Gaining Competitive Advantage Through Mergers and Acquisitions - Essay Sample

Literature Review

It is first important to examine the literature relevant to the subject to gain insight and draw a perspective on just whether mergers enable firms to gain competitive advantage. The appropriate documentation is indeed documented and present two competing views: First is that mergers and acquisitions are beneficial to firms. Second is that mergers and acquisitions can be disadvantageous.

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Given the quickly moving corporate and worldwide scenes, if we are to keep pace with the speed of altering, learning, and development happening within the companies that we ponder, we require to be prepared to move as analysts locked in studying one of the foremost predominant forms of alter in cutting edge corporate history. In a later ponder, Stiebale & Reize (2011) expressed that the first decade of the new thousand years heralded an era of global megamergers. Just like the mergers and acquisitions (M&As) craze of the 1980s and 1990s, a few variables fueled movement through mid-2007: promptly available credit, historically moo intrigued rates, rising value markets, innovative alter, worldwide competition, and industry solidification. In terms of dollar volume, M&A exchanges came to a record level worldwide in 2007.

Bocken, Rana & Short (2015) claim that simply examining extra discrete variables, inside teach, may not be adequate to advance M&A inquire about as usually to fall into a "specialization trap." M&A could be a multilevel, multidisciplinary, and multistage wonder. It requires a more pluralist approach, with integrator systems, to handle the complexities of this multifaceted, multitemporal marvel. Verifiably, M&A analysts have centered separately on pre-acquisition components and post-acquisition components affecting execution. However, a disappointment to discover a positive relationship between cooperative energy possibilities of vital fit and M&A execution has led analysts to recognize that “organizational fit” between companies post bargain may be the most determinant of in general M&A execution.

Riasanow, Galic & Böhm (2017) focus on the reply to whether M&As pay off appears to depend on whom and over what period. On average, add up to shareholder picks up around the declaration date of a securing or merger is fundamentally positive; be that as it may, most of the pick-ups gather to target firm shareholders. Besides, within the three to five a long time after a takeover, numerous acquirer firms either underperform compared with their industry peers or crush shareholder esteem. The creator concludes that whether this sub-par execution and esteem pulverization is due to the procurement or other variables is less clear.

Whether the merger would have been justified, in the first place, is also an intriguing one. Various authors have concurred that mergers can enable firms to leverage competitive advantage (Ghosh and Dutta, 2016). It has been noted that there is always a tradeoff in management choices of whether to pursue growth through acquisitions and mergers or solely seeking innovations. In many cases, managers end up opting for acquisitions and mergers over starting from scratch for various reasons. The commitment to innovation seen to be demanding and risky — it is the willingness to give an allocation of resources and to be in the forefront in championing the development of new products, new ways of doing things and new processes and to align the technologies of the firm with the advancement in technologies in the market place.

In contrast, mergers and acquisitions reduce the risks inherent to each firm and increase the firm's productivity. Therefore, a manager's commitment to innovations depends on various aspects, including weighing the risks relative to what the options of mergers and acquisitions will offer. In essence, the managers often have to deal with the dilemma of whether to allocate the limited resources to a risky project or invest more resources on a project with a high anticipated success rate.

Already, there have been several cases of mergers and acquisitions that have proved to be a success. For instance, two automotive companies, Renault and Nissan, struck a merger deal that allowed Renault to acquire some percent of the Nissan's equity stake, some percentage in Nissan Diesel's stake, and the entire percent stake of Nissan's European Finance subsidiaries. The deal was successful, and the companies are thinking of more merger deals (Welch, Hammond, Porter, and Ma 2013). The deal amounted to well several billion dollars and was aimed at improving the competitiveness of both companies. Both companies were going to retain their identity while sharing the resources.

As part of the deal, Renault would provide support to Nissan in the South American and European markets, while Nissan supports Renault in North America and Asia markets. Besides, the operations in the Middle East and Africa would be a shared responsibility between the two companies. Based on the merger relationships, Renault and Nissan aimed at maximizing strength through R&D, personnel training, cost reduction, market penetration, procurement, and product line up. In a bid to ensure that the merger was successful, the two companies agreed on several strategies to ensure the integration process was successful. First, the management decided that the process of integrating the merger was to be slow. This decision was in consideration to the view that, if the process were rushed, it would lead to various undesirable consequences such as loss of key personnel and escalating integration costs. Secondly, the merger started by focusing on customer-facing areas such as sending orders to the warehouses, shipment processes, and billing.

The merger essentially implied that Renault and Nissan would be able to pool resources and maximize strength through R&D, personnel training, cost reduction, market penetration, procurement, and product line up. Certainly, Renault and Nissan had certain strengths and weaknesses that they could both address through the merger. For example, considering Nissan's market was weak in South America and Europe, the merger would create the allowance for Renault to provide support to Nissan in the South American and European markets. Similarly, since Renault's presence was weak in North America and Asia, the merger creates the allowance for Nissan to support Renault in North American and Asian markets. Furthermore, with increased strength, the two firms could work together strongly to exploit the market opportunities in the Middle East and Africa through shared responsibilities.

Despite the benefits, some scholars have faulted mergers and acquisitions for their failure to support innovation and creativity. When the organizations or entities merge, they are most likely looking for the best way out of their challenges, rather than confronting the challenges. In essence, mergers and acquisitions can be seen to deny firms the opportunity to undertake groundwork innovative initiatives and learn ideas that could help them address a problem...