Merger, Acquisition, and International Strategies - Research Paper Example

Merger, Acquisition, and International Strategies al Affiliation) Introduction In strategic management, mergers and acquisitions represents a corporate finance deal that involves the sale, purchase and division of different entities. The combination of different companies within an industry to form a single business entity is merger whereas the purchase or sale of an entity by another is known as acquisition. This form of corporate management strategy is rampant in lucrative industries that have homogeneity of goods, hence stiff competition. In this kind of industry, mergers and acquisitions play a critical role in helping the enterprises involved to register growth of market share and improvement in revenue as well. Similarly, mergers and acquisitions guide smaller and newer companies into adapting in the advanced industries that have larger companies often manipulating the market conditions of such industries. Merger and acquisitions is a restructure approach in the management of enterprises within an industry. In successful mergers, the companies involved employ techniques that enable them to reorganize their corporate and internal strategies to suit the value of the operations. Distinctively, the growth of globalization has largely influenced the need for businesses to embrace mergers and acquisition as a way to fit into the competitive international markets. Many companies have inadequate resources that enable them to venture into overseas markets, hence limiting their potential output and income respectively. In this case study, therefore, the paper will explain the role of mergers and acquisitions towards the growth of a brand in international markets. Discussion Exxon Mobil Merger The energy industry is a mainstream contributor to the growth of any economy in the world. Many companies that deal with this lucrative commodity are often engaged in a series of adjustment processes that guarantee the survival of such companies in this competitive industry. Due to the increasing global pressure towards internationalization of various business entities, the merger and acquisition processes came into the picture to provide a stable supply of energy for the expansion of various business units. Therefore, between the year 1998 and the year 2001, major energy mergers were commissioned to oversee the improvement of efficiency in the provision of energy as per the requirements of the internationalized enterprises. The Exxon Mobil is a combination that involved the purchase of Mobil by Exxon in the year 1998. The strategy employed in this merger was the horizontal strategy that involved the acquisition of a foreign oil company (Mobil) by the domestic U.S Company (Exxon). The companies were driven by the need to increase their market share, save on the costs of production and explore the new market opportunities that characterized the globalization era during that period. The Exxon Mobil Company maintains a steadfast commitment to the generation of the long-term shareholder value (ExxonMobil, 2015). This motivation encouraged the merger of these companies besides the requirement to gain reputation as the world’s largest supplier of the growing energy demands. The set of international business strategies that the merger employed in realization of their success prove that they invested a lot of finances and time in the process of the merger. Indeed, the company posts strong financial returns, and registers a continuous balanced and unique set of profitable growth across its chain of businesses. In the horizontal merger strategy by the Exxon and Mobil companies, the aim was to increase the financial performance and reduce the risks associated with venturing into international markets that have established oil companies. Through the abolishment of the duplicated departments within the companies, the reduction of the production costs and the increase in shareholder participation, Exxon Mobil increased their profit margins. The company ventured in international markets. The experiences that Exxon registered in the West Africa deep-water exploration combined well with the production activities of Mobil in Nigeria and Equatorial Guinea. Similarly, Mobil had a strong position in Kazakhstan, neighboring Azerbaijan that Exxon created a dominant presence. These, amongst other factors, provided the company with enough managerial skills to operate a successful merger in the international oil industry. As at the year 2014, the Exxon Mobil International Oil Company delivered earnings worth 32.6 billion dollars to the shareholders. Besides, the company registered a 17 percent return on the capital employed (Sec.gov, 2015). Through posting positive results, the company maintains a strong corporate environment and polishes the corporate strategies over time to suit the requirements of each stakeholder in the oil industry. In addition to that, the company’s profitability proves that the merger decision was wise, and continues to motivate the peer leadership of the company in the American Oil industry. The investment discipline that the Exxon Mobil employs also contributes to the success of the merger. Amidst the large returns on capital