The number one semiconductor company in the world Applied Materials recently merged with the world’s number three semiconductor company Tokyo Elecktron. The stock prices of both companies went up significantly after the merger was announced, which shows that investors welcome this move that may create synergies and help both companies battle declining revenues in the semiconductor industry. However, even though there are potential benefits to this merger in terms of operational synergies the human side of a merger can often be difficult. Furthermore, Japanese and American cultures are widely perceived as being extremely different from each other which may add to the difficulties in managing the human side of this merger.
For this assignment, review the following two articles and do some of your own research on these two companies:
McClatchy, S. (Sep 2013) Applied Materials to merge with Tokyo ElectronJohnson, Tribune News Service, Washington
Negishi, M. (Sep 2013) Deal-Shy Tokyo Electron Chief Pushed for Sale to Applied Materials; Tetsuro Higashi’s Decision Was Based on Experience Watching Japanese Peers Flounder, Wall Street Journal (Online), New York, N.Y
Then once you’ve finished researching these companies and reviewing some of the key concepts of cross-cultural management in the background materials, write a four page paper answering the following questions:
1. What do you think the biggest challenge in terms of cross-cultural management will be in the merger of these two companies? Remember to consider to issues of differences in national cultural values between Japan and the U.S.
2. What steps do you recommend be taken to help ease cultural differences between the two companies?
• Answer the assignment questions directly
• Stay focused on the precise assignment questions, don’t go off on tangents or devote a lot of space to general background materials
• List supporting references and cite sources in proper format
• Use appropriate writing style in essay form (organization, grammar, & spelling- see Writing Guidelines).
Deal-Shy Tokyo Electron Chief Pushed for Sale to Applied Materials
Tetsuro Higashi’s Decision Was Based on Experience Watching Japanese Peers Flounder
Sept. 25, 2013 2:53 p.m. ET
TOKYO—A day after agreeing to sell his company to an overseas rival to create a chip-equipment powerhouse, Tokyo Electron Ltd. 8035.TO -1.33%Tokyo Electron Ltd.Japan: Tokyo ¥6287 -85-1.33% March 28, 2014 3:00 pm Volume : 690,300 P/E Ratio N/AMarket Cap¥1135.50 Billion Dividend Yield 0.80% Rev. per Employee ¥43,577,40064006300620010a11a12p1p2pMore quote details and news » Chief Executive Tetsuro Higashi said he decided on the industry-redefining move from his experience of watching Japanese electronics makers flounder against more aggressive and globally minded rivals.
Tokyo Electron CEO Tetsuro Higashi, left, and Applied Materials CEO Gary Dickerson in Tokyo on Tuesday. Bloomberg News
The planned takeover by Applied Materials Inc. AMAT +2.49%Applied Materials Inc.U.S.: Nasdaq $20.18 +0.49+2.49% March 28, 2014 4:00 pm Volume (Delayed 15m) : 12.57MAFTER HOURS $20.20 +0.02+0.10% March 28, 2014 7:44 pm Volume (Delayed 15m): 45,008 P/E Ratio 51.74Market Cap $24.44 Billion Dividend Yield 1.98% Rev. per Employee $593,13920.5020.0019.5010a12p2p4p6p03/12/14 Intel, Other Chip Makers Slow …02/12/14 Applied Materials Profit Soars…More quote details and news » creates a $29 billion supplier of equipment used to shape silicon wafers into chips, and offers a chance to transform Tokyo Electron into a truly global firm. Mr. Higashi, who will stay on as chairman, said he saw firsthand how a myopically domestic focus accelerated the fall of Japan’s once-dominant semiconductor and display manufacturers—many of whom are customers of Tokyo Electron.
“Japanese firms look like global companies, but they just aren’t,” Mr. Higashi said in an interview Wednesday. “We need to combine the best of both Japanese and U.S. companies.”
The deal between Applied Materials and Tokyo Electron marks a significant moment for corporate Japan. Tokyo Electron is globally competitive and financially sound, and agreed to the transaction from a position of relative strength. In contrast, Japanese chip maker Elpida Memory Inc. had filed for bankruptcy protection before being acquired by Micron Technology Inc. last year, and Sharp Corp. was financially distressed when it sold stakes in itself to rivals such as Samsung Electronics Co. 005930.SE +0.15%Samsung Electronics Co. Ltd.S. Korea: KRX KRW1335000 +2000+0.15% March 28, 2014 3:00 pm Volume : 212,974 P/E Ratio 6.75Market Cap KRW220733.89 Billion Dividend Yield 1.03% Rev. per Employee N/A13400001330000132000010a11a12p1p2p03/30/14 Google Is Central to Latest Ap…03/27/14 Korea’s Carriers Can’t Wait –…03/25/14 HTC One (M8) Review: The Best …More quote details and news » , Hon Hai Precision Industry Co. and Qualcomm Inc.
