IGNOU : M.COM : IBO 1 : UNIT 5 : Q - 3 . Write notes on : i) Cross-border Mergers and Acquisition ii) Porter's view of Globalization

 

Ans.  i) Cross-border Mergers and Acquisition

The process of globalization of the economy has been strengthened at the global economy and firms level as the phenomenon of cross border mergers and acquisition. These affect the foreign direct investment flows, the World economy and competition.

Merger and acquisitions are a popular mode of investment for firms wishing to project, consolidate and advance their global competition position by selling off divisions that fall outside the scope of their core competence and acquiring strategic assets that enhance their competitions. For these firms, the 'ownership' assets acquired from another firm, such as technical competence, established brand names and existing supplier networks and distribution systems can be put to invertable use towards better serving global customers, enhancing projects, expanding market share and increasing corporate competitiveness by employing international production networks more efficiently.

For the past several years, cross border merger and acquisitions in worldwide have increased significantly. The absolute value of all cross border M & A sales and purchases amounted to $544 billion in the year 1998 representing an increase of about 60% over the year 1997. The amount was $342 billion in the year 1997. Cross-border M & A are primarily concentrated in developed countries, but there is also a trend towards on increase in such deals in some developing countries. In the year 1998, there were 89 mega cross-border M & A deals, each with more than $1 billion value. These mega deals accounted for nearly three-fifths of the total all cross-border M & A in the year 1998. Recent cross-border M & A have been concentrated in industries that are losing comparative advantages. In the year 1998, the industry that recorded the largest cross-border M &As include: oil industry, automobile I industry, banking and Tele-communication industry and non-petroleum mining and refining Industries.

ii) Porter's view of Globalization

An industry can be defined as global if there is some competitive advantage to integrating activities on a worldwide basis. To diagnose the sources of competitive advantage in any context, domestic or global, it is necessary to adopt a disaggregated view of the firm which Porter calls 'Value Chain'. "Every firm is a collection of discrete activities performed to do business in its industry", which he calls 'value activities'. The activities performed by a firm include such things as sales people selling the product, service technicians performing repairs, scientists in the laboratory designing products, processes or accountants keeping books. These functions are technical and physically distinct. The firm's value chain resides in a larger stream of activities termed as value system. Suppliers - have value chains that provide the purchased inputs to the firm's chain, buyers have value chains in which the firm's product or service is employed, channels have value chains through which the firm’s product or service passes. The connections among these activities become essential to competitive advantage. Value chain concept needs the notion of competitive scope. Competitive scope is the breadth of activities the firm performs in competing in an industry. There are four basic dimensions of competitive scope. They include: Segment scope, industry scope, vertical scope and geographic scope. Segment scope refers to the range of scope the firm serves, for example product varieties, customers types, etc. Industry scope refers to the range of related industries the firm competes in with a coordinated strategy. Vertical scope refers to the activities that are performed by the firm versus suppliers and channels. The geographic scope refers to the geographic regions in which the firm operates with coordinated strategy. Competitive scope is vital for competitive advantage. It shapes the configuration of the value chain how activities are performed and whether activities are shared among units. International strategy is an issue of geographic scope. A firm that competes internationally must decide how to spread the activities in the value chain among countries. The distinctive issues in international, as contrasted to domestic, strategy can be summarized in two key dimensions of how a firm competes internationally. Porter calls the first the configuration of firm’s activities worldwide, or the location in the world where each activity in the value chain is performed including how many places. The second dimension is called by Porter 'coordination' which refers to how liked activities performed in different countries are coordinated with each other.