Recent Post

Searching...
October 7, 2013

Mergers and Acquisitions in Medical Industry Part 2

Since the early 1980s, the operations of M & A significantly evolved not only at American or European level but all over the world. After the dramatic rise in the number of merger and acquisitions in the second half of the 1980s, the 1990s saw a robust surge in cross-border mergers coupled with a rise in deal value. The phenomenon of M&A is gradually expanding to a broader set of companies and countries (Angwin, 1997). In 2000, the value of cross-border M&A exceeded a trillion dollars, of which over half was made by European companies. If they have long preferred cooperative forms reconciliation (strategic alliances, joint ventures, etc), they now also show a growing interest in mergers and acquisitions.(Dussauge and Garrette, 2000).
Available studies reveal that the failure rate of M &A is comparatively higher since one operation of two has been recorder an uneventful and unsuccessful experience (House, 2000, Habeck et al., 2001). The risk of failure is further highlighted in cross-border dealings because in such a process the cultural differences occur only undermine the integration process. (Franck, 2000).
At the outset, it goes without saying that necessary tools should be in place that would prove beneficial and favorable to the integration process of the cross-border mergers. Before examining the concepts and practices intercultural management, it is necessary to highlight the specificities of international mergers and acquisitions.
Mergers and acquisitions may be explained as agreements struck between two or more major companies who opt to share their resources (technological, production, trade, etc) to reach some common goals. It should be kept in mind that this kind of agreement is always of strategic nature. Of course, the company does not merge out of its will-to-volunteer. Rather the merger always has a productive purpose and value of profitability. 
 As opposed to cooperative agreements, mergers and acquisitions eventuate in the integration of related entities which somehow also causes the loss of independence for at least one of the actor. However, each case of merger is different in nature. As a result of merger, actors risk their existing heritage to see the possibility of new avenues of productivity inherent in the process of merger and acquisition. In simple words, one firm takes full control of another entity integrates the latter within it.   
Mergers and acquisition can also bring two arch-rival companies. The condition is that they both should be targeting certain markets with the same products. For example, a bank can take hold of another bank which is on the brink of bankruptcy.  Likewise, they can bring together the business entities of the same nationality (domestic agreements) or players of another nationality (international agreements). (Mayrhofer, 2000)
M & A transactions can be said to be powerful and effective both in terms of capital and operations. It is incumbent on the combined or say recently merged entities to identify and allocate shares to the existing shareholders.
The intercultural management practices play a pivotal role in the process of mergers and acquisitions provided that the activities of the company are in harmony and well-coordinated. As seen in any other form of reconciliation, the pre-requisite for the search of synergies is that both should be reorganize and gelled in together.  (Feldman and Spratt, 2000, Habeck et al. 2001)
The accomplishment is becomes even more a compounded process when there are involved two players belonging to different nationalities.  (Guth, 1998; Mayrhofer, 2001).Cross-border alliances in the process of integration are frequently complicated, chiefly due to the differences between actors. The cross-border alliances typically leave an impact on the practices of business management and accentuates the differences between organizational cultures (Bollinger, 1987). In this regard, it must be kept in mind that the problems of cultural incongruity leave a negative impact on the outcomes ofM & A (Chatterjee et al., 1992) and the acquisitions generally do not come up to the expectations of the investors. This is quite pertinent to specific operations that are characterized by great cultural distance between actors. (Datta and Puia,1995).
The success of a merger or acquisition commonly hinges on the presence of a development project and a common yet effective human resource management. Thus, it is important that stakeholders understand the benefits of consolidation andstrive to achieve all the objectives. At the social and human management level, it is vital to foresee and recognize the changes necessary to make the operation a success.
