An Introduction Of Petrochemical Industry

Published Date: 02 Nov 2017

A

Comprehensive Project Report

On

" ROLE OF HR’s IN MERGERS AND ACQUISITION AT RELIANCE"

PETROCHEMICALS INDUSTRY

Submitted to:

Parul Institute of Management and Research

In Partial Fulfillment of The

Requirement of the Award for the Degree Of

Master of Business Administration

In

Gujarat Technological University

Under The Guidance Of

Faculty Guide:

Prof. KOSHA NAIR

Submitted by:

CHARMAINE D’SOUZA()

SHAGUN RAI(11711592111)

Batch: 2011-13

MBA Semester IV

Parul Institute of Management and Research

Affiliated to Gujarat Technological University

Ahemadabad

images

PETROCHEMICAL

Chemicals derived from petroleum or natural gas - petrochemicals - is an essential part of the chemical industry. It is a fairly young industry; it only started to grow in the 1940s, more than 80 years after the drilling of the first commercial oil well in 1859. During World War II, the demand for synthetic materials to replace costly and sometimes less efficient products caused the petrochemical industry to develop into a major player in today's economy.

INTRODUCTION OF PETROCHEMICAL INDUSTRY

The importance of Petrochemicals is massive. Although we might not realize it but our lives are dependent to quite a large extent on petrochemicals. Petrochemicals are very greatly a part and parcel of our day to day lives - the carpets that we use to decorate our homes, plastic bottles, clothes that we wear, fertilizers that we use to grow crops, tires paints, pharmaceuticals, cosmetics etc are made up of some kind of petrochemicals.

Growth of India petrochemical industry is playing a major role in the growth of the economy and the development of the manufacturing sector. The petrochemicals industry provides more value addition to the Indian economy than most of the other companies.

Petrochemicals are obtained from different chemical compounds which are by-products of crude oil refining. Chemicals like naphtha, kerosene, petroleum gases, ethane, methane, and butane are the main stocks used in the petrochemical industry for the production of various other chemical compounds. Presently, the amount of diffusion of the petrochemical products in day-to-day use is vast. It actually covers most of the domain of existence such as apparels, accessories, household items, furniture, electronics, construction, housing, automobiles, medical.

The Indian petrochemical industry originated in the 1970s. This sector was subjected to speedy growth in the period between the 1980s and 1990s. Even today, expectations from this sector are sky-high. The Indian petrochemical industry for its part is doing very well and has been contributing to the country's GDP from several years. The Indian petrochemical industry primarily consists of synthetic rubber i.e. elastomer, yarn of synthetic fiber, synthetic detergent intermediates, performance plastics, plastic processing industry, and polymers.

The petrochemical industry is among the most important and dynamic sectors of an industrial economy. The manufacture of petrochemicals is important for two chief reasons.

Firstly, because of its linkages with other industries both backward into petroleum refining and more importantly, because of its forward linkages into a multitude of downstream products such as synthetic fibres, synthetic rubber, plastics, fertilisers, paints and detergents. Such an 'enveloping' industry can give an thrust to all-round industrial development.

Secondly, the petrochemical industry has gained ground as a producer of substitutes for natural products made from fast depleting resources (such as wood, metal) or for products that cannot keep pace with demand (e.g.cotton, silk, soap etc.).According to traditional industrial organization taxonomy, the petrochemical industry is an "homogeneous oligopoly'.

Homogeneous because product differentiation is insignificant in the petrochemical industry. An oligopoly because increasing returns to scale.

Benefits to "Aam-Aadmi" (Common Man):

The common man is affected by petrochemical products across all walks of life. Mass products like tooth brush; Tiffin box, low cost footwear, healthcare items, public transport, packaging of consumables like milk, etc are affordable for the common man for daily use, all because of petrochemicals.

For food storage.

For clothing synthetic fiber, dyes, polyester ,nylon.

For housing construction, paints.

For transport plastic parts for automotives.(nano)

For health and care Shampoos for hair-care are formulated with petrochemical cleaning agents.

Petrochemicals in Agriculture:

Plasticulture –

The Use of Plastics in agriculture, horticulture, water management and allied areas offer following benefits:

a) Water Savings- 60 - 70%

b) Productivity enhancement by 50-60%

c) Enhanced quality of agricultural & horticultural produce.

d) Reduction in Post Harvest Losses – 30 - 35%of the agricultural

produce can be added to the food basket.

e) Optimum utilization of various inputs as seeds, fertilizers,

pesticides, etc.

f) Conserving soil fertility

FACTORS THAT WILL DRIVE GROWTH IN THE PETROCHEMICAL SECTOR:

Compared to US and China, India’s per capita consumption of polymers is still in nascent stage. Opportunity to reach out to a large population and sustain the current economic growth would drive India’s polymer consumption.

Indian government plans to establish new petroleum, chemical and petrochemical investment regions (PCPIRs) in states like Tamil Nadu and Karnataka.

Low cost infrastructure that India can offer will drive exports projected to reach $300bn by 2015.

Large unexplored reserves of oil and gas stand to create new opportunities.

GROWTH:

The petrochemical industry in India came into existence during 1970s. The 1980s and 1990s saw some rapid growths for Indian petrochemical industry. The biggest reason for this growth was the high demand for petrochemicals in India, which grew at an annual rate of 13 to 14% since the late 90s. It also called for rapid expansion of capacity. However, the industry suffered setbacks during 2008 due to surge in the price of crude oil. The Present Scenario Presently India has three gas-based and three naphtha-based cracker complexes with a combined annual capacity of 2.9 MMT of ethylene. Besides this, there are also 4 aromatic complexes with a capacity of 2.9 MMT of Xylenes.

