C. Advantages and disadvantages of acquiring SOEs
When a manager is assessing profitability of acquiring a state owned enterprise, it is crucial to identify the advantages and disadvantages. By doing this, the company will be able to make effective and strategic decisions, especially when entering a company in the volatile MENA region.
Several driving factors may serve as incentives for managers, which include the fact that acquisition could be seen as a strategic move that provides local brands, increases distribution channels, therefore leading to higher levels of efficiency. Despite these claims, Ayoubi argues that privatization in the MENA is not linked with managerial efficiency of SOE as no studies verify this claim. It is stated that SOEs discourage competition while private ownership promotes competition moreover contributing to yield more results (Ayoubi, 1997).
In addition to this, acquiring an SOE can be favorable as it promotes market knowledge and enhances government business relationships in the economy. On the other hand, the privatization of SOEs is highly under governmental influence where governments may not only maximize their financial revenues, but also pursue broader social objectives (e.g. Wortman 1990, Estrin 1994). The apparent problem of Wasta in the MENA is another prominent feature that needs to be taken into consideration, especially when acquiring an SOE. For example, the case of Egypt in partially privatized firms, Al-Fuloul (remnants of the Mubarak regime) hold large equity stakes needed to maintain bargaining power.
A drawback of acquiring an SOE is the lengthy negotiation process and high costs. Rigid restrictions such as stipulated employment guarantees, investment commitment, partial local owne...
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Brickley, J 1996, Incentive Conflicts and Contractual Restraints: Evidence from Franchising, Journal of Law & Economics, p. 173.
According Hillier (2013), a horizontal acquisition could increase operating efficiency through economies of scale. Generally, the cost per unit is relate to the size of production, a company would experiences economies of scale in which the cost per unit decrease with an increase of production size until it reaches the optimal firm size and after that diseconomies of scale will show up. Furthermore, we could share same central facilities such as computer systems, corporate headquarters and management which could reduce the management costs. A lower operating and management costs could miti...
Eckbo and Masulis (1992) open their paper by explaining the decline in rights issues and the surge in firm commitments. To show this Eckbo and Masulis use a sample of 1,249 equity offers between 1963-1981.
The financial challenge facing the company in the managing international acquisitions simulation was to decide which bank presented the best choice for acquisition. Some criteria was finding the bank with the best fit, determining the financial stability of the country, and business valuation. The choice was not solely based on financial criteria such as assets, liabilities, and financial position but included other criteria such as the customer base, competitive position, number of branches, and product portfolio. The use of discounted cash flows was then employed to arrive at a final bid price.
In the literature one finds a large number of explanations for the occurrence of mergers and acquisitions. Sometimes, these explana-tions are also applicable to related forms of interindustrial links such as joint ventures or strategic alliances. Therefore it is necessary to define the term merger and acquisition as it will be used throughout this paper.
Many features differentiated fashion industry with others. One could be high speed production (Fletcher, 2012). Due to seasonally changes in the industry, the demand of suitable clothing is urgent (ibid). This forced manufacturers to improve efficiency of manufacturing process. Then, fashion industry can be fragmented and highly competitive (ibid). There are not only main players in the market, but also many private companies and ‘niche stores’ that only produce specific type of goods or service target consumers (ibid). Thus competition is intensified. Also, the industry could be economically sensitive (Spencer, n.d.). If the economy is booming, people may purchase more fashion products; however, during economic recession, this type of goods coul...
Although the strategy can bring a lot of benefits to LIDS, it needs to take note of a few shortcomings associated with this option. Firstly, the strategy lacks the necessary due diligence for entering new markets, which may affect LIDS’ successful entry into its target foreign markets. Secondly, this option is a significant financial investment with high political and market risks. However, these faults can be minimized through conducting intens...
