SZLN: Acquiring PEM - Case Study Example

?Answer In the current times of competitive business in recessive environment, strategic opportunities and risks are critical factors that need to be taken into consideration while forming business relationships. Forging alliances with other businesses greatly facilitates in meeting the challenges of time and improving productive outcome. Indeed, tactical business coalitions across the globe are important linkages that provide firms with competitive advantage and help maintain or improve their market position. The dynamics of acquisitions and takeover are complex business paradigms that need to be evaluated and analyzed thoroughly before making final bid. SZLN therefore needs to evaluate strategic opportunities and risks involved in its plans for acquiring PEM. PEM or Periliya Limited is an Australian base metal mining and exploration company which has huge asset in terms of zinc, lead and silver ore mines. But in recent times, it has also been hit hard by recession and has accrued huge debt. Acquisition of PEM therefore offers significant strategic opportunities of improving business performance. The following business opportunities and risks in acquisition of PEM by SZLN are detailed as under: Strategic opportunities 1. It would facilitate manipulation of strategic business information to improve its business prospects across the globe as PEM has business spread across geographical boundaries. It would therefore be able to acquire international resources vis-a-vis foreign direct investments. At the same time, SZLN would greatly benefit from the advanced mining technology and managerial and operational efficiencies of PEM. 2. It would be able to meet its domestic demands of excess raw material needed from the zinc and lead ore mining of PEM after its export contract expire by 2012. 3. The current prices of zinc, lead ores are at their lowest. The analyst report of several investment agencies have revealed that the metal prices would recover in long run. Also with prediction of scarcity in mineral resources, acquisition offers huge profit on long term basis. 4. The acquisition would help SZLN to gain credibility in the international market. Business risks involved in acquisition 1. The major risk involved is taking approval of FIRB, Foreign Investment Review Board of Australia. It is the main body that examines proposals by foreign firms which is desirous of direct foreign investment in Australia. The foreign investment body must work within the defined criteria of Australian government and its investors’ operation must be independent of interference from relevant foreign government. Hence, firms undertaking FDI in Australia which are linked to foreign governments such that their commercial activities could be influenced by them, could find it difficult to get approval. SZLN’s largest shareholder is State Owned Assets Supervision and Administration Commission (SASAC) which is state owned and therefore would significantly impact its prospect of acquisition of PEM. 2. Cultural competencies and uncertainties are major obstacles in business negotiation across nations. The effective communication vis-a-vis language barrier and cross cultural understanding are complications which need to be understood for the wider ramifications of the success of alliance. 3. The future PEM’s financial needs must be taken into account as the firms seems to under huge debt. 4. SZLN must also pre-empt its sources of finance as the pre and post acquisition of PEM would require vast amount of financial liquidity to make the deal profitable. Answer 2 China and Australia are vastly different nations in terms of socio-cultural paradigms, economy and political and legal environment. Therefore, various regulatory factors of the two countries would considerably impact the acquisition process of PEM, an Australian country by Chinese firm, SZLN. It would need to be approved by Chinese and Australian regulatory agencies and shareholders of PEM. Thus, key regulatory factors that are likely to affect acquisition are as follows: 2a. Chinese Regulatory factors The major aims of Chinese regulation are focused on judicious use of foreign exchange reserve; enhance business competencies of Chinese firms; and encourage positive political relationship with countries where it seeks to expand business interests. SZLN’s acquisition are therefore affected by the following two Chinese agencies. National Development and Reform Commission (NDRC) The agency works under the broader umbrella of Chinese State Council which has strong administrative and planning control over Chinese economy. It formulates, evaluates and guides the restructuring of Chinese economic system trough policies and plans for the socio-economic development. Through development of framework of national industrial policy, NDRC impacts all types of operational and investment related issues of SZLN. In 2004, it had issued interim measures for administration of examination and approval of ‘overseas investment projects’ that had made its approval mandatory in cases where the acquisition was to exceed $30 million dollars. The main objective was to promote uniformity in expansion of Chinese business across the global. It was designed to create favourable environment for foreign direct investment and international trade. State Owned Assets Supervision and Administration Commission (SASAC) SASAC is major government agency that is also the largest shareholder of SZLN. It primarily ensures that value of its assets is not compromised. It supervises and encourages reforms and restructuring through establishment of modern system, ensuring good corporate governance and fostering linkages which promote strategic adjustments with local economic structure. Hence, SZLN’s acquisition plans must ensure safe return of SASAC investment. 2b. Australian regulatory factor Australia has immense mineral resources and a leader in exploration and mining technology. Hence, it needs to protect its long term and short term interests from being exploited by foreign investment agencies. FIRB is the main body that looks after the various modalities of foreign investment within the country. It not only examines and evaluates projects and proposals for foreign direct investment but also promotes framework of guidelines for them. Apart from looking after the interests of its domestic industries, national interest and security, it also ensures that investors of firms investing in Australia are not overtly or covertly linked to foreign government. This is to ensure that firm is not able to promote vested political interests of the investor country and thereby act against national interests of Australia. Reference Case Study. SZLN: Acquiring PEM. Richard Ivey School of Business Foundation. Read More