Globalization

Globalization refers to the increasing unification of the world's economic order through reduction of such barriers to international trade as tariffs, export fees, and import quotas. The goal is to increase material wealth, goods, and services through an international division of labor by efficiencies catalyzed by international relations, specialization and competition. It describes the process by which regional economies, societies, and cultures have become integrated through communication, transportation, and trade. The term is most closely associated with the term economic globalization: the integration of national economies into the international economy through trade, foreign direct investment, capital flows, migration, the spread of technology, and military presence. However, globalization is usually recognized as being driven by a combination of economic, technological, sociocultural, political, and biological factors.The term can also refer to the transnational circulation of ideas, languages, or popular culture through acculturation. An aspect of the world which has gone through the process can be said to be globalized. Against this view, an alternative approach stresses how globalization has actually decreased inter-cultural contacts while increasing the possibility of international and intra-national conflict.

Critics

Since 1991, this discourse has been increasing rapidly in importance in the United states; the number of newspaper articles showing negative framing rose from about 10% of the total in 1991 to 55% of the total in 1999. This increase occurred during a period when the total number of articles concerning globalization nearly doubled. This discourse takes two very different forms:

1) Concern over economic well being in developed countries

In industrialized countries discourse about globalization centers on economic self-interest. Newspaper articles about globalization typically express concerns involve the interconnectedness of international financial markets and the potential for economic crisis, as well as threats to the livelihood of workers.

2) Concern over the impact of globalization in developing countries

The establishment of the WTO in 1995 and subsequent protests led to a large-scale anti-globalization movement that is primarily concerned with the negative impact of globalization in developing countries. Their concerns range from environmental issues to issues like democracy, national sovereignty and the exploitation of workers.

Individuals who associate themselves with the anti-globalization movement in industrialized countries comprise a relatively small but vocal minority. They are disproportionately middle-class and college-educated. This contrasts sharply with the situation in developing countries, where the anti-globalization movement has been more successful in achieving a broader, more balanced social class composition, with millions of workers and farmers getting actively involved.

Common ground

This discourse involves a synthesis combining elements of all three of the above forms. It is practical, insofar as it accepts the reality of international integration and attempts to work within it. It is positive in that it believes that international cooperation can provide solutions to important problems. At the same time, it recognizes the negative aspects of globalization and proposes ways to mitigate their impact.

Beginning in 2001 with the World Social Forum (WSF), there has been a movement consisting of individuals trying to bring about this type of synthesis. It is associated with the term Alter-globalization (or altermondialization), a positive spin on the term anti-globalization. Members of this movement support the international integration of globalization, but demand that values of democracy, economic justice, environmental protection, and human rights be put ahead of purely economic concerns. This movement is discussed at length in the section Alter-globalization.

Anti-globalization movement

"Anti-globalization" can involve the process or actions taken by a state or its people in order to demonstrate its sovereignty and practice democratic decision-making. Anti-globalization may occur in order to maintain barriers to the international transfer of people, goods and beliefs, particularly free market deregulation, encouraged by business organizations and organizations such as the International Monetary Fund or the World Trade Organization. Moreover, as Naomi Klein argues in her book No Logo, anti-globalism can denote either a single social movement or an umbrella term that encompasses a number of separate social movements such as nationalists and socialists.

Some members aligned with this viewpoint prefer instead to describe themselves as the "Global Justice Movement", the "Anti-Corporate-Globalization Movement", the "Movement of Movements" (a popular term in Italy), the "Alter-globalization" movement (popular in France), the "Counter-Globalization" movement, and a number of other terms.

Critiques of the current wave of economic globalization typically look at both the damage to the planet, in terms of the unsustainable harm done to the biosphere, as well as the human costs, such as poverty, inequality, miscegenation, injustice and the erosion of traditional culture which, the critics contend, all occur as a result of the economic transformations related to globalization. They challenge directly the metrics, such as GDP, used to measure progress promulgated by institutions such as the World Bank, and look to other measures, such as the Happy Planet Index, created by the New Economics Foundation. They point to a "multitude of interconnected fatal consequences–social disintegration, a breakdown of democracy, more rapid and extensive deterioration of the environment, the spread of new diseases, increasing poverty and alienation" which they claim are the unintended but very real consequences of globalization.