CHALLENGES AHEAD :

Indian chemical industry needs to maintain competitiveness and cost-effectiveness to overcome competition from foreign players and also invite funds. Procurement of raw materials and feedstock from oil and gas rich countries requires efficient management. There is a growing need to build support for new technologies, green initiatives and R&D.

 

For the petrochemical industry, the main areas that demand attention revolve around overcoming economic difficulties and energy concerns wherein looking at environment friendly methods to reduce carbon dioxide emissions will draw focus. There is a need to develop trade and logistics infrastructure to cater to the demands of both domestic and export markets. According to the Planning Commission, the current logistics cost of the Indian economy is over 13 percent of GDP, which is higher than that of developed countries. Further, research and development is a critical area for the petrochemical sector since new applications lead to synthesis of new and more advanced polymers.

According to a research conducted by Tata Strategic Management Group the petrochemical and chemicals sector in India is expected to grow at the rate of 12 to 15 percent in the next five to seven years.

According to industry experts this is a phenomenal growth rate as compared to current rate of 3 to 4 percent.

The direct impact of this growth rate would result in investments of around $12 billion to $15 billion.

This rapid expansion is already creating huge amounts of surplus. The surplus created is mostly meant for exports.

Reliance Industries is the leader in the petrochemical sector with a total market share of 70 percent.

PRODUCTS:

1. Polymers:

Polymers registered a subdued demand growth of 4.6% in 2011.Demand from every major end-use segment has been affected in 2011 as the economy slowed down due to monetary & fiscal tightening for controlling inflation. The demand for polymers is expected to grow at 8% - 12% in 2012& 2013.

2. Polyesters

3. Fiber Intermediates:

The fiber intermediate sector registered a demand growth of 6% in 2011 and is expected to grow at 7.5% &9% in 2012& 2013 respectively.

4. Chemicals

5. Synthetic Fibers:

Need for clothing and higher disposable income in the emerging economies of China and India has driven the demand for textile products. With limited supply of Cotton, Synthetic Fibres has overtaken the consumption of natural fibres.

6. Plastics

Commodity plastics are the major products that account for bulk of the petrochemical industry. India has significant production capacity and demand for commodity plastics had been growing at a healthy rate.

7. Synthetic Rubbers:

Since India has a large production base for natural rubber, demand for synthetic rubber had been structurally very different. The share of synthetic rubber consumption in India is only 30%.

 Petrochemicals Product those Indian Producers offers:

Basic chemicals such as Ethylene, Propylene, Butadiene, Styrene, Benzene, Toluene, Orthoxylene, Paraxylene, Mixed xylenes, and Ethylene oxide.

Chemical intermediate such as Monoethylene glycol, Phthalic anhydride, DMT, Vinyl Chloride, Caprolactin, Acrylonitrile, and Linear Alkyl Benzene.

Synthetic fiber such as Acrylic fiber, Nylon filament yarn, Polyester staple fiber, and Polyester filaments yarn.

Polymers such as LDPE, LLDPE, HDPE, PVC, Polystyrene, and Poly propylene.

Synthetic rubber such as Styrene butadiene and Poly butadiene.

The advantages of manufacturing high class of petrochemical products in India:

Friendly government of India policies

Low and world class infrastructure

Strong technical education

Large number of science and engineering graduates

Quality output

Highly skilled workforce

Usage of innovative process

Good client relationships

Huge scope for innovation

Huge demand in overseas markets

Availability of more technical work force

Increased number and quality of training facilities.

DEMAND DETERMINATION:

India’s aggregated demand for petrochemicals increased by6.9% in 2011 and increased to 35 MMT in 2012 and further expected to 37.4 MMT in 2013. At the aggregate level, therefore, demand for petrochemicals in India is expected to grow 7% -8% per annum in 2013.

Reliance Industries Ltd (RIL) has projected that India will need capacity of at least one new world-scale cracker every year to satisfy demand for polymers, which is forecast to exceed 20 mln tons in 2020. 

Indian demand for most petrochemicals products was strong in FY 2010-11 with polymers up by 10% y-o-y. Within the polymer sector, demand for polypropylene (PP) increased by 18% due to strong growth in automobiles, packaging and industrial applications. Growth in construction and agriculture led to 6% growth in polyvinyl chloride (PVC) sales, while home furnishings and textiles helped boost demand for polyester by 13%.

Petrochemicals is a major segment of manufacturing industry and plays a pivotal role in agriculture, food-processing, clothing, consumer durables, building and construction, infrastructure, healthcare, communications and other critical areas supporting welfare of common man which always have its demand.

PLAYERS:

The petrochemicals industry in India had 4 major players:

1. Reliance Industries Ltd

2. Indian Petrochemicals Ltd (now acquired by RIL)

3. Gas Authority of India Ltd

4. Haldia Petrochemicals Ltd

Others:

Indian Oil Corporation

National Organic Chemical Industry Ltd.

Manali Petrochemical Limited

I G Petrochemicals Limited

The Andhra Petrochemicals Limited

Tamilnadu Petroproducts Limited

PLAYERS IN THE INDUSTRY:

Reliance Petroleum Limited was set up by Reliance Industries Limited (RIL), one of India's largest private sector companies.

Refining activities of Reliance Industries Limited are carried out at the Jamnagar refinery complex with refining capacity of 1,240,000 barrels per day which is 27 million tonnes per annum.

Products Offered

Reliance Petroleum offers a vast array of products including bulk fuels and lubricants to spray oils and solvents to dispensing equipment and conveniencegoods.

