Brand Integration After Cross-border M&A Evidence From China Hotel Industry

EASTERN ACADEMIC FORUM
Brand Integration After Cross-border M&A Evidence From China
Hotel Industry
LU Qi1, ZHAO Xiaoyan2
1. School of Postgraduate, Beijing Union University, P.R.China, 100101
2. School of Tourism, Beijing Union University, P.R.China, 100101
[email protected]
Abstract: Each cross-border mergers and acquisitions (M&A) are faced with the choice of brand
integration strategy. These strategies act as an important part of the whole strategy for firms to
implement after cross-border M&As. The paper analyzes four different strategies for integrating brands:
'Swallow up', 'combined', 'Coexistence' and 'Innovation' and try to combine these four strategies with
different industries. Few studies have evaluated the brand image effect of an M&A from a marketing
perspective. The contribution is to help managers understand whether the acquirer should preserve the
obtained brand and focus on increasing brand equity of the acquired brand to avoid the loss of customer
loyalty. The paper is structured as follows. First, we provide an overview of the related the concept and
theory on cross-border M&A. Next, we analyze how different industries should do during the process of
brand integration and. Finally, in the concluding section, we associated it with the hospitality industry
and propose some advices towards China hotel industry specifically.
Keywords: Cross-border M&A, Brand integration, China hotel industry
1 Introduction
In the first half of 2013, the completion of the acquisition in China reached 406 cases. Among these, 47
cases are cross-border M&A, accounting only for 12%, but its amount accounted for 68%, up to
27,601.99CNY.
M&A are conducted to pursue various corporate objectives. Hitt et al. (2001) stated that the main
corporate objectives are to gain greater market power, gain access to innovative capabilities, thus
reducing the risks associated with the development of a new product or service, maximize efficiency
through economies of scale and scope and finally in some cases, reshape a firm’s competitive scope.
Other researchers supposed that firms also have financial reasons to do takeover activities.
Vermeulen and Bakerma (2001) claimed that acquisitions might revitalize the company by bringing in
new knowledge to foster long-term survival. However, a review of the literature suggests that the most
common motive underlying acquisitions is to achieve synergy effects (Birkinshaw et al., 2000; Vaara,
2002).
Nonetheless, previous research mainly link the acquisitions fail to the finance and economics failure.
Researchers have proposed a wide variety of reasons for acquisition failure such as overpay for the
target and higher premiums (Sirower, 1997). Hitt et al. (2001) stated that inadequate evaluation of the
target or large debt could also lead to acquisition failure. Other researchers claimed that it is the
integration strategy and implementation (Haspeslagh.P and Jemison, 1991) along with problematic
leadership when managers are overly focused on acquisitions (Hitt et al., 2001) that affect the likelihood
of success and failure.
In addition to the aspect of financial and organizational management, brand integration is a key factor to
M&A success. There are some existing theories about incentives of M&A: Economies of scale and
scope of economic theory; Transaction cost theory; Management expansion; Financial synergy theory.
Different firms, or even different industries, should be effectively analysis how to integrate brands,
making it become an organic unity, finally the firms can better fulfill enterprises objectives. However,
in actual cases, the M&A brand integration failure is not uncommon. It is estimated that, there are
nearly 70% of the M&A partners in the maintenance of common areas of brand equity failed, not to
171
EASTERN ACADEMIC FORUM
mention acquire the advantage of strengthening the original brand. With management's awareness of the
importance of the brand, research on the brand integration strategy after cross-border M&A become
more meaningful.
We analyze the brand integration strategy from the perspective of different industries, and as the sample
for our study, we chose a hotel to make our research more concrete.
In conclusion, we propose some advices towards China hotel industry specifically. We hope it can guide
the process of brand integration after cross-border M&A of China hotels, fulfilling the whole
company’s strategic objectives.
2 Brand Integration Strategies After Cross-Border Mergers and Acquisitions
2.1 What brand is and its importance
Brand is the consumers’ awareness of the product and product family. Brand is a name, term, symbol or
design, or a combination, which aims to identify a seller or group of sellers of products or services, and
make the difference with the products and services open to competitors (Philip Kotler.). For the
purposes of aspects of brand strategy, brand awareness is an image of these elements through a series of
marketing activities and the results demonstrated the formation of feeling, quality awareness, as well as
the manifestations of these customer s’ loyalty, in general, it is a form of intangible assets.
