The deal between Renault/Nissan and Samsung Motors Inc. (SMI) announced in April 2000 and still functioning today.

Part 1

On 21 April, 2000 Renault an automaker based in France came to an agreement to acquire Samsung Motors based in South Korea which was its second major acquisition in Asia for that Year. Renault which had acquired 37percent share of Nissan hoped that by taking over Samsung Motors it could be able to challenge the South Korea market leader, Hyundai, by securing 10 to 15 percent of the automobile market in the nation (Tagliabue, 2002).

The micro-economic environmental factors that affect any organisation include the competition, the suppliers, customers, marketing intermediaries and the creditors. The micro environmental factor that affected the Samsung Motors was the creditors (Marrewij, 2007). The company had been unable to pay its debts and thus became insolvent and its management was undertaken by the creditors. Thus the creditors had to come to an agreement with Renault Automaker so that it they would pay the debt burden. The insolvency of this company presented an opportunity for Renault Company to find its footing in the Asian market and more so in the South Korean market (Tagliabue, 2002). As opposed to buying a company that is a competitor or one that is regionally close, which normally consume a lot of time and is capital intensive, buying such a company out of insolvency is a faster alternative that gives an optimum price (Roberts, Wallace & Moles 2012). The interest in acquiring insolvent company arises from the fact that restructuring it and a going concern is a central to the statutory framework. The stakeholders more so the customers and the employees are aware of it and become involved in the process and this will largely lead to reduction of any possible damage to the image of the company. The takeover may also be aimed at ensuring maximum satisfaction of the claims by the creditors and also maintaining the same workforce in the company (Roberts et. al 2012). The other micro-economic factor is the competition in the market. The competitive environment dictates that no company enjoy monopoly. Each company will encounter competition in form of other differentiated products in the same industry that is brand competition (MOTIS, 2007). Thus the Renault Company used the acquisition agreement as a strategy to enter the South Korean market which is largely controlled by the Hyundai Motors. The acquisition was aimed at enabling the Renault company win over more customers. Thus its need of expansion would be arrived at quickly because of the maintenance of the same staff the acquired company and also be able to reach to new customers and segments of its products. Renault aimed at acquiring a percentage of 10-15 of the automobile market share in South Korea (Tagliabue, 2002).

The macro-economic environment includes the political, legal, cultural and economic environment. The economic environment largely affected the motor industry in the Asian market in particular the 1998 economic crisis that hit the region hard. All businesses are influenced by local or global economic factors prevailing, which determine the interest rates, fiscal policies and generally the profitability of an organisation. The prevailing economic climate or conditions determine the behaviour of the customers, organisational stakeholders and the creditors. An economy that is experiencing recession will mean that customers have low purchasing power (Marrewij, 2007). The prevailing economic crisis of 1988 made the Samsung Motor Company to run into bankruptcy and this was a major issue that lead to the acquisition. A company that is a global player has be informed on the economic conditions across the borders and should ensure that it apply a strategy that will protect and enhance its business through the prevailing economic conditions across the world. Renault Company took advantage of favourable economic conditions in South Korea which motivated it to take over the ailing Samsung motors in order to position itself in the Asian market.  The Korean market was recovering rapidly after the crisis which saw about 910,000 new vehicles being bought in the year 1999 and this represented a potential market for the French company to venture (Tagliabue, 2002. Renault Company also wanted to keep up with the market trend where Western carmakers were entering through acquisition and mergers where such companies acquired stakes into the Asian car industry mare so in Japan.  DaimlerChrysler had acquire a stake of 33 percent in the Mitsubishi and generally the past two years had seen seven of the 11 Japanese carmakers linking up with foreign partners in various levels(Tagliabue, 2002).

Part 2

A merger or acquisition refers to the combination of two companies or more into one company or corporation that is different from the previous companies. In a merger, the process involves a lot negotiation between two companies before their combination takes place (Roberts et. al 2012. The combination of Renault and Samsung Motors can be termed as mergers because the combination process involved a lot negotiations between the creditors of Samsung Motors and Renault companies. Both companies considered the merger to bring about benefits as it would result to availability of customer and commercial bases to both companies after combination. The merger will result to various complications but the available potential for synergies overshadows such challenges.  There are various rationales makes companies to merge. On such rationale is strategy. This rationale utilizes the opportunity for merging to achieve its set objectives. For instance, a company may merge with another with an aim of expanding into a lucrative market where it may lack may lack another legal way in interring into the market (Lubatkin, O’Neill, 1997). The Renault Company could not enter into the South Korean on its own since the market remained tightly closed to cars from foreign carmakers. It would have served it will to merge with a local firm that already has presence in the market. A company may be forced to merge with another unmerged company in order to gain a competitive position in that particular market or region. This scenario is likely to happen more in markets that are largely dominated by big players a good example seen the South Korean market where Hyundai control and its partners control more than 70 percent. In most cases the merge is mostly motivated by the need to respond to similar merges by competitors. This case is well explained where the merge between Renault and Samsung Motors came after various western car makers had merged with the other car makers in the Asian market and more so in the Japanese market. The other rationale for this strategy is the financial necessity. This applies where a company like Samsung Motors has found itself in a financial crisis involving bankruptcy or strategic misalignment which leads to loss of value and consequently, the loss of shareholders confidence. Another rationale for applying merging strategy is management failure.  The management strategies may include a lot of errors involving alignment or there may be significant changes in market conditions at the time given for implementation. This means a change in the direction of the company to a different objective due to change in factors such as the demands of the customers and the competitors strategies. Such cases may present a scenario where a company’s current strategy has moved off the strategy track required to address the changes and the only solution is to merge with another company that will offer the assistance required to correct the variance in the strategies (Lubatkin &’Neill 1997).

