Family Business

The business is family business in which the members of a family hold the property sufficient to determine the composition of the board. Normally, in family business, representatives of this family will keep one of these positions: Chairman of the Board, directors or CEO. The family members usually keep many positions simultaneously such as shareholders, managers and CEO.

In developing economies, many successful companies have also originated from the family business, some typical examples like Wal-Mart, Bertelsmann and Bombardier in North America and Europe. In fact, family business has both advantages and disadvantages.

In terms of advantages, because ownership is in the hands of one or a few members of the family, so the family business tends to "personalize", unified power into the hands of homeowners. This power allows family business to execute a long-term vision, focused investments to create long-term competitive advantage that the company runs base on short-term results in the stock market cannot achieved. Secondly, the family business tends to save and careful in expenditure. The consistency between the ownership and the management help to mitigate the scale and extent of the representation problem.

However, the family business has to face with a very unpleasant fact, that statistics show that the rate of long-term success of family business is very low. According to the McKinsey survey, only 5% of family businesses which have large scale continually develop well after the third generation. In general, when a successful family business drops into the control of the descendants of the founder, this family firm starts going down. Go to the third generation of corporate takeovers, corporate context has been built for quarrel between family members. Instead of focusing on corporate governance, they will compete for a share of profits and the leadership position of the company. On the other hand, the family business has little of supervisors, not bear pressure from external, and face with risk in giving unsuitable business strategy with market realities.

As a result, good corporate governance is critical factor to decide long-term success of family business. Experience of successful family companies in the world showed that in these companies, should be have a clear separation between ownership and operating rights, acknowledges the role of an independent board and clearly defined responsibilities of owners with board and executive apparatus. Besides, there are some factors decide the success of family business, namely: good governance, risk diversification and dynamic management in a business investment.

The Credit Crunch

The Credit Crunch is a financial crisis which was started in US. It was initially due to a loss of confidence by investors in the mortgage and loan markets in the US. However due to the close interaction of banking institutions across the world the "credit crunch" resulted in a global liquidity crisis. The credit crunch can be defined as the sudden reduction in the easy availability of credit or loans from banks or mortgage lenders resulting in far more stringent checks becoming conditional before bank loans will be approved.

The credit crunch not only affects to big companies in particular, but also makes damage in nation scale in general. On 7 September 2008, two mortgage lenders of the US - Freddie Mac and Fannie Mae, forced to takeover by the government to avoid bankruptcy. This event continued to spark breakdown of other big names. On 15 September, the fourth largest investment bank of America - Lehman Brothers, after 158 years of existence has declared bankruptcy. Exactly 10 days later, Washington Mutual created the largest bank failures in history with total assets damage of $ 307 billion. Besides, due to the financial crisis, the number one investment bank of the US, Merrill Lynch was acquired by Bank of America. The government was forced to inject $ 85 billion into AIG, the largest insurance group in the world, in order to avoid financial market in the country with a worse outcome.

Iceland was the first country in danger of bankruptcy on a national scale. Government of Iceland had to close the stock market, and nationalized the leading banks. Since then, krona - the currency of this country depreciated severely and nearly wiped out. Besides, in Asia, the Korean economy also belonged to red alert when the won depreciated over 40% since the beginning of the year and was at its lowest level since the 1997 financial crisis. The Korean government had to make a number of emergency measures such as cutting interest rates and pumping money into the financial system. Moreover, many major economies, starting from Japan, and the EU reported to drop into recession. America, for the first time in eight years, has been recognized officially in this situation since 12/2007. The same thing happened with Russia, the 4th largest economic in the world. Oil prices declined dramatically along with the building needs went down. It led to a serious impact on two strategic exports of Russian - oil and metals; contributed to making this country into recession.

In general, the credit crunch spread to many countries around the world, leads to the financial collapse, recession, declining economic growth in almost countries in the global scale.

Merger and Acquisition Activity

The economic restructuring process created pressure for the remaining businesses which have to converge all advantage factors. These businesses will contribute to the formation of a new organization and effect activities in the new situation, thereby increasing the positive motivations for economic development, contributing to improve the structure, coherence and able to participate in the global supply chain of each company in particular, of the economy in general. Merger and acquisition activity (M&A) generate the change of ownership structure, control, administration, financial capacity and business scale, thus contributing to opening up opportunities for new business, enhance competitive position and starting a new development cycle for a business.