Partnership with BP and Castrol completes offers to the customers offering premium fuel and lubricant products. Company distributes fuel to 600 service stations acrossAustralia.

Reliance Petroleum offers a complete spectrum of services in the commercial and retail markets especially bulk fuel and lubricant purchases for farms, mines, transport fleets,construction.

The Indian basic petrochemicals manufacturers are integrated from basic petrochemical to polymers, manmade fibres, fibre intermediates and downstream petrochemical production.

Non integrated players are present in production of polyvinyl chloride, polystyrene, manmade fibres and products such as phenol, linear alkyl benzene, phthalic anhydride etc.

In India, refinery petrochemical integration is limited and historically, the public sector oil refining companies have sold their petroleum feedstocks to other companies which have been adding value and converting feedstock to useful petrochemical products.

Further, a significant portion of feedstock has remained unextracted and has been sold alongwith other fuel products. However, RIL’s Jamnagar refinery extracts significant petrochemicals from its petroleum products.

The Indian polymers market is dominated by local players, with the foreign stake holding in Indian polymer plants restricted to Haldia Petrochemicals Limited (HPL), BASF Styrenics India Private Limited (BSIL), and LG Polymers Limited. HPL is a joint sector company along with West Bengal Industrial Development Corporation. As for BSIL, it is a 100% subsidiary of BASF AG, a multinational chemicals company and the world’s second largest PS producer, while LG Polymers is a wholly-owned subsidiary of the LG Group, South Korea.

The production of polyethylene and polypropylene in India is accounted for almost in their entirety by companies with integrated petrochemical complexes. Such companies are Reliance Industries Limited (RIL), Indian Petrochemicals Corporation Limited (IPCL), Haldi Petrochemicals Limited (HPL), and Gas Authority of India Limited (GAIL).

Dominant Position of RIL: RIL, along with IPCL (a former state-owned company subsequently acquired by RIL), has a share of over 60% of the Indian polymer market for all forms of polyethylene (PE): LDPE, LLDPE, HDPE, PP and PVC. While RIL has a large petrochemical complex, which is also the largest naphtha cracker in Asia, IPCL relies on three small to medium-sized petrochemical complexes based largely on natural gas (two medium-sized crackers using natural gas and one small-sized cracker using naphtha).

As for GAIL, it operates a medium-sized natural gas based petrochemicals complex at Auraiya in Uttar Pradesh, while HPL operates a medium-sized petrochemical complex based on naphtha in Haldia located in Eastern India. To counter RIL’s dominating status, GAIL and HPL have signed a strategic alliance to market their products jointly. Under the alliance, which was signed on December 31, 2002 two companies plan to increase synergy in marketing operations of the Petrochemical

PETROCHEMICALS DISTRIBUTION NETWORK

The chief players in the petrochemicals distribution network are National Organic Chemicals Industries Ltd. (NOCIL), Indian Petrochemicals Ltd. (IPCL), RIL Industries Ltd. (RIL), Haldia Petrochemicals, Gas Authority of India Ltd. (GAIL). Distribution is done through C & F channels, stockists, sales distributors, and bigger volumes are managed directly by the company

The major distributors of petrochemicals are putting their thrusts in the following key factors:

There is a big gap between the demand and supply of synthetic rubber and detergents

Future possibility of supply of petrochemicals exceeding demand

Aiming at increasing the per capita consumption of petrochemicals

Equipping petrochemical plants with latest technology

Setting up new plants to cater to the world at large

The distribution of petrochemical industries in India is in Panipat, Mathura, Digboi, Guwahati, Barauni, Mumbai, Vadodara, Vishakahapatnam, Mangalore, Chennai, and Haldia.

The wide distribution network and the various advancements of the major petrochemical companies like RIL, IPCL, and BPCL have been a key feature of growth this year.

Indian Petrochemicals Corporations Limited has the largest distribution network in the country. The company has a huge distribution network and a wide national marketing strategy. The distribution network is focused on the following areas:

 

Reliable supply of petrochemicals

Enhanced customer service

Maintaining quality in its products

Technical Support

After sales service

All these thrust areas of the distribution network of gives the company an upper hand in the market over all other petrochemical companies. At the same time it is cautious of the other top most competitors in the line. The new complex at Gandhar has increased the capacity of IPCL. The future goals of the company are to leverage its marketing and distribution segment. This in turn, will increase market penetration in the area of its petrochemicals.

The key to success in the distribution chain is the establishment of long term relationship with its customers.

Reliance Industries Limited: RIL has a network of more than 60 distributors and agents for the distribution of polypropylene. It caters to more than 3000 worldwide customers and is focused on the establishment of excellent customer service. RIL caters to chief countries like Europe, China, Japan, and the Middle East. The core area of the distribution network of RIL is in establishing continuous rapport and relationship with the customer. There are professional teams offering technical solutions as well.

As such, there is rapid growth in the distribution network of petrochemical industries in India and the Government is looking forward to major investments from foreign companies.

KEY ISSUES AND CURRENT TRENDS

The Indian petrochemical industry faces a number of challenges for sustained growth, putting India at a competitive disadvantage in the competition with China. India’s ethylene capacity is far smaller than China’s and is unlikely to rise above its Asian rival’s levels in the next 5-7 years. This will make it impossible for India to develop applications further downstream. Other major issues faced by the Indian petrochemical industry are lack of low cost feedstock and dependence on western countries for technology.

The future of the Indian petrochemical industry is bright with domestic demand driving the market for products. With government support slowly falling into place, the future could see more investments from multinationals as well as domestic companies.