Critics argue that globalization results in:

· Poorer countries suffering disadvantages: While it is true that globalization encourages free trade among countries, there are also negative consequences because some countries try to save their national markets. The main export of poorer countries is usually agricultural goods. Larger countries often subsidise their farmers (like the EU Common Agricultural Policy), which lowers the market price for the poor farmer's crops compared to what it would be under free trade.

· The shift to outsourcing: Globalization has allowed corporations to move manufacturing and service jobs from high cost locations to locations with the lowest wages and worker benefits. This results in loss of jobs in the high cost locations while creating great economic opportunities in poorer countries.

· Weak labor unions: The surplus in cheap labor coupled with an ever growing number of companies in transition has caused a weakening of labor unions in the United States. Unions lose their effectiveness when their membership begins to decline. As a result unions hold less power over corporations that are able to easily replace workers, often for lower wages, and have the option to not offer unionized jobs anymore.

· An increase in exploitation of child labor: for example, a country that experiencing increases in labor demand because of globalization and an increase the demand for goods produced by children, will experience greater a demand for child labor. This can be "hazardous" or "exploitive", e.g., quarrying, salvage, cash cropping but also includes the trafficking of children, children in bondage or forced labor, prostitution, pornography and other illicit activities.

The critics of globalization typically emphasize that globalization is a process that is mediated according to corporate interests, and typically raise the possibility of alternative global institutions and policies, which they believe address the moral claims of poor and working classes throughout the globe, as well as environmental concerns in a more equitable way.

Globalization and risk. As well as opening up considerable possibility, the employment of new technologies, when combined with the desire for profit and this 'world-wide' reach, brings with it particular risks. Indeed, writers like Ulrich Beck (1992: 13) have argued that the gain in power from the 'techno-economic progress' is quickly being overshadowed by the production of risks. (Risks in this sense can be viewed as the probability of harm arising from technological and economic change). Hazards linked to industrial production, for example, can quickly spread beyond the immediate context in which they are generated. In other words, risks become globalized.

[Modernization risks] possess an inherent tendency towards globalization. A universalization of hazards accompanies industrial production, independent of the place where they are produced: food chains connect practically everyone on earth to everyone else. They dip under borders. (Beck 1992: 39)

As Beck (1992: 37) has argued there is a boomerang effect in globalization of this kind. Risks can catch up with those who profit or produce from them.

The basic insight lying behind all this is as simple as possible: everything which threatens life on this Earth also threatens the property and commercial interests of those who live from the commodification of life and its requisites. In this way a genuine and systematically intensifying contradiction arises between the profit and property interests that advance the industrialization process and its frequently threatening consequences, which endanger and expropriate possessions and profits (not to mention the possession and profit of life) (Beck 1992: 39).

Here we have one of the central paradoxes of what Beck has termed 'the risk society'. As knowledge has grown, so has risk. Indeed, it could be argued that the social relationships, institutions and dynamics within which knowledge is produced have accentuated the risks involved. Risk has been globalized.

MERGER

What Does Merger Mean?

The combining of two or more companies, generally by offering the stockholders of one company securities in the acquiring company in exchange for the surrender of their stock.

A merger occurs when two companies combine to form a single company. A merger is very similar to an acquisition or takeover, except that in the case of a merger existing stockholders of both companies involved retain a shared interest in the new corporation. By contrast, in an acquisition one company purchases a bulk of a second company's stock, creating an uneven balance of ownership in the new combined company.

The entire merger process is usually kept secret from the general public, and often from the majority of the employees at the involved companies. Since the majority of merger attempts do not succeed, and most are kept secret, it is difficult to estimate how many potential mergers occur in a given year. It is likely that the number is very high, however, given the amount of successful mergers and the desirability of mergers for many companies.

