Post-acquisition management changes in the Southeastern Europe Nikola Perovic, PhD

Introduction The changes occurring in the management of the target companies after the acquisitions by the international companies are different and multiple. The importance of the qualitative post- acquisition management comes from the experience that ‘the truth is that most of the acquisitions have failed due to the defects in the phase of the implementation after the acquisition rather than due to the research phase prior to acquisition…correlation between successful implementation and general success of the acquisition is 83%’1.Further, it is considered that the acquisitions mostly fail due to the inadequate management after the acquisition. On the other hand,’pre- acquisition factors are bad for predicting the post-acquisition performances’ 2. It is because of the importance of the post-acquisition management for the survival of the international acquisitions and based on the previous research by the other authors3, on the secondary and primary research through interviews and questionnaire on the total sample of 24 target companies from former Yugoslavia which were the subject of the acquisition in the period from 1997 to 2008 and which ,aiming at the greater level of the objectivity of the scientific research, belong to the different industries (food industry-confectionery production, fruit and meat processing,wine making, beer production; pharmaceutical industry; oil processing and trade; maintenance of the transport infrastructure; glass containers production; chemical industry; telecommunications; banking; cement production) and belong to the origins of different countries (Great Britain, Russia, Austria, Switzerland,Germany,Denmark, Iceland,Lithuania, Hungary, Belgium,Netherlands,France,Greece),the goal of this work was the identification of the changes ___________________________ 1PeterHowson,2006,”Duediligence”,Masmedia,Zagreb,Hrvatska,str.152DuncanAngwin,2005,“ImplementingSuccessfulPost‐AcquisitionManagement”,PearsonEducationLimited,London,str.53Child John, Faulkner David, Pitkethly Robert, 2003, ”The management of international acquisitions”, Oxford University press, New York, USA

and their systematic research in four groups, having 20 parameters,all together. So,the sample consisted of 24 target companies, operating in 13 industrial branches, their international customers coming from 13 countries. Although the author, based on the above mentioned statements, is aware that most of the international acquisitions fail, the focus in this work is on the survived acquisitions which may be followed in the period of several years and for which the positive management changes may be determined after the change of the ownership of the target company.In that sense, the research of the post-acquisition management in the companies which were the target companies for the international customers, was based on the research of the changes in the following fields:

1. Changes in the strategy and finance; 2. Changes in the marketing; 3. Changes in the operations and human resources management ; 4. Changes in other business functions;

As for the changes in the strategy field, the following parameters have been researched:

• Focus of the company on the basic activities • Corporative culture • Integrations with the customer company • Management hierarchy • Communication between the employees and managers

Changes in the finance related to:

• Costs control • Business profit • Financial control and planning

As for the changes in the marketing,occurred in the post-acquisition management, the subject of the research were:

• Strategies of the selection of customers and suppliers • Planning of the introduction of the new products • Strategies of the approach at the international market • Application of the marketing principles and research

Among the changes in the operations,occurred after the international acquisitions, in the focus of this work were identified as follows:

• Quality control • Application of the modern logistics principles • Number of formal meetings

After the acquisitions,human resources have undergone several changes,of which the following have been researched in this work:

• Application of training and staff training • Management spinning • Key managers leaving • Labour reductions

Considering the importance of the information technologies for modern business operations, the need for monitoring the changes in the info-management was expressed ,so, it was monitored primarily, in the ’changes in other functions’as follows:

• Application of the information systems and information technologies

The text that follows shall be based on the detailed analysis of each change,based on the performed primary research on the basis of the questionnaire and interview of the post- acquisition top management.At the beginning of each point, it shall be explained why certain change is important from the business aspect, which question has been asked concerning the research with the offered answers,and then,the result of the research shall be explained related to the respective change in the post-acquisition management.

1. Changes in the strategy and finance Strategic changes based on the research in this work related to: focus of the company on the basic activities,corporative culture,integrations with the customer company, management of the hierarchy and communications between the employees and managers.

Focus of the company on the core activities It was immanent to the companies from the Southeastern Europe (former republics of Yugoslavia) to make big conglomerates in which most of the necessary business activities were performed in-house,i.e. within these companies.On one hand, it indicated greater control through the centralisation of management,but it also produced both big costs and internal inflexibility. Therefore, it is very important to observe the need for focusing on the core activities after the change of the owners of the companies and introduction of modern management principles. Peter F.Drucker noticed a long time ago that – ’’organisations may harm both themselves and society only if they take up the tasks beyond their specialized competence, their specialized values, their specialized functions’’4. The researched companies were asked the following question: Having been acquired by a foreign company, has your company focused exclusively on performing core activities of your company? with the answers: - Yes - The same as before the acquisition Based on the research of target companies and their post-acquisition management it was shown that 91% of the companies focused business on their core activities and 9% only did not do it, bearing in mind that some of them used to be focused completely on the core activity. The manner in which the companies abandon their non-core activities is the so- called divestment, namely the sales of those parts of the company which are not in the function of its core activity. For example, the brewery which was the subject of the international acquisition by the largest brewery group in the world, soon after the appointment of the post-acquisition management, sold __________________________________ 4Peter F. Drucker, 1995, ”Postkapitalističko društvo”, Poslovni system Grmeč-Privredni pregled, Beograd, str. 104

