Academic journal article Academy of Strategic Management Journal

The Effects of Merger on Competition: Evidence from Smithkline Beecham and Glaxo Wellcome

Academic journal article Academy of Strategic Management Journal

The Effects of Merger on Competition: Evidence from Smithkline Beecham and Glaxo Wellcome

Article excerpt

INTRODUCTION

In this dynamic and global business environment, each firm faces intense competition from other firms in the market. This intense competition among the firms creates significant difficulties for them to sustain profit and performance accordingly. In this scenario, corporations are seeking such ways through which they facilitate competition for other firms in the industry without affecting financial and operational performance. In order to remain competitive, companies are engaged to adopt some expansion strategies such as joint-venture, mergers, FDI and acquisition etc. (Duxbury et al., 2007). The above strategies enable firms to obtain several benefits such as economies of scale, cost cutting, operational efficiency, global presence etc. Lopez & Vives (2018) state that mergers can have unilateral effects for investment in research and development (R&D) those are conceptually similar to the unilateral effects from mergers for price competition. Saraswathy (2016) found that in most of the merger intensive sectors, the disappearance rate was significant to influence market competition. On the other hand, for the surviving firms, the increase in market shares is not sustained in the long run as expected, which was mainly due to the absence of synergy creation during the post-merger period.

The strategic execution of large firms plays an important role to influence the competitive environment of a market or industry. This influence affects the functions of other companies in related industries. Thus, it is needed to analyze the effects of expansion strategies of a firm in terms of market competition. With the implementation of defined rules, policies and regulations under International Competition Law (ICL), the influence of expansion strategies over business activities are controlled in effective manner (Davison & Johnson, 2000). By this law, an expansion strategy should not influence the competitive structure of a market. ICL is implemented to measure and control the competition level that is influenced due to firms' expansion strategies. In this way, it plays crucial role in companies to motivate them for adopting competitive practices with ethical considerations. Under this law, each firm is obliged to get approval from the authorities of ICL, while executing any expansion strategy. By only getting approval from ICL, firms are able to proceed in their desire market through expansion strategies (Wood & Wrigley, 2007). A merger or any other strategy is not approved by this authority, if it either increases or decreases the market competition level at greater extent. There are mainly three type of mergers namely vertical, horizontal and conglomerate that are executed by the companies to expand their markets domestically or internationally. Each type of merger demonstrates different processes that reasonably influence market competitive structure differently. Although each expansion strategy plays an important role to influence the competition structure, merged companies have wider possibilities to impact ICL (Marsden, 2000). Due to this, regulatory authorities significantly focus over the merger process in analyzing the impact of ICL at greater extent. With the case study of GlaxoSmithKline, this paper evaluates the effects of merger on the competition level of market. Hence the prime objective of this paper is to explore the effects of merger on different stakeholders with special reference to SmithKline Beecham and Glaxo Wellcome.

Merger between SmithKline Beecham and Glaxo Wellcome

Glaxo Wellcome, a UK based pharmaceutical company, was engaged to produce pharmaceutical products for curing two main diseases namely asthma and HIV/Aids. It was the third-largest pharmaceutical company by revenues in 1991. Around 4 cent of market share of this industry was obtained by Glaxo Wellcome. On the other hand, SmithKline Beecham was also UK based company and engaged to produce medicines globally. …

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