U.S. advertising expert Larry Wright had predicted: “The future of marketing is the competition of
brand. Businessmen and investors will recognize the brand as the company's most valuable asset, it is
more important to have the market than having the factory. The only way to have a market is having a
brand which has marketing advantage”.
Brand is more significant after the cross-border merger and acquisitions because that should overcome
the cultural differences. And the other county’s consumers’ first impression on the company's products
or services is from the brand.
2.2 Brand integration strategies
There are four major brand integration strategies now that managers can choose after cross-border
M&A.
Swallow up- using one of two firms’ brands which has a dominant market position. This means that one
of both parties involved will be demised in all or partly. It can be divided into two situations: one is to
use the acquirer’s brand. Another way is to use the acquired brands.
Combined-Two firms of the same scale and the brand value of companies through mergers and
acquisitions integrate into one brand by simply combine the two brands, such as Sony Ericsson.
Coexistence-After the acquisition, two brands coexist in the market, such as Gome acquisition of
Yongle electric appliance company.
Innovation- That both brands simultaneously disappear from the market, a new brand has replaced.
This paper suppose that the corporation select brand integration strategy should not only focus on the
degree of Brand association and brand influence, but also pay attention to the characteristics of the
industry that they belong to.
2.3 Brand integration strategies with different kinds of industries
In this paper, we divided the different industries into four categories. X-axis represents what the firms
provide to customers, and Y-axis represents who are the firms’ direct customers. (We only list some
representative industries as the examples.)
172
EASTERN ACADEMIC FORUM
Table 1 Different industries
Wholesales
Information
transmission,
computer services and
software industry
Manufacturing,
agriculture
A
Customer
FMCG industry
D
Production
B
Hotel industry, information
consulting services
C
Services
This chart only aim to illustrate that we should notice the different industries features when decide the
brand integration strategy after cross-border M&A, because brands do not have the same meanings to
all the customers. So we are trying to find the targeted brand integration strategies towards different
industries.
For A-These kind industries do not provide their final customers directly with their products, such as
some manufacturing companies. So they mainly want to get economy of scale through cross-border
M&A, and their brand mostly represents their production’s quality. We propose that if the acquire
company has stronger brand than the acquired one’s, they had better use the “swallow up” strategy to
keep the wholesales maintain the confidence of their suppliers in condition that the acquirer do not enter
unrelated industries.
For B-These kind industries do not provide their final customers directly with their services, such as the
IT suppliers. And they must keep their service style consistent. Besides that they also need to manage
their employees effectively. So we suppose the first brand integration strategy-“swallow up” and
“combined” are suitable for this kind to ensure their wholesales recognize their unique services.
For C- These kind industries do provide their final customers directly with their products, such as
FMCG. They sell their own production to consumers. And if they want to enter into the other country by
M&A, their brand would be adjusted according to the local culture and customs. This kind of industries’
brand integration strategies is different from the class A mainly because their brand represents both their
products’ quality and their marketing features. They can choose all brand integration strategies except
“Innovation”.
For D- These kind industries do provide their final customers directly with their products, such as the
hotel industry. As the traditional services industry, they not only take into account the existing brand
awareness in the local, but also need to think about local residents living habits and customs after
cross-border mergers and acquisitions. If the original brand has a certain reputation and a loyal customer
base in the local, the enterprise should choose the “Coexistence”. And if the acquired have no
foundation in the local brand and customer base, you should choose the “swallow up” or “combined”
strategy.
In conclusion, the “innovation” strategy is not be mentioned because we think that building a new brand
needs to invest a lot of money and manpower, in case that there is no deterioration in their brand, and
did not enter the new product market, the choice of this strategy need to be very careful, not just merely
relying on industry characteristics. We hope it can be researched more deeply in the future.
