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Notes on the Merger Strategy of High versus Low-tech Industries: Complementarities and Moral Hazard
Abstract
In this essay I assess the role that is played by the two characteristics of high-tech firms in shaping their corporate strategies: short product cycles and the involvement of intangible assets in production. Short product cycles impose high-tech firms to seek complementary assets for entering new markets quickly and compete. The involvement of intangible capital in high-tech production, on the other hand, is related to the distinguishing characteristic of high-tech industries for which R&D activities are observed frequently and firms employ a large proportion of scientists, engineers and technicians. In this essay, I hypothesize and show that as a result of these two characteristics high-technology firms are likely to engage in vertical mergers more often than low-technology firms and vertical mergers are likely to involve firms that employ intangible assets in production.
... Diverse studies (Krähmer & Strausz, 2011;Carbonara & Caiazza, 2009;Pradhan & Abraham, 2005;Gilson & Schwartz, 2005;Cantwell & Santangelo, 2002;Aydogan, 2002;Adams & Brock, 1987;Williamson, 1983a) explained the financial and the non financial reasons of the firms for entering into mergers or acquisitions. The financial reasons were the following: increment of market share, increment of assets, increment of stock price, increment of market power, economic efficiency, increment of profitability, increment of return on assets, increment of return on equity, increment of earnings per share, quick growth through an established firm, operative synergies, financial synergies, scale economy, scope economy, cost reduction, reduction of the cost of capital, improvement of leverage capacity, tax reduction, risk diversification, to get monopoly, etc. ...
The financial theory about the increased market of mergers and acquisitions in the world, presented diverse reasons for entering into this type of strategic processes, different results about the success or the failure after some years of functioning, and diverse approaches for a better comprehension about financial and non financial variables which are related to those results. In this paper, these themes were explained with a special attention to the market of mergers and acquisitions in Latin America, due to its special characteristics as emerging market and concluded that although the approaches for studying the mergers and acquisitions are so diverse, the proposition of another approaches for researching mergers and acquisitions in Latin America could be related to the situation of the firms to be joined (financial and non financial), the management of those processes, the characteristics of those processes, and the economic behavior of the countries of the firms.
... (p. 330) and Aydogan (2002) explained that "most discussion on horizontal mergers is on antitrust issues and price collusion" (p. 3). ...
Different studies about mergers or acquisitions have sought to explain the financial and non-financial reasons for undertaking such strategies. Those studies have also revealed conflicting results after the execution of those strategies. The financial reasons for entering into mergers or acquisitions which were found in the literature ranged from: increase of sales or market share, growth of assets, rise of stock price, increase of operating profit, and decrease of costs, to an increase of the value of the firm and tax benefits, among others. Also, the non-financial reasons for entering into mergers or acquisitions included: empire building syndrome and moral hazard. While some studies reported positive impact of mergers and acquisitions, still several other studies revealed a fall in the above mentioned financial indicators as a result of mergers and acquisitions. The field is open wide for debate and further research. But there are no studies about financial success or failure of mergers or acquisitions covering the whole Latin America, and it was not possible to find financial models which evaluated financial relationships that would help to understand the financial success or failure of mergers and acquisitions in Latin America before the execution of this type of strategic processes. This yawning gap in the literature calls upon a deeper and more extensive study in order to settle the debates surrounding this issue in the Latin American region.
... The fourth problem that needs to be improved is the job security system. Owing to the short lifecycle of high-tech products, and given the rapidly changing nature of market demand (Aydogan, 2002). The frequent use of employee lay-offs by businesses in response to problems, where the problems frequently result from a bad economic environment or poor investments, creates among employees a feeling of job insecurity. ...
Purpose
– Although there are many quality measurement theories and models, all are imperfect; that is, each has its own advantages and disadvantages. Particularly, some models cannot indicate accurate improvement priorities. The purpose of this study is to develop an integrated performance model that improves service quality and acquires accurate improvement priorities that promote customer satisfaction and eliminate resource wastage.
Design/methodology/approach
– This study applied a performance matrix and quality loss function (QLF) theory to determine priority items needing improvement. A questionnaire was designed to determine the priority of improvement objectives derived from certain questionnaire items that do not fall into the appropriate performance zone (APZ) of the performance matrix. Finally, the QLF was adopted to rank the improvement objectives in terms of priority. A large QLF area indicates customer satisfaction needs improvement.
