Multinational Companies' Headquarters and Its Growing

UNIVERSITY OF FINANCE AND ADMINISTRATION Faculty of Economic Studies Field of Study: Business Management and Corporate Finance

Follow-up master´s study programme in the full-time form

Mauricio Sinta Costilla

Multinational Companies’ Headquarters and Its Growing Strategies

DIPLOMA THESIS

Prague 2020

Final Thesis Supervisor: Oldřich Dutý, DBA, MSc.

Acknowledgements

This thesis is mainly dedicated to my parents, who gave me their unconditional support in this decision to enroll at the University of Finance and Administration of Prague, even when it involved studying abroad, far from my home country. Their love, caring and encouragement has always been present during the entire university studies, which will be continuous along my future decisions.

Secondly, I am thankful for all my close friends, classmates and colleagues for their immense contribution on helping me write this diploma work, because without them, it would have been m harder to successfully conclude it. Thank you for understanding and providing enormous motivation received at all times. Every single person that went with me through the process and those who stayed with me until the very end have played a valuable role.

Finally, the greatest thanks to my supervisor Oldřich Dutý, DBA, MSc., who guided me throughout the project development. Thank you for the incredibly quick response and accurate feedback that allowed me to submit the work in the highest quality possible.

To those who are afraid of going out of their comfort zone, if it involves positive changes, the rewards will be waiting for you at the end.

Declaration

I hereby declare that I have compiled this final thesis on my own and all the quoted literature as well as other sources used in the thesis are listed in the bibliography. The electronic copy of the thesis is identical with the hard-bound copy. I approve that this diploma thesis is published pursuant to Section 47b Act No.111/1998 Coll., on Higher Education and on the amendment and modification of other acts (the Higher Education Act), as amended.

Click here and write the Date ______

Abstract

Multinational enterprises were founded in the current globalized environment and free-trade market. These types of companies thrive to expand their businesses and operation abroad to improve their sales revenues and increase the customer base, specifically within the Information Technology and Software Industry. One of the main strategies that companies perform is Merger and Acquisition. In this paper, an extensive literally review of the topic is performed and then a selected IT and Software company is analyzed through a qualitative research in form of an interview to subjects holding managerial positions at the firm. This work discusses the positive and negative trends of the external and internal environment, the position of the company from the managerial point of view and provides recommendations according to the public data from the company’s financial reports and the subjects’ statements, altogether to respond to the main question: “what are the trends that impact positive or negative the company’s future position and growth within the industry?”

Keywords

Multinational companies, Merger and Acquisitions, PEST Analysis, Porter’s Five Forces Analysis, SWOT Analysis, Industry trends, Qualitative research model.

Table of Contents

Acknowledgements ...... 1

Abstract ...... 3

Keywords ...... 4

Introduction ...... 7

1. Theoretical Review ...... 10

1.1 Globalization ...... 10

1.1.1 History of Globalization ...... 14

1.1.2 Impacts of Globalization ...... 16

1.1.3 Challenges related to Globalization ...... 18

1.2 Multinational Companies’ Headquarters ...... 20

1.2.1 Role and Importance of IT MNCs on a globalized environment .... 26

1.2.2 Growth Strategies of Multinational Companies ...... 28

1.3 Merges and Acquisitions of IT Companies ...... 31

1.4 Political, Economic, Social, Technological Analysis ...... 35

1.5 Porters 5 Forces Analysis ...... 36

1.6 SWOT Analysis ...... 39

2. Overview of the Company ...... 42

2.1 Chronological events ...... 43

2.1.1 The early years (1972-1980) ...... 43

2.1.2 The SAP R/2 era (1981-1990) ...... 44

2.1.3 The SAP R/3 era (1991-2000) ...... 46

2.1.4 Real-time data (2001-2010) ...... 47

2.1.5 Cloud computing era SAP HANA (2011-Present) ...... 48

3. Practical Analysis...... 51

3.1 Methodology ...... 51

3.2 SAP’s PEST Analysis ...... 53

3.2.1 Political Factors ...... 53

3.2.2 Economic Factors ...... 55

3.2.3 Social Factors ...... 57

3.2.4 Technological Factors ...... 59

3.3 SAP’s Porter 5 Forces Analysis ...... 60

3.3.1 Bargaining Power of Suppliers ...... 60

3.3.2 Bargaining Power of Buyers ...... 61

3.3.3 Threat of New Entrants ...... 62

3.3.4 Threat of Substitutes ...... 63

3.3.5 Rivalry Among Competitors ...... 64

3.4 SAP’s SWOT Analysis ...... 65

3.4.1 Strengths and Weaknesses ...... 65

3.4.2 Opportunities and Threats ...... 68

3.5 Forecast of the trends ...... 71

3.5.1 External Environment ...... 71

3.5.2 Internal Environment ...... 73

3.6 Recommendations ...... 75

Conclusion ...... 77

Bibliography ...... 79

Introduction

Nowadays “multinational corporations (MNCs) dominate the global business arena”1. Additionally, for more than three decades researches had been made investigations and agreed that there a lot of challenges that multinational companies (MNCs) are facing nowadays2,3. While one part of researchers raising the question whether foreign multinationals and domestic companies operate by the same conditions4, another part of investigators state that “relationships between headquarters and subsidiaries are shaped by prominent levels of organizational interdependence, local autonomy and pro-activeness”5. In order to adapt to the globalization, changes and to stay competitive - multinational companies sets number of strategies. Therefore, investigators analyze different type of strategies that multinational companies are using. Firstly, Hada et al,6 explains that global strategies like global efficiency, multinational flexibility, and worldwide learning has an impact on host country environment. Jain et al.7, add, that “successful implementation of global integration strategy is becoming more important than ever.” Moreover, companies strive to mirror the MNC`s

1 CLARK, Cynthia and Jill A. BROWN. Multinational Corporations and Governance Effectiveness: Toward a More Integrative Board: JBE JBE. Journal of Business Ethics. 2015, vol. 132, iss. 3. p. 565-577. 2 REGNÉR, Patrick, Assoc Prof and Udo, Prof. ZANDER. Knowledge and Strategy Creation in Multinational Companies. Management International Review. 2011, vol. 51, iss. 6. p. 821-850. 3 ZHAO, Meng, Seung Ho PARK and Nan ZHOU. MNC Strategy and Social Adaptation in Emerging Markets. Journal of International Business Studies. 2014, vol. 45, iss. 7. p. 842-861. 4 TALPOVÁ, Sylva Záková. Do they Compete Differently? Strategies of MNEs and Domestic Companies in the Environment of the Czech Republic. Trendy Ekonomiky a Managementu. 2016, vol. 10, iss. 27. p. 67-79. 5 DOSSI, Andrea and Lorenzo PATELLI. You Learn from what You Measure: Financial and Non- Financial Performance Measures in Multinational Companies. Long Range Planning. 2010, vol. 43, iss. 4. p. 498. 6 HADA, Mahima, Rajdeep GREWAL and Murali CHANDRASHEKARAN. MNC subsidiary channel relationships as extended links: Implications of global strategies. Journal of International Business Studies. 2013, p. 787-812. 7 JAIN K., Naveen, Prashant SRIVASTAVA and Deborah OWENS. Leader-member exchange and resource accessibility of subordinates Perception towards MNC global integration strategy. Leadership and Organizational Development Journal. 2014, p. 494-512.

headquarters culture when using international (global) strategy8. To sum up, in order to suit the culturally diverse and differing operating conditions of the countries - MNC`s use social responsibility (business ethics) strategies9. Dziubinska10concludes, “Types of strategies of MNCs differ in the approach to unique resources available on the local markets and the way in which they are used on the level of MNC.”

Thesis deals with the analysis of the worldwide impact caused by the globally famous Multinational Corporations, specifically viewed, studied and analyzed from a popular IT software and Cloud solutions provider company, altogether within the commence, growth and development of the globalization. It is highly important to the world economy, as well as the singular economy of a specific country, to be aware of how the companies are affecting the market changes. For instance, this topic has been chosen because it is mandatory to define the best strategies derived from the managerial decisions made at the multinational companies. It is necessary to perform a rigorous and deep analysis of the external and internal factors of the companies that create business across the borders and establish the proper growing strategies from a technological point of view. Knowledge of this thesis is the current status of the biggest corporations, the sales and marketing strategic planning from the overall market, as well as the merging and acquisition plans implemented, the history of the starting of the creation of the business models of a Multinational enterprise and its innovations throughout the past years, and finally, top-level management decision making processes to achieve the desired goals, mostly increasing revenues, and more customer

8 CHEN, Jiun-Shiu and Al S. LOVVORN. The Impact of MNC’s Home Country Politics on Host Country Nationals’ Organizational Commitment. Journal of Marketing Development and Competitiveness. 2012, p. 56-57. 9 GODIWALLA, Yezdi H., Business Ethics and Social Responsibility Strategies for Foreign Subsidiaries. Journal of Diversity Management. 2012, p. 1-10. 10 DZIUBINSKA, Agnieszka. DIVERGENT AND CONVERGENT APPROACH TO STRATEGY PROCESS OF MNCS - AN EVOLUTIONARY APPROACH. International Journal of Arts & Sciences. 2015, vol. 8, iss. 1. p. 531-555.

acquisition through the introduction of various solutions into the product portfolio, for the ongoing growing company.

The object is Multinational Companies Headquarters and its Growing Strategies. Scientific and literary review of the current situation will be performed. This will be an outline to move on to the practical part of the thesis. In purpose of the thesis, a Software and Cloud Solutions Multinational Company will be described since its beginning, focusing on the overview of the main acquisitions that have been most relevant for the past years. The aim of the thesis is to investigate and examine the external and internal factors affecting the IT Multinational Company’s strategies, then evaluate these factors individually to continue to analyze determine the positive or negative trends on the company’s future position with the qualitative data collected throughout the interviews and public data.

Master thesis methods are the presentation of theoretical background and synthesis of scientific literature. Followed by perfoming an interview people holding managerial positions at the selected company and responding survey based on a Porter Five Forces’ questionnaire11 to obtain sufficient qualitative data. Additionally, the tools to be used for this investigation regarding the practical area will be the PEST (Political, Economic, Social, Technological) Analysis to cover the Marco-economic factors affecting the company’s strategy, followed by the Porter’s Five Forces model to indicate how is the company competitive internal environment, continued with the last SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis putting together the findings , to finalize the work by discussing the results encountered in the form of trends, and providing practical recommendations derived from the literature review and the qualitative research performed within the paper.

11 COLE, Ehmke, Joan FULTON and Jay AKRIDGE. Industry Analysis: The Five Forces. s.l.: Purdue University. 2016.

1. Theoretical Review

1.1 Globalization

The concept of globalization has gained huge popularity over the past decades due to the improvement and innovation of the information technology and telecommunication systems12,13,14. This notion of globalization is brand new in comparison to markets and it has been brought into the current modern era15. Researchers have led the idea of globalization into several key aspects, i.e. disappearance of boundaries of cultures among nations and people; global market transactions that have overcome the importance of the national and regional economies; information technologies that strongly helped the connection among people around the world; more economic and easy movement of persons through countries and, rapid increase of flow of money, goods, services, etc., overall, all of these characteristics occurred within the global networks16,17.

Furthermore, the concept of globalization has been increasing its studies and analysis from certain companies, due to the current tendency of the world market being mainly characterized by globalization, leading the managers to look out for current competitors where they can strengthen the relationship and bound together to gain a certain competitive advantage over the market18. On the other hand, we have the term globalization to describe the current state of the global

12 KHAN, Alam and Mario Arturo RUIZ ESTRADA. Globalization and Terrorism: An Overview. Quality and Quantity. 2017, vol. 51, iss. 4. p. 1811-1819. 13 VENGOA, Hugo Fazio and VARGAS, Luciana Fazio. La Historia Global y La Globalidad Histórica Contemporánea. Historia Crítica. 2018, iss. 69. p. 3-20. 14 MARANGA, Kennedy. Globalization and its Implications for Global Leadership. Journal of Management Policy and Practice. 2018, vol. 19, iss. 2, p. 50-56. 15 DHOLAKIA, Nikhilesh and Deniz ATIK. Markets, Globalization, Development: Charting the Intersections of Three Multipolar Concepts. Markets, Globalization and Development Review. 2016, vol. 1, iss. 1, p. 3. 16 BUTT, Graham. Globalisation: A Brief Exploration of its Challenging, Contested and Competing Concepts. Geography. 2017, vol. 102. p. 10-17. 17 ZERRIN, Kılıçarslan and Yasemin DUMRUL. The Impact of Globalization on Economic Growth: Empirical Evidence from the Turkey. International Journal of Economics and Financial Issues. 2018, vol. 8, iss. 5, p. 115-123. 18 DEVI, Nisha, MERGER AND ACQUISITION. International Journal for Research in Business, Management and Accounting. 2016, vol. 2, iss. 2, p. 51-58.

economy. This means, that globalization represents the multidimensional process in which companies, markets, and financial systems are combined on a global extent19,20.

Generally, globalization has led transnational frontiers and barriers to be eliminated, losing their traditional functionalities and adapting to new purposes, therefore, developing a quicker fluctuation of goods and services across the nations21. Furthermore, globalization introduces multinational firms with new opportunities to expand their operations and increase their revenue by applying strategies that cannot be found on the domestic market, such as economies of scale and scope, and the ability to procure with suppliers from various locations and, thus, delivering its products and services in multiple industries and to a wider range of clients22. In other words, it can be seen from an economic approach that, the globalization symbolizes the uninhibited movement of capital, while at the same time, increasing the control of multinational corporations and global financial markets on top of the national economies23. Moreover, without moving apart from the economic sense, globalization helped to introduce a superior capacity of learning, transfer of ideas, data, information, and transmission of knowledge thanks to the technological innovations and the amplified interaction among nations24. Another benefit that companies can obtain with globalization, can be the free access of employees with enough knowledge that can help to innovate

19 BURLACU, Sorin, Corneliu GUTU and Florin Octavian MATEI. GLOBALIZATION – PROS AND CONS. Calitatea. 2018 vol. 19, iss. 1, p. 122-125. 20 KACOWICZ, Arie M. and Mor MITRANI. Why Don't We Have Coherent Theories of International Relations About Globalization? Global Governance. 2016, vol. 22, iss. 2, p. 189-208. 21 ȘOPRONI, Luminița and Constantin ȚOCA. THE ROLE OF THE ECONOMIC BORDERS IN CONTEMPORARY INTERNATIONAL RELATIONS. Studia Europaea. 2017, vol. 62, iss. 2, p. 121-134. 22 WHITAKER, Jonathan, Peter EKMAN and Steve THOMPSON. How Multinational Corporations Use Information Technology to Manage Global Operations. The Journal of Computer Information Systems. 2017, vol. 57, iss. 2, p. 112-122. 23 TROACĂ, Victor-Adrian and Alexandru POSTOLACHE. GLOBALIZATION – THE EFFECTS OF THE REAL ESTATE MARKET ON THE ENVIRONMENT. Quality-Access to Success. 2018, vol. 19, iss. 1, p. 547-551. 24 MARANGA, Kennedy, ref. 14, p. 50-56

the current processes, reduce the time of inventory cycles, as well as improve or maintain a quality for comply with international requirements25.

As stated by researcher Quddusi26, globalization can be only conceptualized additionally into two types, Grobalization and Glocalization. First concept can be enclosed in “the imperialistic ambitions of nations, corporations, organizations, and the like, and their desire, indeed need to impose themselves in various geographic areas”. Second term is defined as “the interpenetration of the global and the local resulting in unique outcomes in different geographic areas”. These two view-points from the globalization are encompassed and separated momentarily, because the first one utilizes the business-related strategies that a Multinational Company would develop and fully engage to reach out to more clients and countries, therefore, the second concept explains how the breaching of domestic and international markets provide distinctive results that are totally depending of the geographical area, or in this case, the desired country of development.

More updated articles approached to the globalization have been published by researcher Kerr, William R27, for example, in his work “Harnessing the best of globalization”, where he studied some of the newly created businesses, within the 21st century, where the business models have been adapting to the modern technologies, for instance, with the help of the internet, to develop in markets without following the traditional strategies.

First approach he mentions for companies to expand their businesses, within the globalized world, is to “Globalize the best the business can offer”. The tactic consists of offering the companies’ best products or services, with a strong focus in their core assets, and increasingly maturing the business as they are

25 WHITAKER, Jonathan, Peter EKMAN and Steve THOMPSON, ref. 22, p. 112-122. 26 QUDDUSI, Kazi S. M. Khasrul Alam. GLOBALIZATION: CONCEPTS, CURRENTS AND CRITIQUE. Journal of Governance & Public Policy. 2015, vol. 5, iss. 1. p. 90-102,116. 27 KERR, William R. Harnessing the Best of Globalization. MIT Sloan Management Review. 2016, vol. 58, iss. 1. p. 59-69.

developing a global strategy. Moreover, the strategy is driven by sustainable success, even if they are expanded and working in many countries, and, as believed, on the contrary, this model does not use the support of the digital platforms, the internet or the cloud networks.

