What determines performance of cross‐border M&As by Chinese companies? An absorptive capacity perspective

Chinese companies are increasingly using cross‐border merger and acquisitions (M&As) as a vehicle to source knowledge or strategic assets, so as to enhance their competitive advantage. However, a critical question is: Can strategic assets be effectively acquired by Chinese firms, thereby leading to superior firm performance? This article addresses this fundamental question from an absorptive capacity perspective. This approach concentrates on how an acquiring firm's absorptive capacity influences its ability to identify, assimilate, integrate, and apply external new knowledge into commercial use. By comparatively examining two high‐profile international M&A deals completed by leading Chinese firms Lenovo and TCL, we argue that the performance of Chinese companies' overseas acquisitions is substantially affected by the acquiring firm's absorptive capacity at multiple dimensions, thus drawing strategic implications for multinationals in other emerging markets. © 2010 Wiley Periodicals, Inc.     

Enhancing performance of cross-border mergers and acquisitions in developed markets: The role of business ties and technological innovation capability

This study examines the determinants of performance of cross-border mergers and acquisitions (cross-border M&As) in developed markets initiated by firms from emerging markets. Drawing on social network theory and organizational innovation literature, we hypothesize that business ties of the acquiring firm increase performance of cross-border M&As via enhancing the acquiring firm's technological innovation capability and that environmental turbulence strengthens this mediating model. Moreover, the interplay of cultural distance and technological innovation capability would decrease performance of cross-border M&As. To test the model, we collected data from 186 Chinese firms initiating cross-border M&As in developed markets. As predicted, we found that (1) technological innovation capability of the acquiring firm positively mediates the relationship between business ties and performance of cross-border M&As; (2) environmental turbulence positively moderates the relationship between business ties and technological innovation capability; and (3) cultural distance negatively moderates the relationship between technological innovation capability and performance of cross-border M&As.     

The Impact of Changes in the Political and Economic Environment on Foreign Direct Investment Opportunities in Romania

Abstract

This study reports findings of a survey including 139 Finnish and 97 Austrian companies active in Eastern Europe. The study focuses on two major areas in the firm's business activities in Eastern Europe, namely on market strategies-the timing of market entry, market selection, entry modes and motives-and company performance. The number of market entries has increased after the transition, but the majority of business activities still take place in geographically-close countries. Companies have gradually started to use more high-commitment modes of operation, but contrary to our expectations, high commitment modes were also frequently used in more unstable markets. Company performance in Russia and especially in other countries of Eastern Europe was in general clearly lower than in domestic markets and foreign markets in general. Against expectations, firm size, dependence on international markets, length of operation, and mode of operation in Eastern Europe did not significantly influence the performance. However, firms which concentrated on Russian markets on a continuous basis performed much better than other firms.     

Bank-Firm Relationships and International Banking Markets

This paper reviews how long-term relationships between firms and banks shape the structure and integration of banking markets worldwide. Bank relationships arise to span informational asymmetries that are endemic in financial markets. Firm-bank relationships not only entail specific benefits and costs for both the engaged firms and banks, but also directly affect the structure of banking markets. In particular, the sunk cost of screening and monitoring activities and the 'informational capital' collected by the incumbent banks may act as a barrier to entry. The intensity of the existing firm-bank relationships will determine the height of this barrier and shape the structure of international banking markets. For example, in Scandinavia where firms maintain few and strong relationships, foreign banks may only be able to enter successfully through mergers and acquisitions. On the other hand, Southern European firms maintain many bank relationships. Therefore, banks may consider entering Southern European banking markets through direct investment.     

Factors enhancing the choice of higher resource commitment entry modes in international new ventures

The choice of entry mode in foreign markets is an important strategic decision with major consequences for the success of international new ventures (INVs). It is generally accepted that these firms choose relatively low-resource commitment entry modes to operate in foreign markets. Nevertheless, some researchers have suggested that higher resource commitment entry modes in foreign markets also seem to be competitive strategies for INVs. In this study, from a marketing/international entrepreneurship interface perspective and focusing on organizational issues, we center our attention on international market orientation as a neglected yet important factor in INVs’ choice of higher resource commitment entry modes in foreign markets. We suggest that an entrepreneurial orientation and the timing of international entry are important correlates to an international market orientation. We also suggest that the international learning effort of INVs through their international market orientation has a direct, positive impact on the resources these companies commit to their foreign markets through the use of higher resource commitment entry modes. Accordingly, the model proposes a positive effect of entrepreneurial orientation and early international entry on international market orientation which, in turn, is positively related to higher resource commitment entry modes. The hypotheses were tested on country-level data from Spain, using a structural equation model to analyze relationships between the latent variables.This study extends previous international entrepreneurship research, including insights on antecedents of international new ventures’ choice of resource commitment entry modes in foreign markets. The paper also goes further than previous international entrepreneurship research, by addressing the strategic consequences of rapid entry into foreign markets. Additionally, the results of this work encourage international entrepreneurs to look beyond the explicit value of experiential market knowledge to realize the potential value of international market orientation as an antecedent to higher resource commitment entry modes.     