This strategy is associated with various risks. The first such risk is associated with the capital markets. Merging of companies implies diversification more so in management. When the income streams of two firms are combined, it also means there will be diversification of stockholders and an increase in unsystematic risk – which is the sensitivity of returns relative to the whole market, and it is determined by the cost of capital (Lubatkin &’Neill 1997). Different managerial styles and the control systems present a threat of layoffs arising from consolidation of similar departments, differences in compensation and the rules imposed on the acquired firm may bring about inefficiencies that contradict the benefits of the merger. The strategy may also face an integration risk where incorporating the operations of the merging firms may prove to be a difficult task due to the resulting new company inability to attain the desired objective of cost-saving from economies of scale and synergies.  Another risk is the possibility of culture clash between the two merging companies. The conflict of cultures and personality clashes may derail the performance of the new company. If the cultures of the two companies are incompatible due to management practices causing conflicting behaviour, there is the risk of losing the best employees, the integration period may become prolonged and messy and the company may finally fail to capture the value of the merger and synergies (Chui, 2011).

Part 3

 

Integration of culture is considered to be a development of a meaning that is jointly shared which enhance co-operation between the firms that are being joined.  If cultural clashes still exist between two joining firms, it means the cultural integration has not been well achieved.  This integration should reduce collective resistance by creating mutual consideration, developing a common language as well as a better understanding of on another.  Without acculturation being created between the two firms, there are minimal chances of merger and acquisition to be a success (Zhang, 2010). Compatibility of different cultures between Renault and Samsung motors imply that there was cultural similarity. For the merger to be successful, the decision makers should identify a potential partner that represents a match of both strategy and culture. The corporate culture and the national culture are more likely than not to affect the performance of the newly formed company. The corporate culture can be explained in three ways which include: the way an organisation deals with its customers, the manner in which employees treat each other and the way in which the managers and leaders in an organisation develop, reward or motivate the employees. The most noticeable attributes of   corporate culture includes aspects such as manner of dressing, relationship between people, how customer queries and complaints are responded to, and the way employees view their performances. These aspects help to identify the behaviour patterns that usually make up the corporate culture.

Corporate culture is seen as a make or break issue after the merging of companies because culture to a firm is what personality is to a person. Thus if corporate culture is poorly considered it can lead to failure of the merger (Pascal, 1999).  Renault Samsung experienced a sales increase of 70 percent in the first seven months of the after merging of Samsung Motors and Renault as compared to the same period of the previous year. The chief executive of the company Jean Hurtiger attributed this success to the maintenance and the use of corporate culture and the heritage of the Korea. Renault Samsung had become a multinational company that combined the 112 years of France’s Renault history, the technological capabilities of Nissan and Samsung motors of South Korea.  The management of different cultures after merging can thus be used as a system that an organisation uses to select the general patterns, solve the conflict that may arise, in conversion of negative factors to make them positive and obtain the value of synergy arising from the culture after the merger (Deloitte, 2009).  The fundamental principle of this culture management is to respect and understand the other culture, acknowledge the significance of good communication and adapt to any changes. The firm should integrate its culture with strategic significance and this is effectively done through communication. Synergy can be achieved if the subsidiary company is treated like an independent company that makes its decisions according the circumstances prevailing locally. Thus the local culture is respected and the employees of the company are recruited locally. However the best model that seems to have worked well for Renault Samsung is integration of both cultures.  As pointed out by the Chief Executive, the multinational aspect of this company does not refer to the country it originated from but to its unique culture formed by bringing together cultures and management that are different.  It involved a combination of the human resources of high quality that existed in Samsung Motors, the management practices of Renault which was very innovative and, as previously noted, technological competitiveness of Nissan Company (He-Suk, 2010). The company noted that by combining these competitive aspects coming from the three sources, it managed to attain a quality that was leading in the industry, the relations labour management became smooth which resulted to a 10 year rapid growth.  Another culture that arose after the merge is that Renault Samsung does not have any labour union, but an organisation that serves as a representative of employees which became an advantage to it.  Unlike other car making companies that are locally based, some of whom experience strikes almost annually, Renault Samsung has managed to avoid disputes relating to labour such that its employees have not engaged in any form of industrial action since the new company emerged in the year 2000. It went further to receive the Prime minister’s award for coming up with a model that used a new culture in the management of labour (He-Suk, 2010).