The second insight found in his work is more related to the availability of demands found on the target economies or countries, then performing a deep and wide research, mainly focused on encountering the world’s largest breaches and needs, and finally forming and delivering their products in order to satisfy the necessities of their new customers. Usually, companies that intake the business model described, are said that they “harness the best that the world can offer”, which translates on the lack of core assets and they often require a large global span for success. Therefore, companies must rely entirely on the digital platforms and technologies to successfully expand the business and improve the competitive advantages.

In conclusion, Kerr suggests a continuous improvement of the advantages obtained from this business models, by carefully balancing both the benefits and the costs accompanying the expansion and growth of the company28.

All in all, it can be summarized that globalization has brought economic benefits throughout the globe and improved the movement of information transversely within the current economy. But to have a better overview about the phenomenon, a look back into its origins will be described in the following chapter.

28 KERR, William R. ref. 27.

1.1.1 History of Globalization

Coming back to the past, timeframe speaking, it is quite true that the beginning of the Industrial Revolution has been unbelievably one of the greatest achievements of the human being along with the development of a market-based economy. The market-based economy should be considered naturally global, meaning that countries ought to pursue national wealth, increase the economic output and manage the fast development of human society in an integrated global market and global economy, all in all, pushing the economy beyond the frontiers29,30.

Many authors have considered that the beginning of globalization originated between 1820 and 1990. The main forces that reveal this commencing in globalization range from the reduction of transaction costs, mainly caused by the previously mentioned "Industrial Revolution". Additionally, Baldwin31 segmented the phases of the globalization in 3 Acts mainly focused on costs. Firstly described, Act 1 (1820 to 1913) withdrawn the production from consumption. Secondly, between 1914 and 1945, in the second Act, existed an increase in costs caused by the wars and protectionism. Thirdly, in the middle of 1946 and 1990, provided a significant drop in costs due to the implementation of the GATT, and the introduction of the containers that reduced the prices of maritime shipments. Furthermore, globalization was widely broadened during the twentieth period, which is characterized and historically propelled by a series of complex, happy and dramatic events, that cause trends of changes in a politico-military, economic and social plane32.

29 BEI, Jin. Economic Globalization: An Irresistible Trend Despite Imperfections. China Economist. 2016, vol. 11, iss. 1, p. 4-22. 30 PHILLIPS, Andrew. The Global Transformation, Multiple Early Modernities, and International Systems Change: A Journal of International Politics, Law and Philosophy A Journal of International Politics, Law and Philosophy. International Theory. 2016, vol. 8, iss. 3. p. 481-491. 31 BALDWIN, Richard. The Great Convergence: Information Technology and the New Globalization. The Belknap Press of Harvard University Press. 2016, p. 645.655. 32 BURLACU, Sorin, Corneliu GUTU and Florin Octavian MATEI, ref. 18, p. 122-125.

To sum up and have a sharper view of the globalization, Khan & Ruiz E33 portrayed a classification of the history into three parts. These stages can be summarized as the following:

1. Early days. In the beginning, trades and negotiations depended on the financing of resources, that could only be obtained from the rich segment of people and developed states, in other words, sponsored by the kingdoms. The expansion of businesses was made by explorers and conquerors that reached further lands and natural resources, though, it had several obstacles to successfully achieve positive results, mainly due to oppression and control of the religion. Nevertheless, the burden of religion over business was diminished through the centuries, which, towards the end, was completely eradicated by English conquerors who established colonies in America and began direct trade and commerce with Europe.

2. Twentieth century. Importantly to mention again that during this century, numerous innovations regarding the transportation, machinery, and communications fired up and served as the base for the technological expansion. Moreover, at some point in the middle of the century, “high-speed technology” functioned as the main eradicator of distances between societies.

3. Digital days. The key factor that has strongly contributed to the globalization during the last stage is the Internet. Additionally, globalization became more efficient and effective through the developing and improvement of various technological strengths. Finally, the most important highlight from the stage is the use of the technology to set up, create, and establish a closer relationship among the people and "drive the world production, exchange, and consumption without national boundaries".

33 KHAN, Alam and Mario Arturo RUIZ ESTRADA, ref. 12, p. 1811-1819

In conclusion, the current era of digital transformation has reached its highest peaks and, with it, brought a huge improvement on how people engage in businesses and deliver it across the nations. Innovation of technology during the digital days facilitates the development of products, strategies and engages the companies with its shareholders, no matter where they are located.

1.1.2 Impacts of Globalization

Moving forward into the following chapter of the thesis and having previously described some of the historical events surrounding the globalization, a brief outline of the positive and negative impacts must be depicted to obtain a perspective from the different possible positions.

The establishment of the concept of globalization on the structure of the countries can have a positive or negative effect on economic growth with regards to diverse factors, such as the political, economic and social dimensions34. Researchers Santiago, et al.35 elaborated a study on developing countries from Latin America and the Caribbean with two constructed models to evaluate the effects of the globalization. The first model consisted of the analysis of the overall significance of globalization, the second model considered the economic, political and social dimensions. On the one hand, results revealed that globalization, on the long-term, carried largely positive impacts within the economic and social dimensions on those countries, however, the political dimension did not show any significant effect. On the other hand, economic freedom intensely represents a negative impact on the economic growth of the selected countries.

Globalization has also created uncertainty between the economies of the world. There exists an extensive range of varied factors that affect the expansion of the markets abroad, such issues include the intellectual property, trademarks,

34 MAJIDI, Ali Fagheh. Globalization and Economic Growth: The Case Study of Developing Countries. Asian Economic and Financial Review. 2017, vol. 7, iss. 6, p. 589-599. 35 SANTIAGO, Renato, José Alberto FUINHAS and António Cardoso MARQUES. The Impact of Globalization and Economic Freedom on Economic Growth: The Case of the Latin America and Caribbean Countries. Economic Change and Restructuring. 2020, vol. 53, iss. 1. p. 61-85.

multinational corporations, as well as taking care of the environment by developing a sustainable strategy for the safety of the reserves 36. To describe some of the positive effects Kandil, et al.37 indicate that primarily countries are benefited from the movement of goods and services, mobilization of physical and human capitals, bilateral trade and transfer of know-how and innovative ideas from the implementation processes of globalization. Kandil, et al.38 present in their empirical study between two rapidly emerging economies of modern era, the impacts in the long run, the performing of co-integration test pointed towards increasingly financial development of the studied countries. Furthermore, financial and economic dimensions where set to be interdependent from each other resulted from a casualty test.

Additionally, globalization’s negative issues are related with the international governance and democracy, referring to politics; addressing the technological atmosphere, there are mainly positive impacts tight to the digital era, and at last, the economy globalization is connected with the development of global markets39.

Another popular concern related to globalization, is a deduction of manufacturing jobs in developed countries. Many companies move their production to countries with lower wages, in order to decrease the cost40. On the other hand, the freer market is resulting in countries being forced to specialize. Thus, the global productivity increases significantly over time41.

36 STIGLITZ, Joseph E. Making Globalization Work [Interview] (5 October 2006). 37 KANDIL, Magda, Muhammad SHAHBAZ, Mantu MAHALIK and Duc Khuong NGUYEN. The drivers of economic growth in China and India: globalization or financial development? International Journal of Development Issues. 2017, vol 16, iss. 1, p. 54-84. 38 KANDIL, Magda, Muhammad SHAHBAZ, Mantu MAHALIK and Duc Khuong NGUYEN, ref. 37, p. 54-58 39 DUMBRAVĂ, Gabriela. CULTURAL CONSEQUENCES OF GLOBALIZATION. MAJOR CONTEMPORARY THEORIES ON THE GLOBAL-LOCAL INTERFERENCE. Annals of the University of Petroşani. Economics. 2016, vol. 16, p. 95-106. 40 DOBBS, Lou. Exporting America. New York: Business Plus, 2006. ISBN 978-0-446-69509-1. 41 KRUGMAN, Paul. Pop Internationalism. Cambridge, MA. MIT Press. 1996.

Another impact generated from the globalization, has been presented by researchers Gozgor and Ranjan42, which is the inequality of distribution in those countries affected by globalization. They found out that there is a positive relationship in richer countries and the social expenditure, when the globalization plays a significant role to avoid the redistribution among the people’s welfare. Another allegation encountered, is that in the deficiency of redistributive methods by the government, especially in prosperous countries where governments might be more reactive to the necessities of the population, globalization would have raised the effective inequality even more. Finally, in their paper is suggested that there is a positive connection between globalization and the magnitude of government in comparison to the efficiency effect which implies the opposite.

1.1.3 Challenges related to Globalization

Managers can encounter themselves with different risks at performing operations across the continents, arising from the benefits linked with globalization. Certain risks are generated mainly by the presence of multinational companies in different countries, giving them challenges arising from uncertainty, high complexity of processes, unfamiliarity, among others. Executives must be aware of the difficulty in administration between the headquarters and the subsidiaries, leading to a delicate administrative coordination within a global network environment43.

According to Hill and Hult44 the main problems in managing a multinational company derive from four main elements. First of all, the countries differ significantly, not only when it comes to culture, but also politics, law and economics. Secondly, the range of situations which the executives are facing in short and long run, is wider and more complex than in just local activities. Furthermore, there are some constrains to the international trade and

42 GOZGOR, Giray and Priya RANJAN. Globalisation, Inequality and Redistribution: Theory and Evidence. The World Economy. 2017, vol. 40, iss. 12. p. 2704-2751. 43 WHITAKER, Jonathan, Peter EKMAN and Steve THOMPSON, ref. 22, p. 112-122. 44 HILL Charles and Tomas HULT. Global Business Today. 11th ed. New York: McGraw-Hill Higher Education, 2020. ISBN 978-1-260-08837-3.

investments, which are imposed by governments. Last but not least, the transactions are performed in various currencies.

What is more, growing globalization could negatively influence the environment. Many companies move their production into developing countries, where the pollution levels are not regulated. However, the supporters of free market argue that, as the globalization provides more wealth and increases the development of poor countries, it leads to strengthening of environmental policies45.

Moreover, many people believe globalization is a great threat to national sovereignty. Global organizations, like World Trade Organization or United Nations, are arising and take over decisions which influence many countries. Hence, there are many aspects that are out of control of the national governments. On the other hand, the global organizations are limited to the collective power of separate countries. If the interest of a country will not be met, it might choose to leave the organization46.

In addition, international companies that are established in developing countries are facing three foremost challenges, summarized by researcher Pomykalski47 within their organization:

• globalization and the openness of investment stream, which places a company towards establishing value for investors, • the development of the market, which fallouts from competitiveness through efficiency and innovations,

45 GROSSMAN, Gene M. and Alan B. KRUEGER. Economic Growth and the Environment. Quarterly Journal of Economics. 1995 p. 53-78. 46 NADER, Ralph and Lori WALLACH. GATT, NAFTA, and the Subversion of the Democratic Process, U.S. Trade Policy and Global Growth. New York: Economic Policy Institute. 1996, p 93- 93. 47 POMYKALSKI, Andrzej. Global business networks and technology. 1, s.l.: Management. 2015, vol. 19.

• the influence of the purchaser, which grows and points out its expectations of contribution in the formation of user experience.

In conclusion, companies must compete in the globalized atmosphere, dealing with both suppliers and customers coming from several geographical locations, acquiring the sufficient knowledge and the necessary technology to significantly improve the value to its potential and current investors. All in all, by innovating their business processes and strategies that will result in the optimal structure with flawless allocation of financial and human capital on the organization.

1.2 Multinational Companies’ Headquarters

Heading to one of the primary results of the advance of globalization, elimination of trade barriers and significantly increase on commercialization across the borders of nations, the launch of the name Multinational Companies had become to be well known in leading economic countries. These types of enterprises brought the upgrading of knowledge and education of employees, by proposing modern technology, business organizations and fresh labor, and most important, ongoing techniques with superior efficiency in business resulting in advanced results on the market48,49.

It is prevalent that Multinational Companies exhibit as main ideas the increasing of their profits and conveying of operations to diverse countries to benefit from international markets, as an alternative of solely having the domestic market as a basis for the consumption of their products. Many of these examples take advantage of the reduction of costs, as spotted mainly on the low wages of a developing country and take lead where there is no appropriate development of

48 ILIĆ, Silvana Miodrag, Dragan BOGOJEVIĆ and Boban BRANKOVIĆ, B. Role of Multinational Companies in the Process of Privatization of Companies in Serbia. EuroEconomica.18, vol. 37, iss. 1. 49 DURA, Codruţa and Drigă IMOLA. The Impact of Multinational Companies from Romania on Increasing the Level of Corporate Social Responsibility Awareness. Contemporary Economics. 2017, vol. 11, iss. 1, p. 45-66.

environmental or labor laws. On the last decades, Multinational Enterprises have tremendously contributed in the raising of shares of revenues and profits among the international markets50. Historically, these companies emerged after the important event occurred during the 70s, that is when investments took immense importance and began to spread throughout economic areas such as Latin America, Eastern Europe and Asia, due to labor incentives encountered, especially for companies dedicated in the industrial manufacturing of products51,52.

In the globalized actual atmosphere, can be found several types of Multinational Companies compositions, such as compound supply chain connections, joint ventures developed on the host countries and totally owned subsidiaries. Consequently, these structures increase abruptly the flow of capital which sometimes can overpass the average gross domestic product encountered on developed countries, thus, generating a huge influence and impacting the involved parties, both the host and the home nation in which the operations take place 53,54.

In addition, most corporations are in significant need on carefully developing an outstanding corporate strategy due to the intensification of the globalization, based directly on the firm’s core businesses. Meaning that, they must handle the

50 WHITAKER, Jonathan, Peter EKMAN and Steve THOMPSON, ref. 21, p. 112-122. 51 BALCIUGLU, Hasret. Multinational Companies and Wage Inequality in the Host Country: The Case Study of Turkey. International Journal of Economic Perspectives. 2016, vol. 10, iss. 4, p. 406-415. 52 ROGER, Leonard Burrit, Katherine Leanne CHRIST, Hussain Gulzar RAMMAL and Stefan SCHALTEGGER. Multinational Enterprise Strategies for Addressing Sustainability: The Need for Consolidation. Journal of Business Ethics. 2018, p. 1-22. 53 ROGER, Leonard Burrit, Katherine Leanne CHRIST, Hussain Gulzar RAMMAL and Stefan SCHALTEGGER, ref. 52, p. 1-22. 54 NACHBAGAUER, Andreas G.M. Stimulating Sustainability in Multinational Companies: The Significance of Regional Headquarters. Management Dynamics in the Knowledge Economy. 2016, vol. 4, iss. 2. p. 215-240.

world market as a one entity with world-wide transfer of marketing and production operations55.

Moreover, these properties, particular traits and specific characteristics may be seen as unethical and have a negative impact to the society and the nation where it resided. For example, most of the Multinational Companies priority goals are planned and delicately set to improve the wealth of the economy through the sustainable designing of programs regarding the communities and employment factors, although, much disapproval is generated due to the misunderstood intended interests of host countries by “outsourcing dirty operations, sourcing labor below subsistence pay levels, and fostering poor working conditions while taking advantage of the lax social and environmental standards in foreign countries where they set up shop”56. For that reason, Torben57 draws the impacts and how the corporate reputation positively endow influence on the decision- makers from the top levels endorsing with corporate responsible behavior and achieving excellent corporate performance (Figure 1).

55 BETTS, Stephen, Robert LAUD, Raza MIR and Vincent VICARI. STRUCTURE AND THE MULTINATIONAL CORPORATION: HOLDING ON, OR LETTING GO? Journal of International Business Research. 2015, vol. 14, iss. 2. p. 33-46. 56 ROGER, Leonard Burrit, Katherine Leanne CHRIST, Hussain Gulzar RAMMAL and Stefan SCHALTEGGER, ref. 52, p. 1-22. 57 TORBEN, Juul Andersen. Corporate responsible behavior in multinational enterprise. International Journal of Organizational Analysis. 2017, vol. 25, iss. 2, p. 485-505.

Figure 1: An updated performance model of corporate responsible behavior

Source: BETTS, Stephen, Robert LAUD, Raza MIR and Vincent VICARI, ref. 55 Additionally, one of the biggest challenges that multinational companies face these days, is to adapt the processes of their businesses and strategies within all local requirements and at the same time integrating competitive advantages in their maximum splendor through collaborations58. Therefore, each one of the dictations taken within a sustainable responsibility must be considered, since one of the reasons for companies to radically move their operations to another nation can serve mainly to evade the costs generated from social, economic and environmental factors. All in all, it is highly important to consider Multinational Companies’ performance whenever they wish to achieve a sustainable competitive advantage, thus, planning an effective strategy may lead to an outstanding performance59.

