StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Expansion and Mergers - Essay Example

Cite this document
Summary
The basic reason why governments regulate business is in situations whereby natural monopolies exist. According to Carroll and Buchholtz (2011), “A natural monopoly exists in a market where the economies of scale are so large that the largest firm has the lowest costs and thus drives out other competitors” (p. 356). …
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER91% of users find it useful
Expansion and Mergers
Read Text Preview

Extract of sample "Expansion and Mergers"

? Expansion and Mergers Expansions and Mergers Government Regulation The basic reason why governments regulate business is in situations whereby natural monopolies exist. According to Carroll and Buchholtz (2011), “A natural monopoly exists in a market where the economies of scale are so large that the largest firm has the lowest costs and thus drives out other competitors” (p. 356). In this regard, a natural monopoly may have adverse effects on the market economy once organizations engage in anticompetitive practices aimed at locking out their competitors out of business. In addition, the monopoly may engage in other practices like fixing prices of goods, which is not the ideal situation in a free market. On the contrary, government regulation is crucial in dealing with excessive competition practices in the market economy (Carroll & Buccholt, 2011, p. 358). In this case, firms will engage in setting prices below unprofitable levels forcing some firms out of business while the remaining firms will raise their prices resulting to products that are too expensive for the consumers. Government regulation is important in controlling negative externalities in a market economy (Carroll & Buchholtz, 2011, p. 357). By definition, Hackette and Moore (2011) defined “a negative externality as an uncompensated harm to others in a society that is generated as a by-product of production and exchange” (p. 61). It is evident that production of good has many by-products with some being harmful while the manufacturer does not pay for the harm caused. In effect, the manufacturer produces more products and earns more profits without catering for the harmful effects of the by-products. In this case, governments will always regulate such industries in order to ensure businesses do not risk the lives of others while making more profits. Rationale for the Government Intervention in the US Market Process As earlier indicated, governments regulate businesses to ensure that there was no market dominance by a monopoly. According to Geroski and Jacquemin (1985), dominance of a business firm goes hand-in-hand with the ability of the firm to exploit a strategic advantage to gain a large share of the market at the expense of its business rivals (as cited in George & Jacquemin, 1992, p. 150). In this regard, it is possible for business firms to use anticompetitive strategies and try to edge out their competitors. Although the US is a free market, it is important for the government to intervene and ensure that all businesses engaged in ethical business practices. Since the US is a free market, it is important for the forces of demand and supply to determine the market price of goods and services. In this case, it is important for the government to regulate businesses in industries that fixed prices below the profit making levels in order to get rid of their competitors, in the US. In this regard, the government's failure to regulate makes the businesses eliminate their competitors and only raise the price of goods once their competitors are not in the market. In effect, these unethical practices do not provide for a competitive market environment. Therefore, this emphasizes the importance of government intervention in the form of regulation to ensure the forces of demand and supply remained as the important factors in determining the prices of goods and services. Self-Expansion Complexities on Capital Projects The underlying complexity currently facing any capital project in the US is obtaining capital required for expansion after the recent recession. According to LaBonte (2009), the weak economy and competition from other manufacturers led to decreased market share of the US automobile industry. In addition, the recession had an effect on credit facilities in the country. In this regard, LaBonte (2009) noted, “The recession had made credit facilities less available, which may have limited the ability of auto manufacturers and suppliers to finance their businesses” (p. 278). As a result, obtaining the necessary credit for self-expansion is a complexity. In addition, Conerly (2007) noted a tendency by banks to ask for stringent conditions to finance businesses during or after a recession, which he further noted that these conditions are hard to meet especially after a recession. On the other hand, self-expansion will result to direct competition of these firms in the automobile industry. In effect, the direct competition will lead to manufacturing of many products to consumers whose marginal propensity to consume, especially high-end products like those in the US' automobile industry, after recession is low (LaBonte, 2009). In this regard, the consumers may look for cost effective