible that business ambitions may be hindered given the fact that one of the businesses will not have effectively adapted to the new policies in this new country. However, this may not be a persistent problem as sooner or later; the business will adjust and cope with the policy demands.
In most countries, business policies abhor monopolies. According to Vanessa Zhang, a monopoly is a situation where a single business entity controls a specific product or commodity in a specific market. Realistically, such abhorrence is beneficial as it ensures consumer protection from exploitation by businesses. Cross border mergers and acquisitions are often viewed as a precedent to monopolies. When a business merges with another, there is a likelihood that market competition for the provision of such a product to the consumers will cease to exist. With no competition in the market, the new business enters into a monopoly which diminishes the consumers’ power to choose from a wide range of businesses before picking on what business to buy from. This is often viewed as an unfair business practice and most countries have crafted policies to control cross border mergers and acquisition with an aim of discouraging monopolies. Therefore, when in the quest of trying to initiate a cross border merger and acquisition exercise, it is important that such monopoly controlling policies are fully understood lest the gets illegalized in the country where it is to be conducted.
Taxation is always one of the most challenging issues in the practice of business. The taxation challenges are magnified in cross border mergers and acquisitions. In most cases the acquiring firm, being that it operates in a foreign land will have to pay higher taxation rates than its competitors in business that will be classified as local businesses. The unequal tax rates between the foreign owned business and the locally owned business in cross border mergers and acquisitions often work against the ambitions of the acquiring firm. As there develops an unfair playground in relation to tax remittance to the authorities of the country where the transaction is to take place, realizing sustainable profitability always becomes elusive. Therefore, it becomes an important requirement that the taxation aspect of business is keenly considered before venturing into cross border mergers and acquisitions.
In addition to this, it is important that all the specifications and guidelines on how and when tax should be remitted to authorities once the cross border merger and acquisition venture has been initiated should be fully understood. History has it that some businesses have been penalized, fined or banned from operating in some countries due to their failure to remit taxes as per to the laid down procedures. Therefore, it is important that all taxation practices as spelled out in taxation laws and guidelines of various countries are keenly studied before initiating cross border mergers and acquisitions. This is the best way to ensure that the acquiring business in a cross border merger and acquisition exercise will fully benefit from the venture.
5. GENERAL BUSINESS CONDITIONS IN THE COUNTRY
In most cases, business success will be determined by a number of conditions in the countries where the business has been set up. Conditions such as guaranteed provision of security and availability of reliable and convenient insurance policies and plans should be fully catered for. With the large amounts of money involved in cross border mergers and acquisition exercises, it is a demand that these conditions are availed without any form of delay. Delays in the provision of such useful pro-business conditions in cross border mergers and acquisitions may prove disastrous to the acquiring firm. The large amounts of funds that are pumped into the cross border merger exercise should guarantee of their security at all times and any aspect of threat to such a business should be fully eliminated.
Conditions of effective business should be streamlined to ensure that there is a guarantee of returns on investment in cross border merger and acquisition transactions. Unless there are such safe conditions to practice business, the transaction will fail and the losses that may be incurred may be beyond contemplation. Realistically, cross border mergers and acquisitions are expensive ventures that demand the best of conditions on and off the market. In addition to the internal business strategies, there should be an assurance from the authorities in the new country that the involved business will be safe and no disruptions will hinder its maximum performance. This is a necessary commitment given the fact that cross border mergers and acquisitions often provides economic benefits that such countries require for the development and growth of their countries. Therefore, before initiating cross border mergers and acquisitions, the involved business should ensure that the conditions of practicing business in whatever countries where the merger and acquisition will be performed ought to be safe and disruption free all through the duration of business practice.
Cross border mergers and acquisitions are complex ventures that require proper planning, management and ethical conduct before they are initiated. Failure to fully venture into these three practices will lead to failure and such failure will always result in the loss of large sums of money. Every step that will be taken when in the quest to attain a successful cross border merger and acquisition transaction must be identified, analyzed and then a decision on whether to take it or not be made. A cross border merger and acquisition exercise should never be a one man show but rather an exercise in which every player and stakeholder fully takes part in before any decisions are made. It is of great importance that every view and opinion that may be raised by those charged with the responsibility of ensuring a successful cross border merger and acquisition exercise is taken with the seriousness that it deserves.
In conclusion, cross border mergers and acquisitions should be treated as important ventures given the often critical implications that they come with. Therefore, all the above described factors ought to be fully considered before any decision of whether to allow the transaction or not is made. Failure to consider the above factors may lead to complications which may alter the route to success. However, the above discussed factors should only form the basis of what should be considered in cross border mergers and acquisitions. Realistically, every cross border merger and acquisition transaction tend to vary hence the need to ensure that every such transaction is analyzed per its unique demands and specifications.