Customer-Supplier Relationship in Mergers and Acquisitions

This assignment content provides a collection of academic articles related to mergers and acquisitions (M&As). The papers explore various aspects of M&As, including law firm expertise and merger outcomes, top management turnover following M&As, characteristics of acquisitions in central and eastern European economies, making the most of culture clash, discriminant and criterion-related validity of a relative deprivation scale, and more. The articles examine topics such as M&A evaluation and decision-making models, strategic approaches to deals, marketing perspectives on value creation or destruction, and knowledge transfer during integration. The collection aims to provide insights into the complexities of M&As from various disciplines.

Running head: MERGERS AND ACQUISITION
Impact of Mergers and Acquisition on Values of Chinese E-Commence Firms
Name of the Student:
Name of the University:
Author’s Note:

1MERGERS AND ACQUISITION
Table of Contents
1.0 Chapter 1: Introduction..............................................................................................................3
1.1 Chapter Introduction..................................................................................................................3
1.2 Background to the Study...........................................................................................................3
1.2.1 Research Problem...............................................................................................................3
1.2.2 Research Purpose................................................................................................................4
1.2.3 Research Significance.........................................................................................................4
1.3 Research Aims Objectives.........................................................................................................5
1.3.1 Research Aim......................................................................................................................5
Chapter 2: Literature Review...........................................................................................................6
2.1 Introduction................................................................................................................................6
2.2 Concept of Mergers and Acquisition (M&A)............................................................................6
2.3 Background of Global E-commence Industry...........................................................................7
2.4 Background of Chinese E-commence Industry.......................................................................10
2.5 Economic Value Associated with Mergers and Acquisition...................................................13
2.6 Adoption of Merger and Acquisition in Global Industries......................................................15
2.7 Merger and Acquisition in Chinese Ecommerce Industries....................................................15
2.8 Impact of Mergers and Acquisition on Business Values of E-commence Industry................17
2.8.1 Successful Cross-border Market Entry.............................................................................17
2.8.2 Research and Development...............................................................................................17
2.8.3 Achievement of Administrative Benefits..........................................................................17
2.8.4 Enhanced Market Share....................................................................................................18
2.8.5 Optimization of Operational Cost.....................................................................................18
2.8.6 Financial Leverage............................................................................................................19
2.8.7 Share Technology and Computing....................................................................................19

2MERGERS AND ACQUISITION
2.9 Issues Associated with Mergers and Acquisition................................................................20
2.9.1 Ignorance of Crucial Business Points...............................................................................20
2.9.2 Lack of Common Vision...................................................................................................20
2.9.3 Team Resourcing..............................................................................................................20
2.9.4 Poor Governance...............................................................................................................21
2.9.5 Hidden Cost in Merger and Acquisition...........................................................................21
2.9.6 Poor Communication........................................................................................................22
2.10 Effective Ways to Improve Merger and Acquisition in E-commerce Industry.....................22
2.10.1 Detailed Due Diligence...................................................................................................22
2.10.2 Careful Integration of Planning.......................................................................................22
2.10.3 Clear Communication.....................................................................................................23
2.10.4 Prompt Action.................................................................................................................23
2.10.5 Right Consideration of M&A Candidates.......................................................................23
2.10.6 Commit to One Culture...................................................................................................24
2.10.7 Consistent Monitoring Business Performance................................................................24
2.11 Gap of Literature....................................................................................................................24
2.12 Conceptual Framework..........................................................................................................26
2.13 Summary................................................................................................................................27
Reference List................................................................................................................................28

