Failures of Mergers and Joint Ventures

Failures of mergers and joint ventures

In recent years, the number of mergers and joint ventures has gone up. The fact is that many companies want to expand their business in order to get advantages such as increase in revenue, a cut in cost in general. However, the main reason for the integration of organisations is due to a competitive world that they must face. Unfortunately, the side effect is that many mergers and joint ventures often break up, and it is claimed that 40% of mergers and joint ventures fail. Therefore, this essay will examine the main reasons for the breakdown of mergers and joint ventures. We shall also focus on culture, communication, leadership and globalisation, which have major effects on the failure or success of mergers.

To start with, a merger occurs when two companies combine to form a single company. A merger is very similar to an acquisition or take-over, except that in the case of a merger existing stockholders of both companies involved retain of a share interest in the new corporation. By contrast, in an acquisition one company purchases a bulk of a second company's stock, creating an uneven balance of ownership in the new combined company (wisecGeek what is a merger).

In many cases, a firm will merge with another in order to benefit from what the other company has. Examples are mobile companies Sony and Ericsson which has both merge together to form Sony Ericsson. This integration has made them one of the leading mobile company's WorldWide.

On the other hand, a joint venture is define as a new business entity formed by two or more firms and is usually referred as Ð''parents'. Joint ventures are commonly created when one parent searches another in order to provide needed resources or capabilities to exploit potential synergies, or share risks. Joint ventures can be established for a definite time spent to fulfil particular objectives (Barajas and Kozolchyk). Joint venture is very common and is found in most sector of the industry. Some examples are aerospace, civil engineering and defence sectors.

Initially, when two companies merge together, they would greatly benefit in the short-run. However, in the long run these companies might faced difficulties and must eventually break-up. Some main causes of these problems are mainly due to cultural differences, communication problem, leadership and globalisation. If two companies are facing these types of difficulties, it is obvious that they would fail. We also find that companies have different ways of working. That is, some are monochronic (doing one job at a time), whereas others are polychronic (doing more than one job at a time) {Peter Mc Gee lectures notes).

We are now going to look at those factors mentioned that was mentioned briefly above, that causes failure of many companies.

Communication.

Communication is essential for the human being, in order to move further. A person might communicate in different ways mainly by tone, gesture and facial expressions. It is undeniable that the lack of communication may be considered as the biggest factor that contributes to poor communication. The fact is that many companies suffer a lot due to this situation. Spoken language is not only the contributor to poor communication between employees, as the company's decision also plays a major role. The fact is that, if the employers to not communicate its decision to its employees, it is obvious that the staff will feel divided from management and superiors. If managers are too selective in providing information, this can create doubts among the employees, which will gradually lead to strife in the company.

According to Mc Gregor X and Y theory, there are two different types of workers mainly X workers and Y workers. X workers are self-interest, that is they work only for money and have no interest in promotion. On the other hand, Y workers value work. They are very much interested in promotion and they will always try to innovate their skills in order to improve their job prospect. Therefore, when we consider their two different types of workers, it is evident that these different groups of workers will never be able to work together (Peter McGee notes)

This situation is the same for X and Y managers. X managers do no have the appropriate knowledge and skills to command its workers. As a result, most of the workers will not respect the manager and also most of the work will remain idle. However, Y managers often have the essential skills to direct his workers. That is, if the work is undone or there is a lack of discipline among workers, the Y manager will always find the solution to the problem. Most of the time the manager will threaten the workers. Thus if two different companies have two different types of managers (X and Y), it is sure that the two will break up if they merge together.

Another example of communication problem, is that when communication contains unclear unfinished information of what is going on. In the near future implementation of the integration plans breaks down as the staff begins to ask question concerning managements knowledge of the details (Timothy J. Galpin 2002). Therefore the relationship between the staff and the managers will deteriorate and so will be the production process. When high level management endeavour to delegate ownership of the merging effort, they send a strong message that the effort is not worth their time. This lack of commitment encourages the employees not to have commitment in their work as well (Timothy J. Galpin 2002).

In general, if information is not clear from the top management or director, the middle-management will evidently get the wrong get the wrong communication. Thus, this will lead to unclear roles, wrong decision-making and eventually stall of all operation process. It is important to note that the circulation of information between the top managers and those at the bottom usually takes much time. So, if information delivers were poor, there would be time wastage, which is very costly for big companies. This type of communication problem is very common in many companies and also often leads to failure merging companies.

It is also established that language problem is another factor for companies to split up. For instance, if in the same company, we have many workers from different countries speaking their native language, this will be exclude employees that cannot understand the language. As a result the company as a whole will be affected. In order to solve this problem, it is primordial that the company's main