The Multinational Companies are known for being controlled in separate locations and bringing operations overseas and establishing units to produce their goods and services to its customers. Each of these units are called subsidiaries and normally they are managed by the Headquarter. Moreover, every subsidiary may behave and operate in different manners, mainly influenced by the distinct context of its host country, as well as how they perform business with the local

58 NACHBAGAUER, Andreas G.M, ref. 54, p. 215-240 59 TALPOVÁ, Sylva Záková, ref. 4, p. 67-79

market, buyers and suppliers within the economic and legal structure of the country. Multinational companies are distinguished by having an extraordinary complexity, which is also regular with diversified and decentralized local businesses. In addition, companies must adapt to the settings of the host country, which also demands to be well directed together with the company’ core strategy in all of its divisions.60

In addition to the previous statements, researcher Nachbagauer61 classified distinctive concepts of companies operating around the globe, depending by the influence and power established by the headquarters versus the freedom of developing strategies from the units, or so called, regional headquarters.

Firstly, he mentions the international company. This type of enterprise is mainly driven by strategies coming from the parent company and knowledge is transferred downwards. Also, he states that the model or concept does not have sufficient empirical research, nor criticize62.

Second type of business is called Multinational companies. These enterprises are characterized from enclosing a wide portfolio of single national units, and offering enough strategic self-sufficiency, so they can perform more efficiently and, at the same time, adapt to the local markets rules in which they are established. He also depicts the concept, regarding large companies, and taking into account the regional headquarters, in the following two types63:

• Fractal: multinational companies concede for a regulated strength of regional headquarters, this means that, the influence coming from the regional headquarters is relatively insignificant, as they are more focused

60 SAGEDER, Martina and Birgit FELDBAUER-DURSTMÜLLER. Management control in multinational companies: a systematic literature review: Review of Managerial Science. 2019, vol. 13, iss. 5. p. 875-918. 61 NACHBAGAUER, Andreas G.M., ref. 54, p. 215-240 62 NACHBAGAUER, Andreas G.M., ref. 54, p. 215-240 63 NACHBAGAUER, Andreas G.M., ref. 54, p. 215-240

on the distribution and collection of financial resources, previously forecasted and provided by the parent companies. • Advanced: this type is defined, on the contrary on the previous one, to the extreme freedom and dominance of the regional headquarters on developing strategies and take significant control over the decisions in relation to the subsidiaries. Moreover, this is considered the most important operating method of the international companies.

Finally, the third concept he mentions is the global enterprise. This is controlled by a designated HUB, constructing strategies that follow the world trends and the global market. They enact the activities most of the times from top to the inferior branches. The global company endeavors to form costs advantages throughout world market oriented and centralized actions64.

Furthermore, among the numerous factors previously described including the economic, social, and environmental issues, one must bear in mind as well how is the knowledge shifted into the established or acquired company by the Multinationals. Within the barriers affecting the particular process of transferring the expertise, which can widely have an effect between the headquarters and the subsidiaries, are the distinguished cultural differences. Companies must engage on a strategy with trust and cultural communication as key players for reaching effective success, in order to avoid uncertainty between employees, time- consuming problem solving, disastrous negotiations, and communication complications65.

Having said this, it can be asserted that multinational companies are governed within a multicultural environment, from which several types of administrative needs occur due to unfamiliar cultural features. Companies have been transformed due to globalization, since now there is the possibility of moving

64 NACHBAGAUER, Andreas G.M., ref. 54, p. 215-240 65 LING, Chong Mahn, Yuen Yee YEN, Ming YEN and Wendy Teoh. Framework for Effective Cross-border Knowledge Transfer. International Review of Management and Marketing. 2016, vol. 6, iss. 4, p. 132-137.

their core-businesses out of their country of origin, adapting forms of administration and having to assign activities in nations into experts, employees and managers with political, cultural and legal ideas enormously different from those of the host company. If these aspects are not carefully considered, the company may breed an unwanted negativity among its employees, and therefore, having to deal with a terrible organizational structure66.

1.2.1 Role and Importance of IT MNCs on a globalized environment

At the current state of the thesis, it is by this time known the conceptualization of the globalization and how did it play an essential role on the emerging of Multinational Companies. For the purpose of this study, the main focus will be dedicated to the information technology (IT) companies.

Nowadays, information technology companies are immensely involved in markets where the demand for innovation, original skills and techniques is continuously increasing, all driven by the needs of the customers. The planning of new projects requires a hierarchical setup in which more than one project manager must provide guidance to their subordinates, or team members, i.e., team leaders, programmers, testers, accordingly to the nature of the assignment. The effective communication is a must between the employees in order to ensure the completion of the goals. These companies attempt to finalize projects with attention, control and concentration67.

When multinational companies decide to enter a foreign market, they encounter difficulties regarding the location of the new company, as well as the costs of transferring services, products, processes and knowledge between the subsidiaries and the headquarters in which they have been settled. For this

66 VLAD, Mihaela and Sergiu Octavian STAN. The Influence of Cultural Differences and Its Application in Multinational Organizations. Management Dynamics in the Knowledge Economy. 2018, vol. 6, iss. 3, p. 405-422. 67 KANDUKURI, Veena and Jigeesh NASINA. Collaborative Team Learning Contributions to the Knowledge Management Process, Leadership, and Culture in a Multinational Indian IT Company. International Journal of Business and Information. 2017, vol. 12, iss. 2, p. 107-122.

reason, the top-level executives have the obligation to coordinate the main operational activities within a carefully managed global network between the headquarters and the subsidiaries. Therefore, in this moment the information technology systems take a crucial role to take the appropriate management of the management and perform at an excellent level of risks control68.

Along the solutions provided, developed and delivered by the IT companies to its customers, it can be straightforwardly outlined some of them as: create information structures that encompass all the data flows within their sales, supply chains, production and customer deliveries into one global system – or the cloud as the most recently solution given – disregarding time zones differences and borders and, thus, giving uncomplicated and free access to their employees in order to deal with the goals and missions set on the company.

Furthermore, companies’ top executives may leverage their overall yearly performance and gaining competitive advantages by taking the decision of obtaining these global integration solutions. For example, seamlessly reducing the delivery expectancy and shorter inventory cycles, keener associations with business partners, increased flexibility on sourcing several services or products, improved inventory controls, and most important, increase companies’ wealth and profitability69.

68 WHITAKER, Jonathan, Peter EKMAN and Steve THOMPSON, ref. 22, p. 112-122. 69 STEPHENS, David O. The Globalization of Information Technology in Multinational Corporations. Information Management Journal. 1999, vol. 33, iss. 3. p. 66-71.

1.2.2 Growth Strategies of Multinational Companies

Generally, a multinational company that aims to expand its core businesses to another country or continent, uses selected growing strategies to achieve their goals. Although several enterprises focus on planning profits and sales increase, there are certain methods that every company must analyze and select while implementing a growing strategy. Most of the times, the selected plan is mainly driven upon their financial situation, the government rules and the competition within the market. Moreover, a company’s strategy must be aimed to expand their business and obtain a larger share of the market. In this section, four broad growth strategies will be discussed before moving to understand the main focus of the paper – diversification, market expansion, market penetration and acquisition70.

One the growth strategies in business that companies take into consideration is diversification. This refers to a company introducing new products into the market, although, the strategy might be risky and requires thoroughly market research and resources in order to create products and attach them to the current company’s portfolio. The multinational companies must plan an appropriate selection of debt or equity financing to release more products71.

The following strategy refers to the market expansion, which translates into a company taking their current products or services to a completely new market. An enterprise ought to consider different reasons before considering implementing this strategy, most importantly, how saturated is the desired market to sell the products or services. In case this is the situation, a company should plan and re-think if this is the correct strategy. Furthermore, the business may

70 Western Europe food and drink insight. Limited, Fitch Solutions Group. Retrieved from ProQuest Central Retrieved from https://search.proquest.com/docview/1770467475?accountid=37662, London: Fitch Solutions Group Limited, 2016. 71 KOCHHAR, Rahul and Michael A. HITT. Research notes and communications linking corporate strategy to capital structure: diversification strategy, type and source of financing. Strategic Management Journal. 1998, vol. 19, iss. 6, p. 601.

encounter in a position where its products cannot expand to a new market, causing no impact or increase on its profits or sales.72.

The market expansion process commences with a company analyzing its market segments by segmenting those where they desire to expand. In fact, the main goal is to extent to different segment or unfamiliar market while endeavoring to introduce the existing product or service to draw the attention of new clients. Each of these segments are set as the small sub-group of bigger population, some of the segments might be defined and based on the demographics, income levels or as well as geolocation. Once the analysis is performed, the company can now take a decision to implement and deliver the products and services into the new market73. Finally, the product pricing must be considered to enter a new market, this is due to the different pricing methods varying from country to country, meaning that a company will have to adjust to the current value and it may sacrifice some of the quality and features from their product in case a price is low.

Moving on to the next strategy, marketing penetration, which involves the business re-marketing of the current products into the actual market where it is positioned. For instance, in this strategy it is considered the products purchased by potential customers from a particular company instead of its competitor or no product at all.

Market penetration embraces the actions used to acquire further market share, such as promotion and price changes, whether by raising the total of the population that can be counted as potential customers or by pushing consumers of alike products to exchange to the company's product. Decreasing prices and largely forms of advertising are accomplished to increase market penetration.

72 BENEDICT, Jan. Organizational Structures for Global Brands, Global Brand Strategy: World- wise Marketing in the Age of Branding. United Kingdom: Palgrave Macmilla. 2017, p. 151 - 179. 73 BENEDICT Jan, ref. 72, p. 151 - 179

Diversification of products can also support the businesses to obtain attraction in formerly unexploited segments of the market 74.

The main strategy and subject to review, the acquisition, which is translated and exemplified as simple as a company purchasing another company to expand its operations. This is so-called an inorganic growth because the company utilizes its resources to buy a totally new product line and therefore, acquiring share of a new market. This strategy is also not as risky as a diversification, though, a business may encounter several risks. For instance, it is necessary that the company understands the desired product and market since it is already settled and established, and thus, the amount of the investment can be put at risk if the planning is not well performed.

Survival plays a key role in companies planning to continue expanding their businesses. If an enterprise is looking forward to reducing their costs and increase their profits accordingly, the continuous growth is the correct chance to take advantage of the experience curve and as a result, increasing the sales. In the scenario where a price war exists between corporations within an industry that is growing so quickly, the constant grow focused on the cost reduction is highly important because it will certainly increase the shares of the current market and attract more investors into their portfolio.

On the one hand, there is the merger strategy, which occurs whenever two or more enterprises are integrated into a legal unit. On the other hand, acquisitions are the joint of two companies, however, the acquired firm remains as a subsidiary without legally disappearing, yet, integrated to the purchaser. Additionally, these two concepts represent a legal and business transaction where several companies are merged together resulting in a sole firm. Merger is an assembling of the interest of two corporations into a new organization, demanding the mutual

74 Building an Effective Foreign Market Penetration Strategy | Experts at Infiniti Explain how to Successfully Create a Market Penetration Strategy for International Markets. New York: Aug 28, 2019 ProQuest Central.

agreement by the participant shareholders. Finally, an acquisition is a simple financial and legal purchase of one company by a major enterprise.

Mergers and Acquisitions (M&A) represent a relevant role within the growth, development and business strategies of major enterprises are M&A have been stacked up over the past years, equally in value and volume. Furthermore, there is an existence of unique and different types of M&A, each of them with its own business nature, for instance, the goals vary one from another. The purposes can successively lead to expansion, reduction or state of affairs in value. Generally, enterprises chose to perform M&A to obtain certain synergy together with the acquired company.75

1.3 Merges and Acquisitions of IT Companies

It is from common knowledge to not be able to encounter multinational companies performing Merging and Acquisitions in developing countries76. In addition, whenever a company wishes to begin on a M&A process, or internationalization, it must take into consideration the institutional backgrounds of both international and domestic environments. This plays a vital role at the moment of setting the strategic mission, vision, structure and goals of the company77. Moreover, organizations are in the great need to achieve improvements on their

75 JUNGWOOK, Shim and Hiroyuki OKAMURO. Does ownership matter in mergers? A comparative study of the causes and consequences of mergers by family and non-family firms. Journal of Banking & Finance. 2011 p. 193-203. 76 PELAYO-MACIEL, Jorge, Aimee PEREZ-ESPARZA and Jose SANCHEZ-GUTIERREZ. The Mexican Multinational Business Groups, Global Expansion Strategy and Its Impact on Performance. Competition Forum. 2017, vol. 15, iss. 1, p. 113-119. 77 AURELI, Selena, Massimo CIAMBOTTI and Alessandro DRAGONI. Emerging multinationals investing in developed countries: Key factors for a successful cross-border acquisition. Management Research: The Journal of the Iberoamerican Academy of Management. 2017, vol.15, iss. 5, p. 124-142.

effectiveness of process, efficiency on meeting established goals and increasing their competitive advantages within the global market78.

Firms that enhance on merger and acquisition are benefited from the free access to unreachable resources from local suppliers, acquired know-how of innovate technologies and admission to further markets. Additionally, companies are allowed to diversify and distribute risks along with the rapid organic growth and development of the whole organization, and most important, regardless of the external economic factor, either fast or slow, the value obtain from controlling production volume and corporate value is massive79.

Although it may seem that internationalization processes are risk-less, enterprises must be aware that entering on a totally new market, which is unacquainted with the local business, can imply some barriers, such as political and commercial obstacles, causing significant negative impact to the company’s strategy intended to penetrate the selected market. However, these risks can be diminished as long as the company utilizes efficiently its ownership advantages, unique resources or international business experience80. In addition, mergers and acquisitions are commonly pushed by similar technology, cooperative business goals, and financial tactics81. Sometimes, acquisition strategies tend to prioritize revenue growth over cost reduction, which may be considered as a negative push- back when the current economy is going through tough times. There are quite more factors affecting the formation of value for its shareholders, including greediness, deficient synergy, bad planning, skipping research on culture

78 JOSHI, Vijay and Krishn A. GOYAL. An Empirical Case Study on Employees' Satisfaction After Merger in Selected Bank. Productivity. 2015, vol. 55, iss. 4. p. 327-337. 79 BAUER, Florian, Julia HAUTZ and Kurt MATZLER. Unveiling the myths of M&A integration: challenging general management and consulting practice. 2, Boston: The Journal of Business Strategy. 2015, vol. 36. 80 YUAN, Lin and Nitin PANGARKAR. Performance Implications of Internationalization Strategies for Chinese MNCs. International Journal of Emerging Markets. 2015, vol. 10, iss. 2. p. 272-292 81 DUVALL-DICKSON, Susan. Blending Tribes: Leadership Challenges in Mergers and Acquisitions: Quarterly Journal. S.A.M. Advanced Management Journal. 2016, vol. 81, iss. 4. p. 16-22,36.

compatibility, and non-relevant decision-making, leading to a failure of an M&A implementation82.

In this case, managers take a significant role on the construction, development and goal settings in performing an efficient M&A strategy. Selfish managerial decisions can lead to value damaging rather than value foundation, then increasing the risks of a malfunction of the whole compliance procedures83.

Researchers Bauer, et. al.,84, explored and studied the challenges of an efficient integration for 4 years, analyzed outcomes from more than 400 companies that engaged on M&A strategies, and came up with four myths that demonstrate limitations on integration processes.

Firstly, the myth that says that the mandatory need to develop an outstanding integration strategy to outperform the success on the companies is quite not necessary. The study Bauer, et.al.,85 realized, included companies that were engaged on M&As procedures, and interestingly discovered, that the risks of failure decreases significantly whenever the need for integration is lower. More researches propose there is not constantly a need to integrate cultures, processes, tasks, organizations, systems, etc., concurrently and that it is sometimes enough to synchronize accounting and control systems86.

Second myth is related to the speed at which companies desires to finalize the integration processes. Normally, from the managerial perspective, fulfilling all the integration tasks at the best time possible, will result on better outcomes, however, based on little research data, Bauer, et.al., 87, proved that companies must carry out the integration based on a particular order if they wish to achieve

82 BHIMANI, Alnoor, Mthuli NCUBE and Prabhu SIVABALAN. Managing risk in mergers and acquisitions activity: beyond 'good' and 'bad' management. 2, Managerial Auditing Journal. 2015, vol. 30. 83 BHIMANI, Alnoor, Mthuli NCUBE and Prabhu SIVABALAN. ref. 82 84 BAUER, Florian, Julia HAUTZ and Kurt MATZLER, ref. 79 85 BAUER, Florian, Julia HAUTZ and Kurt MATZLER, ref. 79 86 BAUER, Florian, Julia HAUTZ and Kurt MATZLER, ref. 79 87 BAUER, Florian, Julia HAUTZ and Kurt MATZLER, ref. 79

higher performance indicators. Such order is staged by first, “creating an atmosphere of shared identity and mutual trust”, which is totally related to the organizational cultural integration. As soon as they have completed the cultural values transfer, then the company should move on to the task’s integrations. This helps to prevent the neglection of human resources transfer, that may arise due to cultural conflicts or organizational resistance and lead the company to success on accomplishing their goals.

Thirdly, there is an interesting myth that everyone believes due to the high quantities of companies engaging in M&A strategies. One would suppose that the experience obtained throughout the various acquires and purchasing of corporations increases the knowledge, processes and strategies of the corporations, it is proved, on the opposite, that every single transaction within the cultural integration varies from enterprise to enterprise. However, the study performed by Bauer, et.al.,88, resulted on an easier implementation of the tasks integrations, related to the companies’ experience, meaning that, the managers must highly focus on learning the organizational cultures every time, just before they engage on the acquiring process, which is not related with the learning curve of the companies.