Although the integration of tasks and the social –cultural combination are different conceptually, none is independent of the other.    The factors in integration of the socio-cultural aspects like employees’ commitment, shared identity and trust help in transferring the strategic capabilities and the sharing of resources. A successful integration of both nation and corporate cultures facilitate satisfaction of employees, the quality of interpersonal relationship between employees of combining firms which will translate to better performance of an organisation (Deloitte, 2009).

 

Part 4

The movement of foreign exchange rates can have a significant effect on the how mergers flows internationally. In the cross border markets of the world, a strong relationship exist between currencies and the capital markets, and the relationship is seen in the acquisition deals done and the stock markets. The conditions of the currency market are also closely related to the capital markets. Movements or variations in the rate of exchange can make the firms of a country to become cheaper or more expensive to bigger firms from other countries that are willing to buy those (Bruner & Bruner, 2004). However, conventional  analysis of economies argue that in as global market that is highly integrated , the assets real returns on assets will be normally equal across the said countries. According to Stein and Froot (1997) there is a link between the changes in currencies and the buyers’ wealth, in that countries that whose financial situations are good due to their strong currencies will attempt to initiate direct foreign investments.  The thus found that there is a strong relationship between foreign direct investments and the movement of the exchange rate. Ravenscraft and Harries (1991) also argued that there exist a strong relationship between the variations of exchange rate and effects of announcement of cross-border acquisition. This implies that firms in countries with substantially strong currencies are likely to go for acquisition of firms in countries whose currencies have not appreciated much (Bruner & Bruner, 2004).

This case is clearly seen in the deal between Renault and Samsung motors where Renault originating from France, a country with stronger currency targeted acquisition of Samsung motors which originates from South Korea which was among the countries whose economies were greatly hit by the 1998 Asia economic crises and whose currency was weaker. This made the acquisition relatively affordable to Renault. The stronger currency also meant that Renault had a higher value relatively than Samsung Motors. Another aspect is that debt which is denominated on the basis of the target firm is quite attractive to the acquiring firm since it is cheaper. The bid by Renault valued Samsung Motors at ataW620 billion which was well below what the creditors of Samsung motors had anticipated, a value of W1.1 trillion (Tagliabue, 2002). Thus, the deal turned out to be a good for Renault but not so good for the Samsung motors creditor. The creditors had realised that if they lost this buyer they were unlikely to get another one. This was a good gamble for Renault Company since it only had to initially offer 78% of the funds. The variation in currencies between the countries of the two firms had a huge advantage on the Renault put of the deal.  In terms of the debt, Renault did not have much to lose unlike the Samsung creditors. If Samsung did not make any money it would lose a lot in terms debts owed to creditors while Renault would only lose W85 (Tagliabue, 2002).

 

 

References

 

Bruner, R. F., & Bruner, R. F. (2004). Applied mergers and acquisitions.107

Chui, B (2011).A Risk Management Model for Merger and Acquisition. International Journal of Engineering Business Management, Vol. 3, No. 2

Deloitte, (2009). Cultural issues in mergers and acquisitions; Perspectives on the people side of M&A.1-6

 He-Suk, C. (2010).Mixture of cultures at Renault Samsung hones competitiveness. The Korean Herald. Retrieved from: file:///C:/Users/user.HOME/Downloads/Mixture%20of%20cultures%20at%20Renault%20Samsung%20hones%20competitiveness.html

Lubatkin, M. O’Neill, H (1997). Merger strategies and capital market risk. University of Connecticut. Academy of Management Journal, Vol. 30. (4), 665-684

 Marrewij, C. (2007). Macroeconomic Determinants of Cross-Border. Mergers and Acquisition. Tinbergen Institute and Erasmus University Rotterdam.13-49

MOTIS, J. (2007).Mergers and Acquisitions Motives.  University of Crete.10-18.

Pascal Clerc (1999). Managing the Cultural Issue of Merger and Acquisition. The Renault-Nissan case.

Roberts, A., Wallace, W., Moles, P. (2012).Mergers and Acquisitions. Heriot-Watt University.13-46

Tagliabue, J. (2002).Renault Agrees to Buy Troubled Samsung Motors of Korea. International business .New York Times. 1. Retrieved from: file:///C:/Users/user.HOME/Downloads/INTERNATIONAL%20BUSINESS%20-%20Renault%20Agrees%20to%20Buy%20Troubled%20Samsung%20Motors%20of%20Korea%20-%20NYTimes.com.html

Zhang, R.(2010) .Cultural Integration in Cross-Border Mergers & Acquisitions.10-22