The Effect of Country of Origin, Service Quality, and Brand Redeployment After M&A: The Case of Low-Cost Airlines in Indonesia

The Effect of Country of Origin, Service Quality, and Brand Redeployment After M&A: The Case of Low-Cost Airlines in Indonesia

Adilla Anggraeni (Bina Nusantara University, Indonesia) and Kendy Hasan (Bina Nusantara University, Indonesia)
DOI: 10.4018/978-1-5225-4056-4.ch011

Abstract

Many companies worldwide underwent merger and acquisition to expand the business. The purpose of the research is to confirm that general country attribute; service quality and the redeployment strategies are variables needed by the company to smooth the process of the merger and acquisition. The data were collected from 150 respondents through offline and online questionnaire. Cronbach's Alpha and Confirmatory Factorial Analysis were utilized to determine reliability and validity of the constructs. Simple and multiple linear regressions are the hypothesis testing chosen for this study. ANOVA and Post-Hoc Duncan are performed to differentiate which of the five redeployment strategies is the best used by the company after done the merger and acquisition. The results conclude that general country attributes and service quality are positively linked to purchase intention. On the other hand, corporate brand redeployment alternatives are shown to have no impact on consumer purchase intention in the case of Tigerair Mandala Airlines.
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Introduction

Some companies were successful in maintaining their performance after the acquisition while the others failed to do so. One of the influencing factors that become a key consideration for the company to do merger and acquisition is the country of origin of the company. The product and the technology owned by the company also can become a consideration for the big company to merge with a smaller company as the product and the technology are needed to boost the company’s growth and increase its competitiveness (Lee, 2011). On the other hand, previous studies in the field of economics and finance have indicated that mergers and acquisitions actually have a poor record of success (Rahman & Lambkin, 2015).

In recent decades, many companies have done merger and acquisition as a strategy to growth and expand the business (Seth, 2000; Buckley & Ghauri, 2002; Shimizu, 2004). The wave of this merger and acquisition trend was more apparent during the 90s and early 2000 (Rahman & Lambkin, 2015). There are many reasons leading to company’s merger and acquisition such as the changing environment of the market and the impact of globalization (Weber, 1996; Ashkenas, 1998; Boateng & Bjørtuft, 2003). The attractiveness of the product and the advancement of technology also can become a consideration for the big company to merge with a smaller company as the product and the technology are needed to speed up the company’s growth and improve their competitiveness in the market.

In the airline industry in particular, merger and acquisition deals have been instrumental in saving some airlines from bankruptcy (Forbes, 2016). A study by Kwoka and Shumilkina (2010) has noted that there is an evidence of the impact of potential competition as a constraint and of the adverse effect on competition when a potential competitor (in this case another airline) is eliminated through merger and acquisition. The airline industry is characterized by the growth of cooperative agreements between airlines; whether as an effort to strengthen their position in the market or to improve their performance in the market that they have already good control over (Iatrou, 2006).

Indonesia is no exception to this trend. This can be seen from different companies who have done mergers and acquisitions in recent years. Even though the M&A deals in Indonesia were not very great in number, the regulatory and policy reforms introduced by the current Presidential administration in 2016. More recently, AirAsia was considering to merge AirAsia Indonesia and ThaiAir.

To the best of the author’s knowledge, even though the study of mergers and acquisition has been extensively conducted in variety of contexts, the study involving service companies and airlines in particular is still sparse and very few in between. The merger of Tigerair and Mandala is utilized as a context of this study as they are the first airline companies doing M&A in Indonesia.

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