Finally, success on the integration cannot be always planed or foreseen. The old myth that managers are rational and have total control of organizational process is denied by Bauer, et.al.,89. This myth is based mainly on the rational processes while completing an integration, because not all of them are reasonable process, and thus, disregard the need of focusing on individuals. Moreover, companies have the ability to elaborate structural plans, project and operating schedules and milestones established on rational statements. For instance, to overcome further failures of the strategies, managers are advised to strongly take into account informal harmonization systems, since they cannot

88 BAUER, Florian, Julia HAUTZ and Kurt MATZLER, ref. 79 89 BAUER, Florian, Julia HAUTZ and Kurt MATZLER, ref. 79

predict every possible detail during the integration process. Only a mixture of several methods could build up the possibility of a successful integration and thus a successful transaction.

1.4 Political, Economic, Social, Technological Analysis

The PEST analysis is the most common approach for considering the external business environment. PEST analysis stands for Political, Economic, Social, and Technological analysis and illustrates a framework of macro-environmental factors managed in the environmental examining component of strategic management.

The PEST analysis helps out the company to react to changes in its external environment. This suggests the idea that a plan requires a measure concerning capabilities and the external environment and so it is essential for a firm to respond to changes.

• Political changes may well be expected to involve, for instance, overall variations in the domestic political environment, the effects of European incorporation and the after-effects of the break-up of the Soviet Union, government transformation, world supremacy shifts, as well as precise legislation and regulation.

• Economic changes are prospective to consist of the effects of economic successions, commodity prices, currency conversion rate exchanges, models of world trade, shifts in capital markets, labor markets and rates, and economic effects on providers and groups of clients.

• Social change involves the effects of demographic outlines, perceptions and habits, and relates about the environment and sustainable progress.

• Technological change wraps the consequences of technological change on processes, products and distribution networks. The PEST analysis is especially broad in nature and this makes it challenging to present clear rules on how best to utilize it in diverging environments. Global or geographically spread companies must run a separate PEST analysis for various regions as tendencies occur at different rates in distinctive places. The importance of the PEST is prone to relate exactly to the quality of the determination put into it.

The PEST analysis is an advantageous tool for comprehending market growth or decline, and by itself the position, capacity and direction for a business. A PEST analysis is an organization measurement instrument. Finally, we may understand the Environmental analysis, global environmental dimensions, environmental forecasting, risk and uncertainty in business strategic management90.

1.5 Porters 5 Forces Analysis

Porter’s91 five forces analysis has been recently adopted by managers working at multinational companies to successfully develop strategies and being aware of the framework in which they are placed or want to expand. Such framework states that the company’s performance mainly depends on the situation within its environment, or better, their industry and the ability to guard itself against competitive forces and steering them into their favor92.

90 International Journal of Modern Social Sciences Journal, n.d. Modern Scientific Press. [Online] Available at website: www.ModernScientificPress.com/Journals/IJMSS.aspx [Accessed 20 April 2020]. 91 PORTER, Michael E. Competitive Advantage: Creating and Sustaining Superior Performance. The Free Press. 1985. 92 MATHOOKO, Francis M. and Martin OGUTU. Porter’s Five Competitive Forces Framework and Other Factors that Influence the Choice of Response Strategies Adopted by Public Universities in Kenya. The International Journal of Educational Management. 2015, vol. 29, iss. 3. p. 334-354.

The Porter’s framework usefulness is embedded on the forces of competition immersed in the conventional dynamics of economics. Porter’s five forces model gives certain attention to five forces that persuade any industry: threat of new entrants, intensity of rivalry, threat of substitutes, bargaining power of buyers and bargaining power of suppliers.

Porter’s model has significantly improved the strategic management praxis within the multinational’s environment, and it is substantiated primarily on microeconomics. It is developed upon the notion that the external environment is a considerable influence in strategy elaboration.

Porter93 firstly outlines the threat of new entrants, which means that there are barriers directly associated with the entry of any business to a singular desired industry. Additionally, these barriers may alter the industry’s profitability totally depending on whether the industry presents high or low barriers of entry.

Second force described by Porter, is the bargaining power of the buyers. This force can be simplified by the following statement: “the more options the buyer has to choose from, the more power the buyer has.” This means that higher quantity of competitors in the industry can affect the profitability on each of the players and loosing and winning customers, or buyers.

On the other hand, Porter’s bargaining of the power of suppliers, which is controlled by the accessibility to resources, information or knowledge on the industry that allow an enterprise to produce goods and services. Vendors are in control of the prices, for example oligopolies, giving them the power to control who can buy from them and who to supply the resources requested. This certainly means that with the decreasing amount of options on the market, the power of the suppliers will go up.

93 PORTER, Michael E. The five competitive forces that shape strategy. Harvard Business Review. 2008, vol. 86, iss. 1.

The next force of analysis detailed by Porter, related to microeconomics opportunity costs, the threat of the substitute depends whenever the trade-off is higher in contrast to the original product, regardless of the overall number of substitutes available in the current market.

Finally, rivalry among competitors can be caused by the constant innovation within the industry. The overall activities performed on a strategic level such as price reducing, new product launching, marketing campaigns and service developments in such approach that the companies must spend and invest more resources to catch up with their direct competitors.

Moreover, Porter outlined additional factors that affected directly the five forces mentioned before, for example, the rise in technology and economic downturn will play a key role in influencing the corporate strategies. Managers at top levels, also called decision makers, are often challenged with several viable substitutions than the luxury of devout obvious choices after complete analysis.

Some highly influencing factors regarding the decision making are vision and mission, leadership, management approach concerning risk, corporate culture, timing, the weight from stakeholders and, need and desire of key managers. However, the desirability of a strategic option is partially a function of the volume of risk it requires attitude towards risk employ substantial influence on strategic response.

1.6 SWOT Analysis

Strengths, weaknesses, opportunities and threats (SWOT) analysis demonstrates a system for helping the researchers or planners to distinguish and organize the business goals, and to additionally recognize the strategies of successfully achieving them. SWOT analysis is a technique used to analyze the strengths, weaknesses, opportunities and threats of businesses94.

Albert Humphrey developed an analytical tool to evaluate strategic plans and find out why corporate planning failed when he was working on a research project at Stanford University around the 1960s to 1970s.

He conceives this technique as a SOFT analysis where S stood for what things are presently Satisfactory, O indicated what Opportunities can be explored in the future, F stand for the present Faults, and T represent the future threats that might appear.

Most agree that SOFT is SWOT's predecessor, other believes are that the SWOT analysis concept has was developed separately and it is independent from SOFT95.

The philosophy behind the SWOT analysis is that the strategies implemented by an organization should match the environmental threats and opportunities with the weaknesses of both the organization and its strengths in general. It manages to establish a strategic fit between the internal strengths and weaknesses for an organization and the opportunities and threats which its external environment poses96.

94 OMMANI, Ahmad Reza. Strengths, weaknesses, opportunities and threats (SWOT) analysis for farming system businesses management: Case of wheat farmers of Shadervan District, Shoushtar Township, Iran. 2011, vol. 5, iss. 22. 95 THAKUR, Sidharth. Bright Hub Project Management. [Online] Available at: https://www.brighthubpm.com/methods-strategies/99629-history-of-the-swot-analysis/ 2019. [Accessed 20 April 2020]. 96 LU, Weishang. Improved SWOT approach for conducting strategic planning in the construction industry. 12, s.l.: Journal of Construction Engineering and Management. 2010, vol. 136.

The foundation of the SWOT analysis is the SWOT matrix which is shown in table 1.

Table 1: SWOT analysis matrix

Strengths Weaknesses

Opportunities SO WO

Threats ST WT

Source: LU, Weishang, ref. 96.

The SWOT matrix is very effective for developing a series of alternatives for a company or business unit based on particular combinations of the four sets of strategic factors. The SWOT matrix demonstrates how to adjust a business's external opportunities and threats with its internal strengths and weaknesses, leading in four sets of applicable strategic alternatives. It allows managers to create multiple kinds of strategies for growth and retrenchment. The matrix for SWOT includes:

1. SO, strategies focus on how to use a company's strengths to utilize opportunities. 2. ST strategies seek to have a company's strengths to avoid threats. 3. In order to set up new opportunities, WO strategies aim to eradicate weaknesses. 4. WT strategies are defensive in principle and act principally to reduce weaknesses and prevent threats97.

Unlike other tools that have quickly become outdated with management science's rapid evolution, SWOT analysis is still popular. There are many reasons behind this. First, it is inclusive; it fits with many other later emerging theories and methods. Second, it is also easy to use. It provides a systematic but simple way for strategic planners to conduct SWOT analysis. It's flexible, moreover. It can be

97 WANG, Kuang-Cheng. A PROCESS VIEW OF SWOT ANALYSIS. 2011.

used by numerous organizational kinds, including enterprises, non - profit organizations, government units, and even individuals.

A final analysis shows that a capable tool for strategic planning is the SWOT analysis. Ensuring a strategic fit between internal and external environments in strategic management has become a widely accepted concept. The SWOT matrix provides a systematic scheme that puts together internal and external factors to enhance new strategies98.

98 LU, Weishang, ref. 96.

2. Overview of the Company

The particular Multinational Enterprise selected to perform the analysis and evaluation, taking into account the literature reviewed in the previous chapters, is called SAP. Named shortly after its full initials in German language “Systeme, Anwendungen und Produkte in der Datenverarbeitung”, traduced in English to "Systems, Applications & Products in Data Processing".

This company is a multinational software corporation that was initiated in Germany back in 1972 by five persons that were keen to innovate through a vision for the business potential of technology. They began with not many employees and only one single customer, from there, they ramped up an innovative strategy that will allow most of the enterprises to facilitate business in a unique method, that unexpectedly, would transform the world of information technology.

SAP is nowadays headquartered in Walldorf, Baden-Württemberg, Germany with regional offices in 180 countries, and currently has business with approximately over 425,000 clients in more than 175 different countries. SAP is powered by the pioneering spirit that stirred its forefathers to continually renovate the IT industry99.

99SAP, n.d. SAP History. [Online] Available at: https://www.sap.com/corporate/en/company/history.html [Accessed 15 January 2020].

2.1 Chronological events

2.1.1 The early years (1972-1980)

In the beginning of the decade of the 70s, five IBM employees decided that together they will initiate a new company to perform “System Analysis and Program Development”. They spent weeks and nights development the adequate system over the period of one year, to finally come up with the first module completed – the financial accounting system – that eventually was baptized with the name of SAP R/1. This system served as the basis in the constant development of other software modules of the system.

In the following years within the decade, new modules are added to the software that would allow enterprises to manage their inventory, handle their procurement and process invoices through SAP’s RM. Afterwards, SAP GmbH Systeme, Anwendungen und Produkte in der Datenverarbeitung ("Systems, Applications, and Products in Data Processing") is established as a sales and support subsidiary. Then, the private partnership is dissipated five years later, and all the rights are transferred to SAP GmbH and, subsequently, changed the headquarters from Weinheim closer to the city of Walldorf.

Striving to develop and integrate more areas to the system, SAP finalizes the Asset Accounting module and projects new implementations at a pilot company. Finally, at the end of the first active decade of the company, and for the very first occasion, SAP decides to centralize their operations by moving them to their own server, “Siemens 7738”. At that moment, SAP decides to finally move to a bigger physical office, with new equipment for its employees, and at a stationary place, so that everyone would work collectively - hand to hand. They

closed the decade by having distributed all development actions within their regional customers, achieved at its first facility100.

2.1.2 The SAP R/2 era (1981-1990)

Following the second active decade of SAP, at the beginning of the 80s, the company gets to be presented for the first time at an IT trade show called “Systems”, back then organized in the city of Munich, Germany. This help them to perform at higher levels of stability of what was known as SAP R/2, only during the first year. Soon after, they reached 10 years in business, in 1982, announcing that they have delivered SAP software and gained contracts with over 250 different enterprises located within the same region, consisting of Switzerland, Austria and Germany. SAP grows its selection of products with a production management module with the support of its customers,

To cope up with the fast growing of their business, they decided to plan a new construction project that would be enough space to maintain their newer workforce. These new-hires – around 50 headcounts – were trained to continuously develop and improve the existing modules, achieving the goals more efficient and faster. Up until this point, SAP has now acquired three new servers, plus the existing one, to boost up the memory and give more rapid chances to the developer and offer better opportunities to enrich the company’s product. Almost 96% of its clients benefit from SAP software to handle business practices.

After six years of the decade have passed, SAP comes up with the idea of opening its first international subsidiary in Austria. In addition to the expansion, they kicked off its first branch office in western Germany, mainly to reinforce their presence in that specific region. The same year, SAP’s new outcome of product supported now the department of human resources, making it available to all their customers and enabling the proper management of human capital and as the

100 SAP, 2020. SAP History. [Online] Available at: https://www.sap.com/corporate/en/company/history/1972-1980.html [Accessed 15 January 2020].

starting stage for SAP's efforts in markets abroad SAP (International) AG is established in Biel, Switzerland. In 1987, SAP makes the jump to launch offices in France, Spain, and Great Britain in the same year, following by the establishment of its first non-German-speaking holding in the Netherlands.

Not before the decade ended, SAP decided to early immerse into the next software generation. Afterwards, SAP transforms from a private, limited-liability company into the publicly traded SAP AG. Firstly, by releasing its initial public offering in October 1988 at a share price of DM 750, and remaining to amplify its capital stock from DM 5 million to DM 60 million. Listed at the German stock exchanges in Frankfurt and Stuttgart, were 1.2 million shares issued in the names of their corresponding owners are.

Advancing into the last stage of the decade, SAP strives to implement a more user-friendly environment within their products and enacts several development projects with new tools. At the very end of the decade, SAP (International) AG in Switzerland reported that they own control of 12 international subsidiaries in countries like Australia, Singapore, and Canada. Furthermore, they managed to initiate business and open new offices in 15 different countries and reached an enormous headcount of 1,400 employees that would produce by then, DM 370 million in revenue.

Finally, SAP AG increased its capital stock to DM 85 million by distributing preference shares, therefore, allowing SAP to finance its increasing investments, and completing the newest modules development – financial accounting and materials management. On 1990, SAP decided to invest DM 110 million in research and development to improve development of current system SAP R/2 and the newer SAP R/3 system. Concluding the year by acquiring a 50% share in

the German software company Steeb and attaining the software firm CAS outright101.

2.1.3 The SAP R/3 era (1991-2000)

SAP was rapidly increasing their revenue and employee numbers and owned 14 subsidiaries with over 2,000 clients using their product around 31 different countries by the beginning of the decade of the 90s. This is when they smartly responded to an external political factor, the fall of the “Iron Curtain”, and took advantage by concluding a contract with the largest Russian software company. Following with successful installations of the newest software to the public, increasing the company’s growth exponentially, which they called SAP R/3. Foreseen a higher demand for their products, SAP enlarges its partner strategy with independent consulting firms, which SAP referred to as "logo partners," with the main activity of implementing the system effectively with the clients.

Only on the first three years of the decade, SAP generated DM 1.1 billion in revenue, reaching a record 10-figure mark and employing more than 3,600 persons. Soon after, SAP introduced its marketing activities in the Chinese market with demonstrations in Beijing, Shanghai, and Tianjin. It also opened an additional international subsidiary in Mexico City. Afterwards, SAP began to emphasize more marketing attempts on midsize companies with the assistance of system resellers.

A key moment happened when SAP firstly introduced its joint Internet strategy with Microsoft, via open interfaces, customers could connect to online applications to their SAP R/3 systems. Then in 1997, SAP undertook the plan to enter the New York Stock Exchange (NYSE). Having as its main goals to increase

101 SAP, 2020. SAP History. [Online] Available at: https://www.sap.com/corporate/en/company/history/1981-1990.html [Accessed 15 January 2020].

their presence and shape as the most valuable and major information technology company to improve the relationships with shareholders.

At the end of the decade, entering the new millennium, SAP became the third largest software supplier on the globe. Also, they achieved the title of the world's most prominent source of e-business software solutions that incorporate processes amongst and within companies. Finally, its labor force consisted in more than 24,000 employees in over 50 countries, producing revenues of €6.3 billion in the 2000 fiscal year102.

2.1.4 Real-time data (2001-2010)

At the beginning of the new era, the new millennium, SAP started expanding their business to the Israeli market, by acquiring the TopTier, which is a leading company in that region. Moreover, the event of the "New Economy" bubble bursting, decreased significantly the investors willing to enter the IT market, however, SAP was not affected. On the other hand, they kept increasing their revenues by 17%, thanks to the client loyalty in SAP.

In year 2004, SAP publicizes its objective to acquire the outstanding shares of its consulting subsidiary SAP SI and to unite the company into its corporate group. This attempt fortifies SAP's global portfolio of strategic IT consulting and integration services and makes SAP the “go-to provider” of many customers worldwide.

