Question

4. Answer the following:

A.) Explain how a decline in the foreign exchange value of a currency affects the decision to merge with another firm.

B.) How does diversification (not the tax inversion) affect the decision to merge with a foreign firm? Explain

C.)How do intercultural differences (e.g. laws, language, employee employer relationships, etc.) affect the decision to merge with a foreign firm? Explain

Answer 1

A) The decline in the foreign exchange value of a currency affects the decision to merge with another firm. when there is a devaluation of currency, the export becomes cheaper and import becomes costly.It impacts the some industries/sector and business a lot.Suppose a firm X is involved in any business which requires it to import its raw material,but due to currency devaluation its total cost will increase a lot and it has a negative effect on its profitability.In such a scenario if firm X take the decision  to merge with company Y,which produces the raw material firm X requires ,then it will be profitable merger and create synergy in the long run.

B) Diversification can affect the decision to merge with another foreign firm. It is a basically risk management strategy, which has become an important part of business decision as a risk control measure.If a business diversifies it starts producing new products and services which minimizes its risk.

For example if a firm X is producing only fizzy drinks in one country and company Y produces healthy juices and snacks products in another country. After merger they can sell both the products in different countries ,their market will grow geographically.It can cover a reduction in sales in one product due to some factor with other products.In this way it eliminates its risk and expand it market which will have positive impact on its profitability.

C) Intercultural differences like laws,language,employer employee relationship can affect the decision to merge with another foreign firm.In some countries laws are quite business friendly and it is comparative easy to do business in these countries.In different regions/countries of the world the language is also different.Merger with a foreign country can easily solve the problem of language barrier.In the same way it resolves different cultural problems issues involved in business.It can business decisions better after considering both countries cultural and behavioral perspective.