In November 1997, the acquisition of APL by NOL was successful. As compared to the larger US based APL; NOL was a small Singapore firm. Through this acquisition, it appeared that NOL was ready to become an industry leader in the shipping industry. Thus this acquisition is a strategy through which NOL buys a controlling, 100 per cent, interest in APL with the intent of making the acquired firm a subsidiary business within its portfolio. Thus APL became a wholly owned subsidiary of Singapore based NOL, a global transportation and logistics company engaged in shipping and related businesses.
Below is the study of the problems and strategies that NOL faced or is facing during the acquisition and integration of APL.
Issues/Challenges facing NOL/APL
1) Agency Relationships
There were separate management structures maintained in the group with the CEO of NOL in Singapore and CEO in the United States reporting to the group CEO. This separation between owners and manager creates an agency relationship. This exist when one or more persons (the principal or principals) hire another person or persons) as decision making specialist to perform a service. In the modern corporation, managers must understand the links between these relationship and the firms effectiveness. The agency relationship between managers and their employees is important as this is related directly to how the firm’s strategies are implemented.
This separation between ownership and managerial control in this instance can be problematic as the principal and the agents have different interests and goals. In a large publicly traded corporation such as NOL/APL, shareholders (principals) lack direct control when the CEOs (agents) make decisions that result in the pursuit of goals that conflict with those of the principals. Thus the separation of ownership and control allows divergent interests (between principals and agents) to surface, which can lead to managerial opportunism.
2) Corporate Culture
As separate management structures were maintained for NOL/APL, the corporate culture of both firms differs greatly from each other. APL had a strong American culture that encouraged flexibility, innovation and change whereas NOL was a typical Singapore firm, organized, disciplined and highly conservative.
3) Economic Crisis in July 1997
The Asian Financial Crisis was a period of financial crisis that gripped much of Asia beginning in July 1997, and raised fears of a worldwide economic meltdown (financial contagion). It is also commonly referred to as the IMF crisis.
For NOL, the decision to acquire APL caused a major problem. Its debt level increased significantly due to the cost of acquiring APL and for taking on APL’s debt. In October 1998, NOL placed assets worth S$544 million for sale. Major items included its landmark HQ building, four vessels, property in several countries, stakes in several companies and 60,000 containers.
Internal measures also included a wage freeze and voluntary pay cuts of between 5-10% for senior executives. The annual dinner was also scrapped. These were all measures taken to reduce corporate debt. Organizational Controls
By adopting all of APL’s systems for the combined entity’s IT framework, NOL would build and maintain a truly global integrated and networked container transportation business with IT as a key competitive edge. Strategic controls are largely subjective criteria intended to verify that the firm is using appropriate strategies for the conditions in the external environment and the company’s competitive advantages.
Thus strategic controls are concerned with examining the fit between what the firm might do (as suggested by opportunities in its external environment) and what it can do (as indicated by its competitive advantages). Effective strategic controls help the firm understand what it takes to be successful.
In 1997, NOL...