The Applied Materials deal is the type of bold and sometimes strong-armed decision-making associated with Mr. Higashi’s management at Tokyo Electron, pushing the company to expand sales abroad early on when he sensed that its Japanese customers were starting to slip. He also stepped out from Japan’s seniority-based corporate structure with a merit-based pay system.
• Applied Materials to Buy Tokyo Electron
• Applied Materials: Acquiring to Stay Ahead
• Tokyo Electron Deal a Rare Foreign Takeover in Japan
• Heard: Chipping Away at Japan’s Cloistered Economy
“I don’t like big M&A deals—I’m against them,” said Mr. Higashi with a cheerful guffaw that is known throughout the industry. “But I really wanted this.”
One of the longest-tenured executives in the semiconductor industry, Mr. Higashi has watched as the cost of developing new equipment mounted, even as giant chip makers such as Intel Corp., Samsung, and Taiwan Semiconductor Manufacturing Co. demanded ever-cheaper tools to pack more power onto each chip—used to sate consumers’ appetite for smaller, sleeker, and more powerful mobile devices.
He also witnessed the transformation of Tokyo Electron from an import-export company to a key supplier in the chip industry.
After graduating with a master’s degree in social science from Tokyo Metropolitan University, Mr. Higashi joined the company in 1977. In the early years, he peddled Japanese car stereos in the U.S., answered phone calls from angry customers about broken equipment and sold telecom equipment parts.
Mr. Higashi’s background in sales didn’t prepare him for the technological shift taking place at Tokyo Electron, whose equipment was increasingly on the cutting edge of the digital revolution. In order to catch up, he borrowed textbooks from customers to understand how semiconductors work.
In the mid- to late-1980s, when Japanese firms such as NEC Corp. dominated the global chip sector—lifting Tokyo Electron to become the world’s top chip-equipment maker—Mr. Higashi said he started to sense that Japan’s time as a global leader was coming to an end after a trip to Silicon Valley opened his eyes to the gap in innovative spirit between the two countries.
When he became president of Tokyo Electron in 1996, Mr. Higashi pushed the company to expand overseas. As Japan’s semiconductor dominance waned, Tokyo Electron’s net profit plunged 77% in the year to March 1999. Through aggressively targeting customers abroad, profitability rebounded within two years. Overseas sales, which had made up 34% of total sales in 1996, reached 76% in the company’s most recent fiscal year.
In 2003, Mr. Higashi became the company’s chairman, a position that he joked would help him improve his golf game. But he never fully relinquished control.
Time and again, he gave up his post as chief executive to his handpicked presidents— Kiyoshi Sato in 2003 and Hiroshi Takenaka in 2010—only to snatch it back each time. Mr. Higashi was reappointed president and CEO, in addition to chairman, in April after Mr. Takenaka stepped down following a string of disappointing earnings results.
Now 63, Mr. Higashi has watched a whole generation of executives change hands among both rivals and customers. He started talking to Applied Materials Chief Executive Gary Dickerson —then Applied’s president and a 30-year acquaintance of the Tokyo Electron chief—about a possible deal in March. Mr. Dickerson became CEO at the start of this month.
“Only Mr. Higashi could have pulled off a deal like this and silenced opposition within Tokyo Electron,” said Yoshihisa Toyosaki, analyst at Tokyo-based consultancy Architect Grand Design. “More than most executives in Japan, he understands the scale required to win.”
Mr. Higashi insisted on—and got—an all-stock deal that may be the best approximation there is of a merger of equals. Applied Materials shareholders will own 68% of the new merged company, whereas the board will be made up of 11 directors—five appointed by each company and an 11th agreed upon by both firms.
Ever the salesman, Mr. Higashi said he plans to continue to visit key customers himself to broker sales.
Applied Materials, Tokyo Electron merge in $29B all-stock deal
Semiconductor equipment manufacturers will create new company incorporated in Netherlands
CBC NewsPosted: Sep 24, 2013 1:41 PM ETLast Updated: Sep 24, 2013 2:15 PM ET
A Samsung Electronics Co. semiconductor plant in South Korea. The market for semiconductor manufacturing equipment has slowed, and tool makers are pinning their hopes for future growth on the smartphone market. (Samsung/Associated Press)
• Computer sales see longest slump since PC invention
• Smartphone ‘saturation’ fears hurt device makers
Two of the world’s biggest manufacturers of semiconductor chip-making gear are merging to create a new company valued at $29 billion US.
Applied Materials Inc. of the U.S. is taking over Tokyo Electron of Japan and forming an as-yet-unnamed new company that will be incorporated in the Netherlands.
The market for tools to manufacture chips is subject to the boom and bust of the technology sector. Demand for products is slowing as PC sales slide and most companies are pinning their hopes for sales on the still-expanding market for smartphones.
The merger is part of a wave of consolidation in the industry.
The all-stock deal values Tokyo Electron at $9.4 billion, a modest premium on its share price. Shareholders of Applied Materials will own 68 per cent of the new company.
For every existing share, Tokyo Electron shareholders will receive 3.25 shares of the new company, and Applied Materials shareholders will receive one share.
