The evolution of strategic asset-seeking acquisitions by emerging market multinationals

We study the extent to which emerging market multinational enterprises (EMNEs) engage in strategic asset-seeking acquisitions in advanced countries in relation to the strength of their home- and host-country national innovation system (NIS). We suggest that early acquisitions by EMNEs were used to compensate for the EMNEs relatively weak home NIS, and targeted weaker host NIS to limit the cognitive gap EMNEs would need to address. Instead, more recent acquisitions by EMNEs are supported by a stronger home NIS, and target firms in stronger host NIS. We also propose that acquisitions by high-tech (versus non-high-tech) EMNEs need a stronger home NIS due to the technological complexity of the industry, and are limited when the complexity of a stronger host NIS adds to the industry context. We find support for most of our arguments on 179 acquisitions in the Triad by Brazilian, Russian, Indian and Chinese multinationals.     

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.     

Fostering integration through HRM practices: An empirical examination of absorptive capacity and knowledge transfer in cross-border M&As

Transfer of knowledge-based resources from acquirers to the acquired units has been ubiquitously emphasized as an important driver of post-acquisition integration. Equally emphasized is the importance of recipient unit’s absorptive capacity for the success of knowledge transfer and the facilitating role of HRM practices in developing absorptive capacity. In this paper, we integrate different streams of research on post-acquisition integration, knowledge transfer, absorptive capacity and HRM practices. Different from most past research, we pay attention theoretically and empirically to the multi-dimensional nature of both knowledge transfer and absorptive capacity. We test our hypotheses on a sample of acquired Chinese subsidiaries of 181 multinational corporations from seven countries. We find that successful inflow and implementation of knowledge require the acquired unit to have distinct types of capabilities each of which can be developed by a specific HRM practice. These results contribute literature by recognizing absorptive capacity as a manageable capability and identifying how different components of this capability could be developed by specific HRM practices. Furthermore, our results shed light on human side of M&As by examining how companies can foster post-acquisition integration by fine-tuning the absorptive capacity of acquired units.     

A South-South perspective on emerging economy companies and institutional coevolution: An empirical study of Chinese multinationals in Africa

In this paper, we show how international tenders act as defining moments in building asymmetric coevolution-based mechanisms between Chinese multinational enterprises and local institutions in developing African countries. We used a case study methodology to explore how three Chinese multinationals – Citic, Sinopec, and Chinalco – developed non-market relations with the institutions of three African countries, namely, Algeria, Gabon and the Republic of Guinea, both during and after the submission of international tenders, to win strategic contracts and securely embed the company in question within the target host country. We found that Chinese companies not only submit tenders, but also develop multiple kinds of alliances in order to influence local institutions over the long term, transplant new business practices and standards, and expand in an unparalleled way, with host-country institutions and Chinese MNEs acting as partners in the new ecosystem. Based on our findings, we propose a model which highlights the specific mechanisms through which successful coevolution processes emerge and prosper between Chinese multinationals and developing country institutions. This study contributes to the international management literature by extending the field of institutional theory to co-evolutionism in international business.     

State ownership and internationalization: The advantage and disadvantage of stateness

We critically review the literature on state-owned multinationals to clarify previous arguments and guide future studies. The content analysis of prior research reveals that state-owned firms differ from private firms in their internationalization: they are motivated by national strategic objectives, select more challenging countries, and use acquisitions more intensively despite adverse market reactions. The analysis also reveals conflicting predictions on the level of internationalization; some studies find that state-owned multinationals internationalize more while others find the contrary. We introduce one solution to these conflicts by classifying theories into two camps based on the balance between the costs and benefits of state ownership. One camp suggests a disadvantage of stateness (agency theory, resource dependence theory, and neo-institutional theory). Another camp promotes an advantage of stateness (economic development, resource-based view, and institutional economics). We conclude by outlining three promising relationships in the study of these firms: (1) relationships internal to state-owned multinationals and the balancing of stakeholder demands; (2)relationships between state-owned multinationals and government and the influence of the political system; and (3) relationships between home and host country governments and the impact of their dynamics on state-owned multinationals.     

