Good Example Of Report On Cross Border Merger And Acquisition For The Industrial And Commercial Bank Of China LTD
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The corpus of cross border mergers and acquisitions among organizations is considered an imperative aspect of strategic management (Gomes et al, 2013). It is also categorized as an aspect of corporate finance as well as a dimension of managerial activity that deals with selling, combining or dividing a company to facilitate its rapid expansion hence facilitated growth and development (Gomes et al, 2013). Mergers and Acquisitions performed on a cross-border scope have been among the most popular organizational operational strategies for several decades. Cross border mergers and acquisitions are regarded as an alternative organizational expansion strategy for SME and Multi-national companies. Research indicates that cross-border mergers and acquisitions have similar characteristics compared to domestic dimensions of mergers and acquisitions (Gomes et al, 2013). However, considering international nature of organizational mergers and acquisitions performed on a cross border perspectives, they are usually characterized by certain unique issues and challenges. These challenges emerge from the fact that companies are faced by different economic conditions; they may also be exposed to varying cultural perspectives as well as different institutional structures (Gomes et al, 2013). On the other hand, organizations engaging in cross-border mergers and acquisitions may also be subjected to scenarios of varying client’s preferences; institutional forces i.e. government regulations, different business practices among others. These challenges may hinder such organizations from exploring fully their institutional objectives. In a research conducted by the UNCTAD in 2008, it is indicated that despite the challenges experienced by organizations as they enter into cross border merger and acquisition, various efforts and initiative conducted by organizations to engage in cross border merger and acquisitions have increased dramatically in the last 4 decades. This has been facilitated by an increased understanding of the implications, determinants and pre-requisites ascribed to cross border mergers and acquisitions among organizations.
The Industrial and Commercial Bank of China Ltd is considered one of the largest banks globally by considering the fact that it has the largest number of total assets (Lin & Zhang, 2015). Economic data indicates that it is referred as China’s Big Four among the state owned banks. In March 2014, the bank had a total asset of $3.18 trillion, making one of the first Chinese Banks to acquire such an amount of assets. The Bank has also engaged in expansion of its activities across borders for instance; in 1999, it opened its first branch in Luxemburg. Other cross border branches are located in Amsterdam, Paris, Lisbon, Barcelona, Brussels, Warsaw, Milan et cetera (Lin & Zhang, 2015).
Engaging in a cross border mergers and acquisition basically means that the Bank will have to experience certain issues such as structural changes, cultural variations, institutional changes, environmental changes et cetera. In order to manage these issues effectively, the organization has to engage in a proper merger & acquisition analysis; this entail assessing cultural, institutional, structural issues, noting how they might impact the success of the company in the new cross-border markets. This paper will focus on three main issues: A Comprehensive analysis of pre M&A issues that might affect the company when it engages in a cross border merger and acquisition; due diligence i.e. cultural issues that might affect the company and the integration planning phase. The integration cultural planning phase will involve creating a cultural sensitive communication strategy, planning and leading new integration efforts, creating a new strategy for the new entity and assisting the organization to cope with various changes among others.
Pre- M&A Analysis
People Related Issues
Leadership and Values
When leadership and values is mentioned in a context of cross border organizational merger and acquisition, the pertinent question that arises is: How and what leadership styles affect the success of any merger? The Industrial and Commercial Bank of China should focus identification and assessment of leadership styles that may facilitate the success of its merger with its strategic partner. Additionally, key leaders within ICBC and its strategic partner should focus on developing honest operational strategies that would meet the expectation of its employees. Certain leadership values that may be used to demonstrate employee expectation among leaders include: Setting expectations, promoting honesty and straightforwardness among employees and leaders, timely management and strategic decision-making.
In mergers and acquisition, cultures of the organizations concerned play a significant role in determining the success or the failures of the two organizations (Ramani, 2007). It is apparent that organizations have varying cultures i.e. expectations, beliefs, leadership and communication structures. Integration of varying organization cultures in a merger and acquisition process is critical for the success of the concerned organization (Ramani, 2007). In this regard, ineffective management of the organizational cultural integration process may impact negatively employee retention as well as their Morales. However, this challenge can be prevented by addressing cultural fit issues through an integration of cultural assessment process and the due diligence process (Ramani, 2007). It can also be addressed effectively through application of a strategic assimilation of organizational cultures i.e. through an integration of key team across the two organizations.
Communication is an imperative aspect that emerge within people related issues during a merger and acquisition process (Gomes et al, 2013). Effective communication among managers, key stakeholders and across the organizations is imperative for building trust as well as acceptance. In cases of organizational mergers and acquisitions, it basically keeps employees focused on organizational issues that are imperative. Moreover, effective communication is crucial for reduction of incidences of performance errors that mainly arise as a result of ‘rumor mill’, hence enhancing the success of the merger and acquisition process. Effective communication during a merger and acquisition process can be achieved through engaging in a two way communication dimension, that is: Telling and listening. It allows key managers across the two organizations to disseminate organizations strategies, received data regarding employee input and facilitates the implementation of tactical decisions. Research indicates that successful communication also acts as an inspiration of faith among the employees (Gomes et al, 2013).
