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Essential Factors of Cross-Border Merger and Acquisitions

Cross-border has always been a tangible version of the working mechanism in the structure of the global market, as they facilitate and improve the development of economic interaction between organizations. Throughout the last few years, the commercialization of businesses has fostered a global hunt for profitable opportunities. It is so far a vast chapter to cover and can be said as a fairly new concept, each new day there comes a new concept with a likely difference given in different prospective to the world of business.

A wide variety of complex issues are dealt with in such a manner that leads to successful engagement of cross-border mergers and acquisitions. Consequently, an exploration into this sort of diversifying approach has lagged behind. Although there is a lot of study in this field, it is regrettably scattered, creating loopholes that must be filled.

So in this research paper the author desire to highlight the essential factors that need to be considered while initiating and implementing cross-border merger & acquisitions. It also explains that why these factors are essential and the consequences that may be faced by the firms if they overlook these essential factors.

Cross Border Merger and Acquisitions is so far a vast chapter to cover and it's not a new concept to be dealt with in India. Through current analysis, it has been observed that it's growing rapidly all over the world so it can fairly be a new concept to cover. It has occupied a vital position in the era of business where the applicability has been recognized by the management of large multi-international companies.

And in recent years it has taken a steady inclination growth because of globalization which brought businesses of foreign countries to merge easily with businesses in the domestic country so as to form a single entity. The main agenda behind this merger of companies from both countries are to spread their operations and push their businesses into the global market. Without globalization involved, the business setup would have been much difficult and the process would have been very complex.[1] Despite the involvement of all these, there should be some factors that can be relied upon in order to certify success in the operation in a new market.

The companies that agree to cross-border mergers and acquisitions always have a giant rate of risk involved. Both the businesses on each side of the border might differ in many things but have a common motive i.e., earn from the deal, or else it's all trash. Eventually, the risk that is involved is political risk, economic risk, social risk, compliance risk, operational risk, competition risk, and it goes on.[2]

The company that is situated on another side of the border before coming into an agreement assesses all the potential partners for merger and acquisition by creating a risk rating scale that includes all of these variables and then the final decision is reaped.

Factors needed for mergers & acquisitions for initiating and management
In every concept, the factors have an essential role to play and are the only means to rely on as it indicates all the elements that influence a particular theory of notion. Similarly in case of the cross-border merger and acquisition also depend on numerous factors that influence a successful merger and acquisitions.

And these factors help in determining the different ways of conducting business in both countries because the businesses on each side of the border vary in their way of operation as well as in distinctive policies. So to achieve this, some factors need to be highlighted and taken care of. And those essential factors are briefly described below-

Proper Management
Management is the most important thing to be taken care of in every firm or business and if neglected then the consequences are much severe. Proper management means using strategies by an individual in planning and then executing everything in the right manner. In simple language, it refers to the use of strategies in all parts of a firm. Proper management makes every complicated chore easier and smoother.

It attires the grounding of proper management tactics route to reach a smooth end. The proper management in the case of cross-border mergers and acquisitions is complex but can be made possible if it handles and figure out some of the key areas. Market analysis, human resource aspects, and product integration and development are those key areas that need to be fingered.

Market analysis is the vital component that deals with providing crucial pieces of information to businesses that will help them in making business decisions. To sustain itself in the market, the business has to assess, explore and then analyze the whole market thoroughly. It monitors every detail regarding the market size, diverse market segments, competitors' pieces of information, customer likings and tastes, market environment, etc.

It conducts a market survey and uncovers political and linguistic laws, as well as appraising the target market. In the case of cross-border mergers and acquisitions where both sides of the border have their own distinct markets, with mostly distinct demand and layout.

Market analysis is a comparative strategy in which both businesses engaged have their markets evaluated and the results are compared and developed with the ultimate goal of providing their requirements and enhancing the layout. Proper and effective management could only be obtained when a detailed market assessment has been conducted.

Proper management also involves the aspects of human resources that concerns simply the employees in a firm. Human resources are directly linked with employees and these employees play an important role in a firm and without them the firm is dead. When it comes to cross-border mergers and acquisitions, these employees catch a feeling of insecurity and hesitance about their jobs and this may hinder their performance which will instantly affect the firm's performance. Therefore, it is said that while initiating cross-border mergers and acquisitions, you have to do deal with proper management in human resources.

When it comes to product integration and development in regards to proper management in cross-border mergers and acquisitions where the firms that are involved in the process have to deal with their unique products. And this process becomes a little complex and challenging as they have to combine the unique products into a single entity. In the end, it is only through proper management that effective product development and integration can be accomplished in cross-border mergers and acquisitions.

Cultural Integration
In a layman's language, cultural integration means when a person from a culture adopts practices from the other without depleting or neglecting their own. In cross-border mergers and acquisitions, one firm from one country decides to adopt practices from another country while not disregarding its own. Cultural integration is important because it upholds union and assures stability in a society. Cultural integration also helps in holding the society together by sharing the same sentiments and values in a social system.