3MERGERS AND ACQUISITION
1.0 Chapter 1: Introduction
1.1 Chapter Introduction
Rapid expansion of corporate firms has led to the market entry mode strategy such as
Merger and Acquisition (M&A) to be the most suitable for enhancing business value (Greve and
Zhang 2017). The motive of resource optimization and sheer sizing has been mostly successful
through M&A. The Chinese E-commerce industry is rapidly growing and in order to compete,
firms are intended to merge or acquire with smaller rapidly growing overseas companies so that
both branding and resource management are justified. Therefore, focusing on such M&A
strategies this research will analyze the Chinese E-commerce industry business value creation
through selecting some merged companies. The analysis will be done through Event Study
Technique and Accounting Research Method.
1.2 Background to the Study
1.2.1 Research Problem
Shared value, integrated resource management, accelerated market growth, inventory
management and asset maintenance have been the most common reasons for merger and
acquisition. However, Zhanget al. (2015) pointed out that the after-effect of merger and
acquisition is often found to be disheartening especially while reviewing the annual Return on
Equity (ROE). On the other hand, Chang, Chang and Wang(2014) highlighted thatReturn on
Asset (ROA)is hardly found to be beneficial while comparing with historical data and proposed
outcome. Furthermore, while considering the viewpoint of Kansal and Chandani (2014),
Returnon Investment (ROI) is found to be quite less than as expected or proposed before merger.
Similarly, E-commerce platform is nowhere different from resource management and value

4MERGERS AND ACQUISITION
creation. Therefore, keeping such problem on primary focus, this research will discuss the impact
of merger and acquisition on value creation especially for Chinese E-commerce firms.
1.2.2 Research Purpose
This research will help in quantifying the data that actually indicates the value achieved
by E-commerce Chinese firms through Merger and Acquisition (M&A). Earlier it has been found
that ROA, ROE and ROI are the most visible data that can be quantified while analyzing the
performance of firms. Therefore, this research will collect data from E-commerce companies that
has undergone M&A already. The main purpose will be to analyze the current available financial
data of firms through accounting research method, which will eventually deal with reflecting and
comparing the return on asset and investment before and after M&A.
1.2.3 Research Significance
According to Reddyet al. (2016), merger and acquisition not only helps in strengthening
business value, but also helps in resource management for sustainable growth. E-commerce
industries are completely based on technologies that comprise of real-time data sharing and
storage, SSL secured transaction, client data encryption and real-time inventory management.
Therefore, much of the resources are consumed in-house by human resource and assets that
framework server and cloud database. Fluctuations and deviations after M&A impacts mostly on
shareholders, suppliers, partners and investors. Both corporate governance and organizational
structure gets impacted, which ultimately reflects on return on investment. Therefore, this
research is significant in analyzing the impact on business value specifically in financial aspects
due to M&A.

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1.3 Research Aims Objectives
1.3.1 Research Aim
The aim of the research is to identify and analyze the impact of merger and acquisition on
creating value for Chinese E-commence Firms.
1.3.2 Research Objectives
1. Research Objective 1:To identify the impact of merger and acquisition on business value
across globe
2. Research Objective 2:To analyze the merger and acquisition activity between Chinese
firms that acquired foreign (non-Chinese) firms
1.4 Research Questions
1. Research Question 1:What is the impact of merger and acquisition on E-commerce
industry?
2. Research Question 2:What is the value oriented performance achieved through merger
and acquisitionbetween Chinese firms that acquired foreign (non-Chinese) firms?

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Chapter 2: Literature Review
2.1 Introduction
The literature review chapter will discuss the concepts and theories related with merger
and acquisition. The review will discuss and present the global merger and acquisition facts of E-
commerce industry and then highlight the Chinese E-commerce market. Different facts,
examples and issues of M&A will be discussed for E-commerce industry. Since the main aim of
the research is to analyze firm’s value, therefore more concentration will be on the factors that
results in enhancing value of E-commerce organizations. Also, issues faced by organizations
through M&A will be discussed and conceptual framework will be presented at the end. The
entire literature review will be presented by collecting facts from articles, peer reviewed journals,
books and websites, online library sources. All credible information will be supported by
contribution from various authors from empirical articles.
2.2 Concept of Mergers and Acquisition (M&A)
Merger and Acquisition defines the areas of corporate finance, management and strategy,
which deal with purchasing and/or joining with other organization. It can also refer to the
consolidation of organizations or assets. M&A incorporates wide range of various transactions
like merger, acquisition, tender offer, consolidation, management of acquisition and purchase of
assets. According to Lee, Chen and Guy(2014), in merger, one organization purchases another
organization of approximately similar sizes. Moreover, these two companies become one and
operate their business together. Moreover, the two companies take decision to merge with each
other, when they believe that they can achieve something together, which they cannot achieve by
their own. On the other hand, Amin Noordinet al. (2015) opined that Merger and Acquisition

