September 2016

Maersk: Savior or Sucker?

Acquisitions Leave a comment

     In a sudden turn of events shipping behemoth Maersk is looking to breathe life back in to recently bankrupt competitor Hanjin as well as struggling Hyundai Merchant Marine Co. Rumors of a possible takeover have sent Hanjin stocks up more than 19% (Splash 24/7, 2016) and raised hopes that Hyundai’s shares will begin a slow recovery from being down 80% YTD (Bloomberg, 2016). These proposed mergers would increase Maersk’s already industry leading market share to a total of around 20%.
maersk

     However, many of Hanjin’s customers have already jumped ship to Maersk, seeking a well-established and financially stable company to do business with after the nightmare of having their cargo stuck at sea. This reflects that Maersk is already taking some of Hanjin’s market share and does not need to acquire Hanjin to gain dominance. Also, when Maersk took over P&O Nedloyd in 2005 its market share surged at first but eventually only climbed a mere half of P&O Nedloyds total share. Maersk cannot assume that it will gain 100% of Hanjin and Hyundai’s business through these takeovers. Most importantly, Maersk must ensure that by acquiring Hanjin and Hyundai—and therefore their debts—they do not put themselves in a position where they will become financially unstable.

     On the plus side, by acquiring competitors Maersk will increase its fleet capacity while avoiding constructing new ships. In doing so, Maersk could generate additional revenue and market dominance while avoiding further flooding the shipping market with excess capacity. This will be a change in strategy from the last ten years during which shipping companies have been in an arms race of expansion. The increase of supply in the market has driven down prices and therefore led to the current situation of many companies struggling to cover costs. The purchase of two Asian shipping companies will allow Maersk to expand its overall trans-pacific operations—an area where they are currently weak. Furthermore, the inherent redundancies of merging operations will allow for cost cutting and may help relieve the stress placed on Maersk by decreasing prices. It is important for Maersk to cost minimize as they are in an industry in which differentiation is very difficult and therefore should adopt Porters Generic Strategy of cost leadership. Maersk is currently position well to employ this strategy as it is not struggling financially as many of its competitors are and can improve its efficiency post-merger by cutting jobs.

     In conclusion, there is a wide variety of benefits and disadvantages for Maersk to consider before attempting to acquire Hyundai and Hanjin. In an industry as currently unstable as theirs one bold step could send Maersk tumbling from its current dominance or soaring to new heights.

Sources:

https://www.bloomberg.com/gadfly/articles/2016-09-27/maersk-should-steer-clear-of-hanjin

Maersk linked with taking over both Hanjin and HMM

http://www.bloomberg.com/quote/117930:KS

http://www.bloomberg.com/quote/011200:KS

Word Count: 449

Another Big Banking Blunder

Business Ethics Leave a comment

Another week, another banking controversy. American bank Wells Fargo has been thrown into the public eye this week over long lasting and blatantly unethical business practice. Clearly this is not the first time a major bank has faced scorn for unethical actions and surely it will not be the last. Although unfortunately regular, it is important that consumers and the business world alike both analyze such an exposé from a business ethics standpoint in order to avoid their re-occurrence.

wells-fargo-1

The exposé revealed that Wells Fargo employees have opened approximately 1,500,000 bank accounts and applied for 500,000 credit cards by skirting consumer consent through the use of fake email addresses (Bloomberg L.P., 2016). To begin, this practice is unethical in its lack of consideration for the consumer’s consent. It is extremely unethical for a business to force its products upon consumers especially in a case such as this where the product is often one with associated fees (in this particular case, regulators estimate that the accounts in question brought in around $2,000,000 in fees (Bloomberg L.P., 2016)). Despite taking steps towards amends by offering to pay back any fees in question and accepting the fines set out by regulators, the most significant damage will be to Wells Fargo’s reputation.

Furthermore, this clear violation of consumer trust is even more painful for Wells Fargo given their industry. How can the impacted consumers expect to trust Wells Fargo with holding their money when they now know that the very bank they trusted to safeguard it was quietly snatching it away from them? Therefore it is clear that ethical business practice is not only the right thing to do but also makes sense from a customer relations perspective as well.

In my opinion, the most intriguing aspect of this controversy from an ethics standpoint is that it was not a plan of Wells Fargo executives but by thousands of low-level employees. This is because of the harsh penalties the employees faced if they missed unrealistic sales goals. One employee went as far as to say that facing these sales targets “…became a living nightmare” and that “…It  drove  [him] to drink.” (Charlotte Observer, 2016). I would argue that Wells Fargo’s sales system –with such harsh penalties and unrealistic targets that it leads to wide spread fraud and in some cases damage to the personal lives of employees– evidences a lack of care for its employees and absence of their fair and ethical treatment. In the future, Wells Fargo and all other companies must carefully consider the effects of their policies on employee behavior and strive to succeed through ethical business behavior.

 

Associated Sources:

https://www.bloomberg.com/view/articles/2016-09-09/wells-fargo-opened-a-couple-million-fake-accounts

http://www.charlotteobserver.com/news/business/banking/bank-watch-blog/article100975597.html

425 Words