investments, the company maintains a specific percentage of the profits to reinvestments and diversification of operations in both the domestic and international markets. Contrary to other failed mergers, the company maintains a balanced portfolio and incorporates an integrated business model that ensures zero bureaucracy in the management levels within the company. Despite this, the company has not exhausted its full potential. Currently, the world is focused on ensuring that the environment is conserved to prevent further effects of global warming. To adopt a business level strategy, the company has to consider corporate social responsibility. Being a massive investor in underwater drilling, the company has a poor reputation for the conservation of the environment. The corporate social responsibility of a company towards the conservation of the environment often creates numerous opportunities for the company in the event of catastrophe or image crisis. Exxon Mobil should employ more resources towards the extraction and provision of renewable clean energy to cater for the ethical concerns of venturing into an environmentally unfriendly practice. In addition to that, the company should refrain from operating deep-sea extraction, as accidents often cause serious damages to the sea which us the bedrock of aquatic life, as experienced in the BP Oil Spill of 2009. This recommendation will prove that the company is focused not only to the conservation of the environment, but also to the preservation of life for the future generations. Moreover, the corporate level strategy of the business should focus on the reduction of operational costs. Exxon Mobil has a bulky managerial system that often creates bureaucracy in the decision-making processes of the company. Besides, the costs that the company incurs in remuneration of the top management can be channeled into other programs by incorporating a strategy that will cut the operational costs of the company. Southwestern Energy Company The Southwest Energy Company is an independent energy company that deals with natural gas. The company operates solely in the United States, mainly in Pennsylvania, Texas, Oklahoma and Arkansas. The bulk of production by the Southwest Energy Company originates in the Fayetteville Shale, based in the regions around Arkansas. The revenue of this energy company is approximately 2.6Billion dollars (Sec.gov, 2015). Unlike Exxon Mobil, the Southwest Company operates in a single country, the United States. The company registers success due to the efficiency of the operating the small nature of the business in comparison to the wide Exxon Mobil operating base. The company also has special tools that enable them to levy a market price that identifies the company as a market price leader. Indeed, Southwest Energy Company enjoys competitive advantage over other companies in the industry because of its size (Swn.com, 2015). The company, however, should consider a merger with Devon Energy, which is the fourth largest energy company in the US industry. Given that both companies have a majority of their reserves in form of natural gas, a merger would give Southwest Company the chance to venture into international markets such as Canada, Brazil, and Angola. In addition to that, the company will diversify its production processes into more than just the production of natural gas. Consequently, the company may focus on other revenue generating activities such as oil refinery. This business level strategy of diversification provides a chance for the company to widen the pool of talent within its human resource. The corporate level strategy for the company would be the internationalization of the company. Many investors are not attracted to holding shares within the company given the small nature of the business and the minimal returns on the capital investments. With increased investment in multinational energy sectors, the domestic market share of the company will grow as the international markets provide profitable opportunities for the success of energy companies. Increased market share translates to a boost in the company’s revenue, which helps in attracting more investor confidence. Therefore, the Southwest Energy Company should consider internationalization thorough mergers with Devon Energy. Conclusion Despite the fact that mergers and acquisitions are important in the success of businesses in international markets, other factors such as diversity in the human resource management and corporate social responsibility determine the success of businesses in the global market. Mergers and acquisitions provide a platform for cultural diversity, as well as recognition of different tastes and preferences across borders. In conclusion, the companies must adopt sustainable business and corporate level strategies to ensure the success of their mergers and acquisitions in the international markets. References ExxonMobil,. (2015). Learn more about ExxonMobil. Retrieved 29 May 2015, from http://corporate.exxonmobil.com/ Sec.gov,. (2015). SEC.gov | Filings & Forms. Retrieved 29 May 2015, from http://www.sec.gov/edgar.shtml Swn.com,. (2015). Home | Southwestern Energy. Retrieved 29 May 2015, from http://www.swn.com/Pages/default.aspx Read More