Local enablers of business models: The experience of Brazilian multinationals acquiring in North America

Despite the rapid growth of South–North investments, the literature is still incipient to look into the broad range of issues associated with them. This article focuses on reverse takeovers and discusses the reasons why emerging-country firms, Brazilian multinationals in particular, are able to profitably acquire firms in developed countries, chiefly in the United States. The research addresses two specific subjects in international business literature: country-choice and entry-mode. The analytical approach assumes that reverse takeovers are part of the dynamic reconfiguration of global production systems which, in turn, are influenced by shifting conditions in countries' business environments. Changes in business environments impact local firms' business models and their positioning in global production networks and international markets as well. Reverse takeovers are facilitated when both the simultaneous evolution of the developed country multinational and the emerging country multinational business models establish a common ground for the transaction. Through the analysis of Brazilian multinationals' acquisitions in North America, relevant insights pertaining to the realms of firm-specific advantages, country-choice and entry mode in reverse takeovers are unveiled.     

Market entry into Africa: Acquisitions and international joint ventures. Studies of foreign firms' market entry strategies,challenges, and performance in Africa

While the interest in investing in Africa is rising, the know‐how of business on the continent is very limited. There have been only recently few special issues focusing on sub‐Saharan Africa in the top international business journals: “Sub‐Saharan Africa at a key inflection point” (Thunderbird International Business Review 2009); “Contemporary developments in the management of human resources in Africa” (Journal of World Business 2011); “Contemporary challenges and opportunities of doing business in Africa” (Journal of Technological Forecasting and Social Change 2016); “Critical perspectives on international business in Africa (Critical Perspectives on International Business 2016); “Strategic Management in Africa (Global Strategy Journal, 2017); and “The internationalization of African firms (Thunderbird International Business Review 2016). The aim of this special issue is to advance understanding of international business in Africa and specifically focus on how foreign firms enter African markets via acquisitions and international joint ventures and extend knowledge of these market entry strategies and performance in Africa for research and for foreign firms intending to, or currently doing business in Africa. This guest editorial provides a summary of the five articles and one book review in this special issue categorized into three broad thematic issues: International joint ventures and acquisitions as market entry strategies in Africa; cross‐border investments of African firms; and theoretical underpinnings.     

Survival of full versus partial acquisitions: The moderating role of firm’s internationalization experience,cultural distance,and host country context characteristics

The high divestment rates of acquired foreign units indicate challenges connected to planning and management of foreign acquisitions. In this paper we analyze the moderating effect of internal and external variables on the relationship between acquirers’ ownership strategy and survival of acquired foreign units. We test our hypotheses on a sample of 1275 acquisitions conducted by Finnish firms in various countries during the period 1980–2005. The results indicate that the probability of survival does not differ significantly between full and partial acquisitions. We further find that the likelihood of survival in full, relative to partial acquisitions, is positively associated with the acquisition-specific experience, but inversely related to general international and target country experience. The results also reveal that the positive impact of full acquisitions is stronger if the acquisitions are made in culturally similar countries, in less developed economies, and in markets where the country risk has increased after entry.     

Acquisitions Entry Strategies in Africa: The Role of Institutions,Target‐Specific Experience,and Host‐Country Capabilities—The Case Acquisitions of Finnish Multinationals in Africa

Acquisition is an important entry strategy for multinational enterprises (MNEs) seeking to gain faster entry into new and emerging markets and remain competitive in the global marketplace. MNEs utilize partial‐, staged‐, and full‐acquisition strategies when entering into foreign markets. This research analyzes how and why firms opt for these acquisition strategies in the context of Africa. The study applies institutional theory and explores constructs derived from the Uppsala internationalization process model. Using a case study of five Finnish acquisitions in Africa (Egypt, Morocco, Kenya, and South Africa), it was found that Finnish MNEs opt for partial acquisition rather than staged and full acquisition in the context of acquisitions made prior to late 1990s without earnout arrangements. Finnish MNEs opt for the choice of staged acquisition rather than partial and full acquisition in the contexts of mild regulatory framework in host countries and when the acquired firm business requires extensive improvements and the target host market structure is fragmented. Finnish MNEs opt for the choice of full acquisition rather than partial and staged acquisition in three contexts specifically: (1) when the acquiring Finnish MNE possesses host‐country capability, target‐specific experience, and ensures the retention of top management personnel of the acquired target; (2) when the size of the acquired target is relatively very small compared to the acquiring MNE; and (3) when the nature of the acquired firm business is well developed and the target host‐market structure is consolidating. © 2016 Wiley Periodicals, Inc.     