Uncovering neglected success factors in post-acquisition reverse capability transfer: Evidence from Chinese multinational corporations in Europe

Based on empirical evidence of four Chinese firms’ outward mergers and acquisitions (M&As) to European countries, this paper examines previously neglected key success factors in post-acquisition reverse capability transfer. We identified three such factors: home-country advantage, motivation-oriented complementary resources, and acquirers’ attractiveness, and argue that post-acquisition capability transfer is affected by not only the process factors that occur during the post-acquisition phase but also by pre-acquisition status factors. In this way, the paper enriches the process perspective of M&A, thereby contributing to the international M&A literature and to studies of multinational corporations (MNCs) from emerging economies.     

The moderating effect of technology and marketing know-how in the regional-global diversification link: Evidence from emerging market multinationals

In this study, we link regional diversification to global diversification of emerging market multinationals (EMNCs) and explore the importance of firm-specific technology and marketing know-how in that process. We develop our hypotheses and test them using a sample of 625 Chinese manufacturing multinationals across multiple industries. The results reveal that regional diversification predicts global diversification, and that firm-specific technology and marketing know-how both increase the likelihood of a firm’s moving from regional to global operations. Technology know-how was found to be more influential than marketing know-how.     

The OFDI patterns and firm performance of Chinese firms: The moderating effects of multinationality strategy and external factors

The purpose of this paper is to examine how multinationality strategy, home political influence, and host-country risk explain the performance consequences of OFDI patterns of firms in the most important emerging economy, China. Two main patterns of OFDI (‘born global’ natured multiple simultaneous and IP-natured gradually growing) have been dominant in China during its first OFDI as a latecomer. In contrast to the conventional IP argument, we hypothesize that the multiple simultaneous pattern of a born-global nature leads to better performance. We also hypothesize that firm multinationality strategy and home political influence play greater roles in enhancing the performance effect of the multiple simultaneous pattern than another pattern, i.e., IP-natured gradually growing pattern. Using panel data of 4619 observations from 261Chinese publicly listed firms from 1991 to 2011, we find a superior performance effect for the multiple simultaneous pattern. Further, we find a greater moderating effect of firm multinationality strategy and home political influence affecting the OFDI and performance relationship undertaken by the multiple simultaneous pattern than by the gradually growing pattern. Our study extends understanding of OFDI patterns in emerging economies and suggests that the analysis of performance consequences should focus on external and firm factors that may facilitate the performance effect.     

Internationalization of emerging-economy new ventures: The role of within-country differences

New ventures are increasingly internationalizing from emerging economies, but the role of their home country and any associated within-country regional differences are not well understood. In this article, we look at a new venture in China and how its headquartered region promotes its internationalization. We present empirical evidence that shows the interrelatedness between a venture’s region and internationalization: When institutional development in a region is strong, the impact of foreign firm presence on venture internationalization becomes even stronger. We discuss implications for managers of multinational enterprises and new ventures operating in emerging economies as well as policymakers in these economies.     

Organizational slack as an enabler of internationalization: The case of large Brazilian firms

In this paper, we address an empirical puzzle. We note that a deliberate and serious drive to internationalize has occurred rather late in the evolution of large Brazilian firms. Meanwhile, and despite their late internationalization, these Brazilian firms expanded rapidly and intently. Despite the rich literature on Emerging Market Multinational Enterprises (EMNEs), there is still much contention on what drives rapid EMNE internationalization, particularly for the less explored firms from Latin America. Using an inductive case study of five leading Brazilian MNEs, we bring new insights on this neglected question. We unveil that the existence of organizational slack (of operational, managerial, and financial nature) can indeed facilitate rapid internationalization, particularly when triggered by unique home country conditions (e.g., regulation; rising cost of doing business at home; exhaustion of profitable growth opportunities in the domestic market).     

