Learn about Mergers from a Muslim Perspective
How and Why Mergers Benefit Corporations and Communities
Feb 24, 2009
When the word merger springs up in conversation, even amongst business-minded persons, the first thing that comes to mind is multinationals that look for opportunities to increase in their size. Some of these multinationals often turn into conglomerates – a large corporation that has such diverse portfolios that they are able to dominate several industries at once.
Ideally, mergers involve the liquidating of company shares (of those corporations involved in the contract) and the re-registration of the new corporation. Of course, for enterprises, this may not happen as the structure of some small to medium companies is not based on shareholding. Nevertheless, mergers at this level can be executed through a simple contract of agreement between the privy companies.
Considering a Merger?
There are various instances where a small-medium enterprise would consider a merger with the underlying objective to increase the firm’s profit or shareholder value. Here are a few reasons why a merger would be the next step for your business.
Your Company Foresees a New Target Market
New target markets are excellent avenues to increase your business’ presence in the market by widening your clientele scope.
Your Company Foresees New Product Development
New product development is essential for any business as it can be difficult to sustain market share in the long run with the proliferation of competitors around the globe.
Your Company Foresees Opportunities for Transfer of Knowledge
Transfer of knowledge can also be known as transfer of technology or technical know-how. By sharing such knowledge between companies, you would be able to cut down on learning new skills by just capitalising on the strengths of each individual business.
Your Company Foresees the Need to Reduce Costs
Costs are the all time evil when it comes to the sustainability of your business. Simple costs are such administrative costs. By pooling resources under one roof, small companies are able to reduce the use of redundant resources such as excessive stationery packages, multiple phone lines and internet connections, and may even choose to share a premise, thus this will significantly reduce the rent – and in the long-run the cost of operations.
Benefits of a Merger
There are plenty of benefits when a merger takes place. Some companies are able to realise immediate benefits but mostly enjoy them as a long run incentive after agreeing upon the merger. Mostly, a merger will allow your business to enjoy economies of scale whereby a larger size company with less redundancy would be running at a lower cost in relation to the costs incurred before. This also increases your bargaining power in the market, for example, due to your larger capacity you would be able to negotiate for lower pricing from suppliers. Market presence and growth opportunities are also benefits of a merger. Your corporation would have acquired new skills, products, personnel and even technology to further build a competitive advantage within your industry.
Know the Different Types of Mergers
Mergers come in different shapes and sizes. The dynamics of the business world promotes flexibility that allows different companies to benefit from different structures and this is no different for a personal business.
- A horizontal merger represents the merging of two competitors that share the same product lines and markets. This simple merger increases market share in your industry.
- A vertical merger on the other hand, represents the merging of two companies that share a customer-company or company-supplier relationship. This can be seen through a card designing company merging with a printing company.
- A market-extension merger takes place when the companies sell similar products in different markets. An example of a market-extension merger can be illustrated through the merging of a casual Muslimah apparel retailer with a formal / career focused Muslimah apparel retailer.
- A product-extension merger sees two companies selling related products in the same market band together. This can be seen through the partnership between a web designer and a web programmer.
- A conglomeration represents two companies that have no common business focus. Generally only larger corporations are able to foot the cost of such a merger.
The Muslim Merger
A business merger can represent a cornerstone in strengthening the ummah and can even translate into da’wa work. A business merger between Muslim companies for example, can foster ties between Muslims, regardless of race and expertise, solidifying a strong Muslim business empire that champions halal products and services and shuns those that are haraam. It fosters fair distribution of wealth between managers and their employees who are involved in the merger. A strong Muslim corporation will also benefit Muslim clientele who seek a service that was maybe unavailable to them without the synergystic effects of the merger. It also represents a good endeavour to promote Muslims’ lifestyle.