the trucks, which were by that time a part of the organizational unit ’Transport’.The management realised that the mentioned unit has not been efficient, because it did not belong to the core activity- beer production. Similar situation is also found in many other companies that have been researched. Corporate culture Why has it been insisted on the corporate culture? Why is it relevant for the successful business operation of the companies? The basic reason for which the international companies have a developed corporate culture is the necessity of preserving the integrity and belief in the proved values.A company is a ’living organism’ which possesses the experience that may be summarized into the so-called codex values,ethical codex and similar . How much did the companies in the Southeastern Europe take care of the corporate culture in the past? Essentially, very little care was taken compared to the western companies.One of the reasons was certainly the socio-economic system of socialism in which the importance of the party was above the importance and interests of respective companies.Contrary to these beliefs,the corporate culture was a part of the tradition of the western economies,so it is expected that the international companies shall mostly insist on the development of the corporate culture in the target companies. The question and the alternative answers of the research of the changes in the corporate culture in the post-acquisition phases of the management of the target companies were, as follows: Has your company, after the acquisition, increased spreading the corporate culture? The answers were,as follows: -Yes -It was the same as before the acquisition It was 95% of the researched companies that increased spreading the corporate culture,and 5% did not undergo any changes when the status of the corporate culture is concerned. So, most

companies, although not all of them, understand the importance of the need for the existence of the corporate culture in the strategy of the companies. Certainly, it is relevant to mention that in case of big international companies as T-Mobile (T-com) which realized the acquisition in Montenegro, the existence of the developed global corporate strategy on the level of the corporate group has imposed the need for integration of all purchased companies into the system of the values which is valid in all countries.Nevertheless,it is dangerous to make inadequate transfer of the components of the corporate culture from the main office of the corporate group because any try of imposing the corporate values ,which is in disaccord with the local cultural values, will end in failure. Integrations with the company purchaser The integration of the target company into the system of the international company purchaser depends mostly on the adopted strategy before the acquisition and defined sinergy which certainly comes from the integration,if it is properly performed. The integration permeates all business functions, so it must be analysed with more details compared to the other changes, bearing in mind its strategic relevance in directing all functions after the acquisition. A greater degree of control,better use of the resources and strengthening of the corporate culture will be achieved by integration. As for the question ’Has your company integrated after the acquisition with the company which bought your company?’, the similar answers ,as before, were offered to the researched companies: -Yes - The same as before the acquisition Most of the companies which were the target companies in the international acquisitions began the process of integrations, namely 87% began the complicated challenges of the

integrations5.Only 13% did not enter the integrations, at all. Integrations, as a rule, should have a clearly defined challenge of integration, key planned actions, the person in charge of integrations, the date of the end of the integration and specification of the performance by a certain date , as shown in the table : Table 1: The basics of the main integration action plan 6 Challenge of integration

Key actions

Person in charge

Progress made

Deadline for the completion

By day/ month date

Source: Duncan Angwin,2005,’Implementing Successful Post-Acquisition Management’, Pearson Education Limited, London, page 58. The process of integration has been implemented differently in different business functions. The specifications are defined in the integration based on the example of human resources management (HR human resources). Table 2: Gant scheme for the problems of the integration of the human resources 7

Dateofscheme

Dateofacquisition‐3months

‐3 ‐2 ‐1 1 2 3 4 5 6 7 8 9

Integrationalaction Responsibility

Planning

Implementcommunicationplan

Identifythekeystafffor

additionalstimulationfortheir

staying

Allocation of human resources

Comparationofthelevelof

staff,locationsandsimilar

Selection of the employees

Determinationoftheselection

criteria

Prioritiesandinterviews

Notingappointments/refused

Keeping employed

Definetheofferforrelocation

Definetheofferfortrainings

Strategyandannouncementfor

additionalemployments

Today Acquisition day Source: Duncan Angwin,2005,’Implementing Successful Post-Acquisition Management’, Pearson Education Limited, London, page 60

Horizontal numbers show months and the negative ones refer to the months before making acquisitions.Horizontal lines with the arrows inside the table show the period of action. So, the implementation of the communication plan extends through the whole period before acquisition, by the very end of integration.Definition of the criteria for the selection of the employees is defined in the first month after the acquisition,while the interviews should be made within two months after the acquisition.So,the actions and period of their implementation as well as the description of the responsibility are defined by this gantogram. Management of hierarchies Hierarchy in management refers to the number of the level of the managers to the final executive and the relative importance of the managers in the company.The aim of the research was answering the question: ’Has in your company increased the role of hierarchy in the management after the acquisition?’ The offered answers were as follows: -Yes -The same as before the acquisition - Reduced So, beside the level in the management, it had to be generally researched whether there was the increase of the role,namely, importance of the manager from the priority aspect,occurring after the international acquisition and clear division of responsibilities. Totally 71% of the researched companies increased the role of the hierarchy management in the post-acquisition management, 23% of the companies has not changed the importance and role of the hierarchy in the management structure, 6% of the companies only reduced hierarchy in the manner that the ___________________ 5 There are differences in the integrations, depending on the national culture to which the company purchaser, namely the target company belongs,based on Child John, Faulkner David, Pitkethly Robert, 2003:’ The management of international acquisitions’, Oxford University press, New York, USA, p.104

6 Duncan Angwin, 2005, ’Implementing Successful Post-Acquisition Management’,Pearson Education Limited,London,p.58 7 Duncan Angwin, 2005, ’Implementing Successful Post-Acquisition Management’,Pearson Education Limited,London,p.60

structure became ’flatter’, namely with less levels in the management. In most cases,when the number of levels in the hierarchy is reduced, middle management becomes the ’surplus’, so the number of the middle managers in the organisation is reduced.However, it is obvious that the role of the hierarchy in most companies has increased. On one hand, it means the increase of the number of managers on those functions,introduced after the acquisition,and on the other hand, the phenomenon of ’the increase of respect to managers’ has been increasing, by the allegations of the researched companies. It may be concluded there is the importance of clear responsibility of the management in the final market and financial results and the necessity of defining the key managers on whom depends the success or failure of the companies. Communication between the employees and managers The aim of research of the problems in the communication was to show the change in the openness of communication between managers and employees. It is very important to create open communication between employees and management,so that the organisation could develop in accordance with the specific limits. As for question: ’Has in your company increased the openness in the communication between the employees and managers after the acquisition?’,the companies could choose the answers (similar as for all questions): -Yes - Remained the same as before acquisition Even 83% of the companies consider that the obstacles in the communication have been reduced,i.e. that the employees and managers have more open communication after the international acquisition. On the other hand, 17% of the companies have not undergone changes in the described communication relations. It is very likely that a certain number of the companies does not consider openness in the communication as a problem, so they kept the levels they had before the acquisition. However, without open communication, there is no innovation, so it is

necessary to revise and remove different communication obstacles in accordance with the defined management hierarchy. The communication modes are diverse, as shown in the following table in which the modes have been ordered by the intensity of the communication quality: Matrix1:Matrixoftheinternalcommunications8

