Business Essay

Business Essay

Part A

The changing economic landscape has forced businesses to reconsider their strategies in order to compete in a highly volatile and competitive market. Different businesses have adopted different strategies in order to increase their chances of survival in their respective markets. One common move businesses make today to increase their competitiveness is by planning a merger. Mergers and acquisitions are seen as an effective strategy for businesses to increase their competitiveness in a highly volatile market (Gitman & McDaniel, 2009). This is particularly true considering the number of advantages that they offer. However, a number of drawbacks have also been linked to mergers and this ad largely discouraged businesses from adopting this as their main growth strategy to compete in markets. With the benefits and drawbacks offered by mergers have emerged two different schools of thought both of which have starkly contrasting views on the subject.

The pro-merger school of thought is a lobby that endorses mergers as an effective strategy for businesses seeking to increase their competitiveness in a highly competitive market. These proponents cite a wide range of reasons that directly affect the viability of a business and help it widen its competitive moat. For example, one of the proponents of mergers is A. T. Kearney who argues in his seminal article 'Merger Endgames' that global level mega-mergers are inevitable as part of the cycle of consolidation and concentration in globalizing industries where firms seek to gain leverage and accelerate their presence. He iterates time and again that mergers and acquisitions are shaping the dynamics of business today and explains how important it is to note what triggers the decision to effect a merger.

He also highlights how mergers can play an important role in helping businesses achieve greater competitiveness at the global market by achieving greater economies of scale. Another reason that he cites when encouraging businesses to consider mergers is to seek strategic synergy and complementarity in the application of technology and products or services that are provided by the businesses. Kearney also explains how a merger is important for businesses aiming to achieve greater penetration and coverage of existing markets as well as those that have not been explored.

Hunt (2009) cites the reasons why businesses seek a merger, explaining that they are usually numerous and diverse. According to him, the decision whether to merge or not usually depends on the sector in which the business operates. In any case, a merger encourages various economies of scale and through these the cost of combined production will be less than the sum of the production costs of the separate outputs. Alternatively, the combined output will be increased to an equal volume of costs. Such economies of scale exist not only in production but also in administration, research and development and project financing.

Much is spoken and read about mergers, particularly related to mergers of large corporations or national groups. Morschett et al., (2010) explains how there is hardly any sector of production and finance in which there have been no ...