Globalization and the Impacts of M&A on Implementing Successful Business Strategies

The continued high level of M&A activity in the coatings industry has had a significant impact on the success certain companies have achieved (or have not achieved) in executing global business growth strategies.

Company goals for acquisition of another company certainly vary but are always intended to strengthen the company’s market position in one or more ways.

This can include the addition of novel or differentiating technology. It may involve filling in a void or a weak geographic market position by adding a strong regional player serving similar strategic markets. This often includes adding local or regional manufacturing capability that better positions the company to compete and support customer within a given geography.

Mergers and acquisitions activities have been led by the major global coating manufacturers along with the larger regional players who compete with these companies. In addition to the major coating formulators, the high level of M&A activity also applies to key raw material suppliers including manufacturers of resins, additives, and feedstocks.

The frequent shifts in the composition of key supplier participants resulting from M&A have necessitated a frequent reassessment and adjustment of current strategies and approaches to doing business. Among the important issues impacted by M&A activity:
•  Changes in the competitive landscape
•  Channels-to-market
• Regulatory, environmental issues, and compliance
• Organizational structure and approach

Competitive Landscape

The high-level of global M&A activity continues to have a significant impact on the competitive landscape of the coatings industry. Incumbent market leaders can find themselves faced with a new or a much stronger existing market challenger. It brings to mind the Abbott and Costello comedy skit “Who’s on First, What’s on Second” in trying to understand and keep current on an evolving competitive landscape.

A merger or acquisition can threaten or change the status quo among the current competitors in a relatively short period of time. There are many reasons for this. Technology additions can strengthen the product lines of competitors overnight. Favorable manufacturing logistics, that traditionally provided leverage in a given geographic location, can be quickly erased through a strategic merger or acquisition. The same can be said for sales and marketing personnel and technical support.

The pace at which change is occurring in the competitive landscape, increases the importance of having current commercial intelligence on key competitors. Management needs to be in a position to make the right strategic decisions or course corrections (if necessary) to protect their market position.

In this regard, the availability of internal resources to focus on providing timely information on key market transitions, in a given market or a particular geography, can be challenging. In situations where new or emerging markets are involved, the level of expertise within the company may also be limited.

The value of having up-to-date information on competitors and the changes occurring in the market resulting from M&A can’t be understated. This need has resulted in a greater use of outside experts or market research firms to provide current competitor information and in a timely way. This approach also contributes an outside perspective on the market and its competitors as a basis for making better strategic decisions.

Channels-to-Market

Another important element in executing a successful business strategy is positioning the company in the channels-to-market necessary to be effective in a given market and geography. Figure 1 identifies the major channel categories which may or may not be relevant to a given market situation.

The impact of M&A on the channels-to-market playing field is often significant and sometimes traumatic to companies that are vulnerable to abrupt change. This impact is not only felt by the companies that are being combined but also by the competitors serving the same markets and in similar geographies. Table 2 lists some cause-and-effect elements that can result from M&A events on the current channel-to-market strategies.

Regulatory and Environmental Compliance And Sustainability

Regulatory compliance has long been a part of doing business in the coatings industry. In this regard, continued strengthening of regulatory actions in Europe through REACH, the EPA in the United States, the Standardization Administration of the People’s Republic of China, etc., has had an on-going impact on M&A strategies.

Climate change has added a new dimension to the challenges of strategic planning in the coating industry. Sustainability, which has been a nice-to-talk-about issue in the past, has now become a priority for coating manufacturers and their suppliers. Recyclability initiatives focused on reuse to reduce waste and address disposal issues are one key element for next generation products. Sustainability also has the goal of manufacturing products that are zero-carbon. To accomplish this goal, there is a need to reformulate using raw material sources that include bio-based resins and additives.

M&A strategies are being increasingly impacted by the importance of sustainability to corporate image and brand identity in the global market going forward. In this regard, repositioning the company’s strategies and focus on streamlining and strengthening the company’s global market position by embracing and committing to sustainability has been the result. This effort has resulted in divestiture of products and markets that are inconsistent with this over-riding longer-term strategy.

Organizational Approach and Outcomes

Management’s approach to decision making, business strategy development and its implementation vary widely company to company. Privately owned businesses, especially those companies that primarily serve one geographic region, have a small group of senior management personnel or just the owner make most of the strategic decisions. In these situations, the process of decision making is much simpler.

Global corporations which have been built through merger or acquisition face a much more complex task of strategic planning and implementation. Company culture and the operational practices of the buyer in an acquisition or the lead company in a merger can contrast and sometimes even clash making the transition period often difficult.

Success on a global scale, following a merger or acquisition, is often determined by who is “driving the bus” and “how they are able to alter their routes” when driving in different geographies.

It is not surprising that regional differences, within the same or a similar coating market, are significant. While these differences are recognized by all the major global manufacturers, the effectiveness of companies in dealing with these differences often determines who will “win” and who will “lose” when measured on a global scale. Some reasons for this include:
• The strength of the buyer’s current business is located in one geography. This business model is used as a template for other regions.
• Support resources including R&D and marketing are concentrated in one region and remain that way following an acquisition.
• Market opportunities and new product development needs, within a given market space, are screened, and prioritized at one central geographic location by-passing adjustments for regional differences.
• Organizational practices and procedures lack flexibility and adaptability.

Many global companies today have transitioned from centralized control to a more regionally directed and executed business approach. This has helped improve the effectiveness of companies operating on a global scale.

Centralized control of a global business has often failed to achieve its intended objectives. One potential downside to this approach is that different geographic regions (within the company) can begin to establish barriers to corporate involvement. This includes avoiding taking direction or enjoining into longer-term corporate strategic plans. Territorial attitudes begin to evolve that limit the involvement of non-regional personnel and the value of shared information.

Centers of excellence have become an important approach to strengthening a company’s global position in selected markets. This approach brings together different elements of expertise available within the company with outside industry experts. The intent is to ensure the company is at the forefront of technology and innovation within their key targeted strategy markets. Centers of excellence also allow companies the ability to collaborate with major end-use customers. This approach can provide key customers with the resources necessary to keep them competitive and ahead of their competitors.