7MERGERS AND ACQUISITION
define the transactions, where the ownership of the organizations or their operating units are
either transferred or combined. In horizontal merger, two rival organizations share same product
lines and gain mutual benefits from the stability of the products. On the other hand, Krishnan and
Masulis(2013) opined that under vertical merger, two organizations deal with separate business
lines for gaining mutual benefits. Furthermore, Kato and Schoenberg(2014) opined that in
conglomerate merger, two organizations with diverse business line in regards to products,
marketing and management tend to get unified for new product or management. Moreover, under
merger, two or more companies integrate into single outfit for achieving common business
objectives.
According to Yang, Wei and Chiang(2014), acquisition is the process in which one
company acquires control over another company called target company. An organization is said
to be acquired company, when one other company buys that company. In case of hostile
acquisition, the organization, which is about to be bough, has no information regarding the
acquisition. On the other hand, in case of friendly acquisition, two companies engaged in
acquisition cooperate with each other and settle the matterin regards to acquisition. The acquiring
company gains majority stake in the acquired firm, which never changes its name or legal
structure. Moreover, in acquisition, acquiring company take ownership of acquired company’s
equity interest, stock and assets. Organizations are more likely to gain economies of scale,
efficiencies and enhanced market visibility. It can also lead to greater diversification for higher
growth of products or markets.
2.3 Background of Global E-commence Industry
Durand(2016) pointed out that global e-commerce market has been worth around $22.1
trillion. The sales growth of global e-commerce sector is up by 6% from the previous year. E-

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Markethas estimated that the sales of online e-commerce sector will top by $27 trillion by the
Leeyear 2020. In 2015, the global population has been estimated around 7.3 billion people.
Among these people, 1.4 billion people purchase goods and services through online channels at
least once. Asia-Pacific is the strongest B2C e-Commerce region within the world. As per
Caiazza and Volpe(2015), B2C e-Commerce turnover of Asia-pacific has been estimated for
$1,056.8bn, which has ranked ahead of North America and Europe. However, last year, China
has increased its lead over the United States of America with highest B2C e-Commerce turnover.
Moreover, with almost $766.5bn, China has been ranked above the UK and US. Moreover,
together China, US and UK has accounted for 68% of overall global B2C e-Commerce turnover
(Export.gov 2017). Latin America and North America were the smallest B2C e-Commerce
markets in the year 2015. These two countries have achieved e-commerce sales of only $33.0bn
and $25.8bn, respectively.
Figure 5: E-Commerce Turnover per Region
(Source: Wang, Pauleen and Chan 2013)

9MERGERS AND ACQUISITION
While comparing the B2C e-Commerce market of last year, it has been found that
Chinese e-Commerce Market has been significant increased faster than that of US. In the recent
year, the e-Commerce sales of China have been grown by 33%, whereas the e-Commerce sales
of US have been grown by 12% (Ishii and Xuan 2014).
Figure 6: Top 10 Countries’ Share in E-Commerce Market
(Source: Lee 2013)
While assessing the global e-Commerce market, it has been found that the market leaders
in the global e-Commerce industry are like Amazon.com, Wal-Mart Stores, Alibaba, e-Bay,
JD.com and others. Alaranta and Mathiassen(2014) pointed out that Amazon has been
considered as the biggest e-Commerce enterprise in the world by its market revenue. Alibaba is
creating tough competition for Amazon in the global market. Moreover, Alibaba is leading 80%
of Chinese online marketplace, whereas Amazon is leading 60% of US online marketplace.
Moreover, Leeet al. (2014) stated that Alibaba obviously has larger consumer base in

10MERGERS AND ACQUISITION
comparison with Amazon. Moreover, both B2B and B2C e-Commerce selling of Alibaba is
creating extremely tough competition for the Amazon. Furthermore, e-Bay is now also leading
the global market with its secure payment system.
Figure 7: Top Global E-Commerce Companies by E-Commerce Revenue
(Source:Saralaet al. 2016)
2.4 Background of Chinese E-commence Industry
China is considered to be the largest e-Commerce market in the world. Chinese e-
Commerce has been projected to reach by$1.6 trillion revenue over two years. According to Lee
Marks, Mirvis and Ashkenas(2014),Chinese E-Commerce industry is undeniably the most
lucrative and fasted growing web industries in the world. This industry is gradually booming day
by day. Online retail sales of China have been reached 5.16 trillion yuan in the year 2016. It is