Talent Management and Rewards
Perhaps another question that arises in case of merger and acquisition is: How do we provide rewards and manage talent in a scenario of cross border merger and acquisition? This is also a crucial factor of success for organizations that engages in cross border merger and acquisition. It can only be achieved through timely assessment, determination, communication and implementation of appropriate employee compensation and talent management structures (Cartwright & Cooper, 2012). Owing to the fact that compensation and talent management structures vary on cross border contexts, its implementation should be performed in a timely manner and in accordance to the expectations of the M&A and the overall organizational goals.
Project Ownership and Organizational Results
As aforementioned, cross border M&A is characterized by various challenges; the most surprising issue with cross border M&A is that there is usually only one chance to facilitate its success. This is based on making quick and appropriate decisions; however, this can only be achieved through proper design and proper implementation of various project management processes. Moreover, the approach through, which organizations award to their project integration processes, is a clear indicator of the level of commitment of their managers to implement and achieve the objectives of M&A. It can be achieved through; assigning appropriate and adequate transition team resources, providing best leadership values, provision of insights to various organizational processes to its managers, employees and other key stakeholders.
Planning for Due Diligence
In a merger and acquisition process, the due diligence process enables concerned parties to determine effectiveness of the target partner’ infrastructural systems, cultural, financial systems and aspects of future capital requirements (Cartwright & Cooper, 2012). That is, it enables organizations to identify capital requirements that may emerge from a potential merger and acquisition process. Moreover, the due diligence process facilitates the process of identifying gaps that may exist in the target partner’s infrastructure or managerial facets. The due diligent process is also pertinent for identification of inconsistencies that may occur during any transaction processes within the merger and acquisition.
Finance and Accounting
The due diligent process shall also focus on identification of pertinent cross border financial policies as well as procedures that Industrial and Commercial Bank of China has to adhere to or accepted standards that govern cross-border financial transactions. Analysis of financial trends as well as quality earnings is also pertinent in the due diligent process as it facilitates elimination of financial losses that might be incurred with the company (Gomes et al, 2013).
Information technology systems and processes play significant roles in the success of many organizations in the current highly competitive business environment (Stahl et al, 2013). As such, the due diligence process in regard to the case of Industrial and Commercial Bank of China should involve: Assessment of Data and Network security issues; assessment of available IT systems as well as processes and their impacts on the current financial markets; assessment and evaluation of IT organizations and their impacts on the cross border markets; assessment of software development issues and software providers and how this impact the financial market.
Regulatory Compliance Issues
In any business environment, there are various regulatory structures implemented to control various business processes (Smith & Walter, 2011). Business regulations vary from one region to another; in the due diligence process, there should be an assessment of regulatory concerns, review of guidelines and procedures that affect documentation processes that guide the financial sector (Smith & Walter, 2011). The management should also assess how these regulations may affect the merger and acquisition processes of the Industrial and Commercial Bank of China.
Working Out the Organizational/Cultural Fit
Considering the fact that a merger and acquisition of the Industrial and Commercial Bank of China will subject the company to a different operational environment, characterized by a unique culture. It is important to formulate strategies that will enhance integration of ICBC’s operational strategies and culture with the operational strategies as well as cultures of the target partner. This can be effectively performed in three main steps:
This is basically an analysis and assessment of the organizational cultures, the culture of the potential partner and their operational processes (Gomes et al, 2013). This is followed by a comparison of the organizational culture and the culture of the target partner i.e. information systems, leadership values and styles et cetera. This is imperative as it facilitates the process of eliminating challenges that may occur while implementing operational strategies. Moreover, the understanding of various cultural perspectives enhances the process of integrating the sub-cultures of the potential partner. Consequently, diagnosis of cultures acts as a reference point for initiating cultural change activities.
Enhancing Leadership Selection
This process involves an analysis and evaluation of the capacity of various leaders and key stakeholders compatibility with and ability. It also involves identification of cases of misalignment, hence facilitating timely resolution, hence enhancing the process of integrating successful candidates in the organizational operational plan.
This is the process of implementing a commonly agreed upon cultures; that is, the integration of various organizational cultural approaches in a single unit of operation. It is mainly achieved after identifying and correcting various cultural issues and discrepancies that may hinder integration of cultures and sub-cultures into a single unit (Schuler & Jackson, 2011).
Identifying and Assessing Cultural Issues
What are cultural variations that may exist between Industrial and Commercial Bank of China and the strategic partner?
How could existing cultural variations hinder implementation of new organizational operational strategies?
How can identified instances of cultural conflict be eliminated or prevented?
What are the available communication channels used by the strategic partner? How could this impact the merger and acquisition process?
