Merger, Acquisition, and International Strategies - Essay Example

MERGER, ACQUISITION, AND INTERNATIONAL STRATEGIES Introduction Mergers and acquisitions relates to a situation in which a public corporation unites with another company to form one large firm or takes over another firm in a bid to increase its market share. The two terms can be used interchangeably because one firm gets completely absorbed into the other and the less important firm loses all its identity while the other superior firm retains its identity and become stronger by commanding more power in the market. The merged corporation is completely extinguished while the surviving firm takes over all the rights, privileges, assets as well as the liabilities of the merged company. I clear separation must b made between mergers and consolidation. In the latter, both companies lose their identities and come together to form one major corporation which a completely new identity (Gomes, 2011). Mergers are regulated by the state laws as they are likely to eliminate competition leading to creation of oligopolistic firms which may collude to form cartels that may tend to harm the economy. Mergers and acquisitions are beneficial to the economy in the sense that they can bring about better approaches to management of the firm. They lead to economies of scale which has the effect of increasing production, reducing operation costs leading to decrease in the selling price which favors the consumers of various commodities. A merger can enable a business owner to sell the firm to someone who is already familiar with the industry and who would be in a better position to pay the highest price. Less competition will also mean low risks to the owners of the merged firms (Cardel, 1998). There are basically three categories of mergers which are based on the competitive relationships that exist between the merging firms. Vertical merger is a form of merger in which one firm acquires a customer or a key supplier of another firm. Horizontal mergers is where one firm acquires or takes over another firm that manufactures and sells an identical product in the same geographical location in a bid to lower competition that was originally existing between the two firms. Conglomerate mergers are those that the merging companies do not have any evident relationship between them. This paper takes an in-depth analysis on two public corporations in the United States in which one has a history of mergers and acquisitions and operated internationally and the other does not bear any history in relation mergers and acquisition and only operates within the nation. The two companies are Apple that has a long history with mergers and acquisitions as well as international operations and Winmark Corporation that only operates in the United States and never merged or acquired another firm. Apple Inc Apple Inc. is one of the leading multinational corporations in the United States. Its headquarters is based in Cupertino in the state of California. By market capitalization, it is the leading publicly traded corporation and by November 2014, it was valued at $662.2 billion. The firm has total of 72,800 permanent employees with about 425 retail stores in about fourteen countries. The firm deals with consumer electronics that it designs, manufactures and sells to the public. Other products include online services, computer software as well as personal computers. The firm is well known for a wide range of hardware products such as the Mac line of computers, the iPod media player, the iPhone smartphone, and the iPad tablet computer. Its online services include iCloud, iTunes Store, and App Store. Apples consumer software includes the OS X and iOS operating systems, the iTunes media browser, the Safari web browser, and the iLife and iWork creativity and productivity suites. The firm was established by Steve Jobs in the year 1975 with a sole aim of developing and selling personal computers. It was fully incorporated in 1977 and renamed Apple Inc. so as to show its focus on the manufacture of major electronics. It is the second leading firm in the world of information technology after the giant Samsung. Currently, Apple has managed to acquire a total of 62 companies and has proceeded to purchase stakes in other two companies. One of the philosophies of the company is to acquire as many small firms as possible and to integrate them into its big goal and projects. The first acquisition was made in the year 1988 with the purchase of Network Innovations and the highest number of acquisition was attained in the year 2013 in which it acquired a total of 13 firms. The most expensive acquisition by Apple was done this year in the month of August when t acquired Beats Electronics at a cost of US$3 billion. 46 out of the 62 acquisitions and mergers by Apple has been on the firms in the United States. Apple has adopted a strategy that seeks to improve its financial position every year and this is the fact that has motivated the company to acquire many companies as possible so as to realize this strategy. Financial performance improvement can be attained through acquisitions and mergers due to the fact that mergers lead to economy of scale. By combining several companies, Apple has ensured that it has reduced its operation costs by removal of duplicate departments leading to an increase in its end of the year profits. The company has gained economies of scope which refers to the increased efficiencies primarily associated with demand-side changes, such as increasing or decreasing the scope of marketing and distribution, of different types of products. It has further increased its market share especially with its latest acquisition of Beats Electronics that has seen it ranked second after Samsung in the field of electronics and has greatly reduced its would be competitors by merging with them. The company has gained synergy which refers to the managerial economies which is evident by the increase in the efficiency of the firm’s management even after the departure of its founder Steve Jobs. Therefore Apple’s merger and acquisitions strategy is absolutely justifiable since it has greatly improved the operations of the company making it among the leading corporations in the United States and the entire world. International business-level strategy and international corporate-level strategy of Apple Inc Apple pursues a global strategy in its international operations. Any firm using a global strategy will have to sacrifice responsiveness to local requirements within each of its markets in favor of emphasizing efficiency. This strategy is the complete opposite of a multi-domestic strategy. Global strategy stresses the need to gain economies of scale by offering essentially the same products or services in each market all over the world. Apple does not consider variance in local preferences as an important aspect towards gaining a wide influence in its foreign countries of operations. In this strategy products are largely standardized all over the national markets. This strategy does not seem to yield much returns for the company internationally. They need to adopt the transnational strategy that will ensure that as this will ensure a balance between efficiency in the firm’s operations as well as adjusting to the local preferences that seem to vary from one country to another (Faulkner, et. al, 2012). Winmark Corporation Winmark Corporation one of the leading firms in the United States that is largely known as the franchise-owned and operated business opportunities. The company was founded in 1988 and is headquartered in Minneapolis, Minnesota. It has offered its services to over 1,000 value-oriented retail stores in Northern part of America. Some of its brands that are widely known in the country include Once Upon A Child, Plato’s Closet, Play It Again Sports, Music Go Round and the latest as well as the newest concept Style Encore that is likely to bring unique franchise opportunities to small business entrepreneurs. The firm is also among the highly ranked in the resale industry and its brand has managed to recycle over 100 million items back into their respective communities in 2013. Winmark is the parent company of Winmark Capital Corporation that offers technology leasing services for medium and large sized companies and Wirth Business Credit, Inc. which is an equipment leasing company servicing the needs of small businesses. Despite being considered as one of the fastest growing companies in the United States, Winmark has not considered merging or acquiring other firms and has remained in its operations as a single entity. One of the firms that Winmark can merge with is Aaron’s Inc. which is a lease to own retailer in the United States. The company focuses on leases and retail sales of furniture, electronics, appliances, and computers. It is divided into three major divisions: sales and lease ownership; corporate furnishings; and manufacturing. The incorporation of manufacturing as well as retailing makes the company vertically integrated. Being a franchising firm, both firms can easily merge since they both belong to the same industry. A successful merger of the two firms will further promote their profit level due to increased economies of scale as well as diversity in their products. The international strategy that Winmark need to adopt is the global strategy that will ensure maximum standardization of its products that do not need to be tailor made for the preferences of their countries of operation (Richter & Pahl, 2009). References Cardel, G. M. (1998). Cultural dimensions of international mergers and acquisitions. Berlin [u.a.: de Gruyter. Faulkner, D., Teerikangas, S., & Joseph, R. J. (2012). The handbook of mergers and acquisitions. Oxford: Oxford University Press. Gomes, E. (2011). Mergers, acquisitions, and strategic alliances: Understanding the process. Houndmills, Basingstoke, Hampshire: Palgrave Macmillan. Richter, A., & Pahl, N. (2009). International Strategic Alliances and Cross-Border Mergers & Acquisitions. München: GRIN Verlag GmbH. Read More