There are some main advantages from M&A activity of company:

• Economy of scale: When two companies merge or acquire together will form a stronger company. Then, they will take advantage of large-scale trading about capital, people, financial capacity improved significantly, reduce business risk, and increase market power. So, the company will be in a better position when conducting transactions or negotiating with partners. On the other hand, large scale also helps enterprises reduce the unnecessary costs incurred.
• Increase market share and reputation in the industry: One of the objectives of the M&A activities is to expand into new markets, increase revenue. M&A allows expansion of marketing channels and distribution systems. Besides, the position of the new company after the M&A will increase in the eyes of the investment community: bigger companies have more advantages and ability to raise capital easily than a small company.
• Equip new technology: In order to maintain competitive advantage, companies need of technical investment and technology to overcome the competitors. Through M&A, the company may transfer techniques and technology for each other, and take advantage of technology transfer in order to create competitive advantage.

However, the company also has to face with some significant problems. Firstly, M&A often make the wealth of the acquirer’s shareholders reduce. One of the reason is  there are many merger and acquisition activity occur in a long-time, so it can lead to unstable situation in operation as well as in finance. Then, company cannot manage and control their activities effectively. Moreover, the main reason for this reduction is failure in strategy and top management as well as the acquirer could over optimism about the profit it could gain. The next problem is M&A activity can affect the corporate culture. When two or more companies merger together, all the unique characteristics will be integrated in new context, so all staffs could feel inconvenience when working in environment with mixed corporate culture. Besides, they also must find out the way to adapt with the change in communicating with new customers and new colleagues.  Finally, when acquiring, the business will reduce the number of employees, especially indirect job such as officer, accountant or marketing…And the consequence is increasing unemployment labor and effecting the development of society.

One of the examples about M&A activity is BT continues to expand into sport broadcasting by acquiring ESPN UK and Ireland TV channels in 25 February 2013, according to BBC News. The deal helps BT to add to its live sports coverage and acquire the ESPN and ESPN America channels, and their live rights to show FA Cup, Scottish Premier League, Uefa Europa League, and German Bundesliga matches. As can be seen, this acquisition of BT helps the company to add more products and services for customers. They will provide more exciting new sport channels as well as improve quality live football. On the other hand, in my opinion, BT also expanded economy of scale of the company by increasing the number of subscribers in the market in compare with their competitor – BskyB. Besides, I believe that when occur acquisition, BT will implement to cut off job to adapt with new situation and improve their performance.

Foreign Direct Investment (FDI)

Foreign direct investment (FDI) is the international movement of capital in the form of production capital through investors in one country invests funds to another country to build production facilities, gain some advantages of capital, and improve the level of technology and management experience. All of them aim to the purpose of increasing profit and dominate or control entire of the business more effectively.

Almost governments have a direct role to encourage or restrict FDI, the process to manage FDI, and create the institutional framework to support. These incentives include tax provisions of its imported goods, duty-free for a certain period for its products. Most host countries offer investors a package of infrastructure. Some countries also help foreign investors to reduce non-economic risks, and ensure not nationalized or confiscate their property.

The restrictions include not allowing FDI in some areas, especially the low-tech sectors where domestic firms can afford, or the so-called "key" industry. Besides, they also limit the capital which contribute to the joint venture, or force to increase the ratio of capital contribution of the partners in their country after certain years, limit the transfer of profits abroad, set up target rate of export products, limit the ability to access to financial markets, or the ability to sell products in the domestic market.

For example, in case of Ikea, India government allowed Ikea's entry into the market of them. Follow their plan, they will open 25 stores, invest about $2bn (£1.3bn) over the next 15 to 20 years. According to the trade minister, "The government is committed to play a constructive role in encouraging FDI (foreign direct investment) specially in areas which create jobs and provide technological advancement” (BBC). With their subsidiaries in Indian, in 2012, the government changed policies to permit foreign investors and retailers to own 100% of capital. Moreover, with some foreign brand retailers like Wal-Mart and Carrefour, India allowed them to own as much as 51% of outlets.

Singapore is also one of the economies which successes in attracting FDI through strategies focus on export-oriented industrialization. This strategy is built from the 1960s based on the fact that the narrow domestic market, limited domestic capital, domestic enterprises are still weak. In order to attract FDI, Singapore has implemented the following policies:

• Regarding the balance of foreign currency, foreign exchange management: The Government of Singapore does not manage of the foreign exchange market, instead of they will allow corporations operating freely according to the rules of the market.
• The provision of loans, land management: Investors can raise capital by issuing stocks, bonds; borrow from financial institutions in the country and abroad.
• Investment Procedures: The procedures were performed according to one door policy, to ensure that all procedures will solve quickly for investors.
• In the field of investment:  Singapore will open with almost of the economic sectors except for areas related to national security and social security.

However, many foreign enterprises exploit low cost labor, not training and even used temporary job mechanism to change labor constantly. They have a very high rate of female labor, but labor costs are low and can cause occupational accident. Besides, these companies also abuse of preferential policies and the transfer pricing, causing damage to the state budget and the business situation lacks transparency, unfair competition between businesses. Therefore, when allowing multinational company invests into each country, the government of this country should consider the duality of foreign direct investment.