products implying that the foremost undertaking for the US' automobile industry will engage in manufacturing of cost effective vehicles. In effect, this entails engaging in research and development, which is expensive for an industry that is seeking self-expansion (Gallasch, Grafe, Hans, & Salter, 2004). Converging the Interests of Shareholders and Managers According to Siems (2007), company founders, managers, and shareholders are the most important stakeholders in any business entity. However, each of this group of stakeholders has interests, which might be divergent. In effect, it is important to find a convergence of the interests of the managers and the shareholders in order to ensure success. According to Sage Publications (2011), one fundamental way of ensuring managers identified with shareholders’ economical interests is by enacting a shareholders’ ownership option in an organization. Therefore, a risky investment will ensure that managers and shareholders balance these risks based on their portfolio in the organization. On the other hand, Sage Publications (2011) identified another approach of aligning the interests of the shareholders with those of the managers by attaching compensation of managers to shareholders’ returns. Since a company's performance has a direct link with the decisions made by managers, attaching the performance of the managers to the market share returns will ensure a convergence of interests between shareholders and managers. Conversely, Sage Publications (2011) identified another approach of converging interests related to the “competitive labor market for corporate executives” (p. 103). In this regard, managers compete amongst themselves within and outside the firm with their evaluation based on corporate performance in terms of market share and efficient accounting. In effect, the self-interests of managers to compete in the labor market ensure that they were efficient in their performance, which is essential for the performance of a company and fulfilling the interests of the shareholders. Implications for the Goals of a Firm on Maximizing Profits or Creating More Shareholder’s Value Creating more shareholder value appears to be the most conceivable objective the industry will result to during self-expansion or a merger. According to Reynolds, Schultz, and Hekman (2006), the stakeholders’ theory argues that the organization has relationships with many constituent groups and that it can engender and maintain the support of these groups by considering and balancing their relevant interests. Based on the foregoing, it is of the essence for the industry to create shareholder value in an industry characterized by a declining market share because of the ever-increasing competition resulting from globalization. On the other hand, the immediate objective of mergers and self-expansion is enlarging an organization’s market share in an industry. In view of this factor, a larger market share aims at strengthening the organization by gaining a foothold in the industry. In effect, this enables an organization to create value for its shareholders in the short-run. On the other hand, the long-term goal for the organization will be to maximize profits once it attains the creation of shareholder value. References Carroll, A. B., & Buchholtz, A. K. (2011). Business & Society: Ethics, Sustainability, and Stakeholder Management. Mason, OH: Cengage Learning. Conerly, W. B. (2007).Businomics: From the Headlines to Your Bottom Line---How to Profit in Any Cycle. Avon, MA: Adams Media. Gallasch, A., Grafe, J., Hans, R., & Salter, B. N. (2004). Challenges for the automotive industry in an on demand environment. IBM Business Consulting Services. Retrieved from http://www-935.ibm.com/services/us/imc/pdf/g510-3956-challenges-automotive-on- demand.pdf George, K., & Jacquemin, A. (1992). Dominant Firms and Mergers. The Economic Journal, 102(410): 148-157. Hackett, S. C., & Moore, M. C. (2011).Environmental and Natural Resources Economics: Theory, Policy, and the Sustainable Society. Armonk, NY: M. E Sharpe. LaBonte, M. (2009). Recession, Depression, Insolvency, Bankruptcy, and Federal Bailouts. Alexandria, VA: The Capitol Net Inc. Reynolds, S. J., Schultz, F. C., & Hekman, D. R. (2006). Stakeholder Theory and Managerial Decision-Making: Constraints and Implications of Balancing Stakeholder Interests. Journal of Business Ethics, 64(3): 285-301. Sage Publications. (2011). Sage Brief Guide to Corporate Responsibility. Thousands Oak, CA: Sage Publications. Siems, M.M. (2007).Convergence in Shareholder Law. Cambridge: Cambridge University Press. Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Expansion and Mergers Essay Example | Topics and Well Written Essays - 1000 words”, n.d.)
Expansion and Mergers Essay Example | Topics and Well Written Essays - 1000 words. Retrieved from https://studentshare.org/management/1451879-expansion-and-merger
(Expansion and Mergers Essay Example | Topics and Well Written Essays - 1000 Words)
Expansion and Mergers Essay Example | Topics and Well Written Essays - 1000 Words. https://studentshare.org/management/1451879-expansion-and-merger.
“Expansion and Mergers Essay Example | Topics and Well Written Essays - 1000 Words”, n.d. https://studentshare.org/management/1451879-expansion-and-merger.
  • Cited: 0 times

