On Post M&A Integration within the EMS Industry in Taiwan - A Value Chain Perspective
Date Issued
2012
Date
2012
Author(s)
Huang, Cheng-Yi
Abstract
To sustain growth in revenues and remain profitable, it has long become a commonplace strategy for an enterprise to merge with or acquire another entity for their revenues or market shares. The EMS’s in Taiwan are no exception. Hon Hai (a.k.a. Foxconn), the largest enterprise in Taiwan and top EMS of the world, has endured several M&A cases for the past decade before reaching its pinnacle. When there is no doubt that the M&A strategy has made a great contribution to its growth, it is still a difficult question to answer how and how much. Moreover, in almost every M&A case, synergetic benefits have been touted as the major driver for such doing and followed with supports from accounting and market benefits, like turnovers, ROA, and ROI, associated with the combined entities. In answering how the synergy potentials were achieved as claimed, we have only seen few general principles and some do’s and don’ts. We believe more comprehensive clues are needed to answer such complex events as M&A’s.
This research starts off by examining the synergy model by Larsson & Finkelstein (1999), which proposes that the success of a merger and acquisition need to be measured by the extent of synergy realization rather than accounting or market returns, and that realization of synergy could be in turn measured by three variables: combination potential, organizational integration, and employee resistance. With the synergy model, we then deploy the value chain model to explore its pertaining value activities. The model offers an excellent tool in comparing, analyzing and integrating two or more value chains, and provides an opportunity to trim costs and enhance competency.
Based on the proposed model, we apply a qualitative case study approach to analyzing and comparing three most recent mergers and acquisitions launched and implemented by Hon Hai. The study purports to gauge the degree of the synergy realization and extract the critical success factors for future application. We find that horizontal organizations, such as uniform procurement, technology development committees, and SER committees, are highly instrumental in achieving successful post M&A integration (“PMI”).
The results indicate that the relevant size, leadership similarity, and implementation of horizontal organization are critical success factors for successful synergy realization. We also caution that existence of the proposed critical success factors do not guarantee a successful M&A. A paradigm shifting, a disruptively innovated product, or a financial tsunami might wipe out the expected benefits entirely.
Subjects
Foxconn
M&A
EMS
synergy
value chain
horizontal organization
technology development committee
SER committee
procurement
critical success factors
Type
thesis
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