Merger and Acquisition in China - Coursework Example

This study is significant as it points out the causes of the failures of the merger and acquisition activity in China. This was undertaken in the form of a qualitative study as the author was obtaining subjective information relating to the failure of this merger/acquisition. This was undertaken in the form of primary research. The qualitative methods were also chosen as the information obtained was used to develop themes and form conclusions on the reasons behind the collapse of the DANONE and Wahaha Group deal (Cooper and Schindler 2003, Creswell 2003, Hair et al 2003, Saunders et al 2003) that will be useful for determining the advantages and disadvantages of establishing mergers and acquisitions in the Chinese market. The primary research with the head of Wahaha demonstrated the lack of openness or the willingness to discuss this issue in great detail. The benefits derived by China from its merger and acquisitions activity with developed nations include increased development and economic activity. The benefits also include the acquisition of new technology, knowledge, and skills, which would have otherwise taken significantly longer to achieve, and for a relatively lower price. However, the main disadvantages are that of the lack of knowledge of mergers and acquisitions as they are mainly driven by the developed world. Mergers and acquisitions do occur in China regularly, but this is different from such activities with companies that are not Chinese.

The open-door policy initiated by Deng Xiaoping in China in1992 with the intention to push forward China’s economic progress brought in considerable wealth in the form of Foreign Direct Investments (FDI) (Galbraith, 2000). This policy enabled institutional change (North 1990), which in turn created opportunities for investment into the Chinese economy. What was different about this policy was that it was a gradual change and not a sudden change as experienced in other developing countries, which led to bankruptcies and high costs (Campbell and Lindberg 1991). This policy also placed emphasis on foreign capital policy, the foreign exchange system, and it also offered promising conditions for foreign investors (Galbraith, 2000). This policy has since reaped dividends given that the main mode for FDI into the Chinese economy has been through foreign-funded and joint venture companies. This has also been reflected in figures which show that between 1990 and 1996, China managed to attract approximately $230 billion of foreign capital, with 20% of that amount coming from developing nations (Galbraith, 2000). However, the open-door policy did more than just attract FDI to China; it also introduced the market for corporate control, which is where firms are sold and bought or are taken over (Groenewegen 2004). This market for corporate control previously did not exist, due to the high number of enterprises owned by the state, which also meant that no FDI was coming into the economy. By opening up the economy, most of these government enterprises have now been left open for mergers and acquisitions, due to market forces operating in the economy.