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36Research article UDC 339
doi: 10.47576/2782-4586_2022_2_28
ALTERNATIVE METHODS OF RESOLVING CONFLICTS IN MERGERS AND ACQUISITIONS
Shahran Ksenia A.
Omsk Branch of the Financial University under the Government of the Russian Federation, Omsk, Russia
Abstract. This chapter is aimed at searching for alternative approaches to conflict resolution during mergers and acquisitions. The author use the method of regression analysis for determining the efficiency of mergers and acquisitions and finding the dependence of the number and the volume of mergers and acquisitions on their target results, connected to growth of competitiveness. For obtaining the most precise and correct results, the research is performed on the basis of macroeconomic systems (countries), which allows using the data of the official statistics for 2018 (not expert evaluations of integrated economic structures). It may be concluded that the currently applied approaches to conflict resolution during mergers and acquisitions - dismissal of employees, termination of relations with intermediaries, state's writing-off of tax debt of business, and refusal from old and attraction of new consumers—are characterized by low efficiency and lead to negative results (reduction of competitiveness and financial losses) for the integrated business structures, and to negative consequences for parties concerned -employees (growth of unemployment), intermediaries (additional transaction costs), state (insufficient tax revenues), and consumers (impossibility to satisfy the needs). This problem could be solved through the complex application of the available preventive practices, which precede alternative methods of conflict resolution during mergers and acquisitions on the basis of the mechanism of marketing of relations - digital HR marketing, corporate responsibility, and digital information of support for mergers and acquisitions, as well as digital marketing of innovations. The developed preventive practices stimulate the achievement of the goals of mergers and acquisitions (growth of competitiveness and commercial effectiveness) and provide advantages for all parties concerned and are thus recommended for practical application.
Keywords: alternative methods of conflict resolution; conflicts; mergers and acquisitions; competitiveness; marketing of relations; digital marketing.
For citation: Shahran K. A. Alternative methods of resolving conflicts in mergers and acquisitions. Journal of Monetary Economics and Management, 2022, no. 2, pp. 28-35. doi: 10.47576/2782-4586_2022_2_28.
АЛЬТЕРНАТИВНЫЕ МЕТОДЫ РАЗРЕШЕНИЯ КОНФЛИКТОВ ПРИ СЛИЯНИЯХ И ПОГЛОЩЕНИЯХ
Шахран Ксения Андреевна
Омский филиал Финансового университета при Правительстве Российской Федерации, Омск, Россия
Аннотация. В статье анализируются альтернативные подходы к разре -шению конфликтов при слияниях и поглощениях. Автор использует метод регрессионного анализа для определения эффективности слияний и поглощений и установления зависимости количества и объема слияний и поглощений от их целевых результатов, связанных с ростом конкурентоспособности. Для получения наиболее точных и корректных результатов исследование проводится на основе макроэкономических систем (стран), что позволяет использовать данные официальной статистики за 2018 год (а не экспертные оценки интегрированных экономических структур). Сделан вывод, что применяемые в настоящее время подходы к разрешению конфликтов при слияниях и погло -щениях - увольнение сотрудников, прекращение отношений с посредниками, списание государством налоговой задолженности бизнеса, отказ от старых и привлечение новых потребителей - характеризуются низкой эффективностью и приводят к негативным результатам (снижение конкурентоспособности и финансовые потери) для интегрированных бизнес-структур и к негативным последствиям для заинтересованных сторон - работников (рост безработицы), посредников (дополнительные трансакционные издержки), государства (недостаточные налоговые поступления) и потребителей (невозможность удовлетворить потребности). Эта проблема может быть решена за счет комплексного применения имеющихся превентивных практик, которые предшествуют альтернативным методам разрешения конфликтов при слияниях и поглощениях на основе механизма маркетинга отношений - цифрового HR-маркетинга, корпоративной ответственности, цифровой информационной поддержки слияния и поглощения, а также цифрового маркетинга инноваций. Разработанные превентивные практики стимулируют достижение целей слияний и поглощений (рост конкурентоспособности и коммерческой эффективности) и обеспечивают преимущества для всех заинтересованных сторон, поэтому рекомендуются для практического применения.
