Industrial Organization Economics - Essay Example

INDUSTRIAL ORGANIZATION ECONOMICS Introduction and summary of articles The current economic environment in the corporate world thatis characterized by stiff competition. This has led many corporate organizations trying their best to outdo their rivals. The primary cause of the heightened competition is globalization. Globalization has eased the transfer and movement of goods and services from every corner of the world, to compete in the domestic market. Many companies and nations have responded to this increased pressure from competition using different strategies. Similarly, the competing industries feel the effects of competition as well as the countries too. Globalization has led to opening up of borders to facilitate trade. Those countries and companies that are ahead in the game realize the benefits compared to the laggards. Some of the strategies that nations have adopted to neutralize the effects of competition arising from globalization include creating barriers to entry, strategic entry deterrence as well as mergers and acquisitions. The rest of the paper will outline how the three factors influence industrial organizations as well as their impacts. It will achieve it by discussing three newspaper articles on the same subject. In an article by Gelles (March 12, 2015) in the New York Times titled, "Uncertainty weighs on Endo’s higher bid for Salix Pharmaceuticals” confirms the competitiveness of merger and acquisition. The article talks about the competition existing between Endo International and Valeant Pharmaceutical over who acquires Salix Pharmaceuticals. Endo has offered $ 175 per share, compared to $ 158 per share that Valeant offers (Gelles2015). It implies that the company that offers a higher bid per share may acquire the parent company and expand the operations. However, many factors hinder the merger and acquisition. These factors are related to policy issues. The board of the parent company has to agree to the offer because the deal will be binding to all the stakeholders including shareholders of the acquired company. In this article, people learn many issues regarding the topic or merger and acquisition. It is contrary to earlier knowledge that acquisition or merger was an arrangement of two companies; this article provides evidence of a third party. Third parties can come in if they offer a higher bid than what others offer. Endo offered a higher bid than what Salix had anticipated, which gives it a greater chance of acquiring the new investment or the company (Gelles 2015). It is a new scenario rarely experienced among accompanies. In the article by Warrell (February 20, 2015), “Theresa May plans ‘British values’ test for visa” offers a new strategy for strategic entry barrier. According to the article, the UK Home Secretary is introducing new laws that would force overseas visitors seeking work, study, and business meeting to demonstrate their respect for UK values (Warrell 2015). Hence, the British government wants to ensure that these laws become part of a visa application to those who wish to enter the region. Although the UK government asserts that the move aims at countering extremism, there may be more tied to it than what is in the public domain. For instance, it is a strategic move to cushion the nation’s boundary against influx of refugees and to manage the borders. UK is one of the countries that attract large number of immigrants because of the perception of its lucrative nature. It implies that the country wants to reduce the number of job seekers as well as those seeking to establish businesses or partnerships in the name of attending business meetings. The process of globalization has facilitated the movement of goods and services as well as laxity of the laws to permit cross-border trade. It has made many nations develop policies as a strategic deterrence to entries as in the case of the UK. Lastly, the article by M. R in The Economist, "Feeling the heat" is an indication or strategies that nations have put to bar entries into their markets. The article notes the unfair competition among the Gulf carriers towards airlines from other regions. The three big airlines making the Gulf carriers include Emirates, Etihad Airways, and Qatar Airways (M. R 2015). Their competitors in Europe and America accuse the three carriers of receiving government subsidies to create a field for unfair competition. The disclosed information reveals that the three carriers have received more than $42 billion since 2004. The disclosure made their competitors forward the dossier or complaints to the American government to rethink about the open sky treaty with these airlines (M. R 2015). Hence, the other airlines recommend that the US space be closed to these Gulf airlines until their governments or the agencies involved creates a level playing ground. The several allegations placed forward by the European and American airlines need to be proved for action to be taken against these airlines as per the law enacted to control the aviation industry. The Financial Times had reported some allegations against Emirates including assumption of $2.4 billion fuel hedging loss in Dubai and $1.9 billion savings from non-unionized workers (M. R 2015). Another include $ 2.3 billion savings from low airport charges (M. R 2015). Similarly, the reports allege that Qatar Airways received $7.7 billion interest-free loan from the Qatari government as well as $ 6.8 billion reduced debt interest charges (M. R 2015). Moreover, Etihad is said to have received $ 6.3 billion in capital injection and $ 4.6 interest-free loans and without obligation of repayment (M. R 2015). Abu Dhabi also committed $4.2 billion to Etihad Airways, a move seen as unfair competition by the rival airlines (M. R 2015). Analysis/discussion of articles In an article by Gelles (March 12, 2015), it is evident that the process of merger and acquisition is all the same because shareholders also have a role in facilitating the transaction. For instance, the acquisition of the company must get the approval of the shareholders. Shareholders from Salix must approve the purchase of giving 40 percent of their business. Similarly, shareholders from Endo must agree to the acquisition. It is also evident that the acceptance is imperative to stakeholders because it makes them aware of any eventuality that might arise after that. For instance, Endo