Personal

meetings

Video

conversa

tions

Tel.

conver

sations

Staff

meeting

s

Perso

nal

email

Personl

letter

General

event

Intranet Genera

l video

Specific

brochure

Specific

newspap

ers

Regular

newspa

pers

Top

manag

Middle

manag

Other

employed

Retired

Source:DuncanAngwin,2005,“ImplementingSuccessfulPost‐AcquisitionManagement”,Pearson

EducationLimited,London,str.71

The changes in the strategy on the base of all mentioned explanations may be summarized in the following table: Table 3: Changes in strategy Type of the change % company with the change

Focusofthebusinessonthecoreactivity 91

Spreadingthecorporateculture 95

Integrationwiththecompanypurchaser 87

Increasedroleofmanagementhierarchy 71

Increasedopennessinthecommunication

betweenemployeesandmanagers

83

_______________________ 8 Duncan Angwin, 2005, ’Implementing Successful Post-Acquisition Management’,Pearson Education Limited,London,p.71

Each change in the table above has already been explained. So, 91% of the researched companies which were the subject of the international acquisitions,in the phases after it, have focused their business on the core activity.Totally 95% of the companies have intensively spread the corporate culture and 87% underwent or have undergone the integration with the company purchaser. The role of the management hierarchy was increased in 71% of the companies after the acquisition and in 83% of the companies the openess in the communication between the managers and employed was increased. 1.1. Financial changes Financial changes, in the sense of this work, referred to the costs control, changes in the business profit after the acquisition of the management by a foreign company and changes in the financial control and planning. Cost control One of the priorities in the financial operations is the cost control, bearing in mind its importance for the final financial result of the company. Considering that cost control has not been a separate unit within financial departments of most target companies, our interest for the changes in the cost control and need for the systematic cost management, have been increased. The companies were asked a following question:Has your company increased the cost control after acquisition?, with answers,as follows: -Yes - The same as before the acquisition All companies which took part in the research confirmed the increase of the cost control as tools in the financial management.This answer was certainly expected, but the fact that all managers

confirmed the necessity for greater cost control,as one of the priorities of the post-acquisition management ,made us satisfied.It is important to mention that, bearing in mind ’the purchase’ of the realized market participation of the target companies, as one of the market reasons for the international acquisitions, many managers in the post-acquisition phases, consider the cost control a primary task in the function of the profit increase. Herein,certainly, must be pointed out that short-term cost reduction should not destroy the strategic logics of the acquistion, because, otherwise, ’ fast results in the cost reduction would have influence on the cost increase in the middle term, over the unpredictable connections which will make greater damage than expected, loss of the operative knowledge which will harm the functionality and competence and over diverting the attention from the main strategic changes.’9 Business profit The basic purpose of the business existence is making profit, resulting from meeting the needs of the consumers and all stakeholders in the market.In spite of the failure in most cases, international acquisitions are based on the creation of the new value. Therefore, it is necessary to follow the results in the changes of the business profit,as one of the ways of success of the post-acquisition management. The question which was a part of the research was: ’Has your company increased the business profit after the acquisition?’ with the answers: -Yes -The same as before the acquisition -Profit was reduced ______________________________ 9 Duncan Angwin, 2005, ’Implementing Successful Post-Acquisition Management’,Pearson Education Limited,London,p.102

According to the research results, 88% of the companies increased the business profit after the international acquisition. Equal number of the companies, 6% respectively did not have any changes in the profit or they realized less profit after the acquisition.It is very positive that the participation of the companies, the post-acquisition management of which realized the increase of the profit, has been dominant. Financial control and planning Although the financial control was effected through the accounting procedures in most target companies in the Southeastern Europe, there have not mostly existed the organizational units , particularly dealing with the control and finance planning complied with the modern postulates of the corporate finances. Financial control and planning,as one of the basic tools of the financial management, must be at a high level, so that the post-acquisition management could be successfully implemented in the global competitive environment. The question was defined in the research: ’Has your company increased the degree of the financial control and planning after the acquisition?’, and the answer could be one of the following: -Yes -The same as before the acquisition The answer was received and was identical to the question concerning the cost control,i.e. based on the research, all companies have increased control and planning in the finance. Although finance control and planning have wider application,it is,however,expected that most of the companies will impose greater control to their management after the international acquisition, which, in most cases, shall be organizationally arranged as the formation of the special, so-called ’controlling’ units within the financial department. These units actively deal with predictions and

making evaluations of the prospective financial success of the target companies. As a summary, the changes in the finance have been grouped in the table below. Table 4: Changes in the finance after acquisition Type of change % of the companies with change

