In Global Expansion, Due Diligence Is the Key

In the global environment, organizations around the world are constantly facing challenges to build competitive advantage. “The global world is characterized by more competition, diverse workforce, continuously changing customer needs, and new technology changes”(Gupta, 2011, p. 510). Given the constantly changing landscape, and the opportunity for firms to expand their domestically successful business models throughout the world, why do we continue to see such high failure rates to realize return of capital through mergers and acquisitions? “Researches have indicated that approximately 70-80% of Mergers and Acquisitions (M&A) fail to create significant value above the annual cost of capital” (Bruner, 2002). To explain these high failure rates, research has focused on building better integration models, improving the process to merge cultural difference, and a straight calculation of the potential future returns. Given that global expansion is a crucial element of growth for many firms, this study will prove that an improved due diligence process will enhance their likelihood for return on their investment. “Due diligence all too often becomes an exercise in verifying the target’s financial statements rather than conducting a fair analysis of the deal’s strategic logic and the acquirer’s ability to realize value from it” (Cullinan et al., 2004). A due diligence process should be able to answer the key questions, analyze the driving forces, and understand the areas and abilities a firm has to generate enhanced value. Of course, an enhanced due diligence process is not as exciting for firms and can be seen today as getting in the way of global expansion, but will firms continue to succeed in this global environment if their expansion strategies continue to create little value for their stakeholders?