Is Integration always beneficial for shareholders?
The simplest definition of integration is ‘bringing together two or more firms’. Integration is a form of external growth of a business. This can be achieved by merging or taking over another business, whether they are in the same industry or not.
The question is, is integration the best way of achieving benefits for shareholders?
There are several things to be considered. Firstly, let’s take a look of main benefits of integration. These are:
- Merger does not require cash
- Integration eliminates competitor
- The business will gain possible economies of scale
- Lower cost of production
- More workforce
- Increase power over supplier
However, the possible disadvantages are:
- Differences in work culture may result in misunderstanding
- Integration might demotivate workers as they have to adapt to a new working condition
- Adaptation for managers in a new working condition, new systems and policy might lead to inefficiency in management.
In answering the question in the title above, we have to know what is the relation between the shareholders and the company, or how exactly do they get benefit from the company.
First of all, the objective of shareholders is to receive dividends from the after-tax profit. Therefore we could say that the benefit for shareholders depends on the liquidity of the company. If the company experiences a cash-flow problem, then the dividends for shareholders would decrease.
To summarize all this, integration could be the best way of achieving benefits for shareholders if the joining companies could manage the efficiency of the business by minimizing the possible problems that are stated above.
Is integration the best way to achieve benefits for shareholders?
Integration is a form of external business growth, in which two firms come together, and form a larger firm. This union could be between any two firms, and it is not necessary that they come from the same industry. The two integrating firms may decide to combine their resources and become a new company altogether, doing away with their previous names. This is a merger. In other cases, one company would “acquire” the other by buying it over. The acquiring company then ‘grows’.
There are many reasons why two companies would choose to come together. The advantages vary from industry to industry, however the most common one is that the bigger business formed would be able to enjoy the benefits of being large.
A large business would be able to enjoy the economies of scale such as purchasing economies, marketing economies, financial economies, managerial economies and technical economies therefore reducing their costs. Being big, they would be able to reach more of the market for a product, and thus have a greater market share. They would also have more influence when dealing with suppliers since they could become the main buyer of raw materials. Being big also allows the business to spread its risk about different places or markets, and thus gives it more stability.
Usually two businesses integrate with the plan of obtaining synergy. It is believed that working together, the two firms would be able to produce more output than if they worked alone. Overlapping departments and functions in the companies could be removed, and they could reduce the total overhead costs. The integration also allows them to have more advantage competing with the other businesses. Integration works in the principle that the productivity of the new business as a whole would be greater than the total productivity of the two smaller businesses.
When a business does well, then shareholders may receive more dividends. This is one benefit of integration towards the shareholders when a business becomes big. Secondly, a big business would be more stable.
Integration – Benefits and drawbacks
Takeover/Merger
Change in the controlling interest of a corporation. A takeover may be in the form of a friendly acquisition and merger or an unfriendly bid that the management of the target company might fight with shark repellent techniques. In other words a takeover is when someone takes control of another business, ‘takes over the business’.
Benefits
-
Effective planning
-
Improved efficiency and fewer errors
- Better access to information, leading to a more responsive service and better relationships with customers and suppliers.
- Better use of staff time and greater job satisfaction for employees.
- Reduced costs
Drawbacks to merging
- Potential Lack of Immediate Liquidity.
- Business Risk. The company’s core business could decline or management could take actions that adversely affect the company. The net result is that the stock price could fall.
- Market Perception. The market may respond negatively to the merger, as in the case of Macrovision and Gemstar in which Macrovision’s share price fell 25% the day the merger was announced. The market may believe the purchase price was too high, the strategic fit was inappropriate or that the synergies cannot be realized. The merger could result in a lower share price for everyone.
Business Crosswords
There is a new website for business terms and crosswords. This website has hundreds of interactive crosswords for everyone. You don’t need to a have a business education background to solve these 
crosswords. Anyone who is interested in the field of business and wants to know enhance thier business vocabulary can come here and attempt these puzzles. Business students whether they are at GCSE level, A Level or University level can use it to enhance their business vocabulary.