Findings
– This study utilized an employee satisfaction survey to demonstrate this matrix, and found that it reflects the improvement priorities of different items and avoids the shortcomings of other models. In this case study, 11 items must be improved; furthermore, five items with the greatest QLF areas became the priority items for improvement.
Originality/value
– This performance matrix also considers the items of surplus resource investment, which can be included in improvements, thereby avoiding resource wastage.
... The fourth problem that needs to be improved is the job security system. Owing to the short lifecycle of high-tech products, and given the rapidly changing nature of market demand (Aydogan, 2002). The frequent use of employee lay-offs by businesses in response to problems, where the problems frequently result from a bad economic environment or poor investments, creates among employees a feeling of job insecurity. ...
Purpose
The purpose of this article is to show that the tools of modern management which are supposed to promote effectiveness, efficiency and responsible behaviour, may in fact contribute to the opposite, and to present the outline of an alternative based upon new ideas of self‐organisation and value‐based leadership.
Design/methodology/approach
Practical examples are used to discuss and demonstrate the problematic consequences of using management tools like detailed work descriptions, standards, comprehensive measurement schemes, and rule‐based specifications of responsibility. Constructed examples and emerging theoretical concepts are used to discuss and propose an alternative to the use of such tools.
Findings
The discussion indicates that the use of detailed work descriptions, standards, comprehensive measurement schemes, and rule‐based specifications of responsibility will result in mind‐less and care‐less behaviour by employees, while an alternative relying on self‐organisation and value‐based leadership might preserve and enhance insight, motivation and responsibility.
Researchlimitations/implications
The paper is mainly a conceptual discussion using examples.
Practical implications
There are important implications for the management of knowledge intensive companies and institutions. The paper refers to one large‐scale implementation of the alternative in a Danish bank.
Originality/value
The paper represents a first step in constructing an alternative to the tool‐based views of management found in mainstream theories.
... High technology industries, especially those involved with integrated circuits (IC), play a central role in the process of social economic change. Neslihan (2002) posited that the characteristics of a high-tech industry include capital intensity, technology intensity, short high-tech product life cycle, high market demand, and asset intangibility. In contrast to the traditional industry, the technology and capital merely left as dissolving problems. ...
Integrated circuit outputs forecasts are of great economic value for both public and the private sectors in the world economy. In order to adjust policies and correct the invest portfolios; information relating to the development of the integrated circuit industry is of great importance to the governments, the policymakers, and stakeholders. Recently, numerous researchers have presented a wide range of forecasting techniques for the high-technology industry. Most of these methods are based on statistical studies that involve the use of univariate time series data. However, these models usually fail to clearly explain the insights of forecast results. This work proposes a new prediction approach using the multivariate grey model combined with grey relational analysis. Results indicate that the proposed a combined method provides significantly improvement over the traditional methods in both forecasting techniques and in scanning variables. Managerial implications and future research directions are also discussed.
This study re-investigates whether firms experience systematic risk changes due to acquisitions by examining changes in pre- and post-acquisition Betas. The study extends findings of prior studies by examining high-tech and basic-tech acquisitions separately and by examining whether acquirers' and targets' acquisition and alliance experience influence changes in risk due to acquisition announcements. Beta is a measure of market-specific risk and indicates the degree of variation in the stock systematically attributable to changes in market conditions. Beta characterizes a stock's usual relationship with the market. The study uses robust regression techniques and finds that Betas decrease following acquisition announcements supporting the findings of some prior studies. The study finds that changes in Beta are quite different for high-tech and basic-tech acquisitions, and that acquirers' and targets' alliance and acquisition experience influences changes in Beta.
One of the most challenging issues for the semiconductor testing industry is how to deal with capacity planning and resource allocation simultaneously under demand and technology uncertainty. In addition, capacity planners require a tradeoff among the costs of resources with different processing technologies, while simultaneously considering resources to manufacture products. The need for exploring better solutions further increases the complexity of the problem. This study focuses on the decisions pertaining to (i) the simultaneous resource portfolio/investment and allocation plan accounting for the hedging tradeoff between the expected profit and risk, (ii) the most profitable orders from pending ones in each time bucket under demand and technology uncertainty, (iii) the algorithm to efficiently solve the stochastic and mixed integer programming problem. Due to the high computational complexity of the problem, this study develops a constraint-satisfaction based genetic algorithm, in conjunction with a chromosome-repair mechanism and sampling procedure, to resolve the above issues simultaneously. The experimental results indicate that the proposed mathematical model can accurately represent the resource portfolio planning problem of the semiconductor testing industry, and the solution algorithm can solve the problem efficiently.