A merger may be sought for a number of reasons, some of which are beneficial to the shareholders, some of which are not. One use of the merger, for example, is to combine a very profitable company with a losing company in order to use the losses as a tax write-off to offset the profits, while expanding the corporation as a whole.

Increasing one's market share is another major use of the merger, particularly amongst large corporations. By merging with major competitors, a company can come to dominate the market they compete in, giving them a freer hand with regard to pricing and buyer incentives. This form of merger may cause problems when two dominating companies merge, as it may trigger litigation regarding monopoly laws.

Another type of popular merger brings together two companies that make different, but complementary, products. This may also involve purchasing a company which controls an asset your company utilizes somewhere in its supply chain. Major manufacturers buying out a warehousing chain in order to save on warehousing costs, as well as making a profit directly from the purchased business, is a good example of this. PayPal's merger with eBay is another good example, as it allowed eBay to avoid fees they had been paying, while tying two complementary products together.

A merger is usually handled by an investment banker, who aids in transferring ownership of the company through the strategic issuance and sale of stock. Some have alleged that this relationship causes some problems, as it provides an incentive for investment banks to push existing clients towards a merger even in cases where it may not be beneficial for the stockholders.

The merger process will no doubt change in the near future, as dynamic technologies allow for the development of a more streamlined marketplace which manages to protect the privacy of interested companies while linking up ideal candidates for a merger.

Mergers and acquisitions

Mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or new location, without creating a subsidiary, other child entity or using a joint venture. The distinction between a "merger" and an "acquisition" has become increasingly blurred in various respects (particularly in terms of the ultimate economic outcome), although it has not completely disappeared in all situations.

Distinction between mergers and acquisitions

Although often used synonymously, the terms merger and acquisition mean slightly different things.This paragraph does not make a clear distinction between the legal concept of a merger (with the resulting corporate mechanics, statutory merger or statutory consolidation, which have nothing to do with the resulting power grab as between the management of the target and the acquirer) and the business point of view of a "merger", which can be achieved independently of the corporate mechanics through various means such as "triangular merger", statutory merger, acquisition, etc. When one company takes over another and clearly establishes itself as the new owner, the purchase is called an acquisition. From a legal point of view, the target company ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded.

In the pure sense of the term, a merger happens when two firms agree to go forward as a single new company rather than remain separately owned and operated. This kind of action is more precisely referred to as a "merger of equals". The firms are often of about the same size. Both companies' stocks are surrendered and new company stock is issued in its place.For example, in the 1999 merger of Glaxo Wellcome and SmithKline Beecham, both firms ceased to exist when they merged, and a new company, GlaxoSmithKline, was created. In practice, however, actual mergers of equals don't happen very often. Usually, one company will buy another and, as part of the deal's terms, simply allow the acquired firm to proclaim that the action is a merger of equals, even if it is technically an acquisition. Being bought out often carries negative connotations; therefore, by describing the deal euphemistically as a merger, deal makers and top managers try to make the takeover more palatable. An example of this would be the takeover of Chrysler by Daimler-Benz in 1999 which was widely referred to as a merger at the time.

A purchase deal will also be called a merger when both CEOs agree that joining together is in the best interest of both of their companies. But when the deal is unfriendly (that is, when the target company does not want to be purchased) it is always regarded as an acquisition.

Cross-border M&A

In a study conducted in 2000 by Lehman Brothers, it was found that, on average, large M&A deals cause the domestic currency of the target corporation to appreciate by 1% relative to the acquirers.

The rise of globalization has exponentially increased the necessity for MAIC Trust accounts and securities clearing services for Like-Kind Exchanges for cross-border M&A. In 1997 alone, there were over 2333 cross-border transactions, worth a total of approximately $298 billion. Due to the complicated nature of cross-border M&A, the vast majority of cross-border actions have unsuccessful anies seek to expand their global footprint and become more agile at creating high-performing businesses and cultures across national boundaries.

Even mergers of companies with headquarters in the same country are very much of this type and require MAIC custodial services (cross-border Mergers). After all, when Boeing acquires McDonnell Douglas, the two American companies must integrate operations in dozens of countries around the world. This is just as true for other supposedly "single country" mergers, such as the $29 billion dollar merger of Swiss drug makers Sandoz and Ciba-Geigy (now Novartis).

