An Analysis Of The Dynamic Equilibrium Between M&A And Outsourcing: A New Approach By The Theory Of Entrepreneur

Merger and Acquisitions (M&A) refer to those corporation behaviours that one enterprise acquires whole or partial management control and/or capital ownership of other enterprises by some cost, such as capital and/or stock. According to different relationships between the merger enterprise and target enterprise, M&A could be defined into 3 types: Horizontal, Vertical and Conglomerate M&A. Outsourcing without an acknowledged conception, which is an abbreviation for "outside source using", was booming over the world since 1990s. One of acceptable conceptions of "Outsourcing" should be: those corporation management modes by which enterprises with limited sources only keep core resources inside and utilize resources outside to reduce cost, promote efficiency, strengthen core competence and expend adaptive capacity. Due to different motives, outsourcing can be classified into 3 kinds: outsourcing to promote produce efficiency, to makeup deficiency and to strengthen core competence.Knight(1921), Commons(1934), and Coase(1937) had developed a school of their own, Transaction Cost Economics(TCE). Especially, Coase(1937) had built an analysis frame work on the base of transaction cost and property right; Stigler(1966) concluded the theories into the First Coasian Theorem and the Second Coasian Theorem; furthermore, Arrow(1971) confirmed the resource of transaction cost; Williamson(1985) put forward 3 principles to explain the existence and evolvement of modern enterprises: asset specialty principle, exteriority principle and hierarchy principle. TCE believe that M&A is a substitutive contract choice to save transaction cost: higher asset specialty, higher the transaction cost, uncertainty increase the cost of establishing the mutual contract; so when the external market transaction cost exceeds the internal corporation management cost, M&A will be implemented to reduce cost. Moreover, transaction frequency would influent M&A as well: cost of individual transaction will be reduced because higher frequency enables transaction cost to be apportioned into repeated transactions; M&A will be realized when the costs apportion exceeds management cost. In contrast, outsourcing will be implemented to reduce cost when the external market transaction cost lowers the internal corporation management cost. Everest(1997), Earl(1996), Cross(1995) and Lacity & Willcocks(2000) had proved by empirical research that most corporation outsourcing failures were due to higher transaction cost than management cost, which is exactly similar to the transaction cost economics analysis of M&A. So TCE approach express us a dynamic equilibrium between M&A and outsourcing: on the condition that the external market transaction cost exceeds the internal corporation management cost, enterprises should M&A to avert from the risk outsourcing will suffer; on the condition that the external market transaction cost lowers the internal corporation management cost, enterprises should outsourcing to reduce administrative levels and promote efficiency. Only on the condition that the external market transaction cost equals to the internal corporation management cost, M&A and outsourcing will halt on the critical point of corporation largest size.Resource-Based View (RBV) theory emphasis on the influence which internal resources, knowledge and capacity effect corporation competence advantage. Penrose(1959), Wernerfelt(1984), Stalk(1986) and Prahalad & Hamel(1990) build the RBV theatrical base. RBV theory indicates that: core competence is the origin of sustainable competition advantage; core competence traces to core resources; and the core resource acquirement is endogenous enterprise; but disputes on what is core resource still remain. RBV theory gives the most immediate and effective explanation to outsourcing; meanwhile it also interpret M&A successfully: Rick(1997), Chuck(1997), Arnold(2000) and Gilly & Rashheed(2000) had approved this point; the most 1990s M&As showed internal relationship between M&A and core competence; Wangtao(2000), Markides &...