11MERGERS AND ACQUISITION
actually representing 26.2% growth in the industry from the year 2015 (Appelbaum, Roberts and
Shapiro 2013). According to the National Bureau of Statistics, e-commerce retail sales have
doubled the growth rate of overall retail sales in China. It is expected that Chinese e-Commercial
sectors would further lead over US with its consistent growth rate. Chatterjee and Brueller(2015)
pointed out that the GDP of China has been increasingby7% year on year, which is leading rising
level of wealth for even third or fourth tier cities. Therefore, the increasing GDP has actually
enhanced the spending power of the customers. Furthermore, security and ease of e-payment is
the prime reason for the rising e-retail spending.
As per Pervaiz and Zafar(2014), Chinese ecommerce market has covered almost 39%
market share in the global e-commerce market. Chinese people have increased the purchasing the
food online and there has been 28.5% growth on the online food sales. On other hand, online
clothing sales have also been increased 18.1%.
Figure 1: Transaction Scale in Online Retail Market of China
(Source:Uzelacet al. 2016)

12MERGERS AND ACQUISITION
Krug, Wright and Kroll(2014) stated that E-commerce market of China has taken up
more than 12% in the total retail sales of consumer goods in the year 2015. Moreover, the
ecommerce market is expected to rise in coming years. Furthermore, cross border e-Commerce
has gained explosive growth in the past two years. Such cross-border e-commerce is driven by
favorable factor like consumer demand, policy support and promotion of capital market.
Moreover, retail sales of import e-commerce have been raised by 111.9% in the year 2015 (Idris,
Wahab and Jaapar 2015).
Figure 2: Retail Sales of Import E-Commerce
(Source:Bargeronet al. 2014)
More and more crowded market leads to intensifying competition among the leading e-
commerce organizations of China. In this way, such intensifying competition among the market
leaders of e-commerce enterprises is narrowing the space for profit and growth of the
organizations. Therefore, these e-commerce enterprises are entering into merger and acquisition
for changing the layout of their business and entering into new market for getting new business
opportunities. There is an extremely tough competition among the major market leaders of e-

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commerce industry. Such major market leaders are like Alibaba, Jingdong, WSMALL, JD.com
(360buy) and many others. As per Rahman and Lambkin(2015), Alibaba has hold largest market
share in the Chinese e-commerce industry. Moreover, Alibaba has hold 41.5% market share in
the Chinese e-Commerce industry. Apart from that, JD.com (360buy) has hold 15.5% market
share within the e-Commerce Industry (Yan and Guoqiang 2013).
Figure 4: Market Share of Chinese e-Commerce Industry
(Source:Yen, Chou and André 2013)
2.5 Economic Value Associated with Mergers and Acquisition
According to Yahiaoui, Chebbi and Weber(2016), organizations can access to more
number of resources and assets through merger and acquisition. Moreover, M&A is directly
related to cost of company of an organization. An organization is more likely to merge or acquire
another organization, if such merger or acquisition increases the economies of scale or scope of

14MERGERS AND ACQUISITION
the business. Agarwal and Kwan(2017) pointed out that M&A doubles the organizational output
for less than twice the organizational cost. Furthermore, it also enhances the economies of scope,
where two separate firms produce greater level of output together that they can produce
separately. Apart from that, Elliset al. (2015) stated that M&A enhances the monopoly power of
the organizations without less or no competitors in the market. With such enhanced monopoly
power, the organizations can perform better in long term through maximizing the wealth of the
shareholders. Being a monopolist in the market, the organizations would be able to price off the
marginal revenue curve towards capturing producer surplus.
Merger and Acquisition also enhance the profit potentiality of the organizations in future.
Moreover, such increased profit level can be relatedto Bandwagon Effect. In such Bandwagon
Effect, the investors are more likely to invest in any particular stock simply because of newly
added firm through M&A. Arvanitis and Stucki(2015) pointed out that M&A enhances the
operating performance of the organization. Moreover, in such business relationship, the scarce
resource of less capable organization is operated by other more capable organization for better
use of those scarce resources. In this way, the organizations can enhance their profit potentiality
through enhanced operational efficiencies. Furthermore, Dikova and Sahib(2013) stated that
M&A enhances the scope of competitive advantage through diversification, which actually
increases the sales volume and profit potentiality of the organizations. Merger and Acquisition
also leads to tax gains, which can even lead to revenue enhancement through high market share
gain. Together, the organizations can gain higher portion of marker share in M&A. In this way,
M&A can add high level economic value to the organizations.