The aim of SAP was to focus on organic growth by acquiring smaller companies that contributed to the portfolio in some precise solutions. This made the 2005 distinct due to the succession of various acquisitions. To mention some of these companies, were included the two retail suppliers Triversity and Khimetrics. Followed up by the purchasing of the company that provided strategy

102 SAP, 2020. SAP History. [Online] Available at: https://www.sap.com/corporate/en/company/history/1991-2000.html# [Accessed 15 January 2020].

management solutions, called Pilot, as well as Yusa, OutlookSoft, Wicom, and MaXware. SAP also revealed its intent to buy a company focusing in business intelligence applications, Business Objects. Then in 2008, SAP concludes with outstanding success its acquisition of Business Objects. This specific acquisition mainly contributed to expanding solutions among SAP’s software portfolio and incredibly, made them the leader in the market of business intelligence, business software and enterprise performance management.

Finally, at the end of the decade, In May, SAP proclaimed its proposals to obtain the company called Sybase for approximately US$5.8 billion. The previously mentioned company based in California, is the largest business software and service provider focusing entirely in information management and mobile data use. The combination of the two leading companies is to generate solutions for "wireless" companies103.

2.1.5 Cloud computing era SAP HANA (2011-Present)

In the commence of the current ongoing decade, SAP releases its latest, most innovate in-memory product to all their customers around the globe, naming it SAP HANA. This would allow every type of company with ownership of the software, to rapidly process information in a matter of minutes, instead of taking long hours, or even days, to retrieve data in the past. Such software became incredibly popular, gaining demand with the past of the days, and, with the help and support of the late acquisition of Sybase, they could deliver this new service platform to mobile phone users through the usage of applications.

Additionally, SAP did not stop on planning to expand to new markets, or even strengthen business where they had already resources allocated. For example, SAP was after emerging market economies such as India, Russia, Brazil, but most important, China. Afterwards, SAP announces its EUR 2.5 billion

103 SAP, 2020. SAP History. [Online] Available at: https://www.sap.com/corporate/en/company/history/2001-2010.html# [Accessed 15 January 2020].

acquisition of SuccessFactors, the leading provider of cloud applications. The following year, with the objective to become the groundbreaker in the fast-growing segment of inter-enterprise cloud-based business networks and deliver an end- to-end cloud procurement solution, SAP manages to acquire Ariba.

In 2013, SAP achieves an enormous growth of 69% bigger than the previous year, only with the newest platform SAP HANA, becoming a record breaker of the quickest developing product within the business enterprise market. In the same year, another key acquisition takes place, in seek to deliver the next-generation e-commerce platform.

At the end of 2014, SAP concludes the acquisition of Concur, the biggest software-as-a-service acquisition in history, combining the US$1.2 trillion business travel market to the extent of SAP’s leadership status in the business group. Soon after the acquisition was finalized, SAP highly optimized the customer experience with all the list of customers enjoying from SAP’s portfolio of products. This seemingly helped with the main purpose of SAP at that year, which was acceleration to a cloud-based company, reaching another record of the largest cloud company in the world by measure of users (70 million).

At the end of the year 2015, SAP releases a new idea called the Internet of Things, powered by the popular and most profitable product SAP HANA, now fully composed and functioning as a cloud platform, seemingly increasing their portfolio of solutions to support customers associate the core of their business to the threshold of the network, multiply operational efficiencies and steer the creation of new revenue models, products and services.

Most recently, SAP introduced a new board area, Global Business Operations, with the main purpose to enlarge its Executive Board with a new board area. The new section emphases on synchronizing SAP’s internal Run- Simple activities, urging simplification and modernization of core business processes and making them straight with SAP’s cloud and platform strategy. At

the end of last year, SAP declared its goal to acquire the global initiator of the customer experience management, Qualtrics International. Hand in hand, SAP and Qualtrics planned to quicken the new customer management category by conjoining experience data and operational data to drive the experience economy and fulfill the potential of the Intelligent Enterprise104.

104 SAP, 2020. SAP History. [Online] Available at: https://www.sap.com/corporate/en/company/history/2011-present.html# [Accessed 15 January 2020].

3. Practical Analysis

3.1 Methodology

For the practical analysis of this diploma thesis, I will conduct an interview focused as a qualitative research to obtain data from the managerial point of view. In total, four managers at the analyzed company will be selected, all of them from different areas of expertise and managers of several administrative areas of the company. First, I will interview a manager from Procurement with more than 6 years of experience within the IT business. Second, the manager has been in Human Resources for over 9 years and currently holds the managerial position with Asian-Pacific-Japan team at their charge, it started as a supervisor for 2 years, then got the promotion as a manager, which has been holding for 4 years. Third interviewee was selected from Procurement Operations team, currently being inside the multinational company for over 9 years, and part of the EMEA region. It has been responsible and a manager for a Global team in the last 3 years. The fourth and final participant on the survey, is a Controlling Manager at the Global Finance department, who was been working over 3 years in the company, some of his functions are managing the sales contracts, forecasting the sales and compliance of financial reports to the company’s executive board of directors.

As per the request of all participants, and the confidentiality and importance of their job positions, their names are coded throughout the practical analysis of the thesis. The names are taken from the Aviation Phonetic Alphabet105 and I decided to choose the first four letters “Alpha, Beta, Charlie and Delta”.

Alpha belongs to the first mentioned Procurement manager. Beta is assigned to the manager from Human Resources. Charlie is designated to the last

105 Independent Insurance Agents of Houston. https://www.iiah.org/default.aspx. [Online] [Cited: 19. January 2020.] https://cdn.ymaws.com/www.iiah.org/resource/resmgr/imported/Aviation%20Alphabet.pdf.

interviewee who is a Procurement Operations manager and finally, Delta, a Controlling Manager from Finance Department.

Afterwards, with the data gathered during the interviews, I will proceed to do the analysis of the external factors affecting the current strategy and fast growth of the company for the past years, mainly seen using the previously described PEST Analysis. This will provide a better understanding of the statements discussed and open as well the field for the internal analysis.

The internal analysis will be conducted with the support of a survey based on a questionnaire retrieved from “Industrial Analysis: The Five Forces” (See Annex B106), in which we will go through a total of 36 “yes or no” questions segregated by all the Porter’s Five Forces presented in chapter 1.6. This will help to get the feedback and deeply analyze the different point of views from the managers and compare their statements on the position of the company with the competitors.

Moving on to the next chapter, with the support from the entire information obtained and public data published on the annual reports by company, I will define the current enterprise’s strengths, weaknesses, opportunities and threats.

Finally, I will state the forecast of the trend in the market and expansion of the multinational company considering the information analyzed and reviewed within the last chapters of the practical analysis and with regards to the responses from the interviewees of the thesis.

106 COLE, Ehmke, Joan FULTON and Jay AKRIDGE, ref. 11.

3.2 SAP’s PEST Analysis

3.2.1 Political Factors

Political factors that influence the operations of SAP are:

• Political stability and importance of Software sector in the country's economy. • Level of corruption • Bureaucracy and interference in Software industry by government. • Legal framework for contract enforcement • Intellectual property protection • Trade regulations & tariffs related to Technology • Pricing regulations • Taxation - tax rates and incentives • Industrial safety regulations in the Technology sector.

The political factors embrace the rules and policies of the government in which the corporations like SAP have been operational. Additionally, several importation policies of the states play a fundamental role in the accomplishment of SAP. With the dawn of globalization, the political factors have a constructive role in the software business industry. SAP has previously recruited employees from around the globe, in addition to the Merger and Acquisition from companies founded in several countries, so it will be accurate to say that incorporation of different cultures has shaped such a political environment within the corporation that is altering the company. These internal and external political factors bring potential opportunities as well as possible threats to the company107.

China and America have been affected by the growth, as conversed with Alpha and Beta, China’s government is pushing more the local businesses to

107 ARORA, Asish and Alfonso GAMBARDELLA. The Globalization of the Software Industry: Perspectives and Opportunities for Developed and Developing Countries. Cambridge: National Bureau of Economic Research, Inc, 06. 2004.

outsource their areas and therefore, aiming to expand operations on a global basis, resulting in a struggle to SAP to acquire talent in those regions. In fact, Beta confirmed that the company has developed and established a HUB for IT services in China and prepared it to focus mainly in recruiting people and obtaining the necessary talent to comply with the required headcount. For instance, the data can be confirmed in SAP’s report which presented a total year increase of 3,832 full time employees, which is mainly driven by Qualtrics acquisition (2,113 full time employees), a further increase of 950 full time employees in the Asian-Pacific region and 139 in India and furthermore108,

Another potential negative impact for emerging markets arouses from SAP’s ability to acquire new businesses that might become a threat or direct competitor on the market. This will be more detailed and explained throughout the next analysis.

A positive trend is ongoing in North America, where the participants specified that business is growing constantly and no policies against software or Cloud business companies have been enacted. On the other hand, Beta claimed that the Asian-Pacific Japan region currently suffers of problems strongly attributed to market challenges, that can lead to a negative trend and, most of the times, affecting SAP revenues directly within the market.

Additionally, Beta mentioned that there are some countries under embargo, for example Iran or Belorussia, however, the subject confirmed that these countries are definitely not impacting on the success and not jeopardizing the business growth, translating into a trend that will remain positive.

Furthermore, by the end of the month of November 2019, the SAP share was trading close to its all-time high and stocks climbed globally along with U.S. equity futures. Additional positive news was that China raised penalties on

108 SAP SE. SAP 2019 Integrated Report [online]. Available at website: https://www.sap.com/docs/download/investors/2019/sap-2019-integrated-report.pdf [Accessed 01 July 2020].

intellectual property violations had helped to ease concerns over trade tensions, clarified the participants.

On December 16th, 2019, SAP share closed at a new high €124.74, as European stocks reached a record on hopes that a partial trade deal plus Boris Johnson’s election victory will ease key risks for investors heading into year-end.

3.2.2 Economic Factors

Economic factors that SAP should consider while conducting PEST analysis is:

• Type of economic system in countries of operation • Government intervention in the free market and related Technology • Exchange rates & stability of host country currency. • Efficiency of financial markets. • Infrastructure quality in Application Software industry • Comparative advantages of host country and Technology sector in the country. • Labor costs and productivity in the economy • Economic growth rate • Unemployment rate • Inflation rate • Interest rates

The GDP of the country is the one important economic factor affecting the business trend of the software companies like SAP109. The urbanized regions with high human development index and economic growth are more inclined to the software products which SAP is offering. This was discussed with Delta regarding the sales performance, and confirmed on the SAP Financial report, Europe delivered +17% growth, plus the Middle East region had a strong performance with +29% outperforming SAP’s internal plan by +€17m. Europe North growth with

109 VAN DEN BERGH, Jeroen C.J.M. The GDP Paradox. Journal of Economic Psychology. 2009 vol. 30, iss. 2

+15% while Europe South underwhelms and stays almost flat110. The people and enterprises of such regions are more captivated in amending technical solutions, so there are more opportunities for the adaptation of innovation that SAP carries. They are susceptible to technological improvements; hence, they are willing to pay for it much more than in other places. This trend positively affects the business growth111.

Moreover, the economic factors include the exchange rates of the currency in which the company is operational. The real exchange rate volatility can fairly influence the growth of the company in a particular country. This dependence, however, is highly related to the country's level of financial development. Thus, this characteristic is another important economic factor112.

During the interview, Alpha and Delta mentioned that If the economy goes to crisis the trend is going to contract against the current situation. During the times of economic crisis, the sales can drop down, otherwise, the trend will remain positive and scaling the sales of the company.

Following a widely anticipated decision by the Federal Open Market Committee to cut interest rates by 25 basis points on the 30th of October 2019, and strong data released from China showing factory activity expanding at the fastest pace since 2017, SAP share continued its upward trajectory, along with the DAX, in early November 2019. The SAP share surged, as European shares rose on January 9th, 2020, for the third day, closing off session highs113. This impacted in parallel to the revenues achieved during the end of Q4 2019.

110 SAP SE. SAP 2019 Integrated Report [online], ref. 108. 111 HARMON, Robert R., David RAFFO and Stuart R. FAULK. Value-based pricing for new software products: Strategy insights for developers. Seoul. Journal of Economic Psychology, Proceedings: Innovation Management in the Technology-Driven World. 2004. 112 AGHION, Philippe, Phillipe BACCHETA, Romain RANCIERE and Kenneth S. ROGOFF. Exchange Rate Volatility and Productivity Growth: The Role of Financial Development. St. Louis: Federal Reserve Bank of St Louis. 2009. 113 SAP SE. SAP 2019 Integrated Report [online], ref. 108.

3.2.3 Social Factors

Social factors that should be taken into consideration while performing PEST analysis of SAP is:

• Demographics and skill level of the population • Class structure, hierarchy and power structure in the society. • Education level as well as education standard within SAP’s industry • Culture

The social factors encompass the technical trends in the society. Certainly, the modern societies are more interested in the software companies like SAP. The society who has a sense of latest technology and are always eager to adopt the contemporary technical trends will always welcome the innovations by the brands like SAP114. All these social and cultural pressures and trends play a prominent role in the business of SAP.

Scarcity of certain talents would be an issue, and it will become worse to get talent, it will be intensifying in the following years. Demographics and less children are being born. India has very difficult time in terms of talent, as discussed with Beta. China prefers to work with local companies and push them going global, therefore, they require lots of investments, which generates disadvantage for SAP. As a result of China’s strategy of growth, they tend to link local businesses to government.

India is a country with a massive number of inhabitants and prepared people to work in certain markets, however, as bad as it sounds, the quality of workforce is low due to bad educational factors. Nowadays, the amount of companies moving to India is trending to go higher, as many international companies outsource selected departments to this side of the world.

114 DRUCKER, Peter F. The Technological Revolution: Notes on the Relationship of Technology, Science, and Culture. Technology and Culture. 1961, Vol. 2.

During the interview with Beta, it was mentioned an important concept that it is certainly a global trend, women equality, which means the inclusion of genders within the enterprises and gives SAP the opportunity to increase the percentage goal of women workforce and jobs in the leadership, bringing an engagement globally to involve both genders and become even more inclusive in this matter. Carrying all of its employees equally without compromising people’s rights and differences.

Furthermore, subject Beta mentioned SAP Lifelong Learning program, which was designated to efficiently sustain educational programs to achieve SAP’s social responsibility goal “a world with zero unemployment”, yet, it is expensive to reach it, and thus, not all the people are willing to enroll into educational programs and switch from doing manual work to, for example, software developer or programing.

Finally, helping society in a globalized world involves SAP with more governmental institutions from developing countries and motivates the company to provide the programs and software that is functional in first world countries like the USA or Germany. Some of the examples that that the company may focus on helping to improve the society level are the police department, firefighters and specially hospitals where the infrastructure is not advanced. The goal would be to go to simple analytics to solve complex problems.

3.2.4 Technological Factors

Technology analysis involves understanding the following impacts:

• Recent technological developments by SAP competitors • Technology's impact on product offering • Impact on cost structure in Application Software industry • Impact on value chain structure in Technology sector • Rate of technological diffusion

Technology has its ramifications in every sphere of life. For SAP, being a purely technology-oriented company, the technological attributes like innovation have played a significant role. SAP is very much prone to innovation and has always followed the contemporary trends. This attitude provided the company with a competitive advantage in the software market. Furthermore, technology makes it possible to enhance the speed of sharing their solutions with their clients and, thus, spreading the innovation.

There is nowadays a positive trend with the technological process, it is incredible, however, that SAP needs to be very observant and be innovational. A culture of innovation is important, meaning that the company must ensure enough agility to prevent the disruptions. The trend might fluctuate as a consequence of the speed of innovation. SAP must not fall behind and avoid being unstable. On the other hand, the trend is positive, which is the lead in this change. If the company continues to initiate technologic changes, they should be definitely be able.

Finally, SAP is surrounded by businesses that thrive to expand their businesses, this topic was mainly deliberated with Alpha and Delta, since they confirmed that direct competitors rapidly engage in searching for partnerships with clients, suppliers and even other competitors within the market, with the objective to augment the revenues, improve the share value and growth in sales and customer count.

3.3 SAP’s Porter 5 Forces Analysis

3.3.1 Bargaining Power of Suppliers

In this area of analysis three subjects mentioned that SAP has a huge number of potential suppliers within the business, moreover, the products that need to be acquired are normal and ordinary, meaning that there is enough room for improvement requested by SAP. This can substantially be represented on a low power of suppliers, giving more control to the company to choose between the offered products and influence to control the prices. On the other hand, Delta disagreed to the question, due to the fact that SAP needs high-end technology servers to run the cloud servers efficiently, lowering its potential power over the availability of suppliers.

Additionally, considering the responses, entrepreneurs could partially start a new business and become direct competitors to SAP, nevertheless, it is considered yet as a low power or suppliers. SAP can easily switch to substitute products, generating for them higher bargaining and negotiating opportunity with its supplier base.

