Cross border Acquisitions and Mergers The main motives for cross-border acquisitions and mergers are efficiency gains and strategic motive. Efficiency gains due to synergy between the firms leading to economies of scale or scope. Strategic motive is if there is a change in market structure resulting in the change of the firm’s competitive position and profits because of the access to different product types, workforces, suppliers and capital markets. Also the cross border acquisitions and mergers result in FDI (Foreign Direct Investment) inflows into the developed countries based on the various mergers in the past. However, in spite of the advantages, the mergers do come along with the major challenges such as cultural challenges,
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Also the restriction on the type of exchange such as cash only or exchange of shares during the acquisition might be a barrier to cross border mergers. Certain differences in employment legislation across the various countries could be a barrier for efficient reorganization of the mergers. Cultural difference between the nations is determined using Hofstede’s cultural dimensions. It has been identified that greater cultural difference between two countries would create negative wealth effects for shareholders both in the short run and long run due to trust issues, post-acquisition integration challenges etc. On the contrary, it has also been determined that a positive relation exists between the firm’s wealth and cultural difference due to the transfer of valuable new routines between culturally diverse …show more content…
Later, the chairman of Ford, Harold Red Poling realised that both acquisitions can’t be managed at a time and Ford backed out from the talk with Saab. Ford first acquired Jaguar in 1989 and Land Rover in 1999.However, in spite of Ford pumping around 1 billion to 1.5 billion annually into Jaguar, the outcome was almost nil. When it comes to Land Rover, some nominal profits were obtained at times, but the cost of initial capital investment was never earned back. The only competitive advantage that Ford obtained through the two acquisitions was goodwill and prestige which did not actually yield any of the monetary returns. One of the main reasons for Jaguar after acquisition by Ford was the decision to share parts across brands in order to reduce costs. Though it is the common practice in the auto industry, in this case, the brand image of Jaguar and quality was hurt. For example, the new X Type was launched, which upset the traditional Jaguar owners for the reason that their maids could also afford
Also the restriction on the type of exchange such as cash only or exchange of shares during the acquisition might be a barrier to cross border mergers. Certain differences in employment legislation across the various countries could be a barrier for efficient reorganization of the mergers. Cultural difference between the nations is determined using Hofstede’s cultural dimensions. It has been identified that greater cultural difference between two countries would create negative wealth effects for shareholders both in the short run and long run due to trust issues, post-acquisition integration challenges etc. On the contrary, it has also been determined that a positive relation exists between the firm’s wealth and cultural difference due to the transfer of valuable new routines between culturally diverse …show more content…
Later, the chairman of Ford, Harold Red Poling realised that both acquisitions can’t be managed at a time and Ford backed out from the talk with Saab. Ford first acquired Jaguar in 1989 and Land Rover in 1999.However, in spite of Ford pumping around 1 billion to 1.5 billion annually into Jaguar, the outcome was almost nil. When it comes to Land Rover, some nominal profits were obtained at times, but the cost of initial capital investment was never earned back. The only competitive advantage that Ford obtained through the two acquisitions was goodwill and prestige which did not actually yield any of the monetary returns. One of the main reasons for Jaguar after acquisition by Ford was the decision to share parts across brands in order to reduce costs. Though it is the common practice in the auto industry, in this case, the brand image of Jaguar and quality was hurt. For example, the new X Type was launched, which upset the traditional Jaguar owners for the reason that their maids could also afford