Globalization affects not only the cultural, the political and environmental aspects of every society but also its economic aspects. This is particularly evident in the rise of competition in the political-economic landscape of countries that embrace international trade. As international trade takes root, companies continue to develop strategies for expansion, productivity and better profits (Reinert et al 200-201). Among these strategies are mergers, acquisitions and strategic alliances with other domestic and foreign companies). These activities have significant implications on the development of world trade and the international trade policies of the governments involved.
Economic integration that results from mergers, acquisitions and strategic alliances have implications not only to the trade laws and policies of the countries involved but also the world trade policies and structures (McCann 52). In particular, the consequences of these activities on the European Union policy and global trade landscape are greater. It has led to the development and re-arrangement of policy approaches related to mergers, monopolies in UK and U. S. A. The implications of these new trade approaches are thus great and significant in the development of the trade policies of the governments and states involved.
Implications on the Development of World Trade for the Governments
The onset of mergers, acquisitions and strategic alliances has great implications on the development of international trade between the governments of the countries involved. Companies consider mergers, acquisitions and strategic alliances as a strategy to find a soft landing in new foreign markets (Elmuti and Kathawala 206). For example, the merger between Alcatel and the American vendor Lucent Technologies in 2006 was quickly followed by a rise in mergers in the European telecommunications market. Although this had positive implications on the Foreign Direct Investments (FDI) in this economy, the European government swiftly responded to this by development of the protection laws and policies. This was particularly meant to cushion the local operators from stiff competition from the foreign investors.
The merger between two or more domestic firms is not considered as a great threat to operating companies in the host countries (Reinert et al 206). However, merger or acquisition of a domestic firm by a more developed foreign investor has in most cases led to the formulation and enactment of national competition and protection policies. Studies have indicated that such trade policy reforms often target reduction of potential market power. Such powers can be exploited by the foreign companies to the detriment of the domestic firms or development of monopolies that are risky to the consumer.
National competition agencies and policies have been developed and mandated to regulate proposed mergers, acquisitions, and alliances (Nava and Altomonte 105). However, Considerable focus continues to be given competition policies. Reinert et al cited that economic benefits of mergers and strategic alliances have had significant implications in the trade policies of the countries involved (206). Of particular consequence is the establishment of antitrust regulations. Companies prefer combinations with other companies in the foreign markets with the motive of amassing monopoly power. The merger policy for example got the approval of the World Trade Organization as it helps in preventing excessive concentration of markets and monopolistic power (Reinert et al 207).
Governments across the globe are striving towards adoption of liberal economic and trade policies so as to gain from economic development caused by Foreign Direct Investment (FDI). However, mergers, strategic alliances and acquisitions especially the typologies involving cross-border combinations have led to the development of other trade policies (Elmuti and Kathawala 206). Among these has been the development of the competition control regulations that aim at preventing market concentration. These activities also influence the regulatory policies indirectly since they have impacts on the efficiency of the international trade procedures.
European Policy Implications and Global Competitive Environment
The European competition policy has great implications on global companies operating in foreign countries (Nava and Altomonte 105). Enforced by the European Commission, the EU competition policy evaluates the economic factors that determine approval or rejection of mergers within the EU. The policy is relevantly applicable to international trade and aims at regulating the operations and conduct of companies that are considered a threat to EU economic integration (Elmuti and Kathawala 206). The aim of the EU competition policy is to promote competition within member states and create one market that goes beyond national boundaries. Promotion of competition within a single market targets realization of effective price competition, innovation and promotion of broad consumer choice (Nava and Altomonte 340).
Pillars of EU Competition Policy and Global Competitive Environment
Antitrust and Cartels
This policy provision aims at eliminating any trade agreements within the EU that are considered restrictive to competition. Such agreements include and involve price-fixing and cartels. Firms that abuse their privileged dominant positions in the market are also sanctioned under this provision (Reinert et al 207). Firms that exploit their dominant positions to hamper competition are considered abusive under the antitrust and cartel provisions of the EU competition policy. For example Microsoft got accused of stifling competition after it bundled Media Player with Windows. This damaged competing programs like Real Networks’ Realplayer and the Quick Time operated by Apple Computers in the same market.
The aim of then EU competition policy is to introduce competition in monopolistic sectors of the economy. Transnational mergers, strategic alliances and acquisitions are thus encouraged and also monitored to create positive competition. For example, the alliances between Apple, Sony, Philips and Matsushita that led to the establishment of General Magic Corporations are encouraged only to the extent that it promotes telecommunication market liberalization (Elmuti and Kathawala 206). This ensures that monopolies do not exploit the consumers especially where network industries are involved.
