Cross-Border Mergers And Acquisitions Are Not Beneficial To All Multinational Enterprises

Submitted By 苏珍-吴
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Pages: 10






Cross-border mergers and acquisitions are not beneficial to all multinational enterprises





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August 21,

Cross-border mergers and acquisitions are not beneficial to all multinational enterprises
The aggregate number of cross-border mergers and acquisitions (M&As) has been growing increasingly since 1998, hitting a record high of $3,67 trillion in 2007, which accounts for 45% of worldwide M&As(Erel, Liao and Weisbach, 2012). M&As refer to a combination of two or more commercial companies, in which circumstance the shareholders of the new entity share the risks and rewards mutually (Hussey, 1999). In addition, cross-border M&As are the dominant form of foreign direct investment (FDI) and has become the most popular strategic choice to pursue maximum profits.

Cross-border M&As play an important role in firms’ strategic choice. For instance, M&As enable enterprises to benefit from increasing returns to scale, lower transaction costs, strengthening technological capabilities as well as eliminating inefficiencies (Chakrabarti, Gupta-Mukherjee& Jayaraman, 2009). However, a question rarely addressed is that the strategy of cross-border M&As needed to be well-considered due to high risk and high failure rate. In addition, countries have their own cultural identities, including different languages and different religions (Kenneth, Daminelli and Fracassi, 2012). Therefore, this essay is going to argue that although cross-border M&As can reinforce multinational enterprises’ dominance, there are still a series of realization conditions. Therefore not all multinational enterprises need to conduct M&As strategy unless they are well-prepared.

This essay first describes the positive effects of cross-border M&As with a few examples to demonstrate the statements. Then, it analyses the negative effects of cross-border M&As to show the conditions of conducting cross-border M&As successfully. Finally, it will summarize that cross-border M&As are not beneficial to all multinational enterprises and some measures need to execute to overcome the shortcomings.

Section 1
Many countries around the world have conducted cross-border M&As since the end of the 19th century. The research studied by Rossi and Volpin(2004) discovered that the United Kingdom and the Netherlands contributed to the largest proportion of cross-border M&As, followed by Germany and France. According to M&As database—the most extensive data source for M&As, the numbers of M&As in the selected ten countries from 1999 to 2008 are listed in figure 1. As can be seen from the chart, the United States is the largest target as well as the largest acquirer, followed by the United Kingdom. Interestingly, from the perspective of acquirer, Canada is the third one, while from the perspective of target; Australia has the third largest number. As a result, cross-border M&As have surpassed greenfield investment becoming the main form of FDI. The feature of greenfield investment is the enterprises should be established in accordance with the laws of the host country within the territory of the host country. One main reason for not choosing greenfield investment is long construction cycle and multinational companies have to undertake high risk during the whole period.

US = United States; UK = United Kingdom; AU = Australia; CA = Canada; WG = Germany; FR = France; IT = Italy; JP = Japan; NT = the Netherlands; SK = South Korea.
Figure 1 source: