Fujitsu Siemens Computers - Essay Example

Fujitsu Siemens Computers Task With reference to academic literature, justify the decision, of Fujitsu, and Seimens to form a joint venture in 1999 Siemens was a German based computer manufacturing company. Fujitsu was a Japan based company. In 1999, in the European computer market, Fujitsu and Siemens decided to operate united by forming a joint venture by merging the existing business firms. The joint venture firm carried out business operations under the name Fujitsu Siemens Computers in the Europe computer manufacturing industry. The main force behind their merger of operations in the Europe market was to avoid the unhealthy competition from the large multinational firms in the European PC markets. Their joint venture formation was a success strategy in the market. Through this they mutually attained the capability to become market leader in the industry. Joint venture formation is a strategy adopted by many firms for entering in the international market with minimum effort and cost. Through business combination with local firms, foreign firms can attain market entry and business growth. In the concept of Farok J. Contractor and Peter Lorange, in the present economic conditions characterized by intense competition of multinational firms, the joint venture formation becomes essential for sustaining the market share and growth. Cooperation of firms in an industry provides them competitive strength in the market. In matured industrial conditions, the expansion programme is not favorable for firms. In such a case, in order to expand the market, business combination with similar firms is helpful to attain the economies in production and marketing and attaining competing strength. The cooperation strategy is helpful for avoiding the unhealthy competition between firms. In case of technological firms, business combination is very favorable for further growth in the industry. By avoiding outright competition, sharing of resources and technology provides them competitive strength. Development of innovative technology becomes possible through business combination. In order to sustain in the information technology based industries, rapid technological change necessitates technological intensity for firms. Thus only large firms with huge investment in research and development only can sustain in the industry for a long term. The joint venture formation of similar firms in the industry makes possible to attain this capability mutually. The product cycle in the IT related industry is very short. Thus in order to exploit the maximum benefits from the newly developed technology, adequate marketing strategy is essential to recoup the development costs. Business combination facilitates to achieve this capability. Technological intensity attained through business combination also reduces risks related to various operations. Internationalized business operations provide wide range of customers for the products. Large market and increased production scale is favorable for attaining the targeted market growth. The joint venture of technological firms makes possible to share the ideas and knowledge relating to competing and emerging technologies between firms. The research and development process becomes advanced through combination different useful ideas and knowledge. External participation in research and development process is helpful for diversifying the research process. Firms can concentrate on major research process through sharing the development cost. Organizational efficiency improvement is the main tool for competing in the industry. The organizational efficiency will be much improved by changing the organizational strategy by business combination. Exchange of complementary technologies and patents between firms can be possible through joint venture. The pooling of complementary technologies of similar business firms may be most favorably done through joint venture. By this the missing piece in each partner can be filled by the other. Pooling of technological know-how will helps to generate superior products. Joint venture can be considered as a tool for unifying the complementary skills and talents procured by two different firms. In the high technology industries, this type of unification of complementary skills will help to bring out significant innovations which are not possible individually by both of the partners. Significant time and cost savings is also can be achieved through joint venture strategy because for attaining the targeted market growth individually it requires much time and cost factors. In joint venture, sharing of resources reduces the time and cost constraints. (Contractor and Lorange 2002). In 1991, Williamson argues that the principal criterion for selecting the business structure is minimization of cost. The formation of business combination should be helpful to exchange the transaction cost. According to Anderson and Gatignon, in 1986, equity joint ventures are a mode of entry in international market which provides substantial control to multinational companies. It is more powerful than other entry modes. In the concept of Hennart and Kogut (1988), equity joint venture becomes necessary in particular business scenarios. One of the situation necessitates equity joint venture is that the business transactions between firms involves substantial transfer of technical knowledge. (Yan and Luo 2001). The factors that lead to the merger of the Fujitsu and Siemens were market pressure relating to falling margins on vendors. The falling margins of vendors create problems that lead to extremely cut throat price cutting in the market. This affects their profitability. In order to overcome the falling margins of vendor, the two firms came under a mutual agreement to work together jointly by forming a new firm. Fujitsu is occupying streamlined manufacturing base, and are well functioning in the consumer market. They faced problems with marketing of products due to the competition from multinational giants in the market. Through the joint venture formation, Siemens and Fujitsu attained leadership position in the computer market by sharing of resources and research process. The 50-50 joint venture partnership between the Siemens and Fujitsu is built on a memorandum of understanding. The new company formed after the merger gets market position of fifth largest in the global PC market and it was the biggest non US computer company also. Through the mutual agreement between the two companies, they attain the capability to achieve their targeted market growth. Sustainable profitability growth is also achieved through this merger. Merging of the information and communication departments individually held with them, helps to expand their manufacturing and market operations. Their internet activities are also well developed and expanded through this mutual agreement. They get competitive position in the important sector of research and development in the computer industry. The strength and capability of the two firms are mutually good fit. The manufacturing facilities of both of the parent company are fully utilized for the new firm and though this they achieved economies in production and marketing. The newly formed company had annual revenue of around $ 4 billion. It becomes top three in the European computer market in terms of revenue. (Lambeth 1999). In case of Fujitsu and Siemens, the equity joint venture strategy is suitable to each other for exchanging the technical know-how and manufacturing capabilities. Their stable and reliable partnership provides suitable environment for attaining business growth and profitability in the competitive industrial conditions. Through the joint venture they attained world’s most complete product and solution portfolios with world class computer technology and innovative IT infrastructure capabilities. Task 2: Given both companies’ histories and using appropriate theory critically evaluate the potential problems they could expected to encounter. a) When negotiating the agreement. b) During the initial period of the joint venture. History of Fujitsu and Siemens Computers: Fujitsu Siemens computers were formed as a joint venture partnership of Fujitsu Limited in Japan and Siemens AG in Germany. The Fujitsu Siemens was registered in Netherlands as a joint venture holding company occupying a group of trading companies. In the new venture, the European computer business of Fujitsu and the business operations in Middle East and Africa of Siemens AG were combined together. Fujitsu is a leading firm in the field of internet focused IT solutions, on a global basis. It is the number one IT Company in Japan and world’s third in the IT service field. In the Europe PC market Fujitsu have strong brand image and customer loyalty. The notebook PC of Fujitsu has slim line models in its range and it is regarded as well and high specification notebooks. Siemens does not occupying this capability. Siemens is a German based company and is a prominent player in the IT solution industry. Siemens is a well established firm in the corporate market. It attained technical capability to develop innovative solutions in electrical engineering and electronics. Their major products includes solutions for e-business, mobile communications, IT solutions in the field of manufacturing, transportation, healthcare, energy, lighting, and financial services. (Fujitsu Siemens Computers; Corporate website, Annual report 2002/2003). In the new company, the PC, server, and mainframe businesses of both companies are integrated and the marketing of products is carried on under a single brand across the European region. Their joint agreement did not affect the contract of parent companies with other parties. Long relationship of the two firms of German and Japanese union helped to form suitable business combinations. Potential problems in joint venture: In the concept of Farok J. Contractor and Peter Lorange, Along with various advantages, the formation of joint venture creates several operational problems. Due to the conflicting attitude between firms, most of the combination strategies have only short term existence in the market. The negative impacts from joint venture formation are related to the conflicting interests and market objectives. In joint venture formations sharing of resources including intellectual property are taking place. It affects their individual future business operations. Thu while entering in cooperative venture, mutual understanding between firms has to be ensured. Transferring of technology also has to be carefully deal. (Contractor and Lorange 2002). According to Kogut in 1988, joint venture formation may result in mutual hostile situation among the partners. In the joint venture partnership, both companies have a fair deal. In order to ensure long term satisfactory existence of the business combination, each partner has to get adequate compensation for their knowledge transfer. The transferred knowledge has to be profitably utilized by the new firm. The joint commitment of financial and intellectual resources may create problems. The uncertainty about the future of the relationships can bring forth fear for the parties involved in the mutual agreement. It can be overcome by joint equity of partners in the business. In most of the cases, inter-firm cooperation creates problems with resource distribution. Thus technical and human resource problem may affect proper working of the new business. Along with this, legal and environmental problems may also arise as a result of joint venture between different nationalized firms. (Yan and Luo 2001). a) Potential problems expected to encounter when negotiating the agreement: The joint venture agreement between Siemens and Fujitsu may be badly affected by the difference in the business culture and legal system existing in between them. Siemens is a German company and has their own business policies and ethics. Whereas Fujitsu is a Japan Company and has business culture different from Siemens. When entering in to mutual agreement adequate compensation for the equal to the shared value has to be attained for each party. Otherwise it will affect the relationship between them. In case of joint venture between Siemens and Fujitsu, sharing of technological know-how and manufacturing facilities is the base of the agreement. Thus the value of shared knowledge between them has equal value. The real valuation of shared knowledge cannot be possible as it is measurable on a conceptual bass only. Thus requirements of participation in research and development process and sharing of intellectual knowledge may affect the negotiation process badly. The capital fund of the new firm is equally shared by the two partners. This may lead to restriction from the existing shareholders of the two firms. The equal voting rights and equal share of profit may not be agreeable for the existing shareholders. They may not be satisfied by the compensation given to them. The long term sustainability of the new venture may be viewed with suspicion by them. Thus they may not agree with the management for the compensation. There may be restricting opinion from the part of organizational personnel due to fear of loss of employment opportunity in the new firm. These problems may affect the agreement between the partners and thus the negotiation process may be affected badly. b) Potential problems expected to encounter at the initial stage of joint venture: Conflicting business policies may arise between them as they were operating under two different cultural bases. The objectives of partners related to the joint venture may be different or conflicting in nature. This may result in lack of proper target goal for the business. The equal sharing of employment opportunities in the new firm may create problems among the organizational personnel. In the new firm, the former employees of Siemens and Fujitsu may not get adequate authority and compensation and this will affect their performance. The profitability and long term existence of the new firm may be suspiciously watched by the financial suppliers and thus the new firm may face problems with fund raising. The business policies of the two firms may be conflicting in nature and it will affect the policy formation process. These are the major problems confronting at the initial stage of the joint venture of Siemens and Fujitsu. Task 3: Issues relating to the joint venture: a) The principle of tax morality: The Fujitsu Siemens Computers were registered in Netherlands whereas the sales and marketing operations are arranged in Germany. Netherlands is often quoted as a tax haven country in which business firms are required to pay only lower rate of taxes when compared to other European countries. The main reason for selecting Netherlands as the home country for the joint venture was that it provides suitable tax regime for the business involving low tax arte, and friendly attitude of the legal authority towards the business. As per the business principle and ethics of Siemens AG and Fujitsu Ltd, they are the follower of rules and regulation s of the local authority. They are subjected to the local tax system. The principle of tax morality implies that the business firms are under the responsibility of payment of tax to the local authority as a compensation for the usage of resources of the local community. It is a part of the business ethics and corporate social responsibility. In the concept of Peter French the features of a corporate decision making display all of the essential components of a moral agency. (Marcouz 2008). Corporate entities have moral responsibility to share a part of their income to the society in which they operates. According to Milton Friedman, (1970), the major responsibility of business firm is to increase profits. But as a legal entity, along with profit generation, they have to fulfill its morally fiduciary duties such as payment of taxes and obeying the regulatory rules. Excessive tax regime in countries may provide negative impacts on their business environment and it will lead to reducing the rate of economic and social growth. . The principle of tax equity is based on the concept that all productive members in the society have a moral responsibility to contribute to its preservation and tax payment is the tool for sharing the income with the society. The taxation system of government is not a mere tool for revenue generation. The taxation systems have various social and economic objectives. Thus it is a complex system, involving the social and economic objectives of the nation. One important objective of tax system is distribution of wealth in the society. It helps to maintain the stability in price and stimulating economic growth.? (Salis 2007). In case of international business combinations, the responsibility of the firm becomes more complicated. In transnational business firms have to meet the legal jurisdiction in each of the country they transact business operations. b) The impact of tax as a factor when making international strategic management decisions: Tax is an important source of revenue for many countries. In order to increase the state revenue government may adopt intense tax system in the country. Due to this, the tax rate existing in different countries are different. For example in UK and London, the tax rate applicable to business firms is not favorable for their profitable functioning. As a result of lack of competitiveness of the tax regime of the country, business firms are reluctant to start their business in UK. The existing firms are trying to relocate their operations for avoiding the intense tax burden. This indicates that tax system in a country is an important factor that influences the international investment decisions of firms. While evaluating the tax regime of a country, along with the rate of tax other factors such as certainty of interpretation and predictability, and the attitude and approach of the tax authorities towards them. The complexity of the tax code is also considered by business firm for determine the location strategy. The tax system existing in a country is the symbol of the attitude of the country towards the business firms. An investor’s friendly country will give attractive tax regime for the investors. (Snyder 2008). The tax regulations in a particular region will have great impact on the profitable working of business firm. The international business decisions of firms are mostly based on the tax advantage existing in the country. The competitiveness of business firm may be affected by the intense taxation in the located countries. The complexity in tax system also restricts firms to enter in such country for starting business. Fairly tax rate existing countries will attract business firms to carryon the business operations. Thus in order to attract investment from international business ventures, adequate tax environment has to be provided by the authorities. Business tax payers are required to pay apportion of their income as tax to the local government. The amount of tax payment increases with increase in the profit earned by them. Thus higher profitable firm required to pay higher amount of tax also. Attractive tax system should be incentive for investors. Fujitsu Siemens Computers were decided to start its joint venture business in Netherlands. The basis of this decision was to exploit the tax advantage existing in the country. When compared to other European countries like UK, the tax system in Netherlands supports favorable business conditions. The lower tax arte in the region is attractive for international investors. The regulatory structure of the country is not complex in nature. It constitutes a competitive tax system in the country. The location strategy of Fujitsu Siemens Computers was based on the tax advantages available in Netherlands. Task 4: In 2008, Siemens withdrew from the agreement. a) Critical evaluation of the possible rational for this decision: The joint venture partnership of Fujitsu Ltd and Siemens AG, branded under Siemens Fujitsu will end up with effect from April First of 2009 when Fujitsu taken over the Siemens’ 50% share in the joint venture. The decision of Siemens to withdraw from the agreement may be resulted from institutional pressure. The nine year old joint venture partnership of Fujitsu and Siemens computers in the field of IT services is a successful venture. They become the market leader in the IT infrastructure field. They gained goodwill for supply of quality and innovative technologies in the filed of server, PC and data storage tools. The reason for the withdrawal of Siemens may be due to the capability of Siemens to attain the targeted growth and profit independently. The withdrawal decision may help Siemens to concentrate on their individual operations. The financial crisis existing in the IT industry has made problems in the working of Siemens Fujitsu also. The reason for the withdrawal may be to acquire the financial resources for their own operations at the entire global industry. The possible reason for this decision would be to overcome the impact of financial crisis on the individual business operations of Siemens