Factors Influencing Cross Border Merger and Acquisition

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GLOBAL ECONOMY
7BSP0353-0901
STUDENT ID - 17073877
Contents

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Question 3-Factor influencing the peace and the pattern of cross border merger and
acquisition..................................................................................................................................3
Question 4 -Economic development models of China and India...............................................6
Reference..................................................................................................................................10

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Question 3-Factor influencing the peace and the pattern of cross border merger and
acquisition
The overview of Cross border merger and acquisition
The cross border acquisition is a process of merger deals between two companies located in
two different countries. The cross border merger and acquisition is a common process to
enter a foreign market under globalisation. In the year 2000, when most of the economy of
the world opened their economy for the global economy, these kinds of deal increased
prodigiously. Humphery‐Jenner, Sautner, and Suchard (2017) highlighted that, there was a
sudden jump of 200% in the number of cross border merger and acquisition in most of the
world. One of the biggest advantages of the cross border merger and acquisition is that it
allows the companies to share the customer base and the means of production. The Asia
Pacific is the best area in terms of the successful merger and acquisition that is still in
operation. The main reason for the reason to be successful is the fact, that, customer base in
this area is dense and the nature of the economies in this area is somewhat similar to each
other. Nevertheless, other areas of the world such as Latin America also have shown signs of
cross border merger acquisition through different trade blocs and associations. Most of the
merger and acquisition is being attracted by Brazil since the year 2012 due to the inefficient
policies of countries like India and saturation in countries like China. Other economies in the
Latin America region have also been doing great over the years leading to a rise in cross
border merger and acquisition in this region.
The factor affecting the pattern and peace of cross border merger and acquisition
There is a pattern in the cross border merger and acquisition which is heavily affected by
some external factors. First and the foremost factor that influences the merger and acquisition
process is the incentives of two of the companies located in two different countries. Huang,
Officer, and Powell (2016) stated that both the companies and the nations must gain
positively from cross border acquisition for it become fruitful. There have been many
instances where the merger and acquisition deal has fallen apart due to insufficient gains of
some of the partner companies. One of the most important and recent examples of this is the
cross border merger and acquisition between two of the biggest companies in the world.
Nokia which is located in Finland and Microsoft located in the United States of America

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merged their operation a few years ago. However, the cross border merger failed due to an
insufficient gain of one of the partner and hence the merger fell apart.
Apart from that, another factor that needs to be there before the cross border merger and
acquisition is the due diligence. Alimov and Officer (2017) noted that generally domestic
companies overstate their performances and achievements in order to get a good and lucrative
merger and acquisition deal and then it fails to lead to a loss for the foreign company or the
bigger company. Thus, in the peace of cross border acquisition, the due diligence reports of
each of the company matter a lot. A lot of massive consultancy companies are there in the
market that assists the companies in understanding the operational history of the other firm.
These reports become the factor for the initiation of a cross border merger and acquisition
deal between the two companies. Another important factor for the peaceful operation of the
cross border merger and acquisition deal is the presence of political, economic and social
harmony in the two countries . Political unrests limit the scope of foreign investment in the
business as it reduces the rate of return for the investors. Therefore, the prospective growth of
the merger and acquisition deal gets limited and hence the deal falls apart. In addition to that,
the economic performance in the target country is also important for the cross border merger
and acquisition as it will provide the market base to both of the companies. Lastly, social
structure and some of its measure also help determine the pattern of cross border merger and
acquisition (Francis, Huang and Khurana, 2016). For example, in a target country full of
unskilled labour, production merger and acquisition will be more than service. Thus, the
scope of the different company is there in different countries of the world. For example, India
is a country full with service sector worker who is only slightly skilled. The country has seen
cross border merger and acquisitions among the domestic service company and its global
counterpart.
One of the most used ways to study the risk for undertaking a cross border merger and
acquisition strategy is to understand the risk matrix. According to Buckley et al. (2016), the
study of the risk matrix makes the deal more peaceful and harmonious. The evaluation of the
risk matrix is important to find out any vulnerability of the other company as well. Risk
matrix includes all the risk elements and their weights. The risk matrix finds out the risk
associated with the deal and the companies take a decision based on that matrix. The pattern
of merger and acquisition often depends on the intensity of the risk. In some of the cases, the
foreign counterpart often decides to invest in the domestic company through licensing
without getting fully associated with the operation of the company.