Increasedcostcontrol 100

Profitincrease 88

Increaseofthefinancialcontrolandplanning 100

Each change from the table above has been explained in detail. So,all researched companies have increased financial control,planning and cost control and 88% increased the profit after acquisition. 2. Changes in Marketing Marketing changes which were the subject of the research refer to: strategies of the selection of purchasers and suppliers, planning of the introduction of new products, strategies of approach to the international market and application of marketing principles and marketing research in the researched target companies. Strategies of the selection of purchasers and suppliers If the process of the selection of suppliers and particularly, of the purchasers is in discordance with the plan, then, the functions of sales and purchase do not meet the basic purpose of business-long-term profit, and management does not have the possibility of control over these important business functions.That is why it is necessary to follow the changes in the post- acquisition management of the target companies concerning the marketing functions of the selection of purchasers and suppliers. The question concerning the sales and purchase was: ’Has your company sharpened the strategy of selection of the suppliers and purchasers?’10 with the offered answers: __________________________ 10 It is particularly the selection of the purchasers in the international marketing that is the prerequisite of the successful business operations.Therefore, the focus is on this issue

-Yes -The same as before the acquisition Totally 90% of the researched companies conduct more systematic and rigorous procedure while selecting purchasers and suppliers, because they understand their importance for providing long- term existence of business. It is 10% only that did not sharpen the selection of purchasers and suppliers.However, bearing in mind the importance of the functions of sales and purchase and the role of selective choice of purchasers and suppliers, there should not be a doubt that these companies will have focus more on the strategic approach in future. What is very important to point out and what refers mostly to the novelty in performing business operations after the acquisition is strengthening the importance of the relations with the purchasers,i.e. concept CR-Customer Relationship.In most target companies before the acquisition, they have not been informed enough of the importance of the concept,which was considerably changed on behalf of strengthening the relations with the purchasers, understanding their needs and clear delegating responsibilities for successful leading of the purchasers. Planning of introduction of new products Without innovations there is no long term existence of business. In his famous work ’Innovations and Enterpreneurship’,Peter Drucker described the innovations as ’specific tools of enterpreneurs, the means through which they use the change as a possibility for performing different production or service activities ’11.So, in the focus of innovation there is a change which is in the focus of our research of the specificity of the international acquisitions and post- acquisition management. New products are not exclusive for the business.They are the base for the development and survival. The management was asked the following question after the acquisition of the target companies:

’Has your company sharpened planning of the introduction of new products after the acquisition?’ Managers could give answers similar to the previous changes: -Yes -The same as before the acquisition. By the analysis of the answers, it has been determined that even 95% examinees implements more systematic process in the introduction of new products, which means that by the procedures,different in different companies, it defines the phases before the introduction,during and after the introduction and implements the plan of the activities,adapted to the phases in the development of the new product.Certainly it is encouraging that only 5% of the managers of the target companies have not sharpened the process of the introduction of new products, but there is a logical question to be asked: do the companies follow the proper way of introducing the products? Due to the failure of most new products to be placed on the market, the need for systematic approach and defined procedures for the introduction of new products is of great importance in the future management of the target companies. Strategies of approach at the international market A company may export or generally be engaged in the international arrangements because it has been forced or because it wants to increase its long-term profit through the active dealings at the international markets. The first approach is passive and forced and the other one means linking own business, in most cases, to more complex way of doing business compared to exclusive existence on the national territory. A great number of companies, even in the great economies such as the one of the USA, implemented the international arrangement only after the unsuccessful realization on the domestic market, so it does not surprise the fact that a great

number of companies on the territory of the former Yugoslavia did not make clear adaptations to the international struggle. Therefore, it was important for the research in this work to find out whether the managers in the post-acquisition phases of development were able to define and implement the strategies of approach of the international arrangement,which related,first of all, to difference between indirect and direct approach and the possibility of creating the marketing mix, adapted to the international market. The question which was a part of the research was:’ Does your company have more developed strategy of approach on the international market after the acquisition?’, with already known answers: -Yes -The same as before the acquisition The managers of most companies which were the subject of the international acquisitions, 90% of them, have tried to develop the strategy of approach for the international market and 10% have not tried.Although a great number of managers often stated that they had a strategic approach on the international market , without clearly defined ’hard copy’ strategy, it may not be said that they were serious from the aspect of the development of presence in the international market struggle.Therefore, although it cannot be certainly claimed, based on the research, 90% had a developed strategy, most of them have taken steps towards improvement of the international dealings which will , in future, increase the opportunities for the real strategic approach in the development of the the international business. Application of the marketing principle and marketing research On one side,marketing is a management philosophy, stressing the customers’ satisfaction and on the other side, the function in the companies, related to the group of activities and processes, necessary for the implementation of this philosophy.The American Marketing Association

(AMA) defines marketing in the following manner: ’Marketing is the activity, group of the institutions and processes, necessary for the creation, communication, delivery and exchange of the offers which have the value for consumers,clients,partners and society in wide sense.’ 12 Therefore, marketing is the management activity and also the process of exchange, bringing the values for its stakeholders.Although the marketing is a process which develops for a long time before the exchange, it extends through the process of exchange and continues after the exchange because the aim is to keep the loyal consumers with the modern, the so-called ’relationship marketing’. Do the target companies and to which extent, after the acquisition, understand the marketing principles and marketing research, related to the group of activities,directed to the planning,collection and data analysis, relevant for the process of making the marketing decisions? In the research, the following question was asked: ’Do the marketing principles and marketing research apply more after the acquisition?’with the answers:

- Yes - The same as before the acquisition

84% of the researched companies had greater degree of the application of marketing principles and research and 16% claimed that they had not it.Although 84% was the satisfactory level of the marketing application, based on the asked question, it cannot be clearly distinguished the implementation of the marketing principle from the marketing research analytics.On the other hand, this result clearly shows that all companies,although the marketing theory was very developed in ex-Yu territories, even in the internationally integrated companies, did not understand the importance of the application of the marketing principles.By it, there has been relevant space for the improvement of this function in these companies and in others in our region.