国际市场进入模式研究:一种网络的观点

国际市场进入模式是企业国际化进程中最重要的课题之一,与其相关的理论可谓是众说纷纭,但它们都是从单个企业的角度进行研究和分析的。然而,当今全球市场的竞争越来越表现为在企业所处的网络之间而非单个企业之间进行。因此,企业在选择国际市场进入模式时,应该考虑自身与目标国市场所具有的网络的关系类型,并根据企业自身在该网络的关系类型中所处的位置来制定适合的进入战略。     

Contextualizing international learning: The moderating effects of mode of entry & subsidiary networks on the relationship between reforms & profitability

This empirical paper studies how MNEs from developing and emerging markets may learn through their choice of entry mode and subsidiary network configuration, and use this knowledge to increase their responsiveness to pro-market reforms in their home market. The paper proposes that entry modes and network configurations that facilitate knowledge acquisition provide firms from developing countries an advantage when responding to such institutional changes. The analyses use data for the largest Latin American companies from 1989 to 2008. The findings provide evidence for a positive moderating effect of equity international joint ventures, international acquisitions, and subsidiary network centrality closeness on the relationship between reforms and profitability.     

Subsidiary Capacity Building in Emerging Markets: How Japanese MNEs Sequence Market Entry and Development Strategies in India

This paper asks the pragmatic question of how and to what extent firms build subsidiary competitiveness over time. By merging international business and international marketing theory, we integrate the unconnected discourses on market entry, development, product sequencing, and diffusion. The context of our research questions is marketing and entry strategies of four Japanese firms in India. All have had to learn the sequencing of both entry and product diversification. While strategies vary between the firms, the cases exhibit that entry and product diversification decisions are interlinked. Market entry configurations are central for developing market‐led solutions in large emerging markets. This study offers insights into how Japanese MNEs build subsidiary competitiveness when faced with the early stages of the Indian consumer market take‐off. Second, through the integration of international business and international marketing theory, we find that new product performance and international diversification interact in specific ways, and this contributes to future theoretical developments. © 2015 Wiley Periodicals, Inc.     

Network Imitation to Deal with Sociocultural Dilemmas in Acquisitions of Young,Innovative Firms

This article expands current acquisition literature to include sociocultural challenges on inter‐organizational levels following acquisitions of young, innovative firms. Socioculture here denotes network parties' shared values, belief systems, and practices. Three acquisitions illustrate their consequences. The young, innovative firms and their acquirers are part of different networks, have dissimilar motives for pursuing business, and work within different time frames. To potentially improve knowledge transfer and integration, the acquirer can learn from the innovative firm's network interactions; choose targets among its own network parties; organize its governance into a separate business unit; practice reverse value integration from the acquired party; and carefully promote practices that foster innovativeness. The article contributes to research on acquisitions of young, innovative firms through pointing to how values and practices are interlinked in networks, and how the imitation of the acquired party's network interaction may help to sustain its innovativeness and transfer knowledge between the acquirer and acquired party. © 2013 Wiley Periodicals, Inc.     

Board diversity and firm performance: The role of business group affiliation

There is little consensus globally on the relationship between board diversity and firm performance. Using the resource dependence and agency views, this paper examines how business group affiliation influences the relationship between board diversity and firm performance as a contextual/confounding factor. Based on data for listed firms in India, we find that board demographic diversity is positively associated with the firm performance (Tobin’s Q) of standalone firms, but this association is negative for group-affiliated firms. This negative effect of group affiliation is confirmed in a test based on a novel measure of firm performance using the stock market reaction to the announcement of mergers and acquisitions. For both measures of performance, we show that business group affiliation impairs the positive firm value effects of board demographic diversity. These findings imply that the relationship between board diversity and firm performance requires re-examination in the many countries where group affiliation is common. Our results also provide evidence of a new cost of group affiliation and show in a fresh context that cross-country studies should account for international variations in ownership and institutional structures.     