173
EASTERN ACADEMIC FORUM
3 Example of China Hotel Industry
3.1 China hotel industry M&A Status
Since the increasingly demand for outbound tourism market in China, people traveling abroad will face
many problems such as languages problem, food and culture, Chinese local hotels’ brands going out of
the country is of extraordinary significance.
This year, the HNA Group, New Century Tourism, Greenland Group, export their strong local hotel
brands through cross-border M&A. Take Germany as the example, three Chinese local hotel brands
settled in Frankfurt within six months. At the end of last year, the Greenland Group and Spain MELIA
Group undertake a comprehensive strategic partnership to manage the independent hotel brands which
is named by Greenland Group’s "QUBE" name. The company is located in Frankfurt, Germany, its own
high-end business hotel be the sole property management, use. On April 4, 2013, New Century Tourism
Group announced the acquisition of four-star business hotel - formerly Golden Tulip Hotel which is
located in the Rhine. On April 12, Huarong Sunshine Hotel capping ceremony was held in Frankfurt,
Germany.
The hotel industry, as a traditional service industry, have choose the best way to enter the overseas
market-the brand output, they can use local existing fixed assets (Buildings and indoor facilities) and
human resources to expand its own brand.
As we mentioned above, hotel industry needs to take fully into account local conditions, including the
original hotel's business situation and the local consumer habits.
3.2 Suggestions
Therefore, we propose some advice to the hotel industry on the brand integration after cross-border
M&A.
3.2.1 Brand integration should fully consider local cultural factors.
3.2.2 Brand integration strategy should be consistent with the company's original image and market
positioning, and if not, they will need to cooperate with the company's other strategies.
3.2.3 Products and services provided by companies in other countries should be guided by the market, if
the original brand image does not suit to the existing new market, they need to use “Combined” or
“Innovation”, but they need to fully assess the market and their own financial situation.
4 Conclusion
This paper aims to understand integration of brands after cross-border Mergers and Acquisitions. Take
China hotel industry as an example to help managers understand the brand integration strategy should
be selected by considering the industry’s characteristics.
And due to the limit of time, this paper may be not sufficient to clarify the whole aspects of brand
strategy, so we expect that customers’ perceptions can be involved to enrich our understanding of this
field.
References
[1]. Mary C. Lambkina, Laurent Muzellecb. Leveraging Brand Equity in Business-to-business Mergers
and Acquisitions, 2010
[2]. Dung Anh Vu, Yongjiang Shi. Brand and Product Integration in Horizontal Mergers and
Acquisitions. Mike Gregory European J. of International Management, 2010
[3]. Lee, HM, Lee, CC, Wu, CC. Brand Image Strategy Affects Brand Equity After M&A. European
Journal of Marketing, 2011
[4]. Vermeulen, F., Barkema, H.G. Learning Through Acquisitions. Acad. Manage. J, 2001
174
EASTERN ACADEMIC FORUM
[5]. Birkinshaw, J., Bresman, H., & Hakanson, L. Managing the Post Acquisition Process: How the
Human Integration and Task Integration Processes Interact to Foster Value Creation. Journal of
Management Studies, 2000
[6]. Vaara, E. On the Discursive Construction of Success/Failure in Narratives of Post-merger
Integration. Organization Studies, 2002
[7]. Hitt, M. A., Harrison, J. S., & Ireland, R. D. Mergers and Acquisitions: A Guide to Creating Value
for Stakeholders. New York, NY: Oxford University Press, 2001
[8]. Sirower, M. L. The Synergy Trap: How Companies Lose the Acquisition Game. New York, NY:
Simon & Schuster, 1997
[9]. Haspeslagh, P., & Jemison, D. Acquisitions: Myths and Reality. Sloan Management Review, 1987
[10]. Emanuel Gomes, Duncan N. Angwin, Yaakov Weber, Shlomo Yedidia Tarba. Critical Success
Factors Through the Mergers and Acquisitions Process: Revealing Pre- and Post-M&A
Connections for Improved Performance. Thunderbird International Business Review, 2013
[11]. Yener Altunbas¸ David Marqu´es. Mergers and Acquisitions and Bank Performance in Europe: The
Role of Strategic Similarities. Journal of Economics and Business, 2008
175