Ключевые слова: альтернативные методы разрешения конфликтов; конфликты; слияния; поглощения; конкурентоспособность; маркетинг отношений; цифровой маркетинг.
A popular phenomenon in the modem global economy is mergers and acquisitions of business structures. High interest in this form of integration is explained by its vivid anti-crisis effect, which is especially popular in the conditions of restoration of the global economic system after the global recession and mass accessibility and simplicity of implementation as compared to other forms (e.g., special economic areas or economic clusters). Integration always involves emergence of conflicts due to inevitable contradiction of its participants' interests. In the form of mergers and acquisitions, the probability of emergence of conflicts is especially high due to the following reasons.
The first reason is full integration of participants of mergers and acquisitions, which leads to the loss of their economic independence. Despite the fact that participants of mergers and acquisitions are not usually equal, and integration takes place on the basis of one of business structures for which the changes are less radical, their scale
is so high that it could lead to destabilization and requires adaptation to changes. Since the objects of integration are all components of business, including resources, technologies, and corporate cultures and structures, management of mergers and acquisitions involves systemic resolution of internal conflicts by participants of these processes.
The second reason is the large number of parties concerned during mergers and acquisitions. As they envisage integration of all business processes, they lead to changes of the conditions of internal and external interactions. The above reasons lead to high susceptibility of mergers and acquisitions to emergence of conflicts. Highly effective resolution of these conflicts is necessary for the participants of integrated economic structures, for which mergers and acquisitions are often the last resort for preservation of business that is influenced by a crisis, and for parties concerned, the negative consequences of the studied conflicts for which
are evident as the limitation of mergers and acquisitions through the state anti-monopoly regulation.
However, as can be seen from contemporary practice, the goals of participants of integrated economic structures are not always achieved as a result of mergers and acquisitions—which is indicative of low effectiveness of the applied approaches to conflict resolution, which inevitably accompanies this complex process. Thus, the scientific and practical problem of search for alternative approaches to conflict resolution during mergers and acquisitions becomes very important, being the goal of research in this Chapter.
Conceptual and applied issues of management of mergers and acquisitions are described in detail in the existing works: Amewu and Alagidede (2018), Ang et al. (2019), Fich et al. (2018), Henningsson et al. (2018), Inshakova et al. (2017, 2019), Krivtsov (2014), Liu et al. (2018), Menapace (2018), Popkova (2017), Popkova et al. (2019), Sukhodolov et al. (2018), and Zhang et al. (2018).
The content analysis of the above works showed that they acknowledge high susceptibility of mergers and acquisitions to emergence of conflicts due to complexity and contradiction of these integration processes. However, scientific and methodological provision of conflict resolution is underdeveloped. In particular, effectiveness
of the existing approaches to conflict resolution during mergers and acquisitions is understudied.
In order to determine it, the authors use the method of regression analysis; also, the efficiency of mergers and acquisitions is determined. The authors calculate the dependence of the number and total value of mergers and acquisitions on their target results, associated with the growth of competitiveness. With a view to obtaining the most precise and correct results, the research is carried out on the basis of macro-economic systems (countries), which allows using the data of the official statistics for 2018 (not expert evaluations of integrated economic structures).
The targets of research are ten countries which have the highest global competitiveness in 2018, the most developed market relations, and the most effective institute of entrepreneurship - due to which the influence of additional (those that) are not taken into consideration and distort the results of evaluation) factors on achievement of the goal of mergers and acquisitions is minimum and improbable. The initial statistical data for regression analysis are given in Table 1.
Based on the data of Table 1, a regression analysis was conducted (Table 2).
The data from Table 4.2 show that the influence of the number and total value of mergers and acquisitions on the global competitiveness of selected countries in 2018 is statistically insignificant, as multiple R = 0.3175 (below
TABLE 1 - Number and Total Value of Mergers and Acquisitions and Global Competitiveness in the Countries of
Selection in 2018
Country Number of Mergers and Acquisitions Total Value of Mergers and Acquisitions, USD billion Index of Global Competitiveness, Points 1-7
Switzerland 389 16.90 5.81
USA 15,135 1,882.09 5.70
Singapore 683 39.04 5.72
Netherlands 785 108.81 5.57
Germany 1.880 165.00 5.57
Sweden 1,107 25.40 5.53
UK 2,887 403.01 5.49
Japan 3,267 220.64 5.48
Finland 371 2.20 5.44
Norway 347 3.51 5.44
Source: Compiled by the authors based on Institute for Mergers, Acquisitions and Alliances (2018), International Monetary Fund (2018).
