a. Why did Sony and Matsushita’s acquisitions fail from an organizational point
ID: 447788 • Letter: A
Question
a. Why did Sony and Matsushita’s acquisitions fail from an organizational point of view?
In 1989 the Sony Corporation paid $3.4 billion for Columbia Pictures, a Hollywood TV and film studio. In 1990, Matsushita paid $6.1 billion for MCA, the American music, video and entertainment company. The lessons to be drawn in both cases stem from an assessment of the strengths and direction of the organisation in question. In general, any growth, diversification or acquisition strategy will be based upon an estimation of what the new business will bring to the existing one and how this will strengthen both the overall portfolio and its operational capacities. The rationale behind each takeover was that the acquiring companies had expertise and capabilities in electrical and electronic technology that could usefully and profitably be translated into the new spheres, and that there would be measurable commercial returns on the amounts paid. The acquisitions would also lead to new market opportunities in the United States and in the entertainment sectors, and would give each of the companies a further foothold and reputation in the West. Both decisions were criticised at the time as being acquisitions for their own sake, pushed on by the desire of the companies' managements to gain a stake in a glamorous and high-profile industry, and by companies that had more cash than they knew what to do with. There was also perceived to be an element of competition between the two organisations - and especially their chairmen (Akio Morita of Sony and Konosuke Matsushita of Matsushita). The flaws in both these two cases and in the wider sphere of mergers and acquisitions have subsequently been extensively researched. Reports published by the London Chamber of Commerce and Industry (1998) and the American Management Association (2001) strongly support the view that almost 90 per cent of mergers and acquisitions lead to increased costs, declining performance in the short and medium term, and extensive staff and customer uncertainty, dissatisfaction and stress. This is because mergers and acquisitions are almost exclusively driven by a short-term dominant stakeholder interest or undertaken for reasons of prestige and triumph, rather than in order to secure long term commercial or public service advantage.Explanation / Answer
Before discusiing the failure of the acquisition, I would like to add an additional information which is not mentioned in the case study. Sony is the electronic giant and the market leader, price leader,charging a premium price than others , known for her better quality product. The strength of matsushita are extremely different from Sony, and no way comparable. Their acquisition is like a higher quality product manufacturing firm buying a low quality firm.
The resaons of failure mentioned in the case study increased cost, declining performance in short run and medium run, extensive staff and customer uncertianty. ( You need customer who prefer high quality or law quality). Above all these decisions are taken on the basis of short term dominant stakeholder interest.
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