The impact of mergers and acquisitions on brand equity: A structural analysis

An overlooked strategic benefit of mergers and acquisitions (M&As) is their impact on brand equity. M&As may affect consumer brand preferences, which in turn will affect a firm’s profit. We develop a structural model with a difference-in-differences specification to measure how M&As affect a firm’s profit through three mechanisms: brand equity, cost synergies, and product portfolios. We analyze Lenovo’s acquisition of IBM’s PC division in China’s PC market and find that the increase in brand equity contributed the most to increasing Lenovo’s profit, followed by cost synergies. To explore the generalizability of our modeling approach, we apply it to Geely’s acquisition of Volvo and also find that the gains in brand equity contributed the most to Geely’s profit increase.     

The stock market performance of exploration-oriented and exploitation-oriented cross-border mergers and acquisitions: Evidence from emerging market enterprises

This study builds on insights from mergers and acquisitions (M&A) studies and the perspective that stock market performance is affected by the M&A strategies of firms. Past studies show that acquisitions are an effective way to exploit existing knowledge and explore new possibilities. We argue that stock market performance can be a response to exploration/exploitation strategies in the context of cross-border M&As by emerging market multinationals. Based on cross-border M&A data of Chinese multinationals, we find that exploration-oriented acquisitions have worse stock market performance than exploitation-oriented acquisitions. Furthermore, we find support for our premise that acquiring firms can reduce the risk of exploration-oriented acquisitions by having more high-discretion slack resources or by maintaining a high level of equity share of the target firm. In addition, acquiring firms perform better if they conduct exploration-oriented acquisitions in related industries. Our results contribute to a better understanding of exploration and exploitation in the context of M&As.     

The challenge of Chinese state‐affiliated multinationals in benefiting from foreign subsidiary knowledge transfer: A criticism of light‐touch integration

Acknowledging the sharp growth of Chinese state‐affiliated multinationals and their strategic asset‐seeking investments abroad, this study investigates the effects of headquarters' home‐country political ties on the multinational‐wide benefits gained from subsidiary knowledge transfer in Chinese multinationals. It also looks at how these effects are mediated by organizational distance and social integration between headquarters and subsidiary. Based on a survey of 177 subsidiaries of 99 Chinese multinationals, we find that headquarters' political ties trigger organizational distance and hinder social integration between headquarters and foreign subsidiaries and these, in turn, hamper the potential benefits that Chinese multinationals derive from subsidiary knowledge transfer. This study identifies new challenges related to political ties and light‐touch integration in gaining benefits from subsidiary knowledge transfer.     

Greenfield Investments or Acquisitions: Impacts of Institutional Distance on Establishment Mode Choice of Multinational Enterprises in Emerging Economies

ABSTRACT

The authors analyze the impacts of formal and informal institutional distance on establishment mode choice of multinational enterprises (MNEs) using a sample of 343 foreign direct investments (FDIs) made in selected emerging economies of Central and Eastern Europe, Asia, and Latin America by the Finnish MNEs. This study contributes to conceptualization and operationalization of institutional distance as well as its application in international business studies. The empirical analysis revealed that high informal institutional distance results in preference of greenfield investments by the Finnish MNEs as the authors hypothesized. However, the authors also found that high formal institutional distance results in preference of acquisitions, which is opposite the study hypothesis as well as the findings of previous studies addressing similar issues.     

International business-government relations: The risk management strategies of MNEs in emerging economies

In emerging economies where the institutional environment is weak, the level of risk faced by MNEs remains high. Extant literature recognizes the forms of risks faced by MNEs, but only a few studies have attempted to explain how firms identify and mitigate these risks. This study addressed the commercial risk management strategies of MNEs operating in Vietnam. We found that the government remained the key stakeholder and maintaining active relations with them aided MNEs’ operational success. The risk mitigation strategies employed by MNEs included managing alertness, portraying good behavior, navigating through the state of comfort, and active mediation.     