TABLE 2 - Regression Dependence of Global Competitiveness on the Number and Total Value of Mergers and
Acquisitions in the Countries of Selection in 2018.
Regression Statistics
Multiple R 0.3175
R-square 0.1008
Normed R-square -0.1561
Standard error 0.1373
Observations 10
Dispersion Analysis
Regression
Leftover
Total
Df SS MS F Significance F
2 0.0148 0.0074 0.3923 0.6895
7 0.1319 0.0188
9 0.1466
Coefficients Standard Error t-Statistics R-Value Lower 95%Upper 95%
5.5739 —4E-05
Y-crossing
Number of mergers and acquisitions
Total value of mergers
and acquisitions, USD 0.0004
billion
0.0642 9.1E-05
0.0007
86.7640 -0.4053
0.4905
7.1E-12 0.6973
0.6387
5.4219 -0.0003
-0.0013
5.7258 0.0002
0.0020
Source: calculated by the authors.
0.90) and significance F = 0.6895 (above 0.05). Therefore, the existing approaches to conflict resolution during mergers and acquisitions are characterized by low effectiveness since they are an obstacle on the path of achievement of target results of integration.
As a result of the logical and problem analysis, the characteristics of conflicts during mergers and acquisitions in view of the subjects (parties concerned) is compiled (Table 4.3).
As shown in Table 3, internal conflicts of investors of business structures involving mergers and acquisitions that are manifested in refusal to execute the deals, are solved by concession of one or both parties. If this concession leads to deviation of the deal's cost from this market value, it results in lost profit of seller (with reduced price) or does not allow returning buyer's investments (with increased price). The modern economic theory cannot allow any alternative approaches to regulation of these conflicts, as they are a normal phenomenon in the economic practice and are successfully used with the help of the described method.
During mergers and acquisitions, there may arise internal conflicts with employees, which are manifested in reduction of labor efficiency
in integrated business structures. The current approach to regulation of these conflicts that implies dismissal of employees who demonstrate dissatisfaction, influences the consequence, not the reason, due to which intellectual resources are lost and competitiveness of business is reduced -instead of its increase, which is proclaimed as the goal of mergers and acquisitions.
Conflicts with intermediaries (B2B) may arise in the process of integration of business structures in the form of mergers and acquisitions. The change of the terms of agreements previously concluded by integrated business structures leads to refusal of intermediaries from cooperation by new terms. The current approach to regulation of these conflicts that implies termination of relations with intermediaries, leads to additional transaction expenditures for the search for new intermediaries, the terms of cooperation with which might be less profitable - which will lead to further reduction of competitiveness and commercial effectiveness of business.
Tax conflicts with the state during mergers and acquisitions are less frequent, but also happen in contemporary economic practice - especially in developing countries (for example, in Russia). These conflicts are expressed in refusal of
TABLE 4.3. Characteristics of Conflicts During Mergers and Acquisitions in View of Subjects {Parties Concerned)
Subjects of Conflicts with Business Structures During Their Mergers and Acquisitions
Characteristics of Investors (internal Employees (internal Intermediaries (conflicts Consumers (conflicts
Conflicts conflicts) conflicts) B2B) State (tax conflicts) B2C)
Reason of emergence of problem
Different interests (reduction of price with sellers and increase of price with buyer)
Integration of corporate cultures and structures,
minimization of expenditures of business
Change of legal entity, termination of existence of the previous economic subjects, minimization of expenditures of business
Integration of technologies and brands, minimization of expenditures of business
Integration of resources
Integration of tax obligations
Object of conflict (problem due to which the conflict arises)
Absence of agreement on the price of the mergers and acquisitions deal
Increase of load, change
of position in the hierarchy of business, change of terms and payment of labor
Change of contract terms and sales terms, refusal from previously accepted obligations
Nulling of tax history of Change of offer (products business and terms of selling
them, including price and service)
Manifestation (essence) of conflict Refusal from the deal reduction of labor efficiency refusal from cooperation by new terms Refusal to execute previous obligations Reduction of sales volume
Approaches to conflict resolution Concession of one or both parties dismissal of employees that show dissatisfaction Termination of relations with intermediaries State's writing off of tax debt of business Refusal from old customers and attraction of new customers
Negative consequences (drawbacks) existing approaches to conflict regulation
3
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Lost profit of seller (with low price) or non-return of investments of buyer (with high price)
Loss of intellectual resources and reduction of competitiveness of business
Unemployment
Transaction costs for search for new intermediaries, less profitable terms of agreements
Complexity of re-registration of rights for assets
Lack of tax revenues
Reduction of the markets share, financial losses
Impossibility to satisfy the needs
Source: Compiled by the authors.