M&A failure

Despite the goal of performance improvement, results from mergers and acquisitions (M&A) are often disappointing. Numerous empirical studies show high failure rates of M&A deals. Studies are mostly focused on individual determinants. A book by Thomas Straub (2007) "Reasons for frequent failure in Mergers and Acquisitions"[18] develops a comprehensive research framework that bridges rival perspectives and promotes a modern understanding of factors underlying M&A performance. The first important step towards this objective is the development of a common frame of reference that spans conflicting theoretical assumptions from different perspectives. On this basis, a comprehensive framework is proposed with which to understand the origins of M&A performance better and address the problem of fragmentation by integrating the most important competing perspectives in respect of studies on M&A Furthermore according to the existing literature relevant determinants of firm performance are derived from each dimension of the model. For the dimension strategic management, the six strategic variables: market similarity, market complementarities, production operation similarity, production operation complementarities, market power, and purchasing power were identified having an important impact on M&A performance. For the dimension organizational behavior, the variables acquisition experience, relative size, and cultural differences were found to be important. Finally, relevant determinants of M&A performance from the financial field were acquisition premium, bidding process, and due diligence. Three different ways in order to best measure post M&A performance are recognized: Synergy realization, absolute performance and finally relative performance.

Turnover contributes to M&A failures. The turnover in target companies is double the turnover experienced in non-merged firms for the ten years following the merger.

Corporate culture is the total sum of the values, customs, traditions, and meanings that make a company unique. Corporate culture is often called "the character of an organization", since it embodies the vision of the company’s founders. The values of a corporate culture influence the ethical standards within a corporation, as well as managerial behavior.

Why do firms carry out mergers and acquisitions, and how can the difficulties involved be overcome?

In October this year, the British government approved a merger between two major television companies, Carlton and Granada. The £4 billion deal, which creates a single ITV company for the whole of England and Wales, was welcomed enthusiastically both by investors and by the managers of the two troubled companies , who have steadily lost audience share and advertising revenue to new rivals such as BSkyB, and lost money following the collapse of their ITV Digital venture. However, it remains to be seen whether the new partnership will succeed in turning around the companies' fortunes, or whether, like many past corporate marriages, it will end in unhappiness and divorce.

The merging of two companies into one is not a recent idea - there were "waves" of corporate mergers back in the 1920s, the 1960s and the 1980s (Fairburn and Kay 1989) - but the enormous scale on which companies have swallowed each other up over the past decade far exceeds what has gone before. The total worldwide value of mergers and acquisitions in 1998 alone was $2.4 trillion, up by 50% from the previous year. However, research suggests that a large proportion of mergers and acquisitions do more harm than good to companies and their shareholders: Mercer Management Consulting (1997) concluded that "an alarming 48% of mergers underperform their industry after three years" , and Business Week recently reported that in 61% of acquisitions "buyers destroyed their own shareholders' wealth".

Why do so many firms choose to participate in mergers and acquisitions, and why do so many of these subsequently go wrong? In this essay, I will attempt to answer these questions, and examine what steps companies can take in order to prevent acquisitions from ending in failure.

The reasons for mergers and acquisitions

One of the most common arguments for mergers and acquisitions is the belief that "synergies" exist, allowing the two companies to work more efficiently together than either would separately. Such synergies may result from the firms' combined ability to exploit economies of scale, eliminate duplicated functions, share managerial expertise, and raise larger amounts of capital (Ravenscraft and Scherer 1987). Carlton and Granada hope to save £55 million annually by combining their operations. Unfortunately, research shows that the predicted efficiency gains often fail to materialise following a merger (Hughes 1989).