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2.6 Adoption of Merger and Acquisition in Global Industries
Global merger and acquisition activity has been remained robust for the last few decades.
According to Lahovnik(2017), the total value of announced deal in Merger and Acquisition in
the last year was US$3.7 trillion. In the year 2016, the total merger and acquisition deal was
announced for 46,055 deals announced globally. Among the 10 largest merger and acquisition
deal, 5 deals were announced in October 2016.These five merger and acquisition deals were
worth of US$30 billion. Among all, AT&T has proposed acquisition of US$107.9 billion with
Time Warner. It was a great deal of acquisition. On the other hand, Qualcomm has also proposed
acquisition of NXP Semiconductors by US$47 billion. While assessing the global e-Commerce
industry, it has been found that Amazon is gaining high level of competitive advantage through
list of merger and acquisition. Maliket al. (2014) pointed out that the global e-Commerce market
leader Amazon has acquired Whole Foods with the value of $13.7 billion. It has led to effective
diversification in the organization, which has increased its competitive advantage. On the other
hand, Reddy(2015) opined that the American Multinational E-Commerce company e-Bay has
been merged with Flipkart company of India for gaining huge opportunities in Indian market.
2.7 Merger and Acquisition in Chinese Ecommerce Industries
The more intensified the competition is in the market the more e-Commerce
organizations are likely to face narrowing space in the market for increased growth and
opportunities. As per Export.gov(2017), Chinese e-Commerce enterprises are facing fierce
competition among each other with regards to profit gain and increased market share. Such
merger and acquisition can make layout of the enterprises in the new market. Furthermore,
merger and acquisition eliminates competitors in the market and achieves complimentary
advantage through confirming to the laws of market economy. Yu, Umashankar and

16MERGERS AND ACQUISITION
Rao(2016)pointed out that such fierce competition is mostly faced by major e-Commerce market
leader like Alibaba, JD.com and others. Therefore, these e-Commerce enterprises are more likely
to make merger and acquisition relationship for dealing effectively with the fierce market
competition. Through merger and acquisition, the leading e-Commerce enterprises have reduced
investment cost, which has ultimately enhanced their profit potentiality. It has also increased the
market expansion opportunities of the e-Commerce enterprises.
While assessing Chinese e-Commerce enterprises, the leading Chinese e-Commerce
Alibaba has acquired Suning through investing £2.97bn. Through such acquisition, the
organization is targeting towards offline retail for increased organizational profit. Moreover,
Alibaba is moving towards offline sales through teaming up with Suning with its 1,600 physical
outlets. Furthermore, Ahammad and Glaister (2013) opined that the combination of JD.com and
Tencent has also brought huge profit for the organizations. Moreover, JD.com has taken the
advantage of overwhelming online presence Tencent in the market, especially in mobile area.
Furthermore, JD.com also uses the advantage of secure online payment system of Tencent. In
this way, together with Tencent, JD.com has made a well-established market in Chinese e-
Commerce market. On the other hand, Yahiaoui, Chebbi and Weber(2016) stated that Chinese
Start-Up Mogujie.com has made merger relationship with Meilishuo.com towards forming a new
company. After completion of this deal, the new firm is expected to raise fresh capital with
valuation of $US3bn. Moreover, together these companies are highly focusing on fashion
focused platform for bringing competitive advantage.