Challenges facing Indian Petrochemical Industry:

 

High cost of energy and feedstock and the impact on demand

The transformation in the kinetics of competition in manufacturing

Increase in the cost of project

Problems faced by the Indian Petrochemical Industry:

The manufacturing units mostly use obsolete format of technology and are not able to produce optimally.

There is a necessity for the modernization of equipments

Excise duty on synthetic fiber should be rationalized

Prevention of reservation on Small Scale Units

Plastic waste to be recycled and the littering habits to be discouraged

India requires advantage on feedstock, so the import cost has to be brought down

The industry should have access to the primary amenities of infrastructure.

PEST ANALYSIS

Political Factors:

The government changing the Excise duty which increased to 12% from 10%; customs duties unchanged and the changes, the government is likely to reduce duties going forward and this is likely to reduce the cushion enjoyed by the domestic players as against the landed cost of imported products.

Economic Factors:

The demand for petrochemicals correlates closely with general economic growth rates. The occurrence of recessions or other periods of low or negative economic growth will typically have a direct adverse impact on our results

Social Factors:

The increase in the prices of natural gas can affect the population as they have to pay more for it. Products made from petrochemicals are essential to modern life. These include plastic products, medicines and medical devices, cosmetics, furniture, appliances, TVs and radios, computers, parts used in every mode of transportation, solar power panels and wind turbines.

Technological factors:

R&D is very critical as new applications have to be identified in order to synthesize new and advanced class of polymers. The employment of the latest and best technology helps not only in improving cost efficiencies but also in producing products meeting consumer expectations. For example, in case of polymers, since polymers of improper quality can damage the machine of a plastic processor or malfunction in the ultimate application, product quality is very important. Production of good quality polymers requires control over catalysts and processes used to manufacture them. Indian petrochemical manufacturers are too small or reluctant (probably on account of high risk) to develop indigenous polymer production technology and, therefore, depend on their international licensors. Today, various licensors provide their technology for a fee (which also depends on the capacity being implemented). These technologies have varying features and costs attached to them.

SWOT ANALYSIS

Strengths:-

Large and very fast growing Indian petrochemical market

Huge trained talent pool

Competitive labor cost

Weaknesses: -

Insufficient basic infrastructure for the petrochemical industry

High feedstock cost in comparison to Middle East countries

Prevalence and use of old technology

Synthetic fiber industry is unorganized and operates in small clusters

Opportunities: -

Huge demand for polymer and synthetic fiber

Great opportunity for product development exists

Low consumption of polymer in comparison to global consumption rate

Threats:-

Stiff competition from other regional players like, china and the Middle East countries

Stiff rational pricing pressures

Environmental hazards concerns

Low market recognition

Relocation of manufacturing sites to region with abundance of feedstock

FUTURE PROSPECTS

The demand for petrochemicals has increased and many skeptics have been silenced, considering the recent use of petrochemicals in various sectors of the country. The following are the sectors in which demand and future of petrochemicals are heading towards positive growth:

 

Healthcare

Food preservation

Hardware

Transportation

Equipments in office

Foreign investments are also being made in the petrochemical industry of India enabling great future prospects in the foreign trade of petrochemicals in India. With the rise in demand for petrochemicals in India, many barriers to the growth of petrochemicals in India have been decreasing during last few years and currently India is keen on investments in foreign technology for the manufacturing of various petrochemical products.

Mega chemical hubs are coming up with view to increasing foreign investments in the Indian petrochemicals market. The West Bengal state Government for instance, has worked out a new system for setting up five zones in this sector which is expected to bring in investments amounting to USD 17.4 billion. Other such places include Gujarat, Orissa, and Karnataka.

Currently, the size of the petrochemical industry has an estimated turnover of ` 450 billion. The following products are in high demand:

 

Polyvinyl chloride

Polypropylene

Synthetic fibers and rubber

Jet fuel like, kerosene-fuel type

Olefin - ethylene

Polyethylene

Butadiene

Polystyrene

The leaders in this field are Reliance Industries and Indian Petrochemicals Corporation Limited. Both have contributed as much as 65% share in the production of petrochemical crackers. After these, Haldia Petrochemicals and Gas Authority of India deserve to be mentioned. Globally, there is high demand for Indian Petrochemicals and the benefits have been enjoyed by the domestic market since 2004.

However, the rising demands for petrochemicals could have been better if the following hindrances could be taken care of:

 

The pricing of petrochemicals

Increase in use of recycled plastic

Slow industrial growth of downstream plastic

Demand and future of Petrochemicals in India is also subject to the rising productions from neighboring countries like China and Middle East. The future outlook of this industry however, can be seen at a growth rate of 15 percent per annum. It is expected that the supply of Petrochemicals will surpass the demand for related products.

MERGER AND ACQUISITION

7

Merger

Acquisition

THE HR ISSUES DURING THE MERGER AND ACQUISITION:

6

Retention of key employees

Compliance with applicable laws

Alignment with compensation and benefits

Cultural fit

Communication

Motivation

OBJECTIVE OF THE STUDY

ROLE OF HUMAN RESOURCE DEPARTMENT

ORIENTATION:

Orientation means providing new employees with basic information about the employer. This effectively integrates the new employee into your organization and assists with retention, motivation, job satisfaction, and quickly enabling each individual to become contributing members of the work team.

A good orientation will enable a new employee to be successful by

Reducing the anxiety of the employee.

Sharing relevant organizational information and beginning a process of learning about the organization’s mission and work

Socializing the employee to the culture of the organization, including the values, behaviors, formal and informal practices, etc.

Building relationship between the new employee and colleagues, including managers or supervisors.