Furthermore, SAP is partially working on the awareness of their supplier base, this is because Bravo did not have a clear idea of what its suppliers are selling to the company, nor the prices or specifications of the products. On the other hand, Alpha, Charlie and Delta stated that, obviously, in their area of expertise, every employee is aware of the different supplies and products they procure during the year, as well as the powerful well-designed campaigns to promote SAP’s brand.

In conclusion, the bargaining power of suppliers is low, in view of the fact that SAP has an extensive knowledge about their ordinary products and can easily find alternatives to substitute the supplies. Most important, the room for negotiating prices and product development for its own growth also represents on a low power of suppliers.

3.3.2 Bargaining Power of Buyers

Continuing to the next point of the Porter’s analysis, the subjects stated that SAP is totally independent from each of their customers. Currently, the company holds a portfolio of many customer (exact number could not be discussed), meaning that if one of their customers decides to quit and stop acquiring products from SAP, it would barely harm their potential revenues. Moreover, SAP’s products are complex and in a certain way, unique, translating into high costs to obtain the service through the company and therefore, the customers are pushing hard to lower the prices, while SAP strives to innovate and transform the products, or in this case, acquire new businesses with deep-rooted and technologically advanced software.

In fact, having a unique product can define the low bargaining power to the buyers, nevertheless, Alpha and Charlie stated that SAP is keen to inform the world about the newest products and services developed and how can they help the customers’ businesses to thrive.

Due to the complexity of the business built over the years, the buyers have a low bargaining power because it is extremely difficult to copy the integrated supply chain of SAP and this will obviously stop them to enter the market as a direct competitor. However, the rapid competition brings options on the market and drive the customers to switch to another competitor.

In conclusion, SAP’s high product costs and complexity, prevents the clients to join the market as a direct customer, translating into a low bargaining power. Nevertheless, the competitors may offer similar products which the customers can easily switch to, slightly providing more bargaining power to the buyers.

3.3.3 Threat of New Entrants

The third part of the analysis consists on evaluating the power of the company’s position in regard to the new enterprises that are considering entering the market. In this case, all subjects confirmed that SAP currently holds protected software and internal processes arising from research investments, which entitles them with high barriers to the companies that would definitely make them consider competing in this industry and restricts new entrants to easily penetrate the market. Another point validated by the interviewees is the impressive loyalty to the brand and new products by the customers engaged in business with SAP, meaning the new entrants will have to develop stronger and more powerful strategies to deviate SAP’s customer loyalty back to them and break through the entry barrier.

Moreover, the extraordinary complexity of starting a cloud-related business similar to SAP requires a huge initial capital investment in order to reach the degree of technology that the company offers to their customers, this is obviously translated into another high barrier to enter the marker. On the other hand, the subjects responded that the equipment or assets to run a business that may compete against SAP are not unique nor need special specifications, therefore, the barrier is lower to the people desiring to start smaller businesses.

Alpha and Delta replied that SAP owns processes that are incredibly hard to acquire and learn about them, but Bravo and Charlie insisted that SAP’s technology can be indeed copied and emulated by companies with appropriate skills to reproduce the software, thus, the entry barrier level is quite low.

Regarding the distribution channels from customers and inputs that SAP has developed, fostered and acquired over the last years, all the participants from the interview agreed that the current barrier is placed as a high, meaning that new entrants will definitely have a difficult time to acquire customers or obtain inputs as straightaway as present businesses.

Finally, there is a cost-efficient level of production for each product. If the. market opponents cannot attain that level of production and development, they will not be economically healthy, and therefore, will not desire to enter the industry. All in all, the subjects again agreed that every new competitor that desires to enter the market, must obtain similar high-end technology resources to reach the same development level of SAP.

3.3.4 Threat of Substitutes

The next part of Porter’s analysis belongs to the power of substitutes available in the market. In the first question of the survey, all the subjects responded positively regarding the products offered by SAP, meaning that there are minimum or nonexistent substitutes to threaten the company’s wealth. This has been carefully managed by SAP due to the high amount of acquisitions completed throughout their existence. Every time an attractive substitute appears on the market, which might be potentially integrated to current SAP One system, SAP would come and offer to buy them and complete an acquisition effectively, concluding on the elimination of the potential substitute.

However, there are alternative offers, software and products that might compete directly against SAP. The bright spot stated by the interviews, and all agreed to it, is that the company provides its customers with an impressive amount of benefits that engages them and drags them into their entire catalog of products - most of the times costly – therefore, the contracts cannot be withdrawn so easily without having penalties for them. This means, that the switch costs are high, and the substitutes remain a low threat to SAP.

Ultimately, as mentioned in previous sections, SAP is constantly working on building loyalty with its customers and continuously improving their branding campaign, even with existing low switching costs, delivering a sense of doubt to the clients and having them to think twice before switch to a different software supplier. Customers nowadays have a high brand loyalty to SAP and entitles them to enjoy a weak threat of substitutes.

3.3.5 Rivalry Among Competitors

The last section of the analysis is concerned to the microenvironment’s competitive rivalry. Due to SAP's nature of business completely related to technologies, the race between the companies is significantly faster than in other industries. Additionally, the globalization’s main impact has generated more competitions among international companies, bringing more players into the market to compete against the global demand and become the top supplier of their products.

The interviewees confirmed the statement regarding the excessive number of competitors on the market, this can be translated into a more intense rivalry because everyone is considering taking a portion of the shared industry. Moreover, within the same industry, SAP's managers have somehow an idea of who is the leader on the market, meaning that reports usually present rapidly changing data about the top leader. Rivalry increases whenever companies have similar shares of the market, leading to a struggle for market leadership.

Finally, all the participants declared that the market is continuously growing and expanding throughout the world's economy, facilitating the allocation of recourses and increases in revenues from every existing company within the software industry. However, SAP does not hold low fixed costs, as the responses from the interviewees were all negative, this means that eventually, the smaller companies will struggle to find a sweet-spot in planning their budget and will be thrown out of the market, delivering a positive impact on SAP's future situation.

3.4 SAP’s SWOT Analysis

To achieve an effective performance, SAP must evaluate their strengths, weaknesses, opportunities and threats. A SWOT analysis describes the audit and evaluation of the company’s’ internal and external environment to aid in effective performances. As such, the SWOT analysis helps in understanding the company’s’ position and future opportunities and challenges. More importantly, the SWOT analysis helps in the achievement of desired goals and objectives. In this regard, a SWOT analysis helps in matching the company’s resources and capabilities to the competitive environment. The SWOT analysis takes an important role in making of the various decisions in the current market. It facilitates making decisions as far as the market strengths can be concerned.

3.4.1 Strengths and Weaknesses

Strengths refer to SAP resources and capabilities that enable the company to develop a competitive advantage and implement their strategic management plan. The interview participants agree that the SAP has a strong brand name and strong brand name recognition. This has enabled the company to build a positive image through public trust and confidence. It is imperative that through the strong brand name and positive image, SAP has been able to attract top skills and talents as well as attracting investors in its products. In addition, the whole portfolio of products has increased manifolds due to increased confidence and effective integration of the Merges and Acquisitions. The figure below represents the total revenue in millions of Euros and the Year over Year over Year percentage growth.

Figure 2: SAP Portfolio 2019 Revenue and Year over Year % growth

TY 19 TY ∆19 BUD (V) % YoY∆ @cc BUD (V) % YoY @cc

Customer Experience* Customer Experience*747 747 -44 -44 +41% +41% Digital Supply Chain Digital Supply Chain211 211 -11 -11 +53% +53% Finance and Risk Finance and Risk 32 32 +1 +1 +208% +208% SME Solution SME Solution 79 79 +4 +17% +4 +17% HEC HEC 696 696 -33 -33+38% +38% S/4H Public Cloud S/4H Public Cloud141 141 -16 -16 +89% +89% Digital Core Digital Core 1,164 1,164 -56 -56 +46% +46% Global Services Products Global Services Products116 116 -3 -+45%3 +45% People* People* 1,387 1,387 -8 +14%-8 +14% hyperscaler EMBRACE hyperscaler EMBRACE17 17 Analytics & Insight Analytics & Insight121 121 -3 -3 +121% +121% Leonardo Tech Leonardo Tech 10 10 -3 +13%-3 +13% Database & Data Management Database & Data Management56 56 -3 -3 +87% +87% SAP Cloud Platform SAP Cloud Platform280 280 -0 -+49%0 +49% Platform & Technology Platform & Technology484 484 +7 +72%+7 +72% Ariba Ariba 1,133 1,133 +3 +19% +3 +19% Concur Concur 1,371 1,371 -28 +18%-28 +18% Fieldglass Fieldglass 197 197 +7 +26% +7 +26% Intelligent Spend Group Intelligent Spend2,701 Group 2,701 -18 +19%-18 +19% Applications & Other Applications & Other56 56 +6 +6+123% +123% Qualtrics Qualtrics 370 370 -1 -1 Other (residual)** Other (residual)** -12 -12 -14 -14 SAP Group SAP Group 7,014 7,014-130 -130 +35% +35%

S/4HANA Cloud S/4HANA Cloud 465 465 +80% +80% HANA on HEC HANA on HEC 30 30 +94% +94% HANA on Services HANA on Services 73 73 +27% +27% Total Direct HANA Cloud Total Direct HANA Cloud103 103 +42% +42% Implicit HANA Share Implicit HANA Share376 376 +295% +295%

Source: SAP SE. SAP 2019 Integrated Report [online], ref. 108. Another factor that presents a huge strength for SAP is the establishment of strategic partnerships and acquisitions. The company has used these partnerships to create operational efficiencies regarding cost management and outsourcing. For Cloud Revenue, SAP is -€31m below the consensus estimate – this is mainly due to weak Cloud Bookings

In addition, due to the company’ strong organizational culture and structure, the company have been able to drive growth and achievement of effective performances. More importantly, SAP has corporate ethics and decision-making processes augmenting their products and positive public image. The strengths in this case as well may include things like proper management of the company

products and services which might lead to more profits. This can be highly evident in financial management of the usage of the operating expenses. SAP has put in place a good strategy whereby most of the company finances are well recorded hence meaning that the company resources are well managed hence leading to more profits. All the participants confirmed that SAP owns exceedingly skilled labor force through thriving training and education programs. SAP is spending enormous resources in development and training of its human resources resulting in a workforce that is not merely extremely skilled but also enthused to accomplish more. The marketing strategies are also good as well as the marketing teams of the multinational. The marketing strategies in this case include market research whereby they do thorough investigation to ensure that they have been able to allocate themselves in the correct market for them to invest and develop products.

Weaknesses refer to internal challenges and difficulties that SAP must address to enhance its competitive advantage. The rapid change and increased cost of technology especially their information and communication technologies are one of the weaknesses that the company needs to address urgently to enhance decision making and remain competitive in the future. In the year 2019, SAP results for operating profit were a surplus of €10m, meaning that SAP outperformed the median of the SAP’s analysist had estimated115. It has also emerged that SAP experience high employee turnover rates in the last one decade. The implications of a high turnover rate include high cost of training and recruitment as well as loss of skills to competing players within the industry. Additional weakness point is not achieving integration of the acquired companies that mainly worked with a foreign organizational culture. Weaknesses on the other hand may also include things like the poor management as well as inefficient labor which might affect the performance of the company. Finally, Alpha, Charlie and Delta mentioned that even though SAP currently owns a vast portfolio of products and services within the core business, they lack solutions that have not been

115 SAP SE. SAP 2019 Integrated Report [online], ref. 108.

developed or acquired yet, which provides potential clients the choice to move with another competitor in the market with the existing solution for their problem. In conclusion, this analysis suggest that SAP should asses these challenges and try to solve them as soon as possible.

3.4.2 Opportunities and Threats

Opportunity describes factors that create room for profitability and growth. In a qualitative external environment analysis, it is evidently clear that SAP have numerous opportunities which the management can tap to enhance achievement of effective performances. The general trend of globalization is one factor that has led to liberalization of economies and elimination of trade barriers. With a strategy of expanding their services and cover more foreign markets, it is imperative that SAP find it easier to penetrate some markets due to investor-friendly policies. It is also notable that the emergence of new economies with huge average income populations will drive growth in some sectors like cloud computing for the opportunities, this can be seen in venturing into new markets or even venturing on new products and services. This will be very much important since the company will have differentiated itself from the rest of the competition hence leading to increased returns.

Threats describe changes in the external business environment that provide challenges for the multinational. Reproduction of the counterfeit and significant low quality services on the developing countries is one of the threats to SAP’s product as found on the Porter’s analysis, SAP product is not completely unique and might be easy to imitate with cheap tools and equipment, thus, affecting the brand name on those regions susceptible to purchase the fake service. On the other hand, competitive analysis of SAP reveals that the entry of new players in the industry poses a huge threat to the company’ market share and dominance. The company faces great competitive challenges especially in some markets where community elevators institutions have dominated for decades. With advancement in technology, SAP faces an enormous challenge. There is

consensus among the interviewees that the company faces numerous competitive challenges with the emergence of the new technologies and substitute products and services.

As previously reviewed in the theoretical part, it is clearly known that SAP runs in an intense competitive environment, where competitors fight to become the leader in the market, in this case, the managers had in some way an idea of who the competitor is, though, in SAP report, the top competitors represent a threat due to their profitability management, and their sales as shown on the table below:

Table 2: SAP Competitor Behavior (2019)

SAPSAP GroupGroup SAP Group CompetitorCompetitor BenchmarkBenchmarkCompetitor Benchmark LastLast Last LastLastLast Last LastLast Last R4QR4Q (in(in $m)$m) R4Q (in $m) ACTACT %YoY%YoYACT %YoY%YoY%YoY LfL*LfL* %YoYQuarter QuarterLfL* Quarter%YoY%YoY %YoYQuarterQuarter Quarter%YoY%YoY %YoYQuarterQuarter Quarter%YoY%YoY %YoY CloudCloud RevenueRevenueCloud Revenue 7,8487,848 +33%7,848+33% +25%+33%+25% +25%8,0208,020 +17%8,020+17% +17%14,85514,85514,855 14,855+27%+27% +27%2,9302,930 +33%2,930+33% +33% SoftwareSoftware LicensesLicensesSoftware Licenses 5,0575,057 5,057-6%-6%-6% -7%-6%-7%-7% -7%5,7095,709 5,709+1%+1% +1% SoftwareSoftware SupportSupportSoftware Support 12,92712,927 12,927-0%-0%-0% -0%-0%-0% 19,06719,067-0% 19,067-4%-4%-4% -4% SWSW LicensesLicenses SW&& SupportSupport Licenses & Support17,984 17,984 17,984-2%-2%-2% -2%-2%-2% 24,77624,776-2% 24,776 CloudCloud && SoftwareSoftwareCloud & Software 25,83225,832 25,832+6%+6% +5%+6%+5% +5%32,79632,796 32,796+2%+2% +2%14,85514,85514,855 14,855+27%+27% +27%2,9302,930 +33%2,930+33% +33% ServicesServices Services 5,0785,078 5,078+6%+6% +3%+6%+3% +3%3,2013,201 3,201-3%-3%-3% -3%995995995 +19%+19%995 +19%509509 +23%+23%509 +23% HardwareHardware Hardware 3,5953,595 3,595-8%-8%-8% -8% TotalTotal RevenueRevenueTotal Revenue 30,91030,910 30,910+6%+6% +4%+6%+4% +4%39,59239,592 39,592+0%+0% +0%15,85015,85015,850 15,850+26%+26% +26%3,4403,440 +31%+31%3,440 +31% OperatingOperating ExpensesExpensesOperating Expenses -21,739-21,739-21,739 -21,739+5%+5% +2%+5%+2% -22,171+2%-22,171-22,171 -22,171-1%-1%-1% -13,125-13,125-13,125-1% -13,125+27%+27% +27%-2,979-2,979-2,979 -2,979+26%+26% +26% OperatingOperating ProfitProfitOperating Profit 9,1719,171 +10%+10%9,171 +10%+10% +10%17,42117,421 17,421+2%+2% +2%2,7252,7252,725 +25%+25%2,725 +25%461461 +81%+81%461 +81% OperatingOperating MarginMarginOperating Margin 29.7%29.7% +0.9pp+0.9pp29.7% +1.4pp+0.9pp+1.4pp +1.4pp44.0%44.0% +0.6pp+0.6pp44.0% +0.6pp17.2%17.2%17.2% -0.2pp17.2%-0.2pp-0.2pp -0.2pp13.4%13.4% +3.7pp+3.7pp13.4% +3.7pp

Source: SAP SE. SAP 2019 Integrated Report [online], ref. 108. The most selling point of the secure software ERP from SAP in the global market is its unique suite offered that compels various software licenses and support and Cloud services in One system as seen on the table 3. This One system has the potential to expand the company's business scope by acquiring companies that have developed products that are not included yet in the service. An opportunity for the company is to increase the investment on their strong services and definitely, develop an internal strategy to significantly reduce the operating expenses, as this is reducing the operating profit and it is reflected in a lower operating margin against its competitor.