Why franchise companies expand overseas

Business format franchising is becoming an increasingly international activity. From 1971 to 1985, U.S. franchisors added foreign outlets at a rate of 17% per year, almost twice as fast as they added domestic outlets (Aydin and Kacker 1990). As a result, by 1990 more than 350 U.S. companies had more than 32,000 franchised outlets overseas. By 2000, 60% of all franchisors in the United States are expected to have outlets overseas (Hoffman and Preble 1993).This study examines the 815 largest U.S. franchisors to understand what capabilities encourage them to expand overseas. It finds that the key capability that predicts the intent to expand overseas is superior capability to reduce franchisee opportunism. Franchisors who seek foreign franchisees have developed a greater capability to bond against and monitor potential franchisee opportunism. The data show that these differences are consistent across all industries in which franchising takes place.The results of this study indicate that foreign entrepreneurs can identify the American franchisors most likely to expand overseas by looking at their pricing structure and their monitoring capabilities. The easy identification of characteristics from which to find American franchisors will help to reduce the search costs of potential foreign franchisees. This reduction in search costs will make the establishment of international franchise relationships less expensive.This study also provides guidance to franchisors interested in expanding overseas. The results show how franchisors can structure their franchise relationships to reduce potential franchisee opportunism. This ability to reduce franchisee opportunism will make it easier for franchisors to enter high-growth foreign markets using the franchising business mode.This study also has implications for researchers. It suggests that international business research examine further the mechanisms by which firms make contractual modes of international business work. Whereas many firms may internalize international market transactions under conditions likely to lead to market failure, the large number of franchisors who use franchising as an international expansion mode despite conditions of market failure suggests that more attention be paid to mechanisms that companies can use to reduce the probability of failure of international contractual transactions. By helping to explain how franchisors monitor foreign franchisees or bond them against opportunistic behavior, this study suggests that the international business literature develop a more complex understanding of the workings of international business transactions than the simple choice of internalization or contractual entry modes.     

Impact of institutional reforms and industry structural factors on market returns of emerging market rivals during acquisitions by foreign firms

This paper seeks to understand the joint impact of institutional reforms and industry structural factors on market returns earned by rivals in an emerging market during foreign acquisitions. We use a sample of 238 foreign acquisitions in India during the period 2004–2013 and find empirical evidence to support the notion that institutional reforms, foreign competition and business group competition positively impact the market returns of the rivals of acquired firms. Additionally, we find that the effects of foreign competition and business group competition on rivals’ market returns are shaped by the degree of institutional reforms in the industry, indicating that firms’ market returns in emerging markets during foreign acquisitions can be better understood through the incorporation of the joint role of industry structural factors and institutional reforms.     

Mergers & acquisitions research: A bibliometric study of top strategy and international business journals, 1980–2010

Mergers and acquisitions (M&As) are important modes through which firms carry out their domestic and international strategies and have been noted as the CEOs favorite strategy. As a significant field of study, M&A-research has accumulated substantial knowledge. This bibliometric study examines the extant strategy and international business literature on M&As. Methodologically, we examined a sample of 334 articles published in sixteen leading management/business journals, during a 31 year period — from 1980 to 2010. The results provide a global perspective of the field, identifying the works that have had the greater impact, the intellectual interconnections among authors and works, the main research traditions, or themes, delved upon on M&A-related research. Structural and longitudinal analyses reveal the changes in the intellectual structure of the field over time. A discussion on the accumulated knowledge and future research avenues concludes this paper.     

Strategy antecedents of modes of entry into foreign markets

Although a firm's choice of mode of entry to a foreign market is central to the implementation of international strategy, we have only limited understanding of the effects of international strategy on the choice. This study explores the effects of business relatedness and corporate international experience. Data were collected on 173 ventures of Swedish manufacturing firms that were present on the German market, and multivariate techniques were applied to test hypotheses. It was found that product/market relatedness and intangible resource relatedness between the foreign business unit and the industrial firm's core business unit favored a full control entry mode based on sole ownership. This finding was also valid for importance of foreign markets. Further, market importance moderated the two relationships regarding business relatedness. Contributions to the literature are discussed.     

National cultural distance and initial foreign acquisition performance: The moderating effect of integration

This paper examines the effect of national cultural distance on the performance of foreign acquisitions. While some studies have argued that this effect should be negative and others that it should be positive, we argue that this depends on the level of post-acquisition integration. We hypothesize that large differences in national culture reduce foreign acquisition performance if the acquired unit is tightly integrated into the acquirer, but that they enhance acquisition performance if post-acquisition integration is limited. Analyzing a sample of 102 cross-border acquisitions by Dutch firms in 30 countries, we find strong empirical support for this hypothesis.     

Does external technology acquisition determine export performance? Evidence from Chinese manufacturing firms

Although technology profile has been one of the key determinants of firms’ export performance in the international business literature, most research has focused on only the role of internal technology efforts rather than the role of external technology. This study thus aims to extend our understanding of the determinants of export performance by examining the impact of the inter-organizational dimension of innovation strategy to export performance, which has been ignored in the prevailing “strategy tripod” perspective of exporting research. This study is based on a sample of 141 Chinese indigenous manufacturing firms that engaged in inward technology licensing between 2000 and 2003. The empirical results indicate that external technology acquisitions positively influence Chinese firms’ export performance. Moreover the exporting performance of using external technology varies depending on the their sources (domestic and foreign). The exporting firms that acquired technology from foreign countries outperformed those relied on domestically developed technology.