State Aid Control
The governments of the member states within the EU have the liberty to enact strategic measures in form of state aids (Nixson and Artis 122). However, under the EU competition policy, such economic boosts to private and state business are considered detrimental to competition in the global market especially if this interferes with forces of optimal market competition. However, the EU competition policy ensures that such measures do not impact negatively on competition in monopolistic markets (Nixson and Artis 122-123).
Mergers, takeovers, and strategic alliances have great potential to impeding or promoting competition. The EU competition policy however investigates mergers between different large firms that might cause monopolization of markets (Nixson and Artis 117). Mergers are considered critical in improving efficiency, competition and better consumer prices on goods and services. However, the EU competition policy prohibits acquisitions through buying of rival firms in the same market. This is considered a contravention of the spirit of fair competition that the policy exists to promote (Nixson and Artis 117-118).
EU Policy, Mergers and Monopolies in Europe and U.S.A
The EU policy exists particularly to regulate mergers and acquisitions that result into market monopolies by large companies (McCann 52). All the mergers that limit competition in the market are thus greatly controlled by the EU competition policy. All forms of mergers that result in the creation of monopolies are investigated under the provisions of the EU competition policy and sanctioned. Such mergers are considered to contravene the EU competition law.
The EU competition policy on mergers and monopolies seeks to generally cushion the EU markets against domination and monopolization by strong U.S firms (McCann 52). This is done especially to control monopolies in the industries that are increasingly being globalized like the telecommunications industry in the U.S and UK. The EU Commission thus only approves mergers with US firms in incidences where such mergers do not lead into monopolies or promotion of a dominant firm in a single market.
Reinert et al (207) on monopolies contend that such agreements are sanctioned under the UK, EU competition policy since they result into exploitation of product and service consumers. The U.S trade policies however are quite liberal to mergers (Reinert et al 207). This difference between UK and US in regard to mergers and monopolies is generally because of the powers and dominant market placement of some of the well established US firms especially in the globalized industries.
Federal Trade Commission in US and Competition Commission in UK and Merger & Monopoly Policy Approach
The US and the UK trade policy approaches to mergers and monopolies have the same goal, which is to increase competition while protecting the welfare of the consumer. However, the US and UK give this goal different approaches. The fundamental differences are in the manner in which the UK Competition Commission and the US Federal Trade Commission deal with mergers and monopolies especially with respect to the antitrust policy (McCann 52).
The difference in approach between the US Federal Trade Commission and the UK Competition Commission lies generally in their interpretation of mergers and monopolies. The US Federal Trade Commission’s antitrust law generally prohibits activeestablishment of mergers or monopolies in a common market (Nava and Altomonte 340). The UK Competition Commission’s policy on the other hand allows for mergers but prohibits abuse of monopolies and mergers. This difference in approach to mergers and monopolies has raised sharp debate between the UK and the US. As a result, the UK is accused of protecting competitors and not competition (McCann 52).
The UK Competition Commission policy is quite liberal to development of mergers and other joint ventures. This is however only permitted to the extent that such ventures have pro-competitive effects in international markets. Nava and Altomonte (340) cited that the difference between the Federal Trade Commission and the UK competition policy is in leveraging of monopolies. Under the provisions of the US Federal Trade Commission, it is generally not prohibited or unlawful for an established firm with a monopoly in one market to exploit this dominant position to gain competitive advantage in the foreign markets in the neighborhood (Nixson and Artis 117).
Under the UK Competition Commission policies, such a move is considered as an abuse of privileged position of dominance (Nava and Altomonte 340). Under the EU competition policies, it is unlawful for a firm to exploit its dominant position to gain trade competition advantages in an adjacent market. Such mergers or trade moves are considered a contravention of the competition provisions that the commission exists to safeguard.
The significance of mergers, acquisitions and strategic alliances in international trade and development of policy frameworks in the countries involved cannot be ignored. These activities continue to evolve with increasing competition in the globalized trade markets. The governments of the countries involved have developed policies that seek to cushion the local industries against unfair competition from the established firms. Establishment of regulatory bodies such as EU Commission, Federal Trade Commission and other competition agencies are all meant to promote international trade. At the same time such approaches target protection of consumers against exploitation by the dominant companies. Promotion of constructive competition and discouragement of market monopolies is thus the goal of such bodies and policies.