Although mergers and acquisitions are motivated by different requirements, the end result is to increase the organization’s size and capacity for growth. The main objective of every organization is to get maximum profit every year to increase the wealth of shareholders by giving them high dividends. Every organization adopts different techniques and tools to maximize its profit in order to survive in the fast growing market. The smaller or less profit-oriented organizations are left with no option than to quit from the market or else merge with or acquired by firms of good financial standing. Mergers and Acquisitions are options for small or less profit-making organisations to survive in the emerging market. In theory, mergers and acquisitions
Mergers and acquisitions (“M&A”) refer to the consolidation of two companies and occur for a number of reasons, including growth, synergy, market power, sustainable competitive advantage, and diversification. M&As enable organizations to share resources, leverage competencies, gain flexibility and create opportunities that the organization may not otherwise have been able to create. An increase of international mergers and acquisitions seen over the last few years can be attributed to advances in technology, globalization and deregulation. Globalization and increased competition have resulted in organizations expanding their operations to foreign markets (Antila & Kakkonen, 2008). While M&As are widely utilized, many are not successful.
...t have merged together, the fixed costs are distributed over a large volume of production causing the unit cost of production of the firms to decline to big levels (Ghose, 2003: 29 paragraph: 4). After the firms have engaged themselves with merging and acquisition due to globalization there are other benefits that may arise. These include production facilities, management functions and management resources and systems. A foreign company can bring these benefits to the firm that it has acquired or merged with. There is also another important benefit that may arise that when global firms merge or are involved in the process of acquisition, there will be diversification of risks. When there are unfavorable conditions in one country affecting the market, the other country can have very favorable conditions and there will be no pure loss (Carr, 1999: 417 paragraph: 2).
However, were increasing opportunities to do business while less the power of control may is some concerns that the owner has to think before make a decision. (Suarez and Canal, 2003) commented that the benefit of strategic alliances can help the company improve the competitive of opportunity, such as a company might be turning a potential rival into a partner which helps each other’s or the benefit in term of revenue because that can turn create new market opportunities, it is allowing for imitation or competition in the same market was more difficult.
...Italy, Spain, Ukraine, Poland) and expanded successfully. In addition, there is a potential company namely yolyola.com (YY ) which can be acquired by establishing the acquisition. By acquiring the yolyola.com, this would give the BBC complete control as the competition would be eliminated. Moreover, the incumbent company YY knows the local market which would help to coordinate global actions. However, it may follow that company would face the post-acquisition integration problems, political problems and risks (explained in the section “Foreign market: Turkey) and high development costs. The decision model of expanding to Turkey market was explained applying real issues that country has to deal with. Apparently, there are drawbacks by entering the market. However, the BBC has market experienced and that would make the company be able to solve the arising problems.
Political influence. Governments may more easily exert pressure on state-owned firms to help implementing government policy.
A corporation can grow internally by increasing its operations both domestically and globally, or it can grow externally through mergers, acquisitions or strategic alliances. Mergers and acquisitions have had an important impact on the business environment for over a decade, and they have often come in waves of activities that were motivated by different factors. Furthermore, the global marketplace provides many opportunities for companies to increase their revenue base and their profitability. In today’s intensive economy, there is the potential to create advantages by controlling firm knowledge when crossing boundaries to do business. This paper will analyze the strategy that directed to the merger or acquisition to a company to determine whether or not this was a wise choice, and to also detect the strategy one company that would be a profitable choice for the company to acquire or merge with, and to explain why this company would be a profitable target. This paper will also evaluate its international business-level strategy and international corporate-level strategy and make recommendations for improvement as well as for the corporation that does not operate internationally. This paper will propose one business-level strategy and one corporate-level strategy that would suggest the corporation consider.
Firms exist with the purpose of create and deliver economic value (Bensaco et al 2010, p. 365); therefore, business that create better economic value than its competitors will attain an advantage position in market place. Companies might try to improve its sales (profit) through domestic expansion, product diversification or by internationalisation; this report will focus on the reasons of espressamente Illy to expand internationally; additionally, its sources of competitive advantage and, the analysis of three markets in which company want to participate.