The terms used in these crosswords are generally used in the day to day business proceeding. Simple language has been used and the terms.
How it works ? Its simple!
The crosswrords are arranged alphabetically. Choose one alpahbet and attempt all the terms starting with that alphabet!
More crosswords on Economics and Accounting will be added soon.
This is an evolving website so don’t forget to bookmark it and come back again to check what’s new!!
Check it out at http://www.business-crosswords.com
Promotional Expenditure-Benefits and drawback
Marketing is often listed as a single line item on a business expense account. This may infer that expenses for marketing are straight forward and easy to categorize. To the contrary, marketing is one of the most misunderstood and complicated areas of planning and running a business. Marketing is often referred to as a “necessary evil” for a business. Without it, sales will likely struggle and with it can come significant costs. Sometimes marketing expenditures are needed just to insure product awareness and to stay even with the competition rather than greatly expanding sales.
Marketing experts often prefer to consider expenses for marketing as investments rather than expenses because successful marketing efforts will increase sales.
Benefits & Drawback
Benefits to society from promotional expenditure :
- It informs people about new products and this helps to increase competition firms.
- Creating mass markets, promotion can help in reduce average costs of production through economies of large-scale production.
- It allows income for TV, radio and newspaper businesses.
Drawbacks to society from promotional expenditure:
- Waste of resources
- Promotion is a powerful tool which encourages consumer to buy goods which they dont even need.
- It promotes consumerism ( people who are judged by quantity of goods they own)
Role Of Marketing Research
What is market research?
Marketing research is the systematic gathering, recording, and analysis of data about issues relating to marketing products and services.
Marketing research is concerned specifically about marketing processes. The goal of marketing research is to identify and assess how changing elements of the marketing mix impacts customer behavior. Marketing research is often partitioned into two sets of categorical pairs, either by target market:
- Consumer marketing research, and
- Business-to-business (B2B) marketing research
Or, alternatively, by methodological approach:
- Qualitative marketing research, and
- Quantitative marketing research
Consumer marketing research is a form of applied sociology that concentrates on understanding the preferences, attitudes, and behaviors of consumers in a market-based economy, and it aims to understand the effects and comparative success of marketing campaigns.
Business to business (B2B) research is inevitably more complicated than consumer research. The researchers need to know what type of multi-faceted approach will answer the objectives, since seldom is it possible to find the answers using just one method.
There are four key factors that make B2B market research special and different to consumer markets:
- The decision making unit is far more complex in B2B markets than in consumer markets
- B2B products and their applications are more complex than consumer products
- B2B marketers address a much smaller number of customers who are very much larger in their consumption of products than is the case in consumer markets
- Personal relationships are of critical importance in B2B markets.
Quantitative research is basically an observation, test marketing and consumer surveys, etc. (Primary Research)
On the other hand, qualitative research is an individual interviews with groups. (Primary Research)
Why do business do market research?
- To find out the market trends, market demand and customer needs, etc.
- To minimize the risk factors.
- To see the visibility of the business.
- To find out the profitabilty of the business.
- Business expansion.
- To observe the competitors.
Find more revision notes on Marekting on dineshbakshi.com
What does Competition Commission do?
Government has many ways of controlling businesses in the economy. Government attempt to encourage and promote competition between firms by passing laws which:MAIN.jpg "competition")
- Control monopolies and make it possible to prevent mergers,
- Limit or outlaw uncompetitive practices between firms.
One of the ways is by setting up Competition commissions which prevents unfair competition. Competition commissions usually look into
1. Antitrust pleas
Competition is a basic mechanism of the market economy and encourages companies to provide consumers products that consumers want. It encourages innovation, and pushes down prices. In order to be effective, competition needs suppliers who are independent of each other, each subject to the competitive pressure exerted by the others.