SAP operates in numerous countries and therefore it is endangered to currency fluctuations particularly given the unpredictable political climate in the markets throughout the world. Next to this, the financial resources are one of the main opportunities of the company SAP is the nature of the IT industry, so they must effectively procure their products from suppliers to perform their core activities. Since there is a gap relating to the moment that a transaction between a supplier and a buyer is done, firms who are active in that specific market needs financial resources to do business, this is because SAP can use the capital from the headquarters to increase their capacity when that is necessary. SAP’s small competitors do not have this opportunity, therefore offers SAP an opportunity to select the best suppliers on the market. Due to this, they can work with a lower rate of errors than their competitors do.

As presented on the overview of the SAP, a vague innovation of new products has been introduced to the market. Throughout the years the firm has created several products but those are regularly developed in response to the rapid improvement by other competitors. In this scenario, SAP focuses on acquiring enterprises with substantial innovative products and diversify their portfolio of services, nevertheless, the threat currently exist where SAP is not efficiently releasing new products by itself and thus, being highly dependent on the emerging businesses which might lead to high and low fluctuations in the sales figure over period of time.

The opportunities of SAP are the growing market for natural stones. The market is constantly growing and moving towards a more developed area quickly. The effects of the credit crises are not taken by the company which makes those predictions uncertain. Nevertheless, the chance remains high that the market will grow in the future. This is especially true for countries form Europe which grows faster than USA. In conjunction, it seems to be that the development of IT companies is stagnating because of competition from developing countries, due to the cheaper salaries, it is a negative trend that SAP will have to thrive harder

to compete with them. This gives SAP a potential opportunity in the future to increase their market share in a growing market.

3.5 Forecast of the trends

In this section of the practical part of Diploma Thesis, the positive and negative trends are summarized to reflect a clearer picture of the environment and the future position the company by taking into consideration the macro and micro economic factors and with regards to the qualitative research results from the interview

3.5.1 External Environment

First of all, the external environment is filled with various negative trends, starting with the empowerment of China over tis local businesses to expand the operations abroad and negatively impacting SAP’s strategies to acquire businesses or talents on those regions. Nevertheless, the initiation of a HUB focused on principally hiring and recruiting the missing talents provides a positive trend for the next years, and already reflected on the headcount increase throughout 2019, in addition to the recently acquired company Qualtrics. The trend surrounding this topic moves towards stronger Human Resources strategies and carefully integrating new employees into the business.

Moving forward, it is positively forecasted that North American region will remain as open as nowadays and that will facilitate SAP to thrive and implement their growth strategies, including reaching new customers and expanding their products throughout the region. However, the Asian-Pacific region is clearly going towards a negative trend, due to the market challenges and regulations existing in those countries. The trend will remain negative unless China modifies the regulations and protects companies on the intellectual property and invites the foreign investment.

SAP’s position within the European region will maintain a positive trend considering the high GDP from the countries within the region, high human development and continuous economic growth. However, this positive trend might be affected in case an economic crisis develops during the next years and directly impacting the sales and profits of the company.

Moreover, there is certainly a negative trend in regard to the social environment in India and China. SAP will continue to struggle to obtain highly educated and trained personnel on those regions that fits the company’s requirements to perform efficiently. Furthermore, the demographics affect directly the headcount of the company, as less children are being born, the trend is going to maintain negative as long as the new born rates within the developed countries do not increase, or SAP implements educational programs on the emerging economies with high population ratios in order to improve the quality of the workforce.

Human rights, equality and inclusiveness within every business and industry is an essential trend that will continue to take more significance on the following years. SAP shows strategies to surf with the wave of the equality and will definitely bring positive growth and awareness of the brand, adding up to the social responsibility programs to support public organizations and public services with their products.

Finally, regarding the technological environment, the future trend looks positive as the nature of the industry leads to rapid innovation, release of new products and stable growth on the past years. Therefore, SAP’s momentum with acquisition strategies will lead to an increase of product portfolio and revenues in the future.

3.5.2 Internal Environment

Among the future trends inside the internal competitive environment that SAP runs their business is the positive value that the low bargaining power of suppliers provide to the company. For instance, SAP is having an enormous pool of supplier to choose from, and the trend will continue to be increasing due to the nature of the rapid increasing and creation of new businesses. Therefore, this low power from suppliers is translated into freedom for SAP to switch between products and perform cost reduction strategies to increase their profits in the following years.

Considering the massive number of clients, the high costs of the products and services provided by SAP and the continuous innovation of their solutions, the power of buyers will remain low throughout the years as this is one of the main reasons of why SAP thrives to acquire companies with new products and then proceed to offer it to the pool of customers. The trend is assumed to be positive due to the intense engagement strategy used by SAP to retain and control the customers.

The trend regarding the new entrants to the industry will remain as strong and positive to SAP in the future due to the tough software protection implemented by the enterprise, huge investments in research and unique processes. Adding up to the previous statement, SAP has built up an impressive brand loyalty and will thrive to keep the brand awareness campaign’s momentum to avoid new entrants to take away the clients away from the company. Another point to mention is the complexity and efforts required to start a business alike SAP. The interested entrepreneurs must start with a high capital investment into the assets and equipment to efficiently run a business and compete against SAP. On the other hand, a neutral trend is assumed from the participant’s responses regarding the counterfeits in the market, despite the fact that SAP processes have years of time invested to reach the current position, the rapid growing of the market brings out people with enough resources to recreate some of the process, reflecting this into a low entry barrier.

Nevertheless, new entrants require extensive financial and resources planning to become cost-efficient and directly compete against SAP’s operating profits and considering that high-end technologies are necessary to run all the systems and solutions, the trend is positively supporting SAP’s position versus the new entrants.

Moreover, for the next years to come, substitute products or services will raise and will try to compete against the multinational, yet, SAP’s strategies are moving forward to increase their portfolio and solutions by acquiring and merging with potential substitutes, resulting in a complete elimination of threats within the market. Despite the fact that the alternative offers in the market will never cease to exist, SAP will continue to reinforce client’s loyalty by presenting an extensive catalogue of services that will force the customer to invest more on the product, meaning that sales will tend to increase.

Finally, the constant rapid growth and expansion of technologies around the globe will remain as an ongoing increasing trend, resulting in more people interested in the market and generate stronger international competition between the multinationals. Nevertheless, this is a positive impact for SAP as they will have more options to allocate their resources and transform them into revenues to raise capital for any new investment on acquisitions or technology.

3.6 Recommendations

Upon the interviews performed to the managers of SAP to obtain qualitative data inside the organization, the meaningful literally review from researches about the multinational companies and its growing strategies, focusing on the topic of Merger and Acquisition, with additional and further analysis of strengths, weaknesses, opportunities and threats, I will proceed to deliver and propose recommendations for the company principally taking into consideration the trends of the market, trends of the industry itself, and the trends discussed with the interviewees that participated in the survey. These theoretic standpoints provide an important contribution to the understanding the positive and negative trends. However, I would like to encapsulate all the recommendations that I consider essential to maintain an efficient growth and reduce the negative impacts of the company.

1. SAP must continuously review the internal competitive environment in lieu of the rapid industry expansion and keep looking up for potential software companies that could add positive value to the existing portfolio of products, services and solutions and therefore, eliminating the competency. 2. I strongly recommend to never reduce the investment on Brand Awareness campaigns as the trend is definitely positive and will certainly increase the number of loyal customers, improve client retention inside the company and attract high skilled potential employees. 3. The company must design a detailed plan to improve the efficiency and marketing of the Cloud Business, as this area mainly resulted on the revenue loss, which lead to less operating profit at the end of the year. 4. Maintain consistency within their organizational culture throughout the regions across the globe to drive constant positive growth and transfer the know-how and business intelligences to future acquisitions to achieve successful integration.

5. SAP does not develop new software or invest sufficient money in internal expansion. The recommendation in this case suggests that the capital investment should be instead focused in the research and strategic plan of an acquisition and integration of new companies based on the reported data and the future trends of the market. 6. One of the key opportunities that SAP must consider in order to bring value to the society is to take advantage of the social programs that they effectively developed. I strongly the company to invest more in publicity and marketing campaigns, particularly in the developing countries due to the nature of the campaigns’ structure and the benefits it can bring to the society. 7. Another important recommendation to the company, is to keep an eye on the new governmental regulations within the Asian-Pacific region. China’s lack of control of counterfeit and software reproduction can directly threaten SAP’s in customer loss and decrease the potential in market penetration in that region. 8. I strongly recommend designing a strategic plan to significantly reduce operating expenses and fixed costs as they are falling behind the main competition. 9. Invest on current high-revenue generator products to improve the quality of the services provided to the clients and therefore increase the sales over the next years.

Conclusion

All in all, through the extensive theoretical review, the qualitative research and discussion of the analysis and results, this thesis answered the proposed question, what are the trends that impact positive or negative the multinational company’s future position and growth within the industry? The trends were stated based on the qualitative data obtained from the interviews with managers within the analyzed company plus the usage of additional public data presented at the company’s financial reports.

The selected multinational company clearly thrived to be successful on acquiring and merging with several enterprises during the past years, managing that their plans resulted in an effective integration with the acquisition and introduction of the product or service into their catalogue, and therefore, increasing significantly the sales. Due to the quick technology advancements within the industry, the company must keep on researching new opportunities that will successfully benefit both sides.

Furthermore, it is well-known from the managerial point of view reviewed in the qualitative data results, that the multinational company has strong Brand Awareness from efficient marketing campaigns directed to both its customers and potential clients, translated into higher sales and building loyalty among the employees and all its shareholders. The trend will positively maintain its momentum throughout the following years as this is a key factor for the company’s profitability, share performance and success.

Finally, the aim of this thesis was to determine the positive and negative trends of the environment and technology industry regarding growth strategies of the multinational company through qualitative data analysis and public reports. Further research shall be done considering the financial risks and cross-cultural implications of acquiring new businesses from different levels of experience and regions. Thesis limitation is the qualitative research, as this is not considering

quantitative data and business strategies might be subject to change throughout the next months, depending on the external and internal factors.

My principal recommendation to the multinational company and its managers is to keep focused on the positive trends that will definitely improve the profitability, increase the share value at the stock market and drive the business to success, while in parallel, designing strategic plans to avoid falling into the negative future trends that can lead to loss of clients, illegal reproduction of their software and even lose control of the market share.

Bibliography

AGHION, Philippe, Phillipe BACCHETA, Romain RANCIERE and Kenneth S. ROGOFF. Exchange Rate Volatility and Productivity Growth: The Role of Financial Development. St. Louis: Federal Reserve Bank of St Louis. 2009.

ARORA, Asish and Alfonso GAMBARDELLA. The Globalization of the Software Industry: Perspectives and Opportunities for Developed and Developing Countries. Cambridge: National Bureau of Economic Research, Inc, 06. 2004.

AURELI, Selena, Massimo CIAMBOTTI and Alessandro DRAGONI. Emerging multinationals investing in developed countries: Key factors for a successful cross-border acquisition. Management Research: The Journal of the Iberoamerican Academy of Management. 2017, vol.15, iss. 5, p. 124-142.

BALCIUGLU, Hasret. Multinational Companies and Wage Inequality in the Host Country: The Case Study of Turkey. International Journal of Economic Perspectives. 2016, vol. 10, iss. 4, p. 406-415.

BALDWIN, Richard. The Great Convergence: Information Technology and the New Globalization. The Belknap Press of Harvard University Press. 2016, p. 645.655.

BAUER, Florian, Julia HAUTZ and Kurt MATZLER. Unveiling the myths of M&A integration: challenging general management and consulting practice. 2, Boston: The Journal of Business Strategy. 2015, vol. 36.

BEI, Jin. Economic Globalization: An Irresistible Trend Despite Imperfections. China Economist. 2016, vol. 11, iss. 1, p. 4-22.

BENEDICT, Jan. Organizational Structures for Global Brands, Global Brand Strategy: World-wise Marketing in the Age of Branding. United Kingdom: Palgrave Macmilla. 2017, p. 151 - 179.

BETTS, Stephen, Robert LAUD, Raza MIR and Vincent VICARI. STRUCTURE AND THE MULTINATIONAL CORPORATION: HOLDING ON, OR LETTING GO? Journal of International Business Research. 2015, vol. 14, iss. 2. p. 33-46.

BHIMANI, Alnoor, Mthuli NCUBE and Prabhu SIVABALAN. Managing risk in mergers and acquisitions activity: beyond 'good' and 'bad' management. 2, Managerial Auditing Journal. 2015, vol. 30.

Building an Effective Foreign Market Penetration Strategy | Experts at Infiniti Explain how to Successfully Create a Market Penetration Strategy for International Markets. New York: Aug 28, 2019 ProQuest Central.

BURLACU, Sorin, Corneliu GUTU and Florin Octavian MATEI. GLOBALIZATION – PROS AND CONS. Calitatea. 2018 vol. 19, iss. 1, p. 122-125.

BUTT, Graham. Globalisation: A Brief Exploration of its Challenging, Contested and Competing Concepts. Geography. 2017, vol. 102. p. 10-17.

CHEN, Jiun-Shiu and Al S. LOVVORN. The Impact of MNC’s Home Country Politics on Host Country Nationals’ Organizational Commitment. Journal of Marketing Development and Competitiveness. 2012, p. 56-57.

CLARK, Cynthia and Jill A. BROWN. Multinational Corporations and Governance Effectiveness: Toward a More Integrative Board: JBE JBE. Journal of Business Ethics. 2015, vol. 132, iss. 3. p. 565-577.

COLE, Ehmke, Joan FULTON and Jay AKRIDGE. Industry Analysis: The Five Forces. s.l.: Purdue University. 2016.

DEVI, Nisha, MERGER AND ACQUISITION. International Journal for Research in Business, Management and Accounting. 2016, vol. 2, iss. 2, p. 51-58.

DHOLAKIA, Nikhilesh and Deniz ATIK. Markets, Globalization, Development: Charting the Intersections of Three Multipolar Concepts. Markets, Globalization and Development Review. 2016, vol. 1, iss. 1, p. 3.

DOBBS, Lou. Exporting America. New York: Business Plus, 2006. ISBN 978-0- 446-69509-1.

DOSSI, Andrea and Lorenzo PATELLI. You Learn from what You Measure: Financial and Non-Financial Performance Measures in Multinational Companies. Long Range Planning. 2010, vol. 43, iss. 4. p. 498.

DRUCKER, Peter F. The Technological Revolution: Notes on the Relationship of Technology, Science, and Culture. Technology and Culture. 1961, Vol. 2.

DUMBRAVĂ, Gabriela. CULTURAL CONSEQUENCES OF GLOBALIZATION. MAJOR CONTEMPORARY THEORIES ON THE GLOBAL-LOCAL INTERFERENCE. Annals of the University of Petroşani. Economics. 2016, vol. 16, p. 95-106.

DURA, Codruţa and Drigă IMOLA. The Impact of Multinational Companies from Romania on Increasing the Level of Corporate Social Responsibility Awareness. Contemporary Economics. 2017, vol. 11, iss. 1, p. 45-66.

DUVALL-DICKSON, Susan. Blending Tribes: Leadership Challenges in Mergers and Acquisitions: Quarterly Journal. S.A.M. Advanced Management Journal. 2016, vol. 81, iss. 4. p. 16-22,36.

DZIUBINSKA, Agnieszka. DIVERGENT AND CONVERGENT APPROACH TO STRATEGY PROCESS OF MNCS - AN EVOLUTIONARY APPROACH. International Journal of Arts & Sciences. 2015, vol. 8, iss. 1. p. 531-555.

GROSSMAN, Gene M. and Alan B. KRUEGER. Economic Growth and the Environment. Quarterly Journal of Economics. 1995 p. 53-78.

GODIWALLA, Yezdi H., Business Ethics and Social Responsibility Strategies for Foreign Subsidiaries. Journal of Diversity Management. 2012, p. 1-10.

GOZGOR, Giray and Priya RANJAN. Globalisation, Inequality and Redistribution: Theory and Evidence. The World Economy. 2017, vol. 40, iss. 12. p. 2704-2751.

HADA, Mahima, Rajdeep GREWAL and Murali CHANDRASHEKARAN. MNC subsidiary channel relationships as extended links: Implications of global strategies. Journal of International Business Studies. 2013, p. 787-812.

HARMON, Robert R., David RAFFO and Stuart R. FAULK. Value-based pricing for new software products: Strategy insights for developers. Seoul. Journal of Economic Psychology, Proceedings: Innovation Management in the Technology- Driven World. 2004.

HILL Charles and Tomas HULT. Global Business Today. 11th ed. New York: McGraw-Hill Higher Education, 2020. ISBN 978-1-260-08837-3.

ILIĆ, Silvana Miodrag, Dragan BOGOJEVIĆ and Boban BRANKOVIĆ, B. Role of Multinational Companies in the Process of Privatization of Companies in Serbia. EuroEconomica.18, vol. 37, iss. 1.

Independent Insurance Agents of Houston. https://www.iiah.org/default.aspx. [Online] [Cited: 19. January 2020.] https://cdn.ymaws.com/www.iiah.org/resource/resmgr/imported/Aviation%20Alp habet.pdf.