As a summary, the changes in the marketing are shown in the table below: Table 5: Changes in marketing after acquistion Type of change % of companies with the change More selective in choice of purchasers and suppliers

90

More selective planning of introduction of new products

95

More developed strategy of approach on the international market

90

Increased application of marketing principles and marketing research

84

Each of these changes has already been analysed. So, 90% of the researched companies after the acquisition, have applied more selective choice of purchasers and suppliers and 95% have implemented complied with the plan ,the introduction of the new products. Totally 90% of the companies have developed the strategy of approach on the international market, and 84% have applied marketing principles and marketing research more often after the international acquisition.

3. Changes in operations and human resources management

What do operations in companies represent? The operations, first of all, refer to the activities of

production, control, maintenance, logistics and daily peformance of tasks based on labour

relations. Although the field of operations is rather wide, the focus of the research in this work

are the changes that occurred in the quality control, application of contemporary logistics and

number of formal meetings, considering that these aspects of the operations have been

particularly “affected” in post-acquisition management, which was confirmed in the research.

Quality control

Consumers and contemporary business call for the high level of quality control. Quality control

beside the control of finished products also implies control of all input raw materials, techniques

and all other factors which can affect the quality of the products. Quality control is developed

for the purpose of merchantability. Quality control is always present to a certain degree, but in

this assignment the aim was to show to what extent the function of quality control has been

changed after the international acquisition.

The question from the segment of operations referring to quality control is:

“Does your company apply higher level of quality control after acquisition?”, with offered

answers:

-Yes.

-It remained the same as it was prior to acquisition.

Even 91% of the researched companies after the owner has been changed and new international

post-acquisition management has come increased the degree of quality control, and 9% remained

the same. It is surely very positive very positive that the managers of the purchased companies

realized that the quality control is one of the key factors of success of contemporary market

competition.

Application of modern principles of logistics

Logistics refers to all processes of physical flows in a certain organization, which includes input,

output and all other flows within a company. Priciples of logistics primarily refer to efficient

management of stocks, warehousing, transport and consumer service. Considering the above-

mentioned, it is strange that logistics, being a comprehensive system of resource flows, has not

been organized in the past in an adequate way within companies in Southeastern Europe.

Logistics has long been considered by companies in market economy to be one of the main

accompanying functions in a company (core or leading functions in a company are production

and sales).

In the reasearch the following question was asked: “Does your company apply more modern

logistics after acquisition?”, and offered answers are:

-Yes.

-It remained the same as before acquisition took place.

The importance of implementing modern principles of logistics was confirmed by the research as

95% of the researched managers in target companies confirmed that the principles of logistics are

applied more after the international acquisition and only 5% denied that. Modern principles of

logistics, which introduce better efficiency in all phases of physical flows, should be applied to a

higher degree in all companies, because logistics itself represents one of the major

competitiveness parameters in a modern global economy.

Number of formal meetings

How many meetings in a day, week or month »operate« in a company which has undergone

changes in management after the international acquisition is a subject of interest, because the aim

is to get the picture of how frequent the communication is in the post-acquisition management

based on the number of formal meetings. However, the frequency is not a measure of openness,

which was already discussed in this assignment in the segment referring to change of strategy in

post-acquisition management.

In relation to the mentioned change in operations, the question the respondents were asked was:

“Did your company increase the number of formal meetings between the employees after

acquisition?”, with three offered answers:

-Yes.

-It remained the same as before acquisition took place.

-Number of meetings was decreased.

Total of 79% of researched managers increased the number of formal meetings after the target

company has been purchased by the foreign buyer, 16% introduced no changes whatsoever,

while in 5% of researched companies the number of formal meetings has been decreased. Since

after acquisition the foreign buyer is interested in increasing the level of control of the new

management, such results of the research were expected.

Here is the table of a brief overview of the changes in operations:

Table 6: Changes in operations after acquisition

Type of a change % of the companies which introduced a

change

Higher level of quality control 91

More modern logistics 95

Increased number of meetings 79

Each of these changes has been hereinabove described. After acquisition 91% of the researched

companies increased quality control and 95% of them introduced more modern logistics.

Frequency of opeartive meetings has been increased by 79% of the companies.

3.1. Changes in human resources

The focus of this research is human resources management after acquisition based on the

analysis of the following changes: implementation of employee trainings, management rotation,

key managers leaving and workforce reduction.

Impementation of employee trainings

After international acquisition it is necessary on one side to carry out the transfer of knowledge

and skills from the company-buyer to a target company, and on the other side to increase staff

training and skills so as to meet global economy requirements. This is why it is interesting to

inquire whether the post-acquisition management uses to a sufficient extent this tool that helps

increase the motivation among the employees.

In relation to the mentioned change, the question the researched managers were asked was:

Did your company start implementing more trainings for employees after acquisition?, with

the following answers:

-Yes.

-It’s the same as before acquisition took place.

-Number of trainings was decreased.

How important the trainings are shows the fact that up to 95% of the researched companies

increased the number of trainings for the employees, and only 5% of the companies introduced

no changes at all related to this motivation tool disposed of by the post-acquisition management.

In this research, there were no answers indicating that there was a decrease in number of

employee trainings, which can be considered as a positive result of international acquisitions.

Management rotation

It is very likely that the managers of the target companies will be changed after international

acquisition. For that reason, it is interesting to inquire whether there was any manager rotation

after international acquisition and to what extent was it implemented. Manager rotation implies

changing of managers, by either leaving a position (which is a subject of research of the key

managers changing) or getting transferred to another position within target company.

The researched companies had to answer the following question:

“Did your company increase manager rotation after acquisition?”, with the offered answers:

-Yes.

-It remained the same as before acquisition took place.

