How Do Entry Motives and Institutions Influence the Acquisition Strategies of Multinationals in Foreign Markets? Lessons from Acquisitions of Finnish Multinationals in Global Markets

When acquiring foreign targets, multinationals have an option for partial acquisition, staged acquisition, and full acquisition. This study seeks to understand how the motives of market entry and institutions influence these acquisition strategies in foreign markets. By integrating OLI paradigm and institutional theory with an empirical case study of seven acquisitions of Finnish multinationals in global markets, the study finds that the motives of market entry (i.e., market-seeking, efficiency-seeking, strategic-asset-seeking motives) interact with host country institutions in influencing the choice of partial, staged, and full acquisitions. The study also develops six propositions and recommends areas for future research.     

Management of Overseas Acquisitions by Developing Country Multinationals and Its Performance Implications: The Indian Example

Developing‐country multinationals (DMNCs) make overseas acquisitions to leverage extant capabilities of acquired companies in order to enter foreign markets and acquire their know‐how to enhance their own competitiveness against global competition at home and abroad. We go “inside the black box” to examine how DMNCs manage those acquisitions and the attendant implications for postacquisition performance. When DMNCs keep the acquired firm “structurally separate” from their own organization and retain its senior executives, they exhibit better acquisition performance. Also, “linking mechanisms” to coordinate interdependencies between the two firms improves performance, especially when the acquired firm is kept structurally separate. Analyses of large‐sample data of Indian DMNCs’ overseas acquisitions show that DMNCs’ light‐handed approach to managing acquisitions, despite acquiring majority ownership in them, seems suited to their acquisition objectives. © 2016 Wiley Periodicals, Inc.     

Institutional,cultural and industry related determinants of ownership choices in emerging market FDI acquisitions

In this study, we tackle a relatively un-researched question: What explains partial FDI acquisitions? The choice between full, majority, and minority ownership is explained on the basis of three locational factors – the differences, or “distances,” between the countries of the acquirer and target firm – operationalized in terms of (i) institutions, (ii) culture, and (iii) sectoral relatedness. The sample comprises 1389 acquisitions in India and China by acquirers from 33 nations over an 11-year period. We find that the likelihood of minority acquisition over majority or full becomes higher when acquisitions involve low institutional distance or high uncertainty avoidance distance. However, the likelihood of minority acquisition over full or majority becomes lower when acquisitions involve industry relatedness. The results add to our understanding of the advantages and disadvantages of partial versus full FDI acquisitions in emerging markets. This study adds to the nascent literature that uses country or location “distance” metrics to show how the multinational firm, being “multiple embedded” (Meyer et al., 2011), can take advantage of the dual location of home and host countries.     

Acquisition Entry Strategy of Nordic Multinational Enterprises in China: An Analysis of Key Determinants

ABSTRACT

This article addresses the key determinants of acquisition entry strategy (i.e., the choice between full versus partial acquisition) of Nordic multinational enterprises (MNEs) in China. Although general establishment and entry mode strategies have been a highly researched area in international business studies, acquisitions as a specific entry strategy and its different aspects have been scarcely researched. Therefore, the current study aims to fill the gap in literature by analyzing determinants of acquisition entry strategy based on three important theoretical bases: transaction cost economics, resource-based view, and institutional theory. Our study is one of the first to analyze acquisition entry strategy of MNEs from all four Nordic economies (Denmark, Finland, Norway, and Sweden) in China during 1987 through 2012, and this unique empirical context adds further value to the study findings. The empirical results show that high target country experience, high cultural distance, high level of product diversification, and subsidiary location in institutionally developed and open cities of China were positively associated with choice of full acquisitions by Nordic MNEs. On the other hand, high industry research and development intensity and timing of acquisition led to the choice of partial acquisitions by the investing Nordic MNEs.     

The effect of investor origin on firm performance: Domestic and foreign direct investment in the United States

This paper evaluates the causal relationship between the source of origin of FDI and the performance of the target firm. The empirical analysis uses new data on a comprehensive sample of public U.S. firms that received FDI between 1979 and 2006. To account for the possibility that performance differences arise due to the selection of superior target firm rather than the change in ownership, I use propensity score matching to create similar comparison groups of target firms prior to acquisitions. The analysis reveals three major findings. First, acquiring firms from industrialized countries lead to labor productivity increases of 13% in the target firm three years after the acquisition compared to targets acquired by domestic firms. Firms that received developing country firm acquisitions, on the other hand, exhibit lower labor productivity gains four years after acquisition, compared to targets acquired by domestic firms. Second, targets receiving FDI by firms from industrial and developing countries also experience increases in profits, compared with firms receiving acquisition by domestic firms from the United States. Third, compared with domestic acquisitions, foreign industrial firm acquisition FDI tends to increase their targets' employment and sales, whereas targets acquired by firms located in developing countries experience a decrease in both revenues and total number of employees. These findings suggest that target firms are subject to significantly different restructuring processes depending on the origin of the acquiring firm.     