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2.8 Impact of Mergers and Acquisition on Business Values of E-commence Industry
2.8.1 Successful Cross-border Market Entry
According to Krug, Wright and Kroll(2014), one of the most successful market entry
strategies is through merger and acquisition as this reduces the risk of stakeholder involvement.
When an E-commerce company diversifies its market into new country through M&A, it can
create relationship with stakeholders such as suppliers, distributers, logistics and penetrate deep
into the market within short period. On the other hand, Rahman and Lambkin(2015) pointed out
that through M&A E-commerce companies mostly create business values as they can channelize
local suppliers from multiple geographic areas, which helps in diversifying the product base.
This helps in enhancing brand value, word of mouth advertisement, and more market response.
2.8.2 Research and Development
According to the viewpoint of Agarwal and Kwan(2017), it is evident that E-commerce
companies not only depend of suppliers but also manufactures their own product and sells those
through official website. Through M&A, advanced research and development team is set up that
quantifies market analytics and directs innovation through customized product categories
following niche marketing. Furthermore, Idris, Wahab and Jaapar(2015) pointed out that R&D
through collaborative ideas makes a decision more concrete, which would perhaps require
consultants or external talent hiring. When two successful firms act for one particular objective,
diversified knowledge from multiple talented personnelhelps in enhancing the business value.
2.8.3 Achievement of Administrative Benefits
While considering the viewpoint of Pervaiz and Zafar(2014), it can be highlighted that
administrative purposes such as operation, decision support system and management information
system act in more fluid manner through successful M&A. This is because organizational

18MERGERS AND ACQUISITION
resources are best shared among each other and coordination among operational managers,
warehouse and inventory manager, accountant and information technology managers gets
increased. Eventually, the E-commerce company is able to reduce resource consumption and
increase return on asset at each quarter, which can be considered as value enhancement. On the
other hand, Rahman and Lambkin(2015) argued that shared benefits, organizational policies,
code of conduct, hierarchy and communication becomes more complicated, which creates
dissatisfaction among employees.
2.8.4 Enhanced Market Share
One of the most noticeable value enhancement factor through M&A is accelerated market
share. Chatterjee and Brueller(2015) pointed out that business volume increment restructures the
E-commerce stakeholders, which helps in creating deeper channel in more geographical areas.
This helps in better partnership with logistics companies and faster product delivery. On the
other hand, Caiazza and Volpe(2015) highlighted that customer trust, satisfaction and loyalty can
only be achieved through product availability. Therefore, M&A helps in developing business
value through enhanced sales that projects more market share.
2.8.5 Optimization of Operational Cost
According to the words of Lee(2013), cost of operation comprises more than 44.45% of
entire expenditure of an E-commerce company. Therefore, through M&A, costs associated with
asset acquisition, asset maintenance, server maintenance, logistics and employee benefits are
commonly shared by entities. This helps in reducing the cost of overall operation and creates
value for the merged firm. On the other hand, Yan and Guoqiang(2013) argued that ownership
issues associated with asset acquisition and daily operation often creates challenges that impacts

19MERGERS AND ACQUISITION
on decision making capability among managers in short term. This actually impacts on value
creation.
2.8.6 Financial Leverage
The most important and direct motive behind any E-commerce M&A is obtaining
financial leverage. Whether it is merger or acquisition, the parent firm needs to undergo a great
deal of capital. The expectation is quite fair to achieve higher return on investment at least on the
fourth quarter. Ishii and Xuan(2014) pointed out that value enhancement in terms of ROI through
M&A is only achieved, if an organization has any prior knowledge or experience to operate in
foreign market. This is because the firm will be well aware of the challenges that it might be
facing with operating new foreign market. On the other hand, Kato and Schoenberg(2014)
argued that financial leverage is only achieved if the host country is having stable economy.
Therefore, value enhancement is dependent on both stable nation economy and primary firm’s
foreign market knowledge.
2.8.7 Share Technology and Computing
While discussing about E-commerce platform, it must be highlighted that technology is
the only asset based on which the entire value can be enhanced. According to Durand(2016),
cloud data handling, client database, security and secured transaction gateway andfirewall are the
most important technologies that will need to be shared among merged or acquired firms.
However, Kansal and Chandani(2014) argued that internal protocols and procedure for operation
is often not accepted by merged organization. Often there are clashes between negotiation and
decision, which impacts of business value.

