Background

Lerninhalte is a German company that provides customized IT services, software solutions and online software training to major corporations. Its domestic market has become saturated with competitors, and a declining economic outlook has meant that corporations are less inclined to invest in software and training. Its main European competitors have responded to changing pressures by expanding overseas into markets in which companies were eager to modernize their operations with IT systems and training.

A Background in Mergers and Restructuring

A couple years ago, Lerninhalte acquired a new CEO, Fritz Gerhart. He was an experienced company leader with a reputation for aggressive restructuringoften by organizing company mergers, with subsequent cost cutting and workforce reductions to boost profits

On taking over Lerninhalte, Gerhart immediately started to investigate foreign markets. He was aware that Lerninhalte's competitors were expanding overseas and was keen for the company to remain competitive. The research he commissioned identified a potential market in Malaysia.

A Chain of Foreign Investments Causes Problems

Gerhart made moves to invest in several companies in the Malaysian market. He purchased 15 percent stakes in three companies. The year after he started at Lerninhalte, he added to the company's investments by seeking to acquire a controlling stake in one of Malaysia's leading IT service providers. This company, MK Holdings, had 24 service centres throughout Malaysia, and over 800 employees. The price Gerhart agreed to pay for a 51 percent stake in MK Holdings was much greater than the estimated book price. Gerhart justified the increased offer because the number of attractive takeover targets was dwindling rapidly.

FITT 1

International Market Entry Strategies

Despite concerns expressed by Lerninhalte's stakeholders, Gerhart pressed ahead with his plans for a major acquisition in MK Holdings. However, the deal fell through when the Malaysian government intervened to prevent the purchase. This was because the Malaysian government had been actively working to prevent the formation of monopolies and oligopolies, or the exploitation of Malaysia by foreign companies, and had placed financial restraints on the amount of foreign investment that could be made into individual units or businesses.

What were the main problems with Lerninhalte's market entry strategy for Malaysia?

Most of Lerninhalte's investments were indirect investments. Was this a useful market entry method to meet Lerninhalte's strategic objectives? Why or why not?

Malaysia had legislation in place to prevent excess foreign investment in Malaysia property and companies. How might Lerninhalte have entered Malaysia without investing in Malaysian companies?

Had foreign investment and takeovers not been limited, was Gerhart right to pay more than the book value for shares in Malaysian competitors? Explain your reasoning.