This paper develops an integrated performance model that is aimed at improving service quality and providing accurate indicators that guide hotel managers in improving service priorities that promote customer satisfaction and eliminate resource wastage. The study was guided by three objectives of determining the level of importance of selected service quality attributes the level of satisfaction with selected service quality attributes and establishing the key service quality attributes that aid managers focus their improvement efforts.
Quantitative techniques were used based on a sample size of 238 respondents selected from 30 hotels labelled as Common wealth Heads Of Government Meeting hotels in 2007. The findings indicate that out of the 22 service quality items, 13 needed improvements. These were mainly to do with staff skills in handling customers’ requirements and the hotel owners’ inability to provide flexible services to customers which affected service quality. There is need for hotel owners to recruit personnel with skills in customer care in order to improve service quality.
Resource portfolio planning optimization is crucial to high-tech manufacturing industries. One of the most important characteristics of such a problem is intensive investment and risk in demands. In this study, a nonlinear stochastic optimization model is developed to maximize the expected profit under demand uncertainty. For solution efficiency, a stochastic programming-based genetic algorithm (SPGA) is proposed to determine a profitable capacity planning and task allocation plan. The algorithm improves a conventional two-stage stochastic programming by integrating a genetic algorithm into a stochastic sampling procedure to solve this large-scale nonlinear stochastic optimization on a real-time basis. Finally, the tradeoff between profits and risks is evaluated under different settings of algorithmic and hedging parameters. Experimental results have shown that the proposed algorithm can solve the problem efficiently.
Previous research has indicated that investment in R&D by private firms and universities can lead to knowledge spillover, which can lead to exploitation from other third-party firms. If the ability of these third-party firms to acquire knowledge spillovers is influenced by their proximity to the knowledge source, then geographic clustering should be observable, especially in industries where access to knowledge spillovers is vital. The spatial distribution of innovation activity and the geographic concentration of production are examined, using three sources of economic knowledge: industry R&D, skilled labor, and the size of the pool of basic science for a specific industry. Results show that the propensity for innovative activity to cluster spatially is more attributable to the influence of knowledge spillovers and not merely the geographic concentration of production. (SFL)
This paper examines the effects of the innovations used in seventy-nine three-digit U.K. industries, 1976-79, on productivity growth. A time pattern of effects is identified lasting at least eleven years and possibly as long as sixteen. Innovations used in particular sectors are traced back to the producing sectors from which they originated, the result suggesting that engineering (especially electronics and electrical engineering) innovations have the largest impact on users' productivity. Finally, only very small spillover effects were identified flowing from adjacent using or producing sectors. Copyright 1991 by Royal Economic Society.
In an extract from the Royal Academy of Engineering 1993 Engineering Manufacturing Forum Lecture Bob Beaty looks at those things which make a company world class.
This paper shows that uncertainty is a multidimensional theoretical concept, which has empirical implications for the relationship with vertical integration. In a survey of empirical work that tests the relation between uncertainty and vertical integration, this paper demonstrates that performance ambiguity and general measures of uncertainty are positively related with vertical integration, technological uncertainty is negatively related, while market uncertainty and complexity are not systematically related to vertical integration.
The Theory of Industrial Organization is the first primary text to treat the new industrial organization at the advanced-undergraduate and graduate level. Rigorously analytical and filled with exercises coded to indicate level of difficulty, it provides a unified and modern treatment of the field with accessible models that are simplified to highlight robust economic ideas while working at an intuitive level. To aid students at different levels, each chapter is divided into a main text and supplementary section containing more advanced material. Each chapter opens with elementary models and builds on this base to incorporate current research in a coherent synthesis. Tirole begins with a background discussion of the theory of the firm. In part I he develops the modern theory of monopoly, addressing single product and multi product pricing, static and intertemporal price discrimination, quality choice, reputation, and vertical restraints. In part II, Tirole takes up strategic interaction between firms, starting with a novel treatment of the Bertrand-Cournot interdependent pricing problem. He studies how capacity constraints, repeated interaction, product positioning, advertising, and asymmetric information affect competition or tacit collusion. He then develops topics having to do with long term competition, including barriers to entry, contestability, exit, and research and development. He concludes with a "game theory user's manual" and a section of review exercises.