The creation of the new venture demands the creation of joint teams and striking  a balance in the opus of working groups,  the division of responsibilitiesand assignments of employees. Keeping in mind the interests of different actors, the role of communication is of utmost value. The communication must be progressive having an inherent ability to gauge and facilitate the success of the progress. Afterwards, there must come about the cultural changes as each party seeks to ameliorate its methods, tools and the style of management.  (Mutabazi et al.1994).
The formation of a new corporate culture that tends to assimilate the positives of each culture works well in avoiding conflicts. In this perspective, the business association of different nationalityrent is an additional source of difficulties. Differences in cultures are internal andcompounded by cultural differences among countries (Egg, 2000).
Given the fact that culture is usually seen as an impediment to the success of mergers and acquisitions, only an effective management style can play its part in making these operations a big success. (Feldman and Spratt, 2000).
Effective use of cross-cultural management tools is indeed likely to improve the performance of mergers and acquisitions.The discipline of intercultural management stems from the United States in the late 1970s on the basis of international management and management (Harris and Moran, 1993). The empirical study conducted by G. Hofstede on national culture and corporate culture has very much contributed to its increase in the field of management science (Hofstede, 2001). Unlike the international management (which brings into consideration all the essential functional activities of the business) and management, intercultural management lays an emphasis on organizational behavior and human resources (Adler, 1991).
The intercultural management lays stress more particularly on the influence of culture (national and organizational) on the perceptions, interpretations and actions of actors. This system has been learned duringthe socialization process. As this socialization takes place in a specific context, national culture, that reflects the values, thoughts and behaviorsof a company, plays an important role, despite the Universalist discourse of globalization. In terms ofmanagement, the cultural system provides to individual scognitive abilities and specific methodsto solve problems. As a result, employees from other countries are likely to find different solutions facing the same problem.
Research focuses on intercultural management study the interactions of actors from systemsdifferent. Various researches are interested in finding "critical incidents" which exist because of the cultural differences (Barmeyer, 2000). Critical incidents often take place due to of communication and cooperation when expectations and behavior of actors diverge and result in cultural conflicts (Batchelder, 1993).
Issues associated with intercultural management are important in the context of mergers and acquisitions where employees of several countries bound to coexist professionally. Nevertheless, the differences between systems that might result in misunderstandings and conflicts are recurrently taken too lightly.
This underestimation of the cultural factor can appear to be surprising due to the fact that a business combination is basically a settlement of men. These are the people who create, follow or divert the rules and structures of companiesand that make the organization live, work and conductsprofits, it is their ideas, strategies, thoughts anddecisions that turn into actions (Chanlat, 1990) and contribute to the success or failure of any particular merger or acquisition.
For a number of decades, there have been various researches conducted on the issue of cross-border mergers issue of convergence or divergence, because it determines to a large extent the strategy of alliance (Adler, 1991& Child, 1981). A strategy that assumes the convergence advocates diffusion or strong harmonization of different systems. The differences between the organizations and actors are unimportant; they will approach through a "common culture" and to find a "compromise"for the operation of the newly formed company. Conversely, the strategic approach marked by the design of the divergence takes into account the cultural diversity and the stability of particular systems.
In mergers and acquisitions, convergence vs. dialectics, divergence relates more particularly to three areas: organization, culturebusiness and human resource management. The overestimation of culturecan lead to misunderstandings may be the main elementand conflict to explain the problems encountered by the management. Methods of management areuniversal and can be strongly influenced by their culturetransferred and applied in home and meet with resistance within different contexts when applied in othercontexts
M &A and cultures are intermingled cultures that usually resist changeand spread. Therefore, we must generatestronger influence, adaptations and trade-offs through the implementation of intercultural management.