SOCIALIZATION:

Socialization is broadly defined as "a process in which an individual acquires the attitudes, behaviours and knowledge needed to successfully participate as an organizational member. A typical socialization process includes three phases:

1. Anticipatory socialization: 

This stage occurs before new hires join the organization. Through interacting with representatives of the company (e.g., recruiters, managers), new hires develop expectations about the company and the job prior to organizational entry.

2. Encounter:

 When new employees begin a new job, they start to learn about job tasks and receive training. Managers can exert their influence by helping new employees understand their roles and duties. Also, by understanding the stresses and issues that newcomers experience, managers can help cultivate a high-quality work relationship with newcomers.

3. Settling in: 

New employees begin to feel comfortable with their job demands and social relationships. They will be interested in the company’s evaluation of their performance and in learning about potential career opportunities within the company.

TRAINING:

HR representatives are in charge of organization development, the management of policies and procedures, the hiring of qualified employees and this includes the training and development of the workforce. Planning with upper-level managers within an organization, a HR representative evaluates the need for staff training. Following the initial assessment, a training plan is developed. This may include individual or group training sessions.

CULTURE:

The culture of the organization is bound to be impacted, and this may negatively affect the morale of your employees. The uncertainty can lead good employees to seek employment with competitors, or other employees to take on an unmotivated attitude. Either scenario can lead to disruption in the workforce. The majority of people are naturally opposed to having their normal routines disrupted. Here is where HR practitioners can and should play an essential role in the process of organizational change. In too many unfortunate cases, senior management does not always have an accurate "feel" of their own organization and employees, but HR practitioners do. They are the ones that have ears on the ground and fingers on the pulse of the organization, they are aware of the undercurrents rumbling through the office grapevine. HR is usually the first to hear about complaints against particular policies or managers, as well as all sorts of information via exit interviews and employee assessments.HR practitioners who are in touch with their employees are therefore in the best position to advise senior management about potential problems or employee resistance in the face of impending change. By the same token, HR can also serve as a bridge between senior management and employees, establishing a clear and open channel of communication between both sides, and actively championing a culture of continuous employee engagement is key in dealing with the feelings of negativity, and ensuring that everyone in the company is engaged and on the same page during times of organizational change.

STRESS MANAGEMENT:

It is a legal requirement for the Hr managers to "diagnose, treat and rehabilitate" the employees who experience stress at workplace. Different bodies of the organization are responsible towards managing stress at workplace, but a HR manager plays a pivotal role here. They ensure that the procedures and policies are formulated and implemented accurately to manage work related stress. The important roles and responsibilities of an HR manager in stress management include:

To understand what work related stress is, what are the causes behind it and how it can be managed and prevented.

To communicate and engage with the employees regarding this issue and raising awareness in the way of working with trade unions or other related aspects.

To undertake effective Management Standards or other outlook towards identifying the level of stress in the organization and what solutions can be implemented to improve from the current situation.

To work with other departments of the organization, including Health and Safety, in formulating and implementing solutions that have been identified by the employees.

To review and monitor stress management solutions along with procedures and policies.

To work with other bodies and support line managers to prevent and manage employees experiencing stress and to help them return back to work.

To identify and develop other initiatives and policies that can promote well being of the employees.

COMMUNICATION:

Human resources departments provide or support announcements to employees regarding restructuring. Human resources staff is typically present when employees are informed of layoffs or permanent downsizing related to restructuring. Changes in employment policies, organizational structure, workforce, location and job descriptions are announced to employees by human resources and management. Human resources departments also calculate changes in compensation and benefits resulting from reorganization. Organizations rely on human resources to provide a smooth transition during reorganization, while retaining desired employees and integrating new employees into the new organizational plan.

RETENTION:

The Human Resource team plays an important role in employee retention. Their roles are:

Whenever an employee resigns from his current assignments, it is the responsibility of the HR to intervene immediately to find out the reasons which prompted the employee to resign. No one leaves an organization without a reason. There has to be one and the human resource team must probe into it. There can be innumerable reasons for an employee to leave his current job. The major ones being conflict with the superiors, lesser salary, lack of growth, negative ambience and so on.

It is the duty of the HR to sit with the employee and discuss the various issues face to face. Understand his problems and listen to his side of the story as well. Remember the HR should not focus on conducting exit interviews, rather more emphasis should be laid on retaining the employees.

Try to provide a solution to his problem. Hiring is a tedious process and it is really very difficult to recruit the right candidate and train him once again. Do check the track record of the employee who wishes to move on. It is really essential for the management to retain those employees who have the potential and are really indispensable for the organization. If they leave and join the competitors; the organization would be at loss. If one feels that the employee is not very happy with his team leader, try to shift him to a new team. If the employee feels his salary is not justified, try to give him a hike but make sure he is worth it and you don’t end up upsetting others.

The human resource department must conduct motivational activities at the workplace. Organize various internal as well as external trainings which help the employees to learn something extra apart from their routine work. Make them participate in extracurricular activities important for their overall development. Encourage them to interact with each other so that the comfort level increases.

The HR must launch various incentive schemes for the top performers to motivate them. This way the employees feel important for the organization and strive hard to perform even better the next time. The employees who show promise should be awarded with cash prizes, lucrative perks and certificates to make the individual stand apart from the crowd. Send a mail wishing the employees on their birthdays or congratulating them when they perform exceptionally well or come out with something innovative. Arrange a small bouquet for them as a gift from the organization’s side. This way the employees feel attached to the organization and are reluctant to look for a change. A friendly atmosphere is essential for the employees to feel safe and secure. Make them participate in various management decision making.