The major challenge faced by the firms under this factor is that the firm from one side of the border hold a different view of business culture while another firm from the other side of the border has their own view.[3] Due to this, there's maybe a chance of clashes in views. These clashes can only be resolved if a team is formed to handle and discuss how cultural integration will be carried out, with issues such as business philosophies and market strategic positioning being addressed.

Business Policies
Every country has its own set of business policies that differs from one another. And these policies include the structure of the business and every detail of that including how it should be done and by whom it should be done. Business policies are like the guidelines which need to be governed by the businesses. It is the study of roles and responsibilities and success in decision making.

While in cross-border mergers and acquisitions, due to the different business policies practiced in a separate county, it is possible that the goal of business may be hindered as they were acquainted with their country's business guidelines or policies. For a fact, it takes some time to adapt itself to the new business policies in the new country. However, this is unlikely to be a long-term issue because the enterprise will evolve and cope with policy needs sooner or later.

Taxation
Taxation is indeed one of the biggest and difficult aspects of doing business. And when it comes to cross-border mergers and acquisitions it becomes more intricate and lots of complications arise due to different taxation systems in foreign and home countries. There's a lot of distinction concerned and the most difficult challenge met when there's unequal tax rates payment between businesses that operate in the foreign market and local businesses.

This seems a little unfair for a firm that operates in a foreign land because it has to pay higher tax in comparison with its competitors who are called the locals. Since it is unfair in terms of tax payment as most of the funds are used in paying off taxes and due to which achieving long-term profitability endures to be uncertain. Therefore it should be noted that before venturing into cross-border mergers and acquisitions, the taxation aspect of the country should be dealt with thoroughly.[4]

The consequences in regards to taxes payment are more severe when it deals with cross-border mergers and acquisitions. The consequences can be anything and everything depending upon the country's authority. It is on them that can penalize, fine, or ban the business from operating in the country due to failure to remit taxes as per the procedure. This challenge can be overcome by comprehending and going by all the stipulations and guidelines on how and when tax should be paid to authorities before venturing in.

General business conditions in the country
The prosperity of a business will be governed by a range of indicators in the country in which it is set. Security in the market is one of the essential and important factors that concern while doing business. As there are heavy funds invested in cross-border mergers and acquisitions so security is the prime concern here.

Security not only includes safeguarding the business but also includes the availability of secure and suitable insurance policies, providing a safe area to practice business without any hindrance in between, requiring commitments from the authority of that country that will lend it support whenever required, etc. If these securities are missing then it could be fatal for the acquiring firm in the cross-border mergers and acquisitions as security is the foremost thing to be checked on before venturing in.

Conclusion
Cross Border Merger and Acquisitions is in so far a vast chapter to cover and can be said as a fairly new concept, each new day there comes a new concept with a likely difference given in different prospective tot eh world of business. A wide variety of complex issues are dealt with in such a manner that leads to successful engagement of cross-border mergers and acquisitions.

As they facilitate and improve the development of economic interaction between businesses, cross-border mergers and acquisitions have always been a tangible form of the operating mechanism in the structure of the global market. Given the prevalence of mergers and acquisitions in all countries, however, the majority of research into these strategies focuses on determining the benefits and success of implementing the organization's strategy.[5]

Finally, because of the often critical repercussions, cross-border mergers and acquisitions should be taken seriously. As a result, before starting, all of the aforementioned variables should be thoroughly considered. And if the factors are overlooked, difficulties may arise, altering the path to success.

End-Notes:
  1. Anjali Singh, Cross Border Mergers and Acquisitions, Law Corner (Jul. 9, 2020), https://lawcorner.in/cross-border-mergers-and-acquisitions/#:~:text=There%20are%20two%20types%20of,Inbound%20Merger%20and%20Outbound%20Merger
  2. Jyoti Kohli, Cross Border Merger Meaning, Types, Procedure & Main Rules & Regulation, Tax Guru (Jul. 11, 2020), https://taxguru.in/company-law/cross-border-merger-meaning-types-procedure-main-rules-regulation.html#:~:text=MEANING%20OF%20CROSS%20BRODER%20MERGER%20%26%20ACQUISITION&text=A%20company%20in%20one%20country,cross%2Dborder%20merger%20and%20acquisitions
  3. Sydney Finkelstein, Cross-border mergers and acquisitions, http://mba.tuck.dartmouth.edu/pages/faculty/syd.finkelstein/articles/cross_border.pdf.
  4. H. Brooks a, D., & Jongwanich, J. (2011). Cross-Border Mergers and Acquisitions and Financial Development: Evidence from Emerging Asia. ADB Economics Working Paper Series, No. 249. https://www.adb.org/sites/default/files/publication/28703/economics-wp249.pdf
  5. Mark Jamrozinski, Planning successful cross-border mergers and acquisitions, Deloitte, https://www2.deloitte.com/ca/en/pages/mergers-and-acquisitions/articles/planning-successful-cross-border-mergers-and-acquisitions.html

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