The "methodological rigor" are the concepts of reliability and validity of data, internal and external validity, objectivity, and latent or implicit criteria: estimation of the validity of a search etc. These are all the criteria of relevance and rationality. These criteria form the core of the whole issue of the scientific credibility of research.
Research is a demanding activity that requires multiple skills. The researcher must, not only, know  how to administer, organize, manage and create projects , but he must also have the skills in oral and written communication and must, of course, have a good training in the field of his research as well in research methodology.
This chapter deals with methodological issues. It portrays the epistemological foundations of this research and explores the role of the researcher in light of the approach and Selected research methodology. In this chapter, the researcher first presents the main methodological approaches to research in the subject area. It then explains the reasons for the adoption of a proper research methodology for this study and indicates the consequences of his choice. This will follow with a discussion of the role of the researcher to highlight its bias and values ​​and assumptions underlying this research. This allows to estimate the contribution of the research in connection with the subject of this research and the angle of the analysis and the limits of his approach (Bryman, 2008).
In general, although other approaches may exist but there are two major methodological approaches, one objectivist, according to the positivist approach and the other subjective, associated with the hermeneutic approach. The first, very well known in the sphere of social sciences, based on the positivism of the natural sciences in advocating a objective point of view to know the reality. Phenomena, conceived in terms of behavior become cause and effect (causality) relations, where each action is determined by a previous or subsequent (determinism) within an immense chain of successive events, each being the product of the other that preceded it. Believes that this trend cannot know the reality that from logic and standardized methodologies is therefore a reconstructed logic and understanding of the phenomena would require a study of their etiology. To know the reality and describe it with precision, it is cut into its smallest components, including assigning quantitative measures (the number or frequency), the counting and analysis and the results using mathematical formulas. By the play of correlations between dependent variables and independent variables, the deductive process confirm or reject the assumptions and it follows that the absence of deterministic explanation is due to ignorance or the lack of adequate evaluation.
The generalization, verification and prediction are the reasons for the Research based on the hypothetical-deductive logic and become synonymous with the explanation (theory of symmetry). The explanation is thus based on research into the causes that produce phenomena, including social phenomena and their functions. The researcher must focus on manifest behavior (observable, quantifiable, treatable) of the phenomenon and must continually confront the reality of the theoretical model and vice versa. The validity must be its constant concern, because it will ensure loyalty, the ability to reproduce the research by obtaining the same results.
Research is either qualitative or quantitative. Proponents of the approach argue that quantitative research in the field of Science education must be objective, free from bias and generalized in any context. As for the followers of the qualitative approach, they rejected this desire to objectify in a sine qua non of social science research (Mason, 1996). For fans of this approach, the objectification and generalization in the social sciences are both impossible and undesirable. Qualitative research is characterized by rather the emphasis on induction, with rich descriptions, etc. These two positions, epistemologically contrary, have often mentioned that Howe (1988) calls the thesis incompatibility, which supports the qualitative and quantitative research, as well the methods of data collection inherent in both approaches, could not be allied. The idea of having to choose between the qualitative and quantitative research has and characterized the majority of research in science education during the 15 years. Why Science Education Should marry this methodology dichotomy that does not seem to take into account the complexity of reality? Why do not find a compromise between these two methodological solitudes?
According to the research objectives of this study it seems advisable to use a mixed methodology research , where the researcher will collect data through both qualitative and quantitative methods. This is the natural consequence, and especially pragmatic traditional quantitative or qualitative methodologies. The mixed methodology allows the researcher to collect  strategic qualitative and quantitative data, consistently and harmonious, to enrich the search results. This combined approach makes it possible to borrow from various methodologies, qualitative or quantitative, depending on our research goals. With mixed approaches, there is a kind of pluralism methodology. In addition, mixed research methodology facilitates triangulation of search results. Johnson and Onwuegbuzie (2004) also noted that mixed methods often generate search results superior to unique methods.