MOTIVATION:

 While a merger and acquisition is not the most optimal time for employees, there are ways to increase motivation and productivity. Be sure to set aside time for employees if they wish to discuss concerns or issues with the new merger; open discussions usually prevent confusion about roles and responsibilities. Recognize and reward employees for their roles in managing change. Rewards do not always have to be in the form of bonuses, but can be small gifts, or recognition among peers. Mergers can be accompanied by layoffs. Employees should be informed of layoffs immediately. Employees leaving the company should be treated with respect and given generous severance packages when possible. Surviving employees should be assured of their value to the company. Managers should work with surviving employees to set up clear development plans within the context of the company's mission statement after the merger.

Communication

KEY ROLES

Socializilizing with the present culture

Acting as a change agent

Motivating employees

overcoming the problems related to communication gap

Following are the phases in the M&A process:

Pre Deal

Due Diligence

Integration Planning

Implement Merger

Evaluate Merger

Pre Deal

The role of H.R during pre-deal phase is:

Spotting problems that may be overlooked by other members of the management team

Assessing people, organization and cultural fit

Educating executives about possible risks

Due Diligence

Following are the H.R Responsibilities during the process:

The bottom line issues such as benefits and employee pay

Looking at the impact of learning and development

Advising on organization design and development and

Recruitment and retention in the integration process

Integration Process

Following are the H.R Responsibilities during the phase:

The employment relationship

Determining compensation and benefits strategy

Determining the culture/vision of the new company

Contracts of employment

Performance management issues

Looking at leadership ,commitment and talent

Confirming people's expectations - retention, cost and cultural fit

Implementation

Following are the H.R Responsibilities during this phase:

Alignment of HR policies and practices

Advising senior management on people issues

Reward schemes

Education and Training

Recruitment

Effective Communication

Stress management

STAGES:

The Pre-Merger Stage

Strategic Planning and Organization

The first step is strategic planning in which the acquiring firm develops its mission statement and determines the type of merger or acquisition that will be sought and how it will achieve corporate objectives.

In the next stage the firm is primarily concerned with organization—creating a specific team to manage the M&A activity.

Searching

Searching for potential acquisitions and thoroughly investigating the merits of each is the third step of the merger process. Of particular relevance to HR are the results of Schweiger, who found in a survey of 80 firms that the most important factors in evaluating potential acquisitions were the talent and management philosophy of the acquired top managers and the talent of the acquired middle managers.

Analysis and Offer

The fourth stage of the merger process is analysis and offer, in which a primary objective is to evaluate the ‘fit’ of the two firms. McCann and Gilkey (1988) identity three types of fit—financial, business, and organizational fit—that must all be present if the merger or acquisition is to be successful. For the purposes of this study, organizational fit, which includes human resources and the two organizational cultures, is of primary importance, since it helps to determine how well the two firms can be integrated.

M&A activity presents a different set of challenge for the human resource managers in both acquiring and acquired organizations. The M&A activity is found to have serious impact on the performance of the employees during the period of transition. The M&A leads to stress on the employee, which is caused by the differences in human resource practices, uncertainty in the environment, cultural differences, and differences in organizational structure and changes in the managerial styles.

The organizational culture plays an important role during mergers and acquisitions as the organizational practices, managerial styles and structures to a large extent are determined by the organizational culture. Each organization has a different set of beliefs and value systems, which may clash owing to the M&A activity. The exposure to a new culture during the M&A leads to a psychological state called culture shock. The employees not only need to abandon their own culture, values and belief but also have to accept an entirely different culture. This exposure challenges the old organizational value system and practices leading to stress among the employees. Research has found that dissimilar cultures can produce feeling of hostility and significant discomfort which can lower the commitment and cooperation on the part of the employees. In case of cultural clash, one of the cultures that is dominant culture may get preference in the organization causing frustration and feelings of loss for the other set of employees. The employees of non-dominating culture may also get feelings of loss of identity associated with the acquired firm. In certain cases like acquisition of a lesser known or less profitable organization by a better one can lead to feelings of superiority complex among the employees of the acquiring organization. In case of hostility in the environment the employees of two organizations may develop "us" versus "them" attitude which may be detrimental to the organizational growth.

The uncertainty during the M&A activity divert the focus of employees from productive work to issues like job security, changes in designation, career path, working in new departments and fear of working with new teams. The M&A activity leads to duplication of certain departments, hence the excess manpower at times needs to be downsized hence the first set of thoughts that occur in the minds of employees are related to security of their jobs. The M&A activity also causes changes in their well defined career paths and future opportunities in the organization. Some employees also have to be relocated or assigned new jobs; hence the employees find themselves in a completely different situation with changes in job profiles and work teams. This may have an impact on the performance of the employees. Research has found that at least two hours of productive work per employee per man day is lost during the M&A activity in the organizations. The increased political processes that may be underway in the organizations to sustain the importance of the various individuals and departments will add to the confusion.

The human resource systems vary across organizations owing to the differences in the organizational culture, sectoral differences and national cultural differences. For example if the compensation in the acquired firm is lesser compared to the acquiring firm, the acquisition will raise employee expectations (for the employees of acquired firm) of a possible hike in compensation which may not be realistic. On the other hand if the compensation level of employees in acquiring firm is lower the employees may press to have equal compensation across all the divisions of the firm. The pay differential can act as a de-motivator for the employees of acquiring firm and may have long term consequences. The compensation issues may also involve legal angle.

The Post-Merger Transition

The last two stages in a merger or acquisition are the transition and integration. These two stages are the most complicated and are surrounded by the highest level of uncertainty. The transition stage is in fact the most poorly managed of all, and consequently it is the stage where most failures occur.

