Current Issues and Challenges – Government Regulation

Government regulation; Merger and acquisition always attract the attention from the
government while the deal will make a significant impact to the country, either in negative or
positive way. In the consequences, a heavy government intervention may occur in the process
of cross-border merger and acquisition. Corporation may be facing the nationalism of host
countries and lead to suffering from the discrimination and unfair treatment (Ma & Zhang,
2010). The government may boycott some companies in the process of merger and acquisition
especially when the foreign company can act as a threat to the local companies by competing
to gain market share.

According to Angwin (2007), China is one of the country where they are only allowing
limited foreign ownership in joint ventures to brace up the local state or semi-stated owned
companies. On the hand, the antitrust mechanism is established when the government tend to
prevent the combining companies from being monopolize. Monopolization can be happened
when company is placed in a dominant position, where the products and services are able to
produce in lower cost but selling at a higher price to their consumers. Thus, it is reasonable for
government to block the merger and acquisition when monopolization may occur in the future
which will potentially encounter a negative impact to the society.

Moreover, company may be get involved into intellectual property theft because the
process of merger and acquisition may obtain necessary established assets and intellectual
property right, such as trademark, patents and copyrights. Pham (2018) has reported that the
China’s theft has cost between 225 billion and 600 billion dollars of United State intellectual
property, from the 2017 report of the Commission on the Theft of American Intellectual
Property.

Besides, the national security of respective country also plays a key role where stable
politics is preferable for company to conduct merger and acquisition in the respective foreign
market. For example, if corporation has chosen to merge with a foreign company where its host
country is frequently experiencing civil war that may cause financial lost and operation
interruption. Hence, the due diligence of the combining company should be conducted by
filtering all possible outcomes that may occurs in the future.

Additionally, different tax system within countries may bring the disadvantages to
company after merge or acquire other companies. Tax system may affect company to incur
higher expenses to stay in compliance with the required regulations or modify their operation
to obey the new regulations. Therefore, as the end of the supply chain, companies will decide
to charge the extra cost incur into the end user, consumers for buying products or services at a
higher price.

Next, company should be prepared to deal with different employment law when cross-
border merger and acquisition is practiced. Sick leave, mandatory leave, parental leave and
others may vary among all countries according to the law govern. Besides that, the minimum
wages, process of termination of employees, employees’ benefits may differ too. Employees
may seek cross-border merger and acquisition as a disruptive event because of organization
restructuring (Borisov et al., 2013). Devos et al. (2009) stated that plant shutting down, wage
decreases and employee layoff are the possible outcome of merger and acquisition. Thus, the
host country may set stricter laws to protect their citizens from unusual dismissal.
 Class Activity

Our objective of this class activity is to deliver the learning outcomes to classmates
through conducts a creative learning ground. Firstly, we have prepared several company logos
which are involved in mergers and acquisition in the past or recent news. However, the logos
(please refer to Appendix 1) are not completed which require our classmates to guess based on
the hints that we provided. After the logo is completed, they are required to present it in the
class with a short brief of explanations. Our group members may have wrapped up the
presentation if there is a mistake, insufficient information or unclear explanation. As a result,
our classmate can experience fun learning process and gain some new knowledges through this
class activity.

Here are the examples of merger and acquisition companies that we have used on class
activity:

1. The Walt Disney Company

2. PricewaterhouseCoopers(PwC)
3. FedEx Kinko’s
4. Geely
5. AT & T Inc.
6. The Kraft Heinz Company
7. Starbucks Corporations
8. Unilever
References

Angwin, D. (2007). Mergers and acquisitions. Chichester, UK: John Wiley and Sons Ltd.

Ma, H., & Zhang, W. (2010). Brief analysis of the issue of cross border merger and acquisition
in BRICs. Research in World Economy, 1(1), 43-46.

Pham, S. (2018, March 23). How much has the US lost from China's IP theft? CNN Tech.
Retrieved from http://money.cnn.com/2018/03/23/technology/china-us-trump-tariffs-ip-
theft/index.html

Devos, E., Kadapakkam P., & Krishnamurthy, S. (2009). How do mergers create value? A
comparison of taxes, market power, and efficiency improvements as explanations for synergies.
Review of Financial Studies, 22(3), 1179-1211.