Advantages and Disadvantages of Aquring SOE

C. Advantages and disadvantages of acquiring SOEs

When a manager is assessing profitability of acquiring a state owned enterprise, it is crucial to identify the advantages and disadvantages. By doing this, the company will be able to make effective and strategic decisions, especially when entering a company in the volatile MENA region.

Several driving factors may serve as incentives for managers, which include the fact that acquisition could be seen as a strategic move that provides local brands, increases distribution channels, therefore leading to higher levels of efficiency. Despite these claims, Ayoubi argues that privatization in the MENA is not linked with managerial efficiency of SOE as no studies verify this claim. It is stated that SOEs discourage competition while private ownership promotes competition moreover contributing to yield more results (Ayoubi, 1997).

In addition to this, acquiring an SOE can be favorable as it promotes market knowledge and enhances government business relationships in the economy. On the other hand, the privatization of SOEs is highly under governmental influence where governments may not only maximize their financial revenues, but also pursue broader social objectives (e.g. Wortman 1990, Estrin 1994). The apparent problem of Wasta in the MENA is another prominent feature that needs to be taken into consideration, especially when acquiring an SOE. For example, the case of Egypt in partially privatized firms, Al-Fuloul (remnants of the Mubarak regime) hold large equity stakes needed to maintain bargaining power.

A drawback of acquiring an SOE is the lengthy negotiation process and high costs. Rigid restrictions such as stipulated employment guarantees, investment commitment, partial local owne...

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