20MERGERS AND ACQUISITION
2.9 Issues Associated with Mergers and Acquisition
2.9.1 Ignorance of Crucial Business Points
Organizations in merger and acquisition cannot exchange commercially sensitive
information before being under common ownership. However, Greve and Zhang(2017) opined
that there are various legally permissible and crucially important preparation team for keeping a
team busy withfor several months before day 1. Most of the chief executives avoid such crucial
points and unnecessary waste time, while wait for the clearance of the legal authorities. In this
way, various crucial points of the business can be missed out even prior to initiating merger and
acquisition.
2.9.2 Lack of Common Vision
Merger and acquisition combine two companies together from even different
backgrounds. Therefore, these two companies have separate business vision and mission.
According to Chang, Chang and Wang(2014), in merger and acquisition, there can be absence of
common vision in the merged companies. Therefore, there can be some misunderstanding
regarding the ways of business operation. Therefore, the actual objective of merger and
acquisition cannot be fulfilled without the absence common vision statement.
2.9.3 Team Resourcing
Most often, resource requirements are underestimated in merger and acquisition.
Moreover, it can take several months for releasing the best players from the business towards
joining the integration team, finding backfill for them, signing up contractors towards filling the
gaps and setting up proper infrastructure of the team. In this way, too much late in team
resourcing can hamper the effectiveness of merger and acquisition between two organizations.

21MERGERS AND ACQUISITION
2.9.4 Poor Governance
According to Lee, Chen and Guy(2014), merger and acquisition can face the issues of
poor governance of the business operation. Moreover, there can be lack of clarity among the
organizations regarding the authority of taking business decision. In this way, it can even lead to
conflicts among the parties in merger and acquisition. On the other hand, Krishnan and
Masulis(2013) opined that conflict in the decision-making process can also lead to poor decision
making, which can ultimately hamper the business progress of the merged and acquired
organization.
2.9.5 Hidden Cost in Merger and Acquisition
Merger and acquisition has some hidden cost associated with it, which can actually
enhance the overall organizational cost. According to Caiazza and Volpe(2015), the internal
costs are associated with the cost of evaluation, planning, coordinating and directing the
transaction and moving the transaction through governance process and corporate approval. On
the other hand, Alaranta and Mathiassen(2014) the external cost in merger and acquisition are
assimilation cost, workforce retention cost, cost associated with replacement of management
information system and others. In this way, merger and acquisition actually increases some
operating cost of business.

22MERGERS AND ACQUISITION
2.9.6 Poor Communication
There can be lack of communication among the stakeholders of organizations involved in
merger and acquisition. Chatterjee and Brueller(2015) pointed out that the employees are often
unaware about the actual motto or intension of the merger and acquisition relationship.
Therefore, after the merger and acquisition, the employees may show their resistance over this
business relationship and may not involve them at all to the success of this business relationship.
On the other hand, Krug, Wright and Kroll(2014) opined that the employees are often not aware
about their actual job role before the contract of the business relationship. Therefore, the
resistance and less involvement of the employees in merged and acquired business firms can
actually hamper the effectiveness of merger and acquisition.
2.10 Effective Ways to Improve Merger and Acquisition in E-commerce Industry
2.10.1 Detailed Due Diligence
Chinese e-Commerce organizations should plan the merger and acquisition relationship
with due diligence. Moreover, the organization should evaluate the potential deals and the due
diligence should test the strategic fit for the merger and acquisition relationship. Moreover, the
goals and objectives of the merger and acquisition should be clear enough and the organizations
should assess the drivers of the valuation for the business relationship(Uzelacet al. 2016).
Moreover, the detailed due diligence of the e-Commerce organizations would drive them
towards right track for successful merger and acquisition.
2.10.2 Careful Integration of Planning
Successful merger and acquisition need smooth transition of the business relationship. It
involves creating incentive plans and establishing milestone tied to successful completion of the
merger and acquisition. Apart from due diligence, the e-Commerce organizations should