Competition Commission might inquire cases where they find that
- Agreements between two or more firms is restricting competition
- Firms in a dominant position may abuse the position
2. Mergers
Some mergers may reduce competition in a market, usually by creating or strengthening a dominant player. This is likely to harm consumers through higher prices, reduced choice or less innovation. Increased competition within the market and globalisation are among the factors which make it attractive for companies to join forces.
3. Cartels
A cartel is a group of similar, independent companies which join together to fix prices, to limit production or to share markets or customers between them.
Instead of competing with each other, cartel members rely on each others’ agreed course of action, which reduces their incentives to provide new or better products and services at competitive prices. As a consequence, their clients (consumers or other businesses) end up paying more for less quality.
Is social responsibility a must for a business?
What is Social Responsibility?
Social responsibility is an ethical or ideological theory that has a responsibility to society. This responsibility can be “negative”, meaning there is a responsibility to refrain from acting ( resistance stance) or it can be “positive”, meaning there is a responsibility to act (proactive stance).
Is It a must?
There are certain companies who still care for the “social responsibility” such as:
ASNAPP project (Agribusiness in sustainable natural African plant products). This project was initiated in 1999 to help develop the natural products sector in Africa by promoting income-generating activities for rural entrepreneurs in such a way that improves the livelihoods of rural communities.
Another one is Oxy Company, is a petroleum corporation business. This company focuses on social responsibility such as corporate governance, labor practices and human rights. Including health, environment and safety (HES) policies, objectives, performance and activities of the company and its subsidiaries (collectively, Oxy).
If each business organizes a social responsibility, contributing a hand for these upcoming issues of global warming due to environment problem, it could be much better in order to save our extinct habitat and also nature live. This could be a very vital perspective in a few years time.
Benefits of Social responsibility
Building a reputation as a responsible business sets you apart. Companies often favour suppliers who demonstrate responsible policies, as this can have a positive impact on how they are perceived by customers.
Some other benefits:
- A good reputation makes it easier to recruit employees.
- Employees may stay longer, reducing the costs and disruption of recruitment and retraining.
- Employees are better motivated and more productive.
- Corporate Social Responsibility (CSR) helps ensure you comply with regulatory requirements.
- Activities such as involvement with the local community are ideal opportunities to generate positive press coverage.
- Good relationships with local authorities make doing business easier. See the page in this guide on how to work with the local community.
- Understanding the wider impact of your business can help you develop new products and services.
- CSR can make you more competitive and reduces the risk of sudden damage to your reputation (and sales). Investors recognize this and are more willing to finance you.
Drawback of CSR
Some perceived drawbacks for a business to enact corporate social responsibility could be:
- Use of money for things not directly related to the business
- Shift of focus away from a corporations main business concerns
- The notion that a company should be solely profit driven
- Extra staff required to fulfill corporate social responsibility jobs required for a company to undertake its CSR initiatives.
Takeovers and Mergers
Xerox launches $6.4bn takeover
Photocopier giant Xerox has unveiled a takeover deal which takes it into the fields of data management and technology outsourcing. It is buying fellow US firm Affiliated Computer Services (ACS) in a cash and shares deal worth $6.4bn (£4bn).Xerox is already the world’s biggest supplier of digital printer and document management services.Shares in the company fell by 14.5% on Monday as investors appeared to question the deal. ACS gained 14%.
In another deal…
T-Mobile and Orange in UK merger
T-Mobile and Orange plan to merge their UK businesses, creating a mobile phone giant with 28.4 million customers. If completed, a deal between Deutsche Telekom’s T-Mobile and Orange owner France Telecom would see a firm with sales of 9.4bn euros (£8.2bn; $13.5bn).It would be the UK’s largest provider, overtaking Telefonica’s O2, with about 37% of the mobile market.
Want to know more about Merger and Takeover. Click here
Fiat workers protest at mergers
Thousands of Fiat car workers in Italy have been staging a demonstration to demand job guarantees. The protesters are concerned that a possible merger with Opel would result in factory closures.