The mentioned suspicion of the managers of target companies was confirmed in post-acquisition

research as 63% of the companies increased manager rotation and 37% remained in the same

condition as before acquisition took place. It is very likely that the company-buyer wants to

make changes in management so as to facilitate the transfer of new ideas and make sure that

“old“ managers don’t slow down the return on capital invested in a target company.

Key managers leaving

One of the main tasks of the management of human resources or staff as this business function is

usually called, is taking care of the key managers, since it’s them who are expected to tie up their

“destiny” to end results – profit of a target company. Did the key managers remain a part of post-

acquisition management of a target company is a subject of research in this work.

The question which was asked in this research was: “Did the managers on key positions leave

your company after acquisition?”, with the following answers:

-Yes.

-It’ the same as it was before acquisition.

Key managers in 67% of the researched companies left their positions and in 33% of the cases

they didn’t. Therefore, the major part of the key managers leave the company after it came under

the patronage of the company of the international buyer. Results of this research may be

compared to Fortune 500 companies Research, which show that 58% of top managers left their

positions after acquisition , or to the results of the researchs conducted in the USA or Great

Britain, which show that between 57% and 67% of all researched top managers left their former

positions after acquisition1. Although it is a fact that most of the companies will change

management of a target company because it is believed that the external executives (who come

from the company-buyer or are recruited from other sources) will analyze strategically the

situation in a more objective way and be more ready for radical changes that will justify funds

for the acquisition, it is still important to consider keeping the existing top management in the

beginning stages after acquisition in order to minimize the sense of incertainty among the

employees as well as among the buyers of a target company. The existing management also can

respond quicker in many situations as there is a higher level of understanding of company

problems, whose solving was intentionally postponed for the period after acquisition. Generally

speaking, it can be concluded that from the point of view of the company-buyer it is worth trying

to keep the existing management, if it is considered that the company was well-led and that the

1 Duncan Angwin, 2005, “Implementing Successful Post-Acquisition Management”, Pearson Education Limited, London, str.103

target company does not need to make any crucial changes in managing business after

acquisition. Otherwise, decision on changing the management is more logical.

Reduction of the labour

It occurred very frequently that the companies in the Pre-Transitional Period within the former

social property system were the ’social valve’, meaning economically groundless formation of an

excessive number of workers. It all led to a greater number of workers compared to the European

or world modern standards for a specific industry.

The researched companies were asked the following question: ’Has your company reduced

the labour after the acquisition?’with three offered answers:

-Yes

-The same as before the acquisition

- No, it has increased it.

Totally 63% of the researched companies reduced the labour, 21% did not have any changes, and

only 16% of the target companies increased the number of their workers. Certainly, from the

aspect of the macroeconomic policy of employment, international acquisitions did not reduce the

unemployment,but on the contrary, they led to its growth.However, reduction of the employment

is only one of the influences on the macroeconomic stability. Of greater importance is the

increased business efficiency,resulting from many international acquisitions, so it would be

economically unjustified to consider this change in the post-acquisition management, separately

from other researched changes.Also, it is worth pointing out that some post-acquisition

managers, aiming at reaching fast effects on the cost reduction ,which the reduction of the labour

certainly brings about, often laid off the workers whom they had to employ again in later

phases,but mostly in the more expensive way.Thus, although fast laying off may be attractive to

the main office of a purchaser’s company, one should be cautious in order not to destroy the

competence of the target company as well as the possibility of reaching synergy effects on which

the final success of the international acquisition depends.

As asummary, the changes in the human resources management of the target companies are

shown in the table below.

Table 7 : Changes in the human resources management after the acquisition

Type of change % of the companies with the change

Increased trainings for the employed 95

Increased managers rotation 63

Managers leaving from the key positions 67

Reduction of the number of employed 63

Each of the above shown changes has been explained in the above text. So, 95% of the

researched companies introduced more trainings for the employed. In 63% of the companies the

rotation of the managers has been increased and 67% of the companies registered leaving of the

certain managers from the key positions and 63% of the companies have reduced the labour.

4. Changes in other functions

As already stated, under the changes in other business functions in the target companies, the

changes in the application of the information systems and information technologies have been

researched.

The application of the information systems and information technologies

If we exclude the intuitive making decision, modern management cannot operate without

qualitative information. There are no prompt, reliable and accurate information without the

information system.The application of the new generations information technology is necessary

for the creation of the modern information systems.For this reason, the research of the changes in

the post-acquisition management of the target companies should include the extent to which the

application of the information systems was improved.

The researched companies, i.e. its post-acquisition managers answered the question: ’Has your

company increased the application of the information system and information technologies

after the acquisition?’with two offered answers:

- Yes

- The same as before the acquisition.

The importance of the improvement of the information systems and greater application of

modern information technologies confirm the result of the research, by which 95% of the

researched companies have just improved these bases for making good decisions. It is only 5%

of the researched companies that have not improved their information capacities after the post-

acquisition changes.

5. Analysis of strategic turnovers

All changes in post-acquisition management, as it was already explained herein, refer to changes

in strategy, finances, marketing, human resources, operations and other functions. Based on the

reasearch done all post-acquisition management changes can be briefly shown in a following

manner:

Table 8: Brief overview of all post-acquisition changes

Type of a change % of the

companies which

introduced a

change

Business focused on the core activity 91

Spreading of corporate culture 95

Integration with the company-buyer 87

Increased role of management hierarchy 71

Openness in communication between the employees and the managers

increased

83

Increased cost control 100

Profit increase 88

Increase in financial control and planning 100

Selection of buyers and suppliers more strict 90

New products implementation planning more strict 95

International market approach strategy more developed 90

Marketing principles and marketing surveys applied more 84

Higher level of quality control 91

More modern logistics 95

Increased number of meetings 79

Employee trainings increased 95

Managers rotation increased 63

Managers leaving key positions 67

Reduction of the number of the employees 63

Increased use of information system and information technologies 95

The objective of this survey was to analyze the so-called survived acquisitions, not all

acquisitions, bearing in mind a high level of failure. Namely, the focus was to analyze primarily

strategic guidelines which helped the surveyed companies develop after international

acquisition.The first five changes indicated in the table hereinabove are strategic as they are

long-term changes. Out of these changes the biggest number of companies (95%) after

acquisition increased spreading of corporate culture, which is supposed to change the attitude of

management and the employees towards the basic values their company represents. Also,

predominant number of the surveyed companies (91%) focused on the core activity, devastating

most of the segments that distracted the attention of the management. Such decision shall leave

long-term positive consequences on the company. The level of integration between companies is

prevailing (87%). Also, 83% of the surveyed companies inreased openness in communication,

which has long-term positive effects on the company since open communication between the

employees and the managers induces innovativeness and creativity as the basis of business

development. The role of the management hierarchy, shown through more important influence of

the managers on the final result of the company and its long-term development, was increased in

most of the companies in the share of 71%. It is likely that this indicator will increase its

importance in future and make the values vloser to other strategic changes from the table.

Marketing changes, characterized by greater application of the marketing principles,marketing

research, more selective choice of purchasers and suppliers and planned management of the

international arrangement and introduction of new products, have clear strategic determinant ,

because their success depend on the target company after the acquisition, not only in short-term

and middle- term period. Most researched companies understood marketing more seriously than

before the acquisition and it is particularly obvious that the greatest number of the companies

understood and adopted the principle of planning in the introduction of the new products, even

95% of the companies.There is less, but also dominant participation of 90% of the companies

that upgraded the selection of purchasers, suppliers and international engagement to a higher

level. Marketing has certainly undergone great changes and in some business cases, the very

essence of the strategic changes is in a different understanding of the marketing importance ,

raising the level of the marketing consciousness and organizing a company in the manner to

show clearly that the marketing and sales staff are the most responsible for the long-term success

of the company. It is through the CR system (Customer Relationship), mentioned several times

in this work, that marketing has become, generally, the directing lever of every business.

As for the other changes, it is interesting that the equal number of the companies, even 95%,

introduced modern logistics and information systems and invested in human resources by the

implementation of different training programs,while 91% increased the quality control. So, all of

these companies connected the realisation of the successful strategy with the intensive

investment into employed, control and information systems as well as in better service for their

purchasers and users by the introduction of the modern logistics.

In the stated changes, there was, basically, the clear order.A purchaser company, first ,defines the

focus on the core activity in accordance with the competitive advantages and criteria of future

integration. Then, the defensive and offensive restructuring may be performed. Defensive

restructuring, based on the rapid cost control and the reduction of the number of employed,

precedes the offensive restructuring which is, on the base of the sales and marketing strategy,

characterized by growth of the investment into production, introduction of the quality standard

system , information systems, training. The offensive restructuring implies considerable changes

in the management and relations with the employed in accordance with the table above.

In the analysis of the strategic turnovers after the international acquisition, you may see three

aspects:

1. change of the existing functions,

2. introduction of the new functions and

3. existence of integration

First, some functions are changed, as the change of the key managers which happened in most of

the researched companies.Marketing function is changed in most of the firms.The relation

towards the employed is also, changed, by the introduction of more openess in the

communication. Quality control has been improved as well as the number of the training of the

employed.

Second, many functions were introduced which have not existed before the acquisition, as a

modern logistics, new brand management functions, new sales functions, new technologies,

financial planning and control, use of modern information systems, use of the strategies for the

selection of purchasers, suppliers and presentation on the international markets, new role of the

management hierarchy through modern corporate management.

Third, the integration occurred in most of the companies. Every integration had a series of

particularities, conditioned by the characteristics of the purchaser and target company,as well as

a certain degree of the evolution.

6. Analysis of the financial results

International acquisition, by itself, has not been the cause for positive or negative results. The

changes it brings about are the cause for these results. It is in the previous points that the changes

have been analyzed which occur after the international acquisition. Now, the financial results

have been followed which are registered after the international acquisition on the examples of

several industrial branches. A possible profit growth is registered, compared to the state of the

target company before international acquisition and within a few years after the acquisition.

Although the influence of the international acquisitions may be followed also in relation to the

performances of the local companies which have not been the subject of the acquisitions and

which belong to the same or similar industrial branch, in this work the focus is not on the

comparison to these companies,but exclusively, the performances, after and before the

international acquisition for the same companies , have been compared.Among other things,the

comparison to other local companies should include the assumption that the target companies, as

the subject of the international acquisitions,were probably, at higher degree of success, compared

to those that did not attract the international acquisitions, as it is considered justifiably in

theory.14

Although 88% of the companies totally, based on the research,shown in the table

below,increased the profit, the results differ among the various industrial branches. In this work,

various industrial branches have been researched in order to provide higher degree of

objectivity.Every industry is specific, so that the rates of the profit growth differ among the

industries. However, in this work there was the focus on showing to which extent there occurred

the change in the financial result of the target company, after the international acquisitions.For

each industry there is an average annual rate t by the application of the following formula:

Po x (1 + t) )^n )= Pn, where

• Po is a pondered sum of the net profit in the year of the international acquisition at

the level of industry;

• T is an average annual rate of the profit growth;

• N is a number of years of monitoring;

• Pn is a pondered sum of the net profit in n -year after the international acquisition.

By applying the indicated formula, the following comparative table for the profit change has

been created.