stakeholders’ takes responsibility of paying any debt that Endo might have or own, and this will imply that they have to add money to settle any pending debt. Moreover, the acquired company and its stakeholders must accept to continue with any pending case that the acquiring company was engaged in. For instance, Salix was waiting for a ruling from Food and Drug Administration for its treatment for irritable bowel syndrome. Therefore, Endo is obliged to bear any burden that might come with the Food and Drug Administration’s decision. Moreover, it is evident that merger and acquisition is not a business for a domestic market but attracts bidders from all over the world as long as they meet the laid out procedures and has an interest. For instance, the two companies that bid for Salix come from different locations but have an interest in the acquisition. This indicates the extent to which the globalized world interacts in doing business. Additionally the bidding war also offers an opportunity to the shareholders of the acquired company to increase the value of their shares and benefits. It helps in giving the business a new image, which also contributes to a rise in the stock prices. Secondly, in the article by M. R, Felling the heat, it is evident how nations create a barrier or unfavorable working relationship to push other players out of the market. For instance, the presence of unethical business practices proves that the Gulf region does not want airlines from Europe and America to fly in their sky. Because of this, the area lowers the threshold for its domestic companies while rising for international airlines or organizations. In one instance, one of the Gulf airlines saved much money from the employees trade unions since they do not form unions and negotiate for pay and other allowances. On the other hand, operators of international airlines must deal with a high cost of sustaining employee unions hence reducing their profit margins. In this respect, the government has a role in influencing the players in the domestic market by favoring others while executing strict measures, on the other hand. Moreover, government subsidies to the domestic airline aim to give them an advantage and to bar new entries. For instance, some airlines had the landing fee waived hence saving much money while others from the international market had to pay a high price for the same service. Under such circumstances, the government discourages the entry or operations of new airlines or players by creating unfavorable ground for them. Interestingly, those who feel aggrieved take measures by reporting the unethical practices to the authorities in their mother countries. This means that European nations and Americans will also create some barriers to Gulf airlines so that they can also feel the pinch. Currently, Americans and European flights are experiencing the pinch when flying in the Gulf region because of the unethical business practices. Hence, they believe the only way to create a level playing ground is for their nations to lock out the Gulf airlines from landing. Considerably, the stakeholders have to come together and agree on the parameters and boundary of operations. Creating a trade or entry barrier does not work in situations where both parties have an interest in one another. It implies that creating barriers against each other, leads to loss of business by the two competing sides. European and Americans nations will close their sky and the Gulf airlines will lose and vice versa. Because of this, coming together and devising the methods are the best options available for the parties. Lastly, the article by Warrell, Theresa may plan ‘British values test for visitors visas act as a strategic barrier to entry. Over the past years, the UK government has been revising its trade agreements with various nations, a move that many liberal Democrats refuse. There are many business opportunities still available in the UK, and there is a need to explore and benefit from them. The decision to introduce new visa application guidelines is to lock out potential investors whom they might perceive as extremist. The British had conserved its values, and they are known to the people, hence needless to develop new rules towards guiding them. Instead, the increased pressure of globalization and the movement is making the nation create some barriers to discourage many applicants in their embassies. Moreover, some countries such as Ukraine and Greece are facing economic challenges and likely to look for alternative nations for business. Therefore, most investors are likely to shift their allegiance to the British where there are some more opportunities and political stability. In her statement, the Home Secretary mentioned jobs as one of the sectors where visa applicants look for when sending their applications. This is evidence that British is trying to protect its citizens from external competition, as well as the entry of new players or job seekers in the market. Different types of visa allow an individual to seek work in the county thus making the strategic aim of minimizing such occurrences. The government believes that introducing new policies will help lock out the potential threats to its citizens since there are few available opportunities for the natives. It also knows that the world is very aggressive on extremist hence uses that as the reason. However, at the back of the mind the government knows that everyone respects and observes UK values. Conclusion Many nations all over the world are experiencing competition from the international market. It varies from employment opportunities to trade or business partnership. Some companies are achieving competition using merger and acquisition strategies to enter a new market and acquire shares. Therefore, nations have devised various ways of meeting this challenge by creating barriers to entry of new players as well as laying a strategic deterrence to the market. Some of these strategies have achieved an excellent result while others have been challenged because of the perception that they were unethical business practices. References Gelles, D. March 12, 2015, Uncertainty weighs over Endo’s higher bid for Salix Pharmaceuticals. The New York Times. Available from http://www.nytimes.com/2015/03/13/business/dealbook/uncertainty-weighs M. R. March 6, 2015, Feeling the heat. The Economist. 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