The role of home governments in entry bargaining of multinationals: China's investment in Central Asia's natural resource sector

Over the last two decades, China's participation in Central Asia's energy sector has increased dramatically. This article explores the case study of China's outward foreign direct investment (OFDI) in Central Asia's natural resource sector through the framework of bargaining model. Although the scholarly literature studied extensively FDI determinants and support of the home government on MNE activities abroad, there is little evidence‐based research on the effect of governmental negotiations on OFDI. The existing research on China's OFDI in natural resource sector highlighted the country's complex approach to energy deals, which was facilitated by investment in infrastructure projects and provision of loans. As this study confirmed, support with loans and investment in the development of export pipeline infrastructure was crucial in securing energy deals for Chinese multinationals (CMNEs). More specifically, this article makes an important contribution toward the understanding of China's investment in developing markets with high levels of political risk such as Central Asian region. The presented evidence suggests that there is a positive correlation between home government support and successful entry of CMNEs to natural resource sectors in emerging markets.     

When institutional change outruns the change agent: The contested terrain of entrepreneurial microfinance for those in poverty

We argue that institutional change moves through stages punctuated by recurring attempts to formally redefine the boundaries and logics of organizational fields that institutional entrepreneurs initially establish. With a grounded theory model, we demonstrate that institutional change in microfinance started with dominant development logic, shifted to market logic, and got stuck in a conflict over regulatory logic. We show how the role of the entrepreneur can change markedly over time while the institutional change process continues unabated. We present institutional entrepreneurship as an evolving phenomenon and suggest that the interplay between institutional entrepreneurs and established organizational fields is highly nuanced.     

Organizational culture and post-acquisition changes in management control systems: An analysis of a successful Brazilian case

This paper analyzes the effect of organizational culture on the post-acquisition management control system (MCS) of the Brazilian company Extrativa Metalquímica Inc. after its acquisition by the FASA Participações Group. The results herein reported add to discussions of the subject and contribute to reducing the research gap in this area in Brazil. The analysis supports two major conclusions: (1) changes in the acquired company's MCS were derived from the new financial results-oriented culture introduced by the acquirer; and (2) the implementation of this culture implied modifications in production, financial and quality controls.     

The effect of home country characteristics on the internationalization of EMNEs: The moderating role of knowledge stock

This paper examines the effect of home country characteristics on the internationalization of emerging market multinational enterprises (EMNEs). Drawing on the institution-based view (IBV), we argue that institutional, political, and social characteristics will positively relate to the internationalization of EMNEs. Further, drawing on the knowledge-based view (KBV), we also argue that a firm’s knowledge stock (KS) will positively moderate the aforementioned relationship. Our research setting involves the incorporation of primary data collected from Iranian multinational enterprises (MNEs) operating in the food and beverage industry. The results provide support for the hypotheses that home country characteristics positively impact the international growth of EMNEs but this does not lead to their further expansion. Also, supported was the hypothesis that EMNEs' knowledge stock positively moderates the relationship between home country characteristics and their international growth. These findings not only contribute to the current knowledge about the drivers of EMNE’s internationalization but also stress upon the idiosyncratic role of home country institutions and the impact of knowledge-specific capabilities on the internationalization of EMNEs, their international growth, and expansion.     

The role of experiential and non-experiential knowledge in cross-border acquisitions: The case of Indian multinational enterprises

This paper investigates the antecedents of the internationalization of emerging economy multinational enterprises (EMNEs) through cross-border acquisitions. Using a panel data set of 1138 cross-border acquisitions made by 515 Indian multinational enterprises (MNEs) during 2000–2013, it examines interactions of in-house resources with experiential and non-experiential knowledge to explore how EMNEs manage and exploit their knowledge base when internationalizing. The results show that Indian multinational enterprises have ‘interface competence’. They combine in-house resources with experiential market and externally sourced technological knowledge for undertaking cross-border acquisitions. The Uppsala model provides insights in analyzing the role of market knowledge and the Global Factory model helps in analyzing the role of technology in cross-border acquisitions by EMNEs.