Data Collection


This chapter aims to describe the implementation of research and try to answer the research questions. The data is collected through secondary sources like books, journals, articles, and Internet. Apart from these sources, data is also collected through a survey questionnaire. The population of this research was 60 participants who belonged to the pharmaceutical industry. The survey questionnaire collects the views of the participants regarding merger and acquisition of pharmaceutical companies. This questionnaire was distributed among all the participants. However, not all the participants took part in the research and 10 of them returned the questionnaire without answering it. Thus, the total response rate was 83%. The methodology to analyze the data collected is a type of Probability Sampling, i.e. Purposive Sampling because the sample size is very small. 
Beyond the problems common to any Merger and Acquisition operation, the area of ​​mergers and acquisitions in the pharmaceutical industry has intrinsic characteristics related to the underlying economic (including intellectual property rights, development phases and life of drugs), and close contact with states and supranational organizations. In the future, various forms of reconciliation, already outlined today will become necessary.
The classic problem with any merger or acquisition occur in Pharmaceutical industry is the price to be negotiated and the representations and warranties from the seller to define, with an emphasis to the statements relating to intellectual property rights, the validity of contracts
with non-governmental organizations, regulatory approvals for production and marketing medication and a change of control clauses relating thereto.
The development of a drug, which lasts about fifteen years, is subject to significant uncertainties in terms of clinical and commercial success with significant variations depending on the therapeutic indications. This long duration of drug design involves frequent use of earn out clauses where the purchaser undertakes to pay the seller a price based on the advanced development and marketing of a product who at the time of acquisition, was still in its developmental stage. This long period of design should be combined with the short duration of exclusive exploitation due to the influx of generic drugs with patent expiry of operations. The main patent medicines are operating or will fall into the public domain between 2008 and 2012. It has been estimated that the loss of patents in the pharmaceutical sector will represent an average of 42% of this sector for the period 2008-2012. This generic competition will push pharmaceutical companies which, in the past have focused on a few small sales, to try new reconciliations.
The laboratories have indeed considerable financial resources but suffer from a chronic lack of innovation; the acquisitions of biotech companies with a pipeline of drug candidates in development can boost growth by rejuvenating the pipelines and reduce the risk exposure of expiry of patents. Such acquisitions or equity investments also reduce dependence on blockbusters or therapeutic indications by diversifying their portfolio. In 2009, interest has almost exclusively focused on companies with pipelines with components in advanced clinical development. A number of large pharmaceutical companies pursuing their strategy of diversification into segments for extending the shelf life of products and thus better anticipate risks.
A feature unique to the pharmaceutical industry is the interaction of states and organizations supranational with stakeholders in the pharmaceutical world. It is not uncommon for a laboratory to offer the marketing of a number of pharmaceutical products in the manner of a specification through tender by a state or an NGO. Any approximation results in a first phase setting up data room allowing players to get to know. This initiative comes at a time when no one knows if the transaction goes through. Now these players can bid for identical tenders and protection of privacy becomes a major issue.
            In Pharmaceutical companies’ merger and Acquisition, there is a change in the balance of power between managers and shareholders. These criteria require very high cost to the leaders. The generalization performance groups based value creation has led to the emergence of a standard of profitability, albeit arbitrary, about 15% (Beena, 2000). But maintaining such rates of return requires, except in areas of explosive competition, reliance on external growth. However, mergers and acquisitions often resulting in logic of value creation in the short term desired and dictated by the shareholders, rather than a logical development in the medium to long term.
            Many mergers and acquisitions cannot really conclude while a large number of them have placed but face practical difficulties that eventually condemn them. There are two main reasons for this:
1) The lack of synergies and
2) Cultural and managerial differences
Synergy is defined as a lack of actions of elements (material or not), which forms the whole organization contributing to the same result which increases the interaction potential. Many mergers did not work for lack of synergy. Poor integration of the acquisition often leads to failure. The integration process is made more difficult because of differences between cultures and management styles.
The location and nationality of the new set is a big problem, especially at European level: there is no real status of European companies so mergers between different nationalities are very complex. This is why many companies opt for the system of the joint venture instead of performing a real merger and other still opt for purely domestic mergers. So afraid to see one of the two partners take a dominant position if the headquarters was in one of the two countries, it was decided to implement the new headquarters in a new location while keeping the two respective headquarters, which merely create an additional level of management.
 In the following chapter we would be shedding light upon the ways through the application of which we can ensure greater transparency and effectiveness in devising solutions of the problem statement that we have been investigating in this particular research. In addition to this we would also be looking at areas in the process of research conduction which can be enhanced or improved to ensure greater reliability and validity in the results that we have obtained.
Since the key hypothesis of our research was based upon the investigation of reasons due to which mergers and acquisitions commonly experience failurein the medical industry, it is important that we try to now develop a relation between the different variables and components that are important in the entire process of merger or acquisition.Furthermore it is also important that people related to the appropriate field are also properly made aware regarding the changes that the research identifies and addresses.
For the fulfillment of this purpose it is important that we keep ourselves acquainted with the changes that are taking place in the medical industry. News related to the merger and acquisition ventures taking place in the industry are reported in almost all mainstream news media.
It is important that with the help of this research we try to make them aware regarding the precautionary measures that they must take before jumping into the decision of undergoing for a merger. In addition to this it is also important to outline the possible areas which they need to integrate and ones that can go untouched.
Thus, it is significant to provide them with the correct direction regarding the brainstorming they need to do before effectively materializing the venture of business consolidation. Some companies when taking over the other company also adhere to the policy and strategy of preventing the retrenchment of the workforce of former company, especially those who are related to some key departments of the organization.
This approach is highly recommended by business and corporate experts and has been widely used by people such as Warren Buffetwhen they take a decision before taking over a company. This approach and strategy is also recommended because the in-house staff of a company which is being taken over have a much better understanding of the dynamics and other associated features and functions of the company.
Recruiting or employing new work force in their place would require extra effort in the training of new employees about the different fields and departments and their related operations along with the wastage of time which can easily be saved by securing the jobs of old employees of the company undergoing the process of consolidation.
Therefore with the help of these approaches we would be able to highlight the different loopholes and shortcomings in the entire process of M&A in a much better and effective manner.


0 comments:

Post a Comment