in the USA and other countries. This will help them to concentrate on their operations with adequate financial resources. b) Critical evaluation of the potential impact for supply chain partners: The sales and marketing operations of Fujitsu Siemens Computers are carried on in Germany. Most of the suppliers of the group are located their operations in Germany. The decision of Siemens to withdraw from the mutual agreement will impact the supply chain partners of the group. Existing partners may be forced to review their supply chain system in order to assist the individual Siemens computers. There may be competition between Siemens and Fujitsu for acquiring the supply chain partners. Coordination and exchange of information between suppliers and business group may be affected through the withdrawal of one firm from the joint venture. The projects carried on under the technological support of Siemens may find it difficult to sustain the supply chain partners related to the segment. Thus the group will forced to acquire other supply source for the business. The relationship that exists between an organization and its international supply chain partners is based on the reliability and trustworthy of both the parties. In case of the Fujitsu Siemens Joint venture firms, it procures the resources from the suppliers in Germany also. If the German partner withdrew from the business it will affect the relation between the suppliers and the group. Cultural integration in the group becomes possible through the German partnership. When Fujitsu independently carryon the business, the suppliers my review their contract with the group. c) The implications for Fujitsu: Through the joint venture, Fujitsu attained the customer loyalty by providing quality and advanced IT products and services. The rapid expansion of business fields becomes possible through this joint venture. A full range of advanced and innovative IT solutions are developed by them with mutual cooperation. Te withdrawal of Siemens from the group is positively viewed by Fujitsu management as they think that it will help them to integrate the full value of Fujitsu Siemens computers in to Fujitsu group. The strong customer base procured by the group will help the group to sustain its market position with adequate growth rate. The research development capability with talented group of employees of the group will support Fujitsu to their global products development. The experience of the organizational personnel is also a reliable and valuable asset for the group. Fujitsu has declared that they will concentrate on their strategic sectors of energy, industry and healthcare. The mutually beneficial partnership with Siemens, technology sharing in the communication field. (Fujistu to Acquire Siemens’s Stake in Fujistu Siemens Computers. 2008). Bibliography CONTRACTOR, Farok J., and LORANGE, Peter. (2002). Changes in the International Business Environment. [online]. Cooperative Strategies in International Business. Last accessed 19 January 2009 at: http://books.google.co.in/books?hl=en&id=BwfRrH5jEKgC&dq=Joint+venture+strategies+of++Business+firm.&printsec=frontcover&source=web&ots=AC7PXFb2_e&sig=w3eFVUGImsM5N1IjoJt73ezsUkA&sa=X&oi=book_result&resnum=1&ct=result#PPR27,M1 Fujistu to Acquire Siemens’s Stake in Fujistu Siemens Computers. (2008). [online]. Fujistu: The Possibilities are Infinite. Last accessed 19 January 2009 at: http://www.fujitsu.com/global/news/pr/archives/month/2008/20081104-01.html Fujitsu Siemens Computers; Corporate website, Annual report 2002/2003. (Provided by the Customer). LAMBETH, Jonathan. (1999). Siemens and Fujistu Combine Under PC Margin Pressure. [online]. IWR: Information World Review. Last accessed 19 January 2009 at: http://www.iwr.co.uk/vnunet/news/2106573/siemens-fujitsu-combine-under-pc-margin-pressure MARCOUZ, Alexei. (2008). Business Ethics. [online]. Stanford Encyclopedia of Philosophy. Last accessed 19 January 2009 at: http://plato.stanford.edu/entries/ethics-business/ YAN, Aimin., and LUO, Yadong. (2001). Conceptualism and Formation Motives. [online]. International Joint Ventures. Last accessed 19 January 2009 at: http://books.google.co.in/books?id=eZQ9hTrht2AC&pg=PA9&lpg=PA9&dq=Theories+of+joint+venture&source=web&ots=5NVoixeI8J&sig=heFdltLUACkzbH9mT6aIlQGxf10&hl=en&sa=X&oi=book_result&resnum=10&ct=result#PPA9,M1 YAN, Aimin., and LUO, Yadong. (2001). Conceptualism and Formation Motives. [online]. International Joint Ventures. P.9. Last accessed 19 January 2009 at: http://books.google.co.in/books?hl=en&id=BwfRrH5jEKgC&dq=Joint+venture+strategies+of++Business+firm.&printsec=frontcover&source=web&ots=AC7PXFb2_e&sig=w3eFVUGImsM5N1IjoJt73ezsUkA&sa=X&oi=book_result&resnum=1&ct=result#PPR27,M1 SALIS, George L. (2007). A Brief Introduction to the Principle of Tax Equity. [online]. American Academy of Financial Management. Last accessed 19 January 2009 at: http://www.aafm.org/article.php?id=214 SNYDER, Michael. (2008). The Impact of Taxation on Financial Services Business Location Decisions. [online]. City of London. Last accessed 19 January 2009 at: http://72.14.235.132/search?q=cache:a-GTKWj9fk8J:www.cityoflondon.gov.uk/NR/rdonlyres/EAB21107-2E8E-4338-9243-D0E37995D54F/0/BC_RS_taxreport_ES.pdf+Netherlands%2B+tax+impact+on+business+firms&hl=en&ct=clnk&cd=4&gl=in Read More