What are the appropriate methodologies of communicating various cultural issues? And other questions
In order to facilitate or perform this process, there should proper preparation; it should begin by gaining basic knowledge regarding various cultural issues concerning the strategic partner and how it impacts its performance and operations. This should be followed by laying down strategies that should be followed while assessing and identifying various cultural perspectives of the strategic partners, as such it may involve: Sorting appropriate resources, laying down appropriate communication framework and assessing and evaluating risks that may be experienced in the process of assessing the cultures of the strategic partner. Consequently, there should be a checklist of activities/tasks, to act as reference point for the team engaged in the cultural identification and assessment process.
Developing an Employee-Cultural Sensitive Communication Strategies
Communication is an imperative aspect of implementing the objectives of a merger and acquisition process (Torre-Enciso & Garcia, 2006). However, the development of communication strategies for employees should be performed in a manner that adheres to organizational cultural perspectives. Specifically, the issues that should be considered when developing the communication strategies are inclusive of: Language that is disseminating information in a language that can be easily understood by the employees. The language should also not appear provocative in accordance to employees’ cultural perspectives. Moreover, the communication strategy should considered most preferred modes of information dissemination among employees i.e. the use of organizational chart boards, mobile phones, company circulars et cetera.
Planning and Leading Integration Efforts
Planning for purposes of integration begins from as early as the point of identification of the strategic partner (Torre-Enciso & Garcia, 2006). It basically involves thinking issues such as: Financial conditions of the strategic partner, its reputation and market share, it level of compliance with applicable laws and regulations as well as its potential for growth et cetera. This is usually followed by preparation of a detailed plan and timeline for the integration efforts. Basically, the general objectives of the plan should include: Developing business objectives of the merger and acquisition; capitalizing on the partnership or collaboration between the companies; formulating and implementing appropriate company policies for the entity acquired; transplanting company’s operational norms and cultures and ensuring the adequate efforts are directed towards maximizing financial performance of the acquired entity.
Developing a New Strategy for the New Entity
This process should be implemented in a manner that reflects the overall objectives and expectations of the company that has acquired the new entity. However, considering the fact that this is a cross-border merger and acquisition case, the process should consider: Applicable rules and regulations, cultural issues and employee expectation and the overall goals as well as objectives of the merger and acquisition process.
Helping the Organization to Cope with Change
This is a critical factor towards the success of the merger and acquisition. It involves processes such as: Assimilation or integration of the cultures of the two organizations; provision of training on issues i.e. communication, inter-personal skills, leadership skills et cetera. It may also involve training key stakeholders and employees on pertinent leadership skills, provision of orientation to new employees et cetera. These processes are basically geared towards ensuring that the new employees are properly acquainted with various aspects of organizational cultures.
Defining an Organization Staffing Plan
There are four main issues that have to be taken into consideration when formulating a staffing plan for the acquired entity. To begin with the organization has to determine the specific capabilities required for staff members. This is pertinent for purposes of decision-making in regard to allocation of tasks/duties/responsibilities. On the other hand, Preparation of a staffing plan should factor in issues such as; short term or long term employees. That is, the organization should determine whether the employees or staffs are needed for long term or short term purposes. This is pertinent for purposes of financial resource planning as well as budgeting. The need for organizational staff is also an issue that should be taken into consideration: It might involve asking questions such as: Does the organization need staff or the duties can be performed through automotive machinery? Consequently, the staffing plan should factor in issues ascribed to turnover, organizational planned movements et cetera. This is imperative for purposes of formulating organizational anticipation or expectation.
List of References:
Cartwright, S., & Cooper, C. L. 2012. Managing Mergers Acquisitions and Strategic Alliances. Routledge.
Gomes, E., et al. 2013. Critical Success Factors through the Mergers and Acquisitions Process: Revealing Pre‐and Post‐M&A Connections for Improved Performance. Thunderbird international business review, 55(1), 13-35.
Goyal, K. A., & Joshi, V. 2011. Mergers in Banking Industry of India: Some Emerging Issues. Asian Journal of Business and Management Sciences, 1(2), 157-165.
Lin, X., & Zhang, Y. 2009. Bank ownership reform and bank performance in China. Journal of Banking & Finance, 33(1), 20-29.
Ramani, V. V. (Ed.). 2007. Cultural Integration in Mergers and Acquisitions. Icfai University Press.
Schuler, R., & Jackson, S. 2011. HR issues and activities in mergers and acquisitions. European Management Journal, 19(3), 239-253.
Smith, R. C., & Walter, I. 2011. Global patterns of mergers and acquisition activity in the financial service industry (pp. 21-36). Springer US.
Stahl, G. K., et al 2013. Sociocultural integration in mergers and acquisitions: Unresolved paradoxes and directions for future research. Thunderbird International Business Review, 55(4), 333-356.
Torre-Enciso, I. M., & Garcia, J. B. 2006. Mergers and acquisition trends in Europe. International Advances in Economic Research, 2(3), 279-286.
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