{"id":633791,"date":"2017-11-15T00:00:00","date_gmt":"2017-11-14T23:00:00","guid":{"rendered":"https:\/\/www.ie.edu\/insights\/latest-news\/articles\/acquisitions-in-emerging-markets-maximizing-the-benefits\/"},"modified":"2019-02-06T12:51:10","modified_gmt":"2019-02-06T11:51:10","slug":"acquisitions-in-emerging-markets-maximizing-the-benefits","status":"publish","type":"articles","link":"https:\/\/www.ie.edu\/insights\/articles\/acquisitions-in-emerging-markets-maximizing-the-benefits\/","title":{"rendered":"Acquisitions in Emerging Markets: Maximizing the Benefits"},"featured_media":636375,"template":"","meta":{"_has_post_settings":[]},"schools":[32],"areas":[16,18,19,24],"subjects":[],"class_list":["post-633791","articles","type-articles","status-publish","has-post-thumbnail","hentry","schools-global-and-public-affairs","areas-competitiveness-growth","areas-finance-control","areas-global-affairs-law","areas-strategy"],"custom-fields":{"wpcf-article-leadin":["All business acquisition processes pose challenges, but those carried out in emerging markets are especially complicated, as the acquirer must assume an even greater risk. In these processes, a company\u2019s grasp of the objectives of the acquisition and proper organization of the operation greatly increase the chances of success."],"wpcf-article-body":["Today, companies are increasingly looking to emerging markets for new opportunities. Although China and Brazil have traditionally attracted the most attention, other countries feature on firms\u2019 agendas as well.\r\n\r\nMany factors lead companies to expand beyond their borders. These factors include the perceived growth<\/a> potential of entering a new market or the opportunity to access natural resources or quality local talent<\/a> to provide brainpower for innovation<\/a>.\r\n\r\nHowever, the challenges posed by acquisitions in emerging markets are broad and diverse and thus must be carefully measured. Failure to properly gauge the risks often results in acquisitions that simply cover costs and do not generate synergies or deliver the expected benefits.\r\n\r\nWhat is the regulatory environment like in the emerging country? What are the transparency and accounting standards in the emerging country? What type of contacts does the target company have? Are these contacts informal? Is the company well-managed? Many questions must be answered before an acquisition in an emerging country can be safely undertaken.\r\n
The challenges posed by acquisitions in emerging markets are broad and diverse and thus must be carefully measured.<\/blockquote>\r\nStrategic Rationale<\/strong>\r\n\r\nTo begin an acquisition process, the strategic<\/a> rationale must be clearly defined. Only then will the acquirer be able to identify potential target companies and assess their suitability.\r\n\r\nOne important step in the selection process of the target company is to perform a thorough analysis of the local regulatory and market institutions to identify possible gaps in the market and determine how the acquired company can play a mediating role, providing access to networks to reduce information asymmetries and afford the acquirer a comfortable position in that environment.\r\n\r\nIn addition, the deal\u2019s viability largely depends on the fit of the corporate cultures of the two companies, the country\u2019s regulatory constraints, the interest the candidate arouses in local institutions or other local investors, etc.\r\n\r\nThis initial strategic<\/a> overview can enable the acquirer to make a preselection of the most suitable candidates, which it can then begin to cull until it has a smaller group to work on more in depth.\r\n
To begin an acquisition process, the strategic rationale must be clearly defined.<\/blockquote>\r\nObjective: In-Depth Knowledge to Make an Informed Decision<\/strong>\r\n\r\nDue diligence processes are key both to gathering as much information as possible and to establishing a climate of trust between the two companies. They should thus be conducted thoroughly. The team responsible for doing this should be made up of professionals from the acquirer, familiar with their company\u2019s strategic<\/a> objectives and needs, and local personnel, aware of the particularities of the target market and its regulations.