International Journal of Modern Social Sciences Journal, n.d. Modern Scientific Press. [Online] Available at website: www.ModernScientificPress.com/Journals/IJMSS.aspx [Accessed 20 April 2020].

JAIN K., Naveen, Prashant SRIVASTAVA and Deborah OWENS. Leader- member exchange and resource accessibility of subordinates Perception towards MNC global integration strategy. Leadership and Organizational Development Journal. 2014, p. 494-512.

JOSHI, Vijay and Krishn A. GOYAL. An Empirical Case Study on Employees' Satisfaction After Merger in Selected Bank. Productivity. 2015, vol. 55, iss. 4. p. 327-337.

JUNGWOOK, Shim and Hiroyuki OKAMURO. Does ownership matter in mergers? A comparative study of the causes and consequences of mergers by family and non-family firms. Journal of Banking & Finance. 2011 p. 193-203.

KACOWICZ, Arie M. and Mor MITRANI. Why Don't We Have Coherent Theories of International Relations About Globalization? Global Governance. 2016, vol. 22, iss. 2, p. 189-208.

KANDIL, Magda, Muhammad SHAHBAZ, Mantu MAHALIK and Duc Khuong NGUYEN. The drivers of economic growth in China and India: globalization or financial development? International Journal of Development Issues. 2017, vol 16, iss. 1, p. 54-84.

KANDUKURI, Veena and Jigeesh NASINA. Collaborative Team Learning Contributions to the Knowledge Management Process, Leadership, and Culture in a Multinational Indian IT Company. International Journal of Business and Information. 2017, vol. 12, iss. 2, p. 107-122.

KERR, William R. Harnessing the Best of Globalization. MIT Sloan Management Review. 2016, vol. 58, iss. 1. p. 59-69.

KHAN, Alam and Mario Arturo RUIZ ESTRADA. Globalization and Terrorism: An Overview. Quality and Quantity. 2017, vol. 51, iss. 4. p. 1811-1819.

KOCHHAR, Rahul and Michael A. HITT. Research notes and communications linking corporate strategy to capital structure: diversification strategy, type and source of financing. Strategic Management Journal. 1998, vol. 19, iss. 6, p. 601.

KRUGMAN, Paul. Pop Internationalism. Cambridge, MA. MIT Press. 1996.

LING, Chong Mahn, Yuen Yee YEN, Ming YEN and Wendy Teoh. Framework for Effective Cross-border Knowledge Transfer. International Review of Management and Marketing. 2016, vol. 6, iss. 4, p. 132-137.

LU, Weishang. Improved SWOT approach for conducting strategic planning in the construction industry. 12, s.l.: Journal of Construction Engineering and Management. 2010, vol. 136.

MAJIDI, Ali Fagheh. Globalization and Economic Growth: The Case Study of Developing Countries. Asian Economic and Financial Review. 2017, vol. 7, iss. 6, p. 589-599.

MARANGA, Kennedy. Globalization and its Implications for Global Leadership. Journal of Management Policy and Practice. 2018, vol. 19, iss. 2, p. 50-56.

MATHOOKO, Francis M. and Martin OGUTU. Porter’s Five Competitive Forces Framework and Other Factors that Influence the Choice of Response Strategies Adopted by Public Universities in Kenya. The International Journal of Educational Management. 2015, vol. 29, iss. 3. p. 334-354.

NACHBAGAUER, Andreas G.M. Stimulating Sustainability in Multinational Companies: The Significance of Regional Headquarters. Management Dynamics in the Knowledge Economy. 2016, vol. 4, iss. 2. p. 215-240.

NADER, Ralph and Lori WALLACH. GATT, NAFTA, and the Subversion of the Democratic Process, U.S. Trade Policy and Global Growth. New York: Economic Policy Institute. 1996, p 93-93.

OMMANI, Ahmad Reza. Strengths, weaknesses, opportunities and threats (SWOT) analysis for farming system businesses management: Case of wheat farmers of Shadervan District, Shoushtar Township, Iran. 2011, vol. 5, iss. 22.

PELAYO-MACIEL, Jorge, Aimee PEREZ-ESPARZA and Jose SANCHEZ- GUTIERREZ. The Mexican Multinational Business Groups, Global Expansion Strategy and Its Impact on Performance. Competition Forum. 2017, vol. 15, iss. 1, p. 113-119.

PHILLIPS, Andrew. The Global Transformation, Multiple Early Modernities, and International Systems Change: A Journal of International Politics, Law and Philosophy A Journal of International Politics, Law and Philosophy. International Theory. 2016, vol. 8, iss. 3. p. 481-491.

POMYKALSKI, Andrzej. Global business networks and technology. 1, s.l.: Management. 2015, vol. 19.

PORTER, Michael E. Competitive Advantage: Creating and Sustaining Superior Performance. The Free Press. 1985.

PORTER, Michael E. The five competitive forces that shape strategy. Harvard Business Review. 2008, vol. 86, iss. 1.

QUDDUSI, Kazi S. M. Khasrul Alam. GLOBALIZATION: CONCEPTS, CURRENTS AND CRITIQUE. Journal of Governance & Public Policy. 2015, vol. 5, iss. 1. p. 90-102,116.

REGNÉR, Patrick, Assoc Prof and Udo, Prof. ZANDER. Knowledge and Strategy Creation in Multinational Companies. Management International Review. 2011, vol. 51, iss. 6. p. 821-850.

ROGER, Leonard Burrit, Katherine Leanne CHRIST, Hussain Gulzar RAMMAL and Stefan SCHALTEGGER. Multinational Enterprise Strategies for Addressing Sustainability: The Need for Consolidation. Journal of Business Ethics. 2018, p. 1-22.

SAGEDER, Martina and Birgit FELDBAUER-DURSTMÜLLER. Management control in multinational companies: a systematic literature review: Review of Managerial Science. 2019, vol. 13, iss. 5. p. 875-918.

SANTIAGO, Renato, José Alberto FUINHAS and António Cardoso MARQUES. The Impact of Globalization and Economic Freedom on Economic Growth: The Case of the Latin America and Caribbean Countries. Economic Change and Restructuring. 2020, vol. 53, iss. 1. p. 61-85.

SAP, n.d. SAP History. [Online] Available at: https://www.sap.com/corporate/en/company/history.html [Accessed 15 January 2020].

SAP, 2020. SAP History. [Online] Available at: https://www.sap.com/corporate/en/company/history/1972-1980.html [Accessed 15 January 2020].

SAP, 2020. SAP History. [Online] Available at: https://www.sap.com/corporate/en/company/history/1981-1990.html [Accessed 15 January 2020].

SAP, 2020. SAP History. [Online] Available at: https://www.sap.com/corporate/en/company/history/1991-2000.html# [Accessed 15 January 2020].

SAP, 2020. SAP History. [Online] Available at: https://www.sap.com/corporate/en/company/history/2001-2010.html# [Accessed 15 January 2020].

SAP, 2020. SAP History. [Online] Available at: https://www.sap.com/corporate/en/company/history/2011-present.html# [Accessed 6 June 2020].

SAP SE. SAP 2019 Integrated Report [online]. Available at website: https://www.sap.com/docs/download/investors/2019/sap-2019-integrated- report.pdf [Accessed 11 July 2020].

ȘOPRONI, Luminița and Constantin ȚOCA. THE ROLE OF THE ECONOMIC BORDERS IN CONTEMPORARY INTERNATIONAL RELATIONS. Studia Europaea. 2017, vol. 62, iss. 2, p. 121-134.

STEPHENS, David O. The Globalization of Information Technology in Multinational Corporations. Information Management Journal. 1999, vol. 33, iss. 3. p. 66-71.

STIGLITZ, Joseph E. Making Globalization Work [Interview] (5 October 2006).

TALPOVÁ, Sylva Záková. Do they Compete Differently? Strategies of MNEs and Domestic Companies in the Environment of the Czech Republic. Trendy Ekonomiky a Managementu. 2016, vol. 10, iss. 27. p. 67-79.

THAKUR, Sidharth. Bright Hub Project Management. [Online] Available at: https://www.brighthubpm.com/methods-strategies/99629-history-of-the-swot- analysis/ 2019. [Accessed 20 April 2020].

TORBEN, Juul Andersen. Corporate responsible behavior in multinational enterprise. International Journal of Organizational Analysis. 2017, vol. 25, iss. 2, p. 485-505.

TROACĂ, Victor-Adrian and Alexandru POSTOLACHE. GLOBALIZATION – THE EFFECTS OF THE REAL ESTATE MARKET ON THE ENVIRONMENT. Quality- Access to Success. 2018, vol. 19, iss. 1, p. 547-551.

VAN DEN BERGH, Jeroen C.J.M. The GDP Paradox. Journal of Economic Psychology. 2009 vol. 30, iss. 2

VENGOA, Hugo Fazio and VARGAS, Luciana Fazio. La Historia Global y La Globalidad Histórica Contemporánea. Historia Crítica. 2018, iss. 69. p. 3-20.

VLAD, Mihaela and Sergiu Octavian STAN. The Influence of Cultural Differences and Its Application in Multinational Organizations. Management Dynamics in the Knowledge Economy. 2018, vol. 6, iss. 3, p. 405-422.

WANG, Kuang-Cheng. A PROCESS VIEW OF SWOT ANALYSIS. 2011.

Western Europe food and drink insight. Limited, Fitch Solutions Group. Retrieved from ProQuest Central Retrieved from https://search.proquest.com/docview/1770467475?accountid=37662, London: Fitch Solutions Group Limited. 2019.

WHITAKER, Jonathan, Peter EKMAN and Steve THOMPSON. How Multinational Corporations Use Information Technology to Manage Global Operations. The Journal of Computer Information Systems. 2017, vol. 57, iss. 2, p. 112-122.

YUAN, Lin and Nitin PANGARKAR. Performance Implications of Internationalization Strategies for Chinese MNCs. International Journal of Emerging Markets. 2015, vol. 10, iss. 2. p. 272-292.

ZERRIN, Kılıçarslan and Yasemin DUMRUL. The Impact of Globalization on Economic Growth: Empirical Evidence from the Turkey. International Journal of Economics and Financial Issues. 2018, vol. 8, iss. 5, p. 115-123.

ZHAO, Meng, Seung Ho PARK and Nan ZHOU. MNC Strategy and Social Adaptation in Emerging Markets. Journal of International Business Studies. 2014, vol. 45, iss. 7. p. 842-861.

Annex A List of SAP’s Acquisitions

Historical overview of SAP's acquisitions

Amount paid (if Year Name of the Company Description Impact known)

Steeb 1991 Anwendungssysteme Consulting services. N/A Software for retail Dacos Software 1994 industry. N/A Sales force automation Kieffer & Veittinger 1997 software. N/A Workforce Campbell Software 1998 management software. N/A Warehouse OFEK-Tech management and 2000 Control. N/A Portal software and TopTier Software 2001 integration products. N/A Accounting and TopManage Financial business management Solutions 2002 software for SMEs. N/A 2003 DCW Software SME focused software. N/A Enterprise-class A2i catalogue system. N/A Reporting and 2004 iLytix Systems budgeting tool. N/A SAP Systems Integration (SAP SI) Integration services. N/A Enterprise information Callixa integration software. N/A 2005 Customer demand Khimetrics management solutions. N/A

Relational database Transact in Memory solutions. N/A Inventory management Triversity and point-of-sale software solution. N/A Enterprise manufacturing Lighthammer intelligence and Software collaborative manufacturing software. . N/A Vehicle dealer DCS Quantum management systems. N/A Support and TomorrowNow maintenance vendor. N/A Advanced Planning Factory Locig and Scheduling (APS) software. N/A E-commerce and web- Praxis Software based CRM software. N/A 2006 On-demand supplier Frictionless relationship Commerce management software. N/A Enterprise risk Virsa Systems management software. N/A Business intelligence Business Objects software. 4.8 billion Euros Business rules and 2007 Yasu Technologies business process management systems. N/A OutlookSoft exclusive Silk Europe regional seller. N/A

Identity management MaXware software. N/A IP contact center and Wicom enterprise Communications communications software. N/A Enterprise OutlookSoft Performance Management software. N/A Strategy management Pilot Software software. N/A Manufacturing Visiprise execution software 2008 solutions. N/A Ordering, forecasting SAF Simulation and replenishment Analytics software in retail. N/A Project management SOALogix solutions. N/A Pricing, rating and Highdeal charging software. N/A 2009 Enterprise carbon Clear Standards dioxide emission management. N/A Mobile solutions for SkyData CRM. N/A Custom application Coghead building software. N/A

Consultancy company 2010 cundus for Business Intelligence. Alligned N/A

with financial and business reporting.

Information management, analytics Sybase and enterprise mobility solutions 5.8 billion USD Product safety, and environment, health TechniData and safety solutions. Sustainability product portfolio N/A Cloud-based human SuccessFactors capital management solutions. N/A Business-to business integration and Crossgate electronic data 2011 exchange services. N/A 3D visual enterprise Right Hemisphere solutions. N/A Security, identity and SECUDE access management software. N/A Spend management and supply chain Ariba management solutions. Supplier management 2012 software 4.3 billion USD Enterprise mobile Syclo software applications and platform. N/A

Workforce performance Datango support software. N/A Predictive analytics KXEN technology. N/A Integration of all selling channels and solutions hybris into a single platform, customer experience management. N/A Insurance product development, product 2013 Camilion life cycle, and underwriting solution. N/A Inventory and service- SmartOps level optimization software solutions. N/A Ticketing solutions and niche customer Ticket-Web relationship management software. N/A Cloud-based integrated travel and expense Concur management services and solutions. 8.3 billion USD Cloud-based SeeWhy behavioral marketing 2014 software. N/A Procuring and managing contingent Fieldglass labor and services. Vendor management platform N/A

Software-as-a-Service (SaaS) recruiting software startup. Multiposting Recruiting management and recruiting marketing 2015 applications N/A Cloud-based solution for cross-channel Abakus marketing measurement and optimization. N/A Travel search Hipmunk innovation software. N/A High-performance, scalable Big Data-as-a- Service (BDaaS) Altiscale solution which includes full operational 2016 services. N/A Internet of Things application and Plat.One analytics development tools and data management. N/A Advanced engineering analysis and building software for dynamic Fedem simulation and lifetime calculation of structures and mechanical systems under load. N/A

Mobile-centric analytics Roambi and data visualization solution. N/A Customer identity and Gigya 2017 access management. N/A Design and integration Contextor of robotic process automation. N/A Technology platform that organizations use to collect, manage, and Qualtrics act on experience data. CRM management software. 8 billion USD Crowd service and a 2018 Coresystems leading field service management platform. N/A Cloud-based Lead to Callidus Software Money (Quote-to-Cash) solutions. N/A Machine learning- based environment that Recast.AI improves conversational capabilities of products. N/A

Annex B Thesis Survey for Qualitative Research

Porter’s Five Forces Assessment

Bargaining Power of Suppliers

1. Are there a large number of potential input suppliers? YES / NO 2. Are the products that you need to purchase for your business ordinary? YES / NO 3. Do your purchases from suppliers represent a large portion of their business? YES / NO 4. Would it be difficult for your suppliers to enter your business, sell directly to your customers, and become your direct competitor? YES / NO 5. Can you easily switch to substitute products from other suppliers? YES / NO 6. Are you well informed about your supplier’s product and market? YES / NO

Bargaining Power of Buyers

1. Do you have enough customers such that losing one isn’t critical to your success? YES / NO 2. Does your product represent a small expense for your customers? YES / NO 3. Are customers uninformed about your product and market? YES / NO 4. Is your product unique? If your product is homogenous or the same as your competitors’, buyers have more bargaining power. YES / NO 5. Would it be difficult for buyers to integrate backward in the supply chain, purchase a competitor providing the products you provide, and compete directly with you? YES / NO

6. Is it difficult for customers to switch from your product to your competitors’ products? YES / NO

Threat of New Entrants

1. Do you have a unique process that has been protected? YES / NO 2. Are customers loyal to your brand? YES / NO 3. Are there high start-up costs for your business? YES / NO 4. Are the assets needed to run your business unique? YES / NO 5. Is there a process or procedure critical to your business? YES / NO 6. Will a new competitor have difficulty acquiring/obtaining needed inputs? YES / NO 7. Will a new competitor have any difficulty acquiring/obtaining customers? YES / NO 8. Would it be difficult for a new entrant to have enough resources to compete efficiently? YES / NO

Threat of Substitutes

1. Does your product compare favorably to possible substitutes? YES / NO 2. Is it costly for your customers to switch to another product? YES / NO 3. Are customers loyal to existing products? substitutes. YES / NO

Rivalry Among Competitors

1. Is there a small number of competitors? YES / NO

2. Is there a clear leader in your market? YES / NO 3. Is your market growing? YES / NO 4. Do you have low fixed costs? YES / NO 5. Can you store your product to sell at the best times? YES / NO 6. Are your competitors pursuing a low growth strategy? YES / NO 7. Is your product unique? YES / NO 8. Is it easy for competitors to abandon their product? YES / NO 9. Is it difficult for customers to switch between your product and your competitors’? YES / NO