Question

Assume Adidas from Germany is considering a full acquisition of New Balance from the USA to strengthen the firm’s position in the USA. What are two pros and two cons of this acquisition?

If the deal is approved, what are the pros and cons of an ethnocentric versus polycentric staffing approach for the selection of a CEO for Adidas new larger operations in the USA?

Answer 1

Generally when two companies join together through the process of mergers and acquisitions [M&A], there are a lot of issues which must be analyzed to determine if the M&A process would benefit with such a move and outweigh the potential risks involved. There are always benefits and also constraints to the process of M&A. Few of those are,

Benefits:

· New markets are opened up for both the companies:      
Once New balance would merge with Adidas; it might instantly gain a very new market share which the company would never experienced in the past. M&A process always allows the people to maintain their loyalty while they potentially move on with new goods or services.

· Cost-effective method:
During this M&A, both of these companies could come together, so that the need of New Balance can be met by Adidas in a more affordable manner. This could include the employees to be considered as a resource. Additional training costs, infrastructure and facility management costs can be cut down during this process which benefits Adidas.

Constraints:

· Creates Distress:
When this M&A process happens, it could invariably consolidate the hierarchical positions within the acquired company I.e., New Balance. There are even chances for the layoff which could make New Balance’s employees jobless for an indefinite period

· Debts might Increase:

This M&A process by Adidas can potentially increase the balance sheet debt of New Balance company, if there are any debts owed them. Even though not by itself catastrophic, but it could impact Adidas’s ability to establish new credit lines

Ethnocentric Approach vs Polycentric Approach

The Ethnocentric Approach is the process of recruiting the right candidate for an international job or business on the basis of the skills and talents required. This process should also consider the willingness of the candidate to mix up with a diverse cultural international organization.

On the other hand, the Polycentric Approach is an international recruitment where the HR professional recruits the candidate for an international business where the nationals of the host country are to be recruited for positions in order to carry out the effective operations of their subsidiary company.

The main advantage of this ethnocentric approach in the process of recruiting the CEO would be the ease of execution as all the strategies pursued in German domestic markets would be replicated in the US markets. Hence, Adidas might to not need to focus on development of a complete set of unique strategies. This would result in great savings of time, costs and the other efforts. Whereas the primary disadvantage of this approach would be, the strategy might not be efficient in the sense of considering the fact where the United States market is a unique market. Adidas will have to custom some alterations to the existing strategies in order to harvest the full local market potential and make the M&A successful in the United States.

Polycentric approach's primary advantage in recruiting the CEO, comes from its custom designed strategies for every international market such as the United States in this case, which is unique. This might help Adidas to enjoy the full benefits of the market potential in the United states market. However, the disadvantage of this would be, such a strategy will be very difficult to execute in real time and this approach will require resources such as HR functions and also financial resources.

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