\r\n\r\nTheir detailed analysis needs to focus on the target company\u2019s finances<\/a> and accounts, a complicated task in emerging markets due to the accounting regulations, which are often laxer, close relationships between banks and companies, and the sometimes questionable role of auditors and analysts.\r\n\r\nThe due diligence must also address legal aspects, primarily related to determining the real owner of the target company and identifying the company\u2019s obligations with regard to taxes and other fiscal charges, permits and licenses.\r\n\r\nAs for the commercial aspect, the due diligence must determine the level of the company\u2019s brand recognition on the local market and what type of business relations it has. For example, if sales<\/a> relations come from personal contacts, i.e., informal channels, the acquirer runs the risk that those contacts may disappear at the time of purchase or come into conflict with its ethical standards.\r\n\r\nOf course, ethical aspects must also be considered in this process, to identify potentially corrupt or even criminal behavior<\/a> by the company or its employees.\r\n\r\nThe human resources due diligence must assess the employees\u2019 turnover rate and quality, with the aim of retaining the best talent<\/a>. It should also seek to determine the acquirer\u2019s actual ability to undertake a collective layoff, since politicians and bureaucrats in the country can have a decisive influence if they oppose the downsizing of a company with which they have important ties.\r\n
A systematic approach is essential to minimizing the risks and increasing the benefits.<\/blockquote>\r\nSuccessful Integration<\/strong>\r\n\r\nTo ensure a successful integration, the acquirer must develop a clear and coherent strategy<\/a> to achieve the previously defined strategic objectives, analyzing whether it makes more sense to absorb the target company or to allow it to remain independent, and considering whether to exercise\u00a0strong control<\/a> or provide more autonomy to the target\u2019s management team.\r\n\r\nOnly through the definition of a clear strategic<\/a> objective, in-depth knowledge of the ecosystem in which the target company conducts its business, and a clearly defined process to integrate the two companies may it be possible to obtain the full expected potential of a cross-border acquisition. The risks are considerable, but so are the benefits. A systematic approach is essential to minimizing the former and increasing the latter.\r\n\r\n \r\n\r\n\u00a9 IE Insights.\r\n\r\n "],"wpcf-article-extract-enable":["1"],"wpcf-article-extract":["By Olivier Bertrand, Marie-Ann Betschinger and Caterina Moschieri<\/strong>. All business acquisition processes pose challenges..."],"wpcf-article-summary-enable":["1"],"wpcf-article-summary":["Business acquisitions in emerging markets are attractive for various reasons, including growth potential and access to natural resources and talent. To minimize the risks involved in this type of transaction, buyers should have a well-defined strategic rationale. During the selection process, buyers should consider factors such as the country\u2019s regulatory constraints and the compatibility of the two corporate cultures. Buyers should also conduct a detailed analysis of the target company\u2019s financial, legal, commercial, and human-resources situation. Success requires a clear strategic objective, in-depth knowledge of the new ecosystem, and a process for integrating the two organizations."]},"_links":{"self":[{"href":"https:\/\/www.ie.edu\/insights\/wp-json\/wp\/v2\/articles\/633791","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.ie.edu\/insights\/wp-json\/wp\/v2\/articles"}],"about":[{"href":"https:\/\/www.ie.edu\/insights\/wp-json\/wp\/v2\/types\/articles"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.ie.edu\/insights\/wp-json\/wp\/v2\/media\/636375"}],"wp:attachment":[{"href":"https:\/\/www.ie.edu\/insights\/wp-json\/wp\/v2\/media?parent=633791"}],"wp:term":[{"taxonomy":"schools","embeddable":true,"href":"https:\/\/www.ie.edu\/insights\/wp-json\/wp\/v2\/schools?post=633791"},{"taxonomy":"areas","embeddable":true,"href":"https:\/\/www.ie.edu\/insights\/wp-json\/wp\/v2\/areas?post=633791"},{"taxonomy":"subjects","embeddable":true,"href":"https:\/\/www.ie.edu\/insights\/wp-json\/wp\/v2\/subjects?post=633791"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}