| Author Name | SHIRAISHI Shigeaki (Senior Fellow, RIETI) |
|---|---|
| Creation Date/NO. | July 2008 08-J-037 |
| Download / Links |
Abstract
This paper is an attempt to analyze the structure of economic globalization as a process of multiple games involving three kinds of players: firms, sovereign states, and international organizations; where
- a firm is a player that seeks to maximize profits through what is referred to as "2R-2R" dynamism a cycle between strategic fundamentals ("resources" and "risks" unique to each firm) and strategic actions ("redefinition" and geographical "relocation" of business operations);
- a sovereign state is a player that pursues its national interests based on the principle of realism;
- an international organization is a player that pursues universal interests beyond the framework of sovereign states based on the principle of liberalism.
In the paper, the structure of a hypothetical cross-border M&A, which constitutes a significant form of economic globalization, is used as a game in extended form to describe how economic globalization proceeds through the three phases of 1) the sovereign state's national security review of the M&A proposal; 2) firm-to-firm interactions; and 3) the international organization's antimonopoly review of the M&A proposal.
Implications from the analysis in this paper are as follows:
- A sovereign state's review of an M&A proposal, conducted from the viewpoint of regulating foreign investment to protect national security interests, is prone to subjective judgment.
- It is undesirable to place excessive expectations and burdens on an international organization that does not have sufficient power.
- Provided that specific information regarding expected benefits is available, it is possible to either predict the outcome of firm-to-firm interactions in phase 2, or assess the practical value of a specific M&A proposal through the application of a game theory model.
- In order for an M&A to bring positive results to both the acquirer and the target, it is imperative to ensure sufficient disclosure of corporate information, including information on evolutionary pathway-dependant resources and risks.
- An M&A proposal must be a win-win proposal that would contribute to the maximization of benefits for the target in order for the acquirer to obtain the most desirable results.
- It is desirable, from the viewpoint of corporate strategy, to construct an M&A proposal in such a way to guarantee approval by the competition policy authorities, thus making it important to enhance the predictability of decision-making by the authorities.
- The relationship between M&As and competition policy is subject to the influence of specific market conditions and other factors. Due attention must be paid to this point in considering the question of what power and authority should be given to a relevant international organization.
The analysis method adapted in this paper is applicable to examining various problems associated with economic globalization. I hope that the method will be utilized in specific case studies.
