The Dubious Logic of Global Megamergers
by Pankaj Ghemawat and Fariborz Ghadar
The almost universal belief among executives today is that bigger is
better: companies are entering into huge, pricey cross-border
mergers at an unprecedented rate. Common wisdom is that industries
will become more concentrated as they become more global. This idea
has persistently dominated business -- from Karl Marx's "one
capitalist kills many" theory to the more recent "one, two, or three
shall dominate" logic put forth by business practitioners.
In this article, the authors debunk the myth of increased
concentration; the perceived links between the globalization of an
industry and the concentration of that industry are weak. Empirical
research shows that global -- or globalizing -- industries have
actually been marked by steady decreases in concentration since
World War II. The authors present the biases that managers often
have about consolidation and offer alternative strategies to
pursuing the big M&A deal. There are better, more profitable ways of
dealing with globalization than relentless expansion, they say.
Those strategies include buying up cast-off assets from merging
rivals; focusing more on domestic or regional growth rather than on
global expansion; taking advantage of merging rivals' weakened
market position during integration and launching an aggressive
marketing campaign; and building alliances with other companies
rather than buying them up.
In an era that is witnessing technological discontinuities, managers
shouldn't focus on size as a goal; instead, they should focus on the
development of new business models that help them compete.