integrated business structures to execute the tax obligations that existed before the integration of corporate taxpayers. In this case, the state must write off their tax debt. In addition to the loss of tax revenues by the state, this approach leads to problems for the business structures, associated with the complexity of re-registration of rights for material and non-material assets during mergers and acquisitions, as rights and obligations are lost simultaneously.
Conflicts with consumers (B2C) during mergers and acquisitions are very frequent and are expressed in reduction of sales volumes due to change of offer (products and terms of sales, including price and service). The current approach to regulation of these conflicts, consisting in abandoning existing consumers and attracting new consumers, leads to reduction of the market
share and financial losses of integrated business structures, hindering to achieve the goal of their mergers and acquisitions.
Preventive practices which preceded alternative methods of conflict resolution during mergers and acquisitions, are offered for overcoming the drawbacks of the existing methods. Their essence and advantages are shown in Figure 1.
According to Figure 1, a common mechanism of increasing the competitiveness and commercial effectiveness of business during mergers and acquisitions should be marketing of relations, within which it is recommended to use the following approaches to conflict resolution:
- Digital HR marketing (e.g., automatic e-mails in the intra-corporate information network), aimed at information support for employees during mergers and acquisitions and at provision
of their approval and support for this process for preventing the decline of labor efficiency.
- Corporate responsibility and information support for mergers and acquisitions, which involves adoption of tax obligations and responsibilities for contracts with intermediaries which are informed of mergers and acquisitions through marketing via e-mail; and
- Digital marketing of innovations, which means information support for consumers regarding the planned and implemented mergers
and acquisitions and announcement of the future market offer of integrated business structures through marketing at web sites, marketing in social networks, and messengers.
For integrated business structures, positive results from application of the offered preventive practices which precede alternative methods of conflict resolution during mergers and acquisitions, include the increase of loyalty of parties concerned, growth of labor efficiency, establishment, and support of unique (profitable)
terms of supply and sales, state support, and increase of sales volumes.
It may be concluded that the current approaches to conflict resolution during mergers and acquisitions - dismissal of employees, termination of relations with intermediaries, writing-off of tax debt of business by the state, abandoning existing consumers and attracting new consumers - are ineffective and lead to negative results (reduction of competitiveness and financial losses) for the integrated business structures and negative consequences for parties concerned - employees (growth of unemployment rate), intermediaries (additional transaction costs), state (loss of tax revenues), and consumers (impossibility to satisfy the needs).
This problem could be solved by means of the complex application of preventive practices that precede alternative methods of conflict resolution during mergers and acquisitions on the basis of the mechanism of marketing of relations -digital HR marketing, corporate responsibility, and digital information support for mergers and acquisitions, as well as digital marketing of innovations. The developed practices contribute to the achievement of goals of mergers and acquisitions (growth of competitiveness and commercial effectiveness) and provide advantages for all parties concerned - and thus are recommended for practical application.
References
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Information about the author
SHAHRAN KSENIA A. - Omsk Branch of the Financial University under the Government of the Russian Federation, Omsk, Russia
Информация об авторе
ШАХРАН КСЕНИЯ АНДРЕЕВНА - Омский филиал Финансового университета при Правительстве Российской Федерации, Омск, Россия