CHECK THESE SAMPLES OF Expansion and Mergers

Expansion and Merger

Expansion via capital projects is a relatively more challenging exercise than finding opportunities for mergers.... Management Research Paper: Merger & expansion: The fictitious company chosen for this exercise is a medium-sized investment bank called Armor Bank, which has a footprint in states in Southern United States.... The prospects and possibilities of Armor Bank for further expansion will have to be weighed in the broader context of the stability and long-term sustainability of the economy....
3 Pages (750 words) Research Paper

An Overview of Management Practice of Whole Foods

Expansion and Mergers has been part of its business strategies as, within only two years after it was formed, it entered into a partnership with a grocery store that resulted into the opening of the Whole Foods Market in 1980.... This study focuses on the operations of Whole Foods Market and to know what cultural practices of management made it big....
4 Pages (1000 words) Essay

Roles and responsibilities of chairman of board of directors

Roles and Responsibilities of Chairman of Board of Directors (BOD):The chairman's role includes managing the board's business and acting as its facilitator and guide.... This would involve: •managing the business of the Board and preside over its meetings; … •setting Board meeting agendas, taking full account of the issues and the concerns of all Board members; •ensuring that members of the Board receive accurate, timely and clear information, in particular about the Company's performance, to enable effective performance of their duties; Roles and Responsibilities of Chairman of Board of Directors (BOD):The chairman's role includes managing the board's business and acting as its facilitator and guide....
5 Pages (1250 words) Essay

Finance and Its Importance in the Business World

By taking its average a company can determine the interest for each dollar it finances thus can make a very reliable forecast material for the feasibility of Expansion and Mergers.... Working capital is the total amount of cash or ready convertible to cash assets available in a certain company to complete production without stoppage of work....
5 Pages (1250 words) Assignment

Business Policy and Strategic Management

Organizations follow the growth paths can be pursued via external Expansion and Mergers are the most popular measures.... mergers 2.... While mergers take place when the objectives of the buyer firm and the seller firm are matched to a large extent, takeover or acquisitions usually are based on the strong motivation of the buyer firm to acquire.... mergers provide a much quicker means to growth than internal expansion.... This paper “Business Policy and Strategic Management” is being carried out to evaluate and present four grand strategic alternatives: stability, expansion, retrenchment and any combination of these three....
5 Pages (1250 words) Research Paper

PepsiCos Competitive Advantage

PepsiCo Inc, founded in 1965 through the merger of two companies – Pepsi-Cola and Frito-Lay, had only a few products at that time but today it is one of the world's largest food and beverage companies, with 2008 annual revenues of more than $43 billion (Reuters, 2009).... Pepsi… Apart from being the second largest soft drink bottlers in the world, Pepsi is also the world leader in the salty snacks division....
13 Pages (3250 words) Essay

Important Management Functions

This assignment answers to the "Important management functions".... It lists the roles and responsibilities of the chairman of the board of directors, benefits of separating the roles of chairman and chief executive, circumstances under which a financial manager may need to value a company.... hellip; Both types of growth strategies are regularly used simultaneously and have advantages and drawbacks....
4 Pages (1000 words) Assignment

International Marketing and communications

he company is well established and this can be seen through its Expansion and Mergers with other companies for example in 2009 it bought Alltel wireless according to Polishuk (2010).... The following report has given an in-depth analysis of the telecommunication sector in Iran and gives marketing plan that will be used by Verizon Wireless Company to venture into the market....
14 Pages (3500 words) Essay
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us