Table 9: Comparative profit changes

Typeoftheeconomicbranch Averageannualprofit

growthafterthe

international

acquisition

Remark

Food industry-confectionery 22% Monitoring period six years

_______________________ 14 Sergio Salis, 2005, ”Evaluating the Causal Efect of Foreign Acquisition on Domestic Performances: The Case of Slovenian Manufacturing Firms”, Department of Economics, University of Cagliari, Cagliari, Italy, str. 4

Retailtradeoftheoilderivates ‐8% InternationalacquisitionoftheRussian

originintothebiggestSerbiancompany

fromthisarea;therewastheprofit

growth,butalsotheprofitfallduetohigh

capitalinvestmentsandrestructuring

costs;monitoringperiodfiveyears

Oilprocessing 78% Monitoringperiodthreeyears

Chemicalindustry 80% Monitoringperiodfouryears

Telecommunications 21% Monitoringperiodthreeyears

Foodindustry‐meatprocessing 18,5% Monitoringperiodfouryears

The nature of the economic branch is defined by the power of purchasers, suppliers,substitutes,

competitors and barriers against entering. Therefore, the change in profit has been conditioned

by the particulars of each economic branch or industry. It is pointed out that most of the analyzed

branches have high rates of the profit growth after the international acquisition. This is the

indicator that these industries were burdened with high costs and irrational management,so there

was a lot of space for changes,analyzed in the previous points which led together to the profit

growth.

7. Conclusion of the work

Based on the research results of this work, it is possible to define the recommendations for the

academic and scientific public concerning the post-acquisition management:

I Focusing on the core activity, because hereby the competitive advantage and cost

rationalization through the synergy with the company purchaser are achieved. All business cases

in the Chapter VI confirmed the necessity of this recommendation. Focusing,also implies the

necessity of long-term assessment of future market position of the target company.

II Preserving of corporate culture, because the basic reason why the international companies

have a developed corporate culture is the necessity of the preservation of the integrity and belief

in the proved values,so that the risk of the wrong decision in the repeated situations may be

minimized.Transfer of the corporate culture must consider the particularities of the national

cultures of the country of origin of the target company,as well as those of the micro culture of

the company.

III Integration is necessary at the higher level of the planned cooperation between the

target company and the purchaser company,because then, the possibility of bilateral resource

transfer shall be maximized, not only from the main office of the purchaser’s company, but also

from local branch of the target company.

IV Increase the importance of the responsibility of the management in the final market and

financial results, because the success or failure depend on the key managers.

V Increase the openness in the communication, because open, clear, true and timely

communication between the employed and managers, on one side, increase the innovations and

creativity, on which the development of the company depends in long term period, and on the

other side, openness means higher degree of the understanding of the management and their

responsibility for the final results of the company.

VI Primary instrument for the profit increase after the acquisition is the cost control, so

that financial planning and control should be introduced as the first new functional segment of

the post-acquisition organization.

VII Introduction of the selection of purchasers and suppliers, so that their importance for

providing long-term survival of business may be understood. It is important to point out the

necessity of strengthening the relations with the purchasers, namely concept CR-Customer

Relationship. In most target companies before the acquisition it has not been known sufficiently

about the importance of this concept, which was, considerably improved on behalf of

strengthening the relations with the purchasers, understanding of their needs and clear

delegating of the responsibilities of the adequate managers for the successful leading of the

purchasers. It is very important not to neglect the care for the purchasers in every phase after the

acquisition, because there is a danger of losing the focus on purchasers because of the

overburden of the management with the integration with the purchaser company.

VIII Planning of each phase of introduction of new products, because the number of new

products for the local market for most target companies has been increased considerably,

because the international brands of the purchaser company, besides the local brands, have been

introduced into the sales assortment of products.The logic of most analyzed companies is that in

the first years after the international acquisition, the local brands become stronger and only then,

the international brands in the ownership of the purchaser company are introduced.

IX Defining the strategy of presentation on the export markets, because most international

acquisitions are connected with the market reasons of not of the local market only.

X Marketing principles should be a directing lever of the development of the company and

that is why the marketing changes have been the key changes in most of the companies. In

respective business cases, introduction of the marketing principles which implies continued

research, has been considered the most important change. It refers also to the change of the

importance of the marketing and sales managers within the whole value of a company, because

most of the companies were production oriented in the pre-acquisition phases.

XI Increase the quality control, which relates not only to the introduction of the obligatory

standards (as HACCP), but also to other relevant international standards for the protection of the

employed and environment.

XII Introduction of modern logistics, because the consumers’ service and their loyalty depend

on the management of physical flows in the company .

XIII Increase of the number of trainings for the employed, because it is necessary, after the

international acquisition, on one hand, to make transfer of knowledge and know-how of which

the company purchaser disposes, and on the other hand, increase the professional trainings in

order to meet the demands of the global economy. The trainings are also a relevant instrument of

the motivation.

XIV The pre-acquisition management of the target company should be ready to accept the

most likely possibility to be dismissed after the acquisition.The least ‘endangered’ are the

managers on whom depends a good relation with the key purchasers.However, the purchaser

company should assess whether the discontinuity of the management shall harm the future

integration, so the decision on the dismissal of key staff should be reconsidered in each case.

XV The purchaser company should identify key staff of the target company, because the

experience shows a possibility of bilateral transfer of the most important knowledge from which

the benefits shall have the purchaser company and all its linked business segments.

XVI Although the reduction of the labour has been imposed as the principal component of

the defensive restructuring, the attention should be paid to the ‘big cuts’, because with the

leaving of great number of employed, the competence of the target company has been lost which

influenced the positive decision on the international acquisition.

XVII Introduction of modern, information systems is necessary because in modern,global

economy, the survival of the companies on the international scene is based on fast and accurate

information.

All stated recommendations have been tested in the business practice of the researched

companies, but the order of the introduction of the recommendations into the post-acquisition

management should be adapted to the type of the economic branch to which a target company

belongs.