Applied Materials CEO Gary Dickerson will be chief executive, and Tokyo Electron’s Higashi will become chairman while the board will have an equal number of members from each company.
“We believe the combination will accelerate our momentum for profitable growth, increase the value we deliver to shareholders and create great opportunities for our employees,” Dickerson said.
There has already been consolidation in the chip-making tools sector, with Dutch chip equipment maker ASML buying U.S.-based Cymer last year for about $2.5 billion while Lam Research Corp bought smaller rival Novellus Systems Inc for $3.3 billion.
Another Japanese company, Elpida Memory Inc., filed for bankruptcy protection last year.
Companies seen as strong players
Applied and Tokyo Electron are the “best of breed,” said David Rubenstein, senior analyst at Advanced Research Japan.
“They have the highest profit margins, they have the best balance sheets, they make money through thick and thin,” he told Reuters news agency. “So, they are not desperate, but they are hungry for earnings growth, and this is one way they can do it.”
Applied Materials’ net income has been falling steadily on a year-over-year basis over the past two years while Tokyo Electron reported a 23 per cent drop in quarterly sales in July.
U.S.-listed Applied Materials is the world’s largest maker of semiconductor equipment by sales, followed by ASML Holding NV and Tokyo Electron, according to data from market researcher Gartner. The two companies say their product lines are complementary, rather than overlapping, but they expect to save money by streamlining operations.
The merger faces regulatory review in Japan and other jurisdictions, but Applied expects it to be approved by the second half of next year.
An important aspect of international business which adds a great deal of diversity and complexity involves the need for international managers to understand their people and the values they hold. These values and assumptions are shaped, primarily, by the culture these people live in. Culture represents the system of values, beliefs, norms, and actions that characterize a distinct group of people. Although there can be similarities between cultures, there are also distinct and important differences. As business “goes international”, the need for sensitivity to these cultural difference and deeply held values increases.
Everything from the desire to help, respect for authority, expectations of management and control, and differing definitions of truth telling and honesty change from culture to culture. Commitment to gender equality is likely one of the most dramatically different values held in various cultures. Understanding these differences, and accounting for them, is rapidly becoming of the utmost importance.
Geert Hofstede, a scholar and researcher of culture, identified five cultural dimensions. He conducted research of over 100,000 employees of IBM in 53 countries. Hofstede identified the following dimensions:
• Power Distance addresses the equality or inequality characterizing a culture as it is reflected in approaches to management. More “power distance” implies a more autocratic system, such as in China, Indonesia, Russia. By contrast, in the US, the power distance is small, reflecting equality and “participative management”.
• Individualism refers to whether individuals prefer to function as individuals (United States) or as groups (Asia).
• Masculinity versus Femininity denotes the degree to which a culture is more aggressive and competitive (masculinity) or more nurturing (femininity). This also depends on the percentage of women in management.
• Uncertainty Avoidance focuses on people’s preference for structured environments versus ability to manage uncertainty. The former have a harder time dealing with change (Japan, France, Russia). The latter are more open to change and more entrepreneurial (Hong Kong, United States).
• Long-Term Orientation refers to people’s emphasis on shorter-term orientations (United States, France) or longer-time frame orientation (China and Hong Kong).
Edgar Schein is a major scholar of culture. He is a professor at MIT and a consultant.
One of Dr. Schein’s seminal works is entitled “Organizational Culture and Leadership”.
Ferraro, G. (2010) Culture and International Business, Cultural Dimensions of Global Business, Pearson http://www.pearsonhighered.com/assets/hip/us/hip_us_pearsonhighered
Caligiuri, P., Lepak, D. Bonache, J. (2010). Chapter 4 Cross-cultural Differences:The Cultural Lens for Managing the Global Workforce, Global Dimensions of Business: Managing the Global Workforce, Wiley-BlackwellHoboken, NJ, USA [Available in Ebrary]
GPankaj Ghemawat and Sebastian Reiche (2011). Globalization Note Series National Cultural Differences and Multinational Business, AACSB International, http://www.aacsb.edu/resources/globalization/globecourse/contents/readings/national-cultural-differences-and-multinational-business.pdf
Cavusgil, S., Tamer, G., and Riesenberger, J. (2007). Chapter 5 The Cultural Environment of International Business International Business: Strategy,Management, and the New Realities,Pearson/Prentice-Hall, http://www.prenhall.com/behindthebook/0131738607/pdf/Ch.%205%20revised.pdf
Rugman, A., Collinson, C. (2008). Chapter 5 International Culture” International Business, Pearson Education, http://www.unice.fr/crookall-cours/iup_cult/_docs/_RUGM_Chapter-05.pdf
Walsh, M. (2012). International Business – Cross-Cultural Communication, Integration Training, http://ed.ted.com/on/Ep1pIy48
Payne., N., (2012) Impact of Culture on Business, Regents College, London, http://www.youtube.com/watch?v=9J
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