23MERGERS AND ACQUISITION
integrate all the resources for implementing successful merger and acquisition relationship.
Moreover, proper integration of the business plan and resources would allow the organizations
towards realizing the actual value of the merger and acquisition. In this way, effective integration
of the business plan and resources would give a complete framework for the merger and
acquisition, which will lead it’s towards its success (Yahiaoui, Chebbi and Weber 2016).
2.10.3 Clear Communication
The stakeholders of both the organizations in merger and acquisition should be well
aware of the intension behind this business relationship. Moreover, each decision in the business
relationship should be well communicated among all the stakeholders of both the organizations
in the business relationship. The stakeholders are more likely to involve them in the success of
merger and acquisition, when they will realize its actual value. In this way, high level of
stakeholder involvement in the merger and acquisition process will actually enhance its potential
success.
2.10.4 Prompt Action
The e-Commerce enterprises should not unnecessary waste time on waiting for the
confirmation of legal authorities. Moreover, the organizations should immediately start
communicating the basic necessities of the business requirement. It will enhance the promptness
in the merger and acquisition business relationship. In this way, prompt action will foster the
success level of the merger and acquisition immediately.
2.10.5 Right Consideration of M&A Candidates
The e-Commerce organizations should effectively select the candidate for making merger and
acquisition business relationship. Moreover, the organizations should select the merger and
acquisition candidate based on the business requirement. There should be strategic fit in the

24MERGERS AND ACQUISITION
consideration of M&A candidates. Furthermore, the organization should evaluate the targets of
the business through developing revenue and cost models of the combined organizations.
Furthermore, there should be perfect business forecast for getting the success of merger and
acquisition business relationship(Yen, Chou and André 2013). The M&A candidate should have
the potentiality from all aspects towards achieving the actual of the business relationship.
2.10.6 Commit to One Culture
Every organization has its own culture and set of norms, values and assumptions, which
determine the behavior of the employees and the business activities. Almost every merger and
acquisition relation face the challenge of maintaining the culture. Generally, the acquirer
company wants to maintain its own culture. In such situation, differing culture between the
acquirer company and target company (Agarwal and Kwan 2017). However, the combined
organizations should commit one culture for setting down the business activities and behavior
within the combined organization.
2.10.7 Consistent Monitoring Business Performance
The e-Commerce organizations should constantly monitor the business performance after their
merger and acquisition with other organizations. Moreover, the organization should immediately
take corrective actions in case of any breach with the actual performance standard(Lahovnik
2017). It will ensure the success of merger and acquisition relationship.
2.11 Gap of Literature
Considering the above literature, it can be said that most of the scholars have tried to
highlight the benefits of merger and acquisition and the successful stories of different firms.
There have been extensive and concrete evidences about those firms which has able to manage

25MERGERS AND ACQUISITION
resources and stakeholders. The articles explicitly focused on only corporate governances, asset
sharing, talent management and financial aspects. However, the main reasons that highlight the
value of an organization through merger and acquisition has been discussed in short. Therefore,
there has been a gap in analyzing the financial values of an E-commerce company through
M&A. This research will discuss the financial benefits that an organization will be receiving
through successful merger and acquisition, which eventually will turn out in increasing value.

26MERGERS AND ACQUISITION
Merger and
Acquisition
Organizational
Value
Return on Asset
Return on Investment
Return on Equity
Resource Management
Research and Development
Financial Leverage
Stakeholder Management
2.12 Conceptual Framework
Below is the conceptual framework for the research:
Figure 5: Conceptual Framework
(Source: Created by Author)
The framework indicates that independent variable is merger and acquisition and
dependent variable is organizational value. Therefore, E-commerce organization value will be
dependent on successful merger and acquisition. On the other hand, this success is only possible
when proper resource management, stakeholder management, financial leverage and research
and development is done. Also, it is prominent that ROI, ROE and ROA indicates the value
enhancement factors of Chinese E-commerce firms.

27MERGERS AND ACQUISITION
2.13 Summary
While summing up, it must be said that M&A does not always result in value
enhancement of E-commerce companies. Successful M&A depends on proper strategies that
involve planning, experience, knowledge of foreign market, research and development and
resource management. Through M&A, E-commerce companies will be able to penetrate into the
deeper foreign market and within short time span and best suppliers, distributers and logistics
will be communicated for partnership.On the other hand, it has been found that much of the E-
commerce firm’s value depends on ROI, ROE and ROA and therefore, financial leverage must
be the strongest.
This research will proceed further by selecting appropriate research methodology and
tools that will be necessary for collecting data. Proper methods for data collection either through
primary, secondary or mixed approach will be chosen in the next chapter.

28MERGERS AND ACQUISITION
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