An example of a cross border M&A deal that appears to have been successful was Levono's acquisition of IBM's PC division in 2005. This deal allowed Levono to expedite its learning process in the global market environment at levels much faster than they could have accomplished internally. This deal is said to have enhanced Levono's comparative ownership advantage and thus has created additional value for its shareholders.
The 70% factor stated by Peng is very consistent with what I have read from other sources on the internet, most of which stated that 2 out of every 3 cross board M&As are not successful. What should determine if a M&A transaction has been successful is if it has created value for their shareholders. What makes this creation of value hard to evaluate is company's are often reluctant to provide details of unsuccessful M&A efforts. The other difficulty is isolating the effect of just the acquisition from the operations and changes in business environment that would have occured if the M&A transaction had not been completed (how is causation established).
I think the endless pusuit of revenue growth (instead of return on assets) often dominates many corporate decisions, often because corporate incentive packages use it as a key metric in determining employee compensation for senior management. These higher entry modes (especially greenfield developments and acquisitions) provide greater opportunities for sustained future revenue growth and this can cloud judgment if the additional risks are not considered. If certain companies are very image-conscious in terms of public relations or quality, the total operational control in the higher engagement types is also a benefit.
I agree that the blending of culture is more important the higher the level of engagement. Having a blended culture that is consistent will help avoid problems down the road between management and employees at the two companies. Of the different types of agreements between firms, JVs and acquisitions are typically the types with the highest level of engagement. The blending of culture is important in these instances due to the long-term objectives of most of these types of arrangements. Over the long term, having this blended culture will help avoid difficulties between the firms and they will position themselves better to compete in the future. On the other hand, many alliances are just two firms using each other's established skill set with no real goal of molding the two companies into one operating unit. While culture may still be important in these alliance situations, it is much less so than in the higher engagement agreements between firms.
As we have seen throughout the semester, culture is extremely important and its effect should not be underestimated. An important step in the process is to first define what the specific goals of the alliance are to be and what roles each partner will be responsible for. If the goals of the alliance include long term objectives and continued cooperation, then establishing a clear and consistent culture is very important. The blending of the individual partners' cultures can be facilitated by proper planning and work performed during the due dilligence stage. For this to work effectively, both sides should be included in the process and steps intended to integrate the cultures should be carefully planned to avoid any potential road blocks. I think that the top management levels at both partners need to provide clear support to the alliance initiatives. If an agreement is not able to be reached and how the alliance will intend to develop its culture, a company should strongly consider if the alliance will be able to sustain itself in the long term. If this is the case, a short term alliance may still be a good opportunity but the firm should take steps to protect its resources and make exiting the agreement easy.
There are several situations that would make a high engagement entry mode the more attractive option to a firm. Depending on the specific resources of the firm, it must first determine if involving outside parties would put at risk its critical trade secrets or other proprietary knowledge that are the source of important competitive advantages. Acquisitions and greenfield developments are also more attractive if a company already has the internal resources that are familiar with international business practices. How much the host country to be entered differs in terms of culture, distribution, legal systems, and political environment would also be a factor. Ultimately what these provide is total operational control to the firm. When these concerns are overcome and a firm comes to the conclusion that seeking help may be the best option, high engagement entry modes like equity alliances and joint ventures assures both parties have skin in the game, which increases the likelihood their partner will devote their best efforts to the project.
Earlier in my life I had worked as a union worker in a union foundry and while employees were paid considerably higher than all the other local non-union foundries, the relationships between management and the workers were not one of trust or working together to ensure the company was successful. We were also on a piecework system and you could some weeks double or triple your gross pay on the right job. It was apparent to all that making molds as fast as you can when punched in on the right job was not even close to the same as being a committed employee with a good attitude that truly cares and is driven to make sure the company is successful. There were also a large number of employees not involved in the production and therefore were not eligible for any piecework. We all knew we were paid higher than employees at our competitors but the workers still had very little trust or respect for management and feelings of self-ownership were the exception and not the norm. Simply paying higher wages did very little in this case to develop the perception of a positive company culture with the rank and file workers.
I agree with the typical individualism of the American people and guess it would be naive to not think the employees at LE would exhibit these same traits. I concede that compensation was a motivating factor but think it is important to note here there is much more at play than just a generous compensation package. There was a high level of trust and respect between management and the factory workers that can be attributed to factors other than compensation. Such factors include guaranteed employment, all employees treated as equals, job empowerment, and involving shop workers and their ideas in coming up with the future changes to improve quality and efficiency. I think the employees at LE on a comparative basis are prouder of their jobs for reasons other than just getting paid well. This trust is what has enabled LE to avoid unionization in its factories and establish a positive company culture that helped it retain a high quality and efficient workforce.
After reading the above posts and specifically considering the ability of other companies to duplicate the compensation system, the resource LE has that other companies don't is the highly committed and skilled workforce. This is what distinguishes LE from its competitiors. The compensation system as well as the efforts to empower employees and establish trust are factors contributing to this quality workforce but are not rare resources held by LE. There are definitely other ways that other companies could attempt to develop such a workforce, especially in countries outside the US where LE's methods are not as effective.
I agree with Jeff on culture and motivation being the key factors that helped LE perform so well. As we had mentioned earlier, there was nothing really revolutionary about their compensation system. Other companies could have implemented the system and would have if they felt it would be as successful as LE had been. The motivated workforce that is committed to company goals at LE is the true competitive advantage and the compensation system is just one of the ways this had been developed over the years. More than just money, the culture maintained by senior management at LE empowered the employees and established trust between management and the hourly workers. This trust and company pride helped with the retention of employees and this then helped to maximize the amount of time spent making goods rather than hiring and training new employees. The fact that these methods have not worked so well in other countries is evidence that a business strategy can not be universally applied and instead must be adapted to the environment a company is operating in.
I agree with Mike that market share is a good measure of performance, atleast over the long term. The case indicates the welding industry was known to be extremely fragmented with the exception of Lincoln. Over the long term, competitors have seen LE's success and have had an opportunity to imitate these practices. There is usually a good reason why companies are able to establish substantial advantages in market share and once established, the market share is able to provide additional benefits in terms of economies of scale and sharing of knowledge. There are a few cases I can see where market share would not be an indicator of firm performance. If the legal or political environment prevents fair competition in one firm's favor (protectionist countries or government run businesses) or if companies have established market share by cutting prices and their profitability measures trail industry averages.
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