'Horizontal' mergers (between companies operating at the same level of production in the same industry) may also be motivated by a desire for greater market power. In theory, authorities such as Britain's Competition Commission should obstruct any tie-up that could create a monopoly capable of abusing its power - as it did recently in preventing the largest supermarket chains from buying the retailer Safeway - but such decisions are often controversial and highly politicised. (In the case of Carlton and Granada, the government imposed strict safeguards to prevent the combined firms from unfairly raising the price of TV advertising. ) However, some authors have argued that mergers are unlikely to create monopolies even in the absence of such regulation, since there is no evidence that mergers in the past have generally led to an increase in the concentration of market power (George 1989), although there may be exceptions within specific industries (Ravenscraft and Scherer 1987).

In some cases, firms may derive tax advantages from a merger or acquisition. However, Auerbauch and Reishus (1988) concluded that tax considerations probably do not play a significant role in prompting companies to merge.

Corporations may pursue mergers and acquisitions as part of a deliberate strategy of diversification, allowing the company to exploit new markets and spread its risks. AOL's merger with media giant Time Warner, for example, saved it from being affected quite so disastrously as many of AOL's Internet competitors by the 'dot com crash' (Henry 2002).

A company may seek an acquisition because it believes its target to be undervalued, and thus a "bargain" - a good investment capable of generating a high return for the parent company's shareholders. Often, such acquisitions are also motivated by the "empire-building desire" of the parent company's managers (Ravenscraft and Scherer 1987).

Why mergers and acquisitions fail

Sometimes, the failure of an acquisition to generate good returns for the parent company may be explained by the simple fact that they paid too much for it. Having bid over-enthusiastically, the buyer may find that the premium they paid for the acquired company's shares (the so-called "winner's curse") wipes out any gains made from the acquisition (Henry 2002).

However, even a deal that is financially sound may ultimately prove to be a disaster, if it is implemented in a way that does not deal sensitively with the companies' people and their different corporate cultures. There may be acute contrasts between the attitudes and values of the two companies, especially if the new partnership crosses national boundaries (in which case there may also be language barriers to contend with)

A merger or acquisition is an extremely stressful process for those involved: job losses, restructuring, and the imposition of a new corporate culture and identity can create uncertainty, anxiety and resentment among a company's employees (Appelbaum et al 2000). Research shows that a firm's productivity can drop by between 25 and 50 percent while undergoing such a large-scale change; demoralisation of the workforce is a major reason for this (Tetenbaum 1999). Companies often pay undue attention to the short-term legal and financial considerations involved in a merger or acquisition, and neglect the implications for corporate identity and communication, factors that may prove equally important in the long run because of their impact on workers' morale and productivity (Balmer and Dinnie 1999).

Managers, suddenly deprived of authority and promotion opportunities, can be particularly bitter: one survey found that "nearly 50% of executives in acquired firms seek other jobs within one year". Sometimes there may be specific personality clashes between executives in the two companies. This may prove a problem in the case of Carlton and Granada: Carlton's chief executive Charles Allen and Granada's chairman Michael Green, who will have joint responsibility for running the merged company, have been likened to "ferrets in a sack".

Strategies for a successful acquisition

Why are so many organisations apparently unable to overcome such difficulties? A merger or major acquisition is often a unique, one-off event in the lifetime of a firm; companies therefore have no opportunity to learn from their experience and develop tried-and-tested methods to ensure that the process is carried out smoothly. One notable exception to this is the financial-services conglomerate GE Capital Services, which has made over 100 acquisitions during a five-year period (Ashkenas et al 1998). Through this extensive experience, GE Capital has learnt four basic lessons:

The integration of acquired companies is an ongoing process that should be initiated before the deal is actually closed. During the period in which the acquisition is being negotiated and subjected to regulatory review, the management of the two companies can liaise with each other and draw up a clear integration strategy. Starting earlier not only allows the integration to proceed faster and more efficiently, but also gives GE Capital the opportunity to identify potential problems (such as drastic differences in management style and culture) at a stage when it is not too late to abandon the deal if the difficulties encountered seem so severe that the acquisition is likely to fail. Unfortunately, however, even if a very thorough investigation is done prior to the acquisition, there are often potential problems that will not manifest themselves until long after the deal has been done (Ravenscraft and Scherer 1987). It is also impossible to take early steps towards integration in the case of a hostile takeover bid (where the managers of the company being acquired refuse to co-operate with their potential buyers).