A Delicate Balance

Management of the transition stage requires a delicate balance between providing a stabilizing influence and creating a climate for change. Uncertainty and anxiety, anger, frustration, psychological withdrawal and family disruptions are pervasive during M&A activity. Those who voluntarily leave their company indicate that uncertainty leads them to do so early in the acquisition process.

Insecurity and Anxiety

Negative employee feelings and behavior are typical responses to threatening situations, in this case, job insecurity. The magnitude of the response will be determined by the employee’s perception of the severity of the threat and the degree of powerlessness to counteract it, which will in turn be a function of his or her confusion concerning the expectations of the new firm. For example, if employees are unaware of how they will be evaluated for the retention decision, feelings of powerlessness will be high. Since information is generally scarce in the transition stage, the employee’s perceptions will be influenced predominately by rumor and speculation. Greenhalgh and Jick found a positive correlation between job insecurity and resistance to change Individuals faced with a threatening situation exhibit strong attachment to previously learned behaviors, even if they are inappropriate. Since the transition stage in the merger process is supposed to facilitate change, high levels of uncertainty are clearly counterproductive.

Unanticipated Turnover

The predominance of negative attitudes caused by uncertainty often leads employees to act on the worst scenario and begin updating résumés. The most valuable employees— those that the post-merger corporation can least afford to lose—tend to be the first to leave the organization. For example, when Fluor Corporation acquired St. Joe Mineral in 1981, in a deal costing $2.2 billion, the large-scale migration of key managers following the acquisition contributed to millions of dollars in losses at the previously profitable St. Joe (Shrivastava 1986). Estimates of unanticipated turnover suggests that 47 percent of top executives in an acquired firm leave within the first year and 75 percent within three years. Within five years 58 percent of all managers leave and it is often the managers with the best performance histories who leave early on .If there is no planned intervention strategy to deal with negative feelings and behaviors, the long-term behavior of employees who do remain with the organization may be affected, significantly reducing the likelihood of a successful post-merger integration . ‘More than any other issue, how you handle employees in the first three to six months will set the tone for future relations between the two firms’

HR Interventions

Several authors have suggested how to reduce the incidence of counterproductive behaviors Preliminary interventions target emotional support, and may begin while negotiations are still underway. Activities in this phase are focused on providing stability. Other techniques are intended to create a positive environment for change by decreasing the level of uncertainty and fostering realistic expectations for the future. Feelings of powerlessness on the part of employees are reduced by providing information to determine how (or if) the threat to job security can be counteracted. Commitment to the new organization may be fostered if the employees are encouraged to see that career opportunities are available and continued success is possible in the new organization.

RESEARCH METHODOLOGY

LITERATURE REVIEW

One of the best things you can do as a manager is stand in front of staff and have a discussion. Our technology really helped, but these ‘coffee talks’ led to open discourse because the employees want to look at the company leaders in the eye."

Vice-president, HR  Hewlett-Packard, Hugo Bague on successful merger with Compaq

"According to the survey, 59% said they would most likely invest in Asia in the near future as opposed to other regions around the world Leadership assessment identified as critical factor"

This is the statement given by Hewitt's Associates, based on Mergers and Acquisitions Asia Pacific Study 2006.

Mergers and acquisitions (M&A) have become commonplace in today's global marketplace, and the last decade has seen no shortage of them both in India and abroad. From 2000 to 2006, many major companies both IT and non IT have merged with or acquired other small or large organizations. For instance, Microsoft has acquired around 37 companies; Google and Yahoo around 25 and 27 respectively. Closer home there have been mega deals like Tata Steel's acquisition of Corus or Hindalco's of Novelis.

Sanjay Narkar, CTO, Centurion Bank says, "40% of the Mergers and Acquisition deals fail because of poor integration planning."

Therefore, as the number of mergers and acquisitions taking place in the corporate world, it is very much important to manage them well so that they don't fail Enterprises whose growth strategies include M&A are faced with unique challenges associated with the integration of distinct business entities. The change that comes with M&A can have disruptive effects on an organization and hence managers should be aware of the changes that the M&A process can bring, and manage things so as to minimize the negative effects of these changes.

By many worldwide consultants and researchers, the success rate of these M&A’s is estimated to be a mere 30 - 40%. Companies do announce that their mergers have been successful, but they also accept that they have not been able to derive the kind of benefits that they expected to, from a merger or an acquisition.

Statistics show that one of the major reasons for failure of M&A’s is the human resources aspect. Human resources of any organization are the drivers of the organization and impact of any mergers and acquisition is maximum on them. Companies which have failed to acknowledge the importance of human resources in their organizations and their role in the success of an integration, have failed to reach the pinnacle of success which was so near and yet so far. Many M&A’s fail to achieve the desired synergies because the HR issues are not given the importance they deserve.

The HR is involved at two stages during M&A’s; PRE MERGER or POST MERGER. The Pre- merger includes the HR Due Diligence and the Post merger role of Hr is managing the changes happing on human side in the organization such as problem of attrition, training of different skills required. Whenever two companies are going for merger or acquisitions there are certain factors, which are directly related to the employees of the organization and hence, should be managed well by the organizations. They are:

Organizational culture and Organizational structure

Employee compensation & benefits

Industrial relations and Pending employee litigations

HR policies and procedures

Key talent analysis

People as individuals are a less measurable organizational asset, and less easy to appreciate by a study of the balance sheet, material assets or profit and loss accounts. Poor communication, poor management and cultural gaps between the two organizations are the main reasons why mergers often fail in human terms.