The impact of inward FDI on local companies’ labour productivity: evidence from the Italian case

The article aims to investigate the impact of inward foreign direct investment (FDI) occurring through acquisition upon the local target company’ performance, as measured by labour productivity. It relies upon the idea that multinational enterprises (MNEs) act as a device to transfer firm‐specific proprietary assets, thus causing their subsidiaries to exhibit better performance than their host country rivals. Specifically, our results show that foreign acquisitions generally increase the local target companies’ labour productivity in the medium term after the acquisition. The empirical evidence refers to foreign acquisitions that occurred in Italy in the period 1994–1997.     

Cross-border acquisition in services: Comparing ownership choice of developed and emerging economy MNEs in India

Despite rapid increase in cross-border acquisitions (CBAs), prior research has not examined ownership choice of foreign MNEs investing in the services sector in emerging economies. Drawing on multiple strands of literature, we posit acquirer's ownership choice (partial versus full acquisition) to be influenced by type of service offering (soft versus hard), institutional distance between acquirer and target nation, and acquirer's country-of-origin (emerging versus developed economy). Empirical analysis of 385 CBAs undertaken in India over an 11-year period provides evidence that services, in particular soft services, and high institutional distance increases the likelihood of full acquisition by emerging economy acquirers. However, acquirers from developed economies show preference for partial acquisition under similar circumstances.     

Foreign Acquisitions and Target Firms' Performance in China

This paper empirically investigates the effects of foreign acquisitions on several performance measures of Chinese target firms. Using a self‐constructed database that includes information on foreign acquisitions in China and the accounting information of Chinese manufacturing firms from 1998 to 2007, we find that foreign acquisitions significantly improve the productivity, sales and fixed asset investment of the target firms. We address the potential endogeneity issue in the OLS estimation using the difference‐in‐differences technique, with two control groups, namely the would‐be targets and the propensity‐score‐matched targets. We also find that the performance‐enhancing effect of foreign acquisitions becomes stronger when larger technology gaps are observed between the acquirers and the targets. An inverted‐U relationship is observed between the post‐acquisition performance of the target firms and the target firm equity that is held by the foreign acquirers. The performance effects are qualitatively different among vertical, horizontal and conglomerate acquisitions.     

Accessing host country national talent in emerging economies: A resource perspective review and future research agenda

Through an integrative literature review, we explore the resource-related factors affecting foreign-owned MNE subsidiaries gaining access to host country national (HCN) talent. We focus on MNEs operating in uncertain emerging economy host locations. Adopting a resource perspective, we identify five core themes in the extant literature: the characteristics and roles of HCNs in MNE subsidiaries; the context-specific nature of (a) subsidiary operations and (b) talent management in emerging economies; HCN talent availability in emerging economies; and MNE embeddedness in uncertain external resource contexts. To date, studies have largely adopted an inside-out resource-based view (RBV) of the firm to understand MNE staffing strategies. Although illuminating, the RBV approach limits our understanding of the factors that affect MNEs’ interaction with their external operating environment (adopting an outside-in perspective). We, therefore, propose a framework for future research that emphasizes not only inside-out but also outside-in resource perspectives, exploring the interplay between resource dependency and RBV theorizing through strategic response types in developing a contingent talent strategy.     

Political Connections,Government Intervention and Acquirer Performance in Cross‐border Mergers and Acquisitions: an Empirical Analysis Based on Chinese Acquirers

The extant literature suggests that the political connections enjoyed by Chinese acquiring firms have both positive and negative effects on their performance in cross‐border mergers and acquisitions (CBMA). We employed firm‐level data on Chinese acquirers from 2001 to 2012, demonstrating that the effect of political connections on mergers and acquisitions performance is determined by external government intervention. Holding the level of political connections constant, the greater the degree of government intervention is, the worse the acquirer's performance in cross‐border mergers and acquisitions will be. We also demonstrated that political connections affect acquirer performance in cross‐border mergers and acquisitions through the channel of preferential access to bank financing, and the acquiring firms' high cash holdings, which are encouraged by the ease of bank financing, have a negative effect on acquirer CBMA performance. Using the Blinder‐Oaxaca decomposition, we investigated changes in the Chinese acquirers' performance following changes in the external policy environment in 2008 and the effect of political connections and other factors on this change.     