Integration management needs to be recognised as a "distinct business function", with an experienced manager appointed specifically to oversee the process. The 'integration managers' that GE Capital selects to oversee its acquisitions can come from a wide variety of backgrounds, but all must have the interpersonal skills and cultural sensitivity necessary to foster good relationships between the management and staff of the parent company and its new subsidiary.

If uncomfortable changes (such as layoffs and restructuring) have to be made at the acquired company, it is important that these are announced and implemented as soon as possible - ideally within days of the acquisition. This helps to avoid the uncertainties and anxieties that can demoralise the workforce of a newly-acquired company, allowing employees to move on and to focus on the future.

Perhaps the most important lesson is that it is important to integrate not just the practical aspects of the business, but also the firms' workforces and their cultures. A good way to achieve this is to create groups comprising people from both companies, and get them to work together at solving problems.

Other authors, however, question whether aiming for total integration of two contrasting company cultures is necessarily the best approach. There are, in fact, four different options for reconciling cultural differences: complete integration of the two cultures, assimilation of one culture by another, separation of the two cultures (so that they are maintained side by side), or deculturation (eventual loss of both cultures). The optimal strategy may depend upon the degree of cultural difference that exists between the organisations, and the extent to which each values its own culture and identity (Appelbaum et al 2000).

Tetenbaum (1999) suggests an alternative set of "seven key practises" to assist with a successful merger or acquisition:

Close involvement of Human Resources managers in the acquisition process; they should have a say in whether or not the deal goes ahead.

"Building organisational capacity" by ensuring that close attention is paid to the retention and recruitment of employees during the acquisition.

Ensuring that the integration is focused on achieving the desired effect (for example, cost savings), while at the same time ensuring that the core strengths and competences of the two companies are not damaged by the transition.

Carefully managing the integration of the organisations' cultures.

Completing the acquisition process quickly, since productivity is harmed by the disorganisation and demoralisation that inevitably occur while the change is underway.

Communicating effectively with everyone who will be affected by the change. Other authors agree that "being truthful, open and forthright" during an acquisition is vital in helping employees to cope with the transition (Appelbaum 2000).

Developing a clear, standardised integration plan. Tetenbaum cites the example of Cisco Systems, which, like GE Capital, makes large numbers of acquisitions and has been able to learn from its experiences and build up tried-and-tested processes for carrying them out successfully.

Conclusions

Although there are many different opinions on precisely what causes so many mergers and acquisitions to fail, and on how these problems can be avoided, there are certain points that most analysts appear to agree on. It is widely accepted, for instance, that the 'human factor' is a major cause of difficulty in making the integration between two companies work successfully. If the transition is carried out without sensitivity towards the employees who may suffer as a result of it, and without awareness of the vast differences that may exist between corporate cultures, the result is a stressed, unhappy and uncooperative workforce - and consequently a drop in productivity.

With this in mind, it is important that a clear 'integration plan' is in place, and that it is overseen by a dedicated manager with the experience and interpersonal skills to calm employees' anxieties and reconcile cultural differences. Preparation for the transition should begin as soon as possible, preferably before the deal has been signed, and any necessary changes should be implemented as quickly as possible to avoid stressful uncertainties that can damage morale. Open and honest communication throughout the process is vital in retaining the trust of employees.

Even when following these principles, there may be situations in which a tie-up between two companies could never be made to work effectively, because there are irreconcilable differences in corporate culture or because the drawbacks of a merger would outweigh any potential benefits. Although it is obviously impossible to predict with certainty the outcome of a merger or acquisition before it takes place, thorough preparation can definitely help, and companies should not be afraid to abandon plans for a tie-up if there is evidence that it is unlikely to be a success.

Most importantly, any decision to carry out a merger or acquisition should consider not only the legal and financial implications, but also the human consequences - the effect of the deal upon the two companies' managers and employees. It is upon them, ultimately, that the fate of the newly-merged company will depend.

Date: 2014-12-21; view: 1916