The globalization is working as a spur for many organizations to merge, as this might bring certain advantages, but challenges as well for both parties. Some of the mergers are more successful than others are, and a strong compatibility foundation must be present in order to combine the organizations. The phase of familiarization between the parties is another important factor that can determine the success of the merger. Moreover, culture is playing the crucial roles (Hammock, 1988). Thereafter, the objective of the following paper is to discuss the advantages and disadvantages of mergers and make certain conclusions on a particular case.
The benefits that come out of mergers are manifold. They help to generate profits, get the organization out of loss due to economies of scale implementation, revenue increase through gaining bigger market share, and even obtain tax advantages. Generation of greater market capitalization of the incorporated companies is one of the first advantages as the shareholder value is bigger after merger in comparison to sum of capitals of primary firms. Tax gains and market share increase are other benefits as companies have certain market positions before the merger and joining of them adds up their market shares. In many countries, enterprises pay taxes based on their volumes, belonging and contributions to the societies and communities. That is why merger creates more opportunities in the mentioned area (”Benefits of Mergers and Acquisitions,” 2013).
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Strong competitive advantage is another benefit, but there is a logical question why not every company is doing that. Thereafter, the importance of the compatibility analysis comes forward again as assessment of whether the cultures of the potential organizations can coexist and create a beneficial synergy. Basic technologies used by the parties and their strategies must be common for both companies. Products must complement one another and this is the first disadvantage of merger that can occur if the companies have different approach to usage of technologies and innovative strategies. Even the smallest overlap helps to avoid unnecessary costs and would help the newly merged company to seek for further development.
Overview of the financial situation is the next step of merging process. However, the financial figures are not the crucial factor as significant competitive advantage in the future might be more important. The access to the databases of the customers is another advantage as the larger size of client base helps to get substantial competitive advantage of the market share increase that is closely interconnected with the sales. Repositioning on the market is one more advantage and reason for merger (Hammock, 1988).
The main disadvantages of companies’ unification mainly relate to consumers and concern rise in prices, smaller choice of products or services. Thus, job losses and diseconomies of scales are the disadvantages related to the organizations and cost of legal expenses, takeover, intangible costs and risk of potential devaluation of equities are the other drawbacks of merging (Berry, 2013).
The alliance between Renault and Nissan took place in 1999. The main reason of the merge emerged from the common need of automobile industry to cut costs. Moreover, exploration of new markets and bringing more innovations are the other reasons. Renault Company was quite stable during the merge process, as the financial numbers have proven to be sound and the potential development became apparent in opening of new operating factories in Latin America. Unlike Renault, Nissan was close to death in 1999 as margins were very low and high purchasing costs were driving the company to closure. Right upon the merger, the debt of this company was USD 11bn. Thus, the complete product portfolio, reputation of the brand being a proven carmaker as well as presence abroad (not mainly in Europe as Renault was) were the benefits of the unification.
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The merger was beneficial for both parties as Nissan required significant cash investment and to expand sales to US market. Moreover, the company obtained an opportunity to get to know how to produce small-size cars and expertise in design, marketing and strategic platform. Renault has also got many advantages related to the access to the new markets, such as Asia-Pacific, and restoration of strong positions in Latin America. The conception of the light commercial vehicles of Nissan was beneficial expertise for the Renault Company as well as the innovations in the manufacturing processes. This merger is a case of exceptional fitness as has created many complementary strengths. This alliance has started the fourth largest company in the automobile industry, which resulted in 9.9% market share as of 1999.
However, the major challenge concerned to cultural side, as the combination of the French and Japanese cultures might not pass without certain issues. Thus, the charismatic leaders of both parties have managed to reach a consensus and Nissan turned to use individual decision-making process with a new rewarding system. Introduction of English as common business language and a strategy related to expansion of the new markets have made the alliance very successful. Unfortunately, the merger resulted in many job losses (Eppert, 2003).
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In conclusion, it is important to mention that mergers usually have more advantages than disadvantages, and the case of Renault-Nissan alliance is one of the examples of that statement in real action. Merger helps to foster the incorporation of new technologies into existing products, as the development of companies unification comes faster. Market coverage expansion and additional capabilities of the companies are the other advantages of mergers. Thus, the culture of the organizations is the key factor that determines the success or the failure of the merger.