There is a vast, behaviorally based literature applying to managerial aspects especially in the US and the UK. This literature takes various forms. MacDougal and Malek advise the managers on how to proceed mostly from a rational base – "clear objectives, documented plan, careful data collection" etc. Levinson attempts to explain what happens to people in the acquisition process based on practitioner experience. As he observes, "Caught up in the hoopla and glamour which have characterized the great merger sprees in recent years, business executives have been preoccupied with the strategies, tactics and techniques of acquiring, merging and selling … yet frequently the really crucial factor, people, has been superficially dealt with". Levinson asked senior executives to examine their motives, to examine their feelings about the acquired personnel, and to open up honest discussion so a problem solving atmosphere could be created to encourage success.

In addition, taking into consideration the strategy based literature of advice; there is no shortage of behavioral, tactical advice for managers involved in acquisitions. Both the behavioral and the strategic advice are pragmatic and, most often, experience based. Much of it concentrates on what happens after the merger rather than on the whole process. Important issues are: getting people involved, spreading corporate culture, having a sense of purpose, having goals and so on. Though organizational issues (structure, interfaces), are to be given attention but commensurate attention is to be given to ‘empathy’, ‘involvement’ and ‘good communication’’. This is where the HR managers come into play.

Towers Perrin, global management and HR consultants, say that HR professionals need to take a greater leadership role in the mergers and acquisitions, procedures involving their organizations, and that the earlier they get involved, the more successful the M&A will be. In a research study of 447 senior HR executives conducted by Towers Perrin and the Society for Human Resource Management (SHRM) foundation, five factors determined the failure of an M&A, three of which relate to HR:

Inability to sustain financial performance

Loss of productivity (HR-related)

Incompatible cultures (HR-related)

Loss of key talent (HR-related)

Clash of management styles

Another significant finding in the study was that 81 percent of the respondents said top management had confidence in their ability to help prepare a successful integration. "These findings show that HR professionals can play an important role during M&A, and they can make a difference," says Jeffrey Schmidt, managing director for innovation and research at Towers Perrin. Schmidt says HR professionals need to recognize the importance of improving their M&A competencies to successfully take on the role of strategic partner. The competencies of HR managers include:

Understanding overall business strategy as well as people and organization issues associated with that strategy

Gaining knowledge about business in general and M&As in particular

Being able to contribute to another company’s value

Planning and leading complex M&A strategies

Understanding and spending more time with operating managers to help support them in M&As

Mercer listed the five key roles senior human HR leaders must play before, during, and after mergers and acquisitions (M&A) activity:-

Serve as a trusted adviser to executives and the deal team.

Be the HR/people subject-matter expert.

Provide timely and actionable input before, during and after the deal.

Help shape the post-close organization.

Manage the intense flow of information and related employee anxiety.

In honor of Wells Fargo are the three stages in a merger or acquisition:

Initial plan- the meeting of minds, offers and initial plan

Due- diligence- the financial and other audits

Integration- combining the two entities to form a fundamentally cohesive and productive new organization.

According to Steven Symes, whether your small business is the purchaser or the target company in a merger or acquisition, your human resources department as well as the human resources workers in the other company play a vital role in the process. Human resources helps manage any problems or challenges related to people in the organizations as the merger or acquisition process unfolds.

Company Culture:

Human resources helps determine if the cultures of the two companies that are becoming one through a merger or acquisition are compatible. Human resources must have a firm grasp on the culture of the company for which they work and must study the culture of the other organization to make such a determination. Cultural differences may include how the two organizations define and measure success within the organization; benefits employees enjoy, such as personal time and insurance; how problems within the organization are handled; the management styles of the two organizations; and the overall attitude of the employees and managers toward business functions and the industry in which they work.

Benefits Problems:

During the due diligence portion of a merger or acquisition, which comes after the purchasing company makes its initial offer to purchase the other company, management from the purchasing company assess whether the deal makes strategic and financial sense. Human resources from the purchasing company specifically assess the benefits structure of the other company to uncover any potential problems, such as a pension plan that is running low on funds or a health insurance package that will cost a significant amount for the company to continue offering.

Employee Concerns:

People often fear change, and a merger or acquisition creates uncertainty and change for employees both of the purchasing company and the purchased company. Human resources in both companies help smooth out the transition for employees, helping calm any fears as well as answering questions about how the merger or acquisition affects each employee individually. If the employees of both companies do not have as much fear over the change, productivity is more likely to stay at previous levels. Human resources can detect and address any rumors about layoffs, office relocation or other changes employees fear, giving feedback to management about employee concerns.

Changing Roles and Structure:

When one company merges with or acquires another, some changes to both organizations may occur, such as eliminating redundant positions or combining teams and departments. The process of altering the two organizations so they work together as one can take months to complete, and human resources plays a vital role in the changes. Human resources communicates to employees changes in who they report to within the company, what team or work group employees are assigned to as well as any changes to different positions’ roles in the organization. Human resources may work with management and employees to alter the job descriptions of various positions, ensuring everyone understands his role in the newly altered organization.

According to Deloitte’s newest book in the Straight Talk series, High stakes M&A: Seven bets that matter, many of the "leadership cards" have a strong people component, hinging on senior leaders’ ability to:

Rally the leadership team around the vision for the future organization.

Communicate with employees, shareholders, investors and the public with clear, consistent messages to control rumors and speculation and maintain a positive, uplifting tone.

Set a strong example and be specific about how people can contribute to the new organization’s goals and how they will be rewarded.

Pay close attention to talent retention and engagement, not only because the organization needs "bodies," but also because leaders have determined what competencies and capabilities are most important for the new organization and understand who among their current and acquired talent can support what the organization needs.

Shape the culture of the future organization through their words and actions, the way they treat stakeholders and where they focus their energy and attention.