This study develops an evolutionary theory of the capabilities and behavior of business firms operating in a market environment. It includes both general discussion and the manipulation of specific simulation models consistent with that theory. The analysis outlines the differences between an evolutionary theory of organizational and industrial change and a neoclassical microeconomic theory. The antecedents to the former are studies by economists like Schumpeter (1934) and Alchian (1950). It is contrasted with the orthodox theory in the following aspects: while the evolutionary theory views firms as motivated by profit, their actions are not assumed to be profit maximizing, as in orthodox theory; the evolutionary theory stresses the tendency of most profitable firms to drive other firms out of business, but, in contrast to orthodox theory, does not concentrate on the state of industry equilibrium; and evolutionary theory is related to behavioral theory: it views firms, at any given time, as having certain capabilities and decision rules, as well as engaging in various ‘search' operations, which determines their behavior; while orthodox theory views firm behavior as relying on the use of the usual calculus maximization techniques. The theory is then made operational by the use of simulation methods. These models use Markov processes and analyze selection equilibrium, responses to changing factor prices, economic growth with endogenous technical change, Schumpeterian competition, and Schumpeterian tradeoff between static Pareto-efficiency and innovation. The study's discussion of search behavior complicates the evolutionary theory. With search, the decision making process in a firm relies as much on past experience as on innovative alternatives to past behavior. This view combines Darwinian and Lamarkian views on evolution; firms are seen as both passive with regard to their environment, and actively seeking alternatives that affect their environment. The simulation techniques used to model Schumpeterian competition reveal that there are usually winners and losers in industries, and that the high productivity and profitability of winners confer advantages that make further success more likely, while decline breeds further decline. This process creates a tendency for concentration to develop even in an industry initially composed of many equal-sized firms. However, the experiments conducted reveal that the growth of concentration is not inevitable; for example, it tends to be smaller when firms focus their searches on imitating rather than innovating. At the same time, industries with rapid technological change tend to grow more concentrated than those with slower progress. The abstract model of Schumpeterian competition presented in the study also allows to see more clearly the public policy issues concerning the relationship between technical progress and market structure. The analysis addresses the pervasive question of whether industry concentration, with its associated monopoly profits and reduced social welfare, is a necessary cost if societies are to obtain the benefits of technological innovation. (AT)
This paper contributes with empirical findings to European co-inventorship location and geographical coincidence of co-patenting networks. Based on EPO co-patenting information for the reference period 2000-2004, we analyze the spatial con figuration of 44 technology-specific co-inventorship networks. European co-inventorship (co-patenting) activity is spatially linked to 1259 European NUTS3 units (EU25+CH+NO) and their NUTS1 regions by inventor location. We extract 7.135.117 EPO co-patenting linkages from our own relational database that makes use of the OECD RegPAT (2009) files. The matching between International Patent Classification (IPC) subclasses and 44 technology fields is based on the ISI-SPRU-OST-concordance. We con firm the hypothesis that the 44 co-inventorship networks differ in their overall size (nodes, linkages, self-loops) and that they are dominated by similar groupings of regions. The paper offers statistical evidence for the presence of highly localized European co-inventorship networks for all 44 technology fields, as the majority of linkages between NUTS3 units (counties and districts) are within the same NUTS1 regions. Accordingly, our findings helps to understand general presence of positive spatial autocorrelation in regional patent data. Our analysis explicitly accounts for different network centrality measures (betweenness, degree, eigenvector). Spearman rank correlation coefficients for all 44 technology fields confirm that most co-patenting networks co-locate in those regions that are central in several technology-specific co-patenting networks. These findings support the hypothesis that leading European regions are indeed multi- filed network nodes and that most research collaboration is taking place in dense co-patenting networks. --
A Review of the Theory of the Firm and O. Williamson’s Economic Institutions of Capitalism
- A Alchian
- S Woodward
Alchian, A. Woodward, S., A Review of the Theory of the Firm and O. Williamson’s Economic Institutions of Capitalism, Journal of Economic Literature, March 1988
An Overview Of The Microelectronics Industry, High Hopes f or High Tech
- J I Stein
- G B Sampson
- T Bourgeois
Stein J.I., Sampson G.B., Bourgeois T., 1985, An Overview Of The Microelectronics
Industry, High Hopes f or High Tech, University Of North Carolina Press, Chapell Hill,
NC, pp. 56-58.