The Effect of Cross‐Border Mergers and Acquisitions on Earnings Quality: Evidence from China

Despite the fruitful research on the motives and outcomes of cross‐border mergers and acquisitions (M&As) of Chinese multinational corporations (MNCs), there has been scant research on the impact of cross‐border M&As on corporate governance. In this article, we fill the research gap by exploring whether cross‐border M&As may lead to an improvement in corporate governance of Chinese acquirers. In particular, we examine the impact of cross‐border M&As on earnings quality of Chinese MNCs. We find that the acquisition of a target firm from a developed country leads to a significant improvement on the acquirer's earnings quality. In comparison, the acquisition of a target from an emerging market does not have such an impact. Our results are robust to various corporate governance measures, alternative econometric methods, and controls of relevant firm characteristics and macroeconomic variables. Finally, we show that the effect of cross‐border M&As on earnings quality is more pronounced in non‐state‐owned enterprises (non‐SOEs) that have conducted large M&A deals. Our article offers new insight to the international business literature on latecomer perspective and liability of foreignness. © 2016 Wiley Periodicals, Inc.     

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.     

The performance of cross-border acquisitions targeting African firms

This paper examines the performance of cross-border acquisitions (CBAs) of fims domiciled in Africa. We examine 503 deals involving firms from 23 developed and 20 emerging countries, acquiring targets in 33 African countries. We find that, on aggregate, Africa bound CBAs significantly underperform, and that emerging economy acquirers outperform their developed economy counterparts. Further, significant variations in deal performance is documented when the target firms are categorised according to the level of development of African financial markets, industries, and to some extent, economic blocs. The results are robust to various firm, industry, deal and country specific characteristics.     

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.     

Wealth effects on cross-border acquisition firms from emerging economies

Cross-border acquisitions (CBAs), as a corporate expansion strategy, are being espoused by emerging market firms (EMFs) to overcome their competitive disadvantage at the global level. The objective of this paper is to analyse the wealth effects of cross-border acquisition announcement on the acquiring firms from emerging economies during the period of 2001–17. Wealth effects have been measured in terms of short-term change in equity prices (investors' reaction) around the public announcement of 553 and 125 overseas acquisitions by Indian and Chinese listed firms respectively. The investors' reaction to the acquisition of a foreign target has been captured using the event study methodology. Further, a disaggregated analysis has been conducted to gauge the impact of various deal-specific factors, the legal structure of the target firm and the development status of the target country on the wealth creation potential of a cross-border acquisition.Both Indian and Chinese investors have responded favourably to the announcement of international acquisitions as exhibited in significant and positive average abnormal returns of 0.71% and 0.23% respectively on the event day. Further, it is revealing to note that investors in these economies differ widely with regard to their perception pertaining to the method of payment and acquisition strategy. At the same time, the extent of wealth creation is higher when acquired firms are based in developed economies possessing high quality resources and advanced technology along with better institutional and regulatory milieu; Indian as well as Chinese markets have experienced larger abnormal returns on acquiring advanced vis-à-vis developing market firms.     

Investment History and Market Orientation Effects in the TFP–FDI Relationship1

This paper examines the robustness of previous stochastic dominance tests that find significant total factor productivity (TFP) heterogeneity between firms that export abroad and multinational enterprises (MNEs). We extend this literature by focusing on how ‘within‐MNE’ heterogeneity affects the extent to which one can identify the TFP threshold in the exporter–MNE TFP relationship. Within‐MNE heterogeneity is established by determining both the number and location of the foreign affiliates established by each MNE. In this way, we separate single‐affiliate MNEs from those with multiple affiliates, as well as analyse the role played by vertical FDI, a topic typically ignored in previous stochastic dominance tests of the Helpman et al. (2004, American Economic Review, 94, 300–16) hypothesis. Our empirical tests employ Japanese firm‐level FDI and TFP data for the period 1975–2000. Using Kolmogorov–Smirnov tests to determine stochastic dominance, we find significant TFP heterogeneity within the MNE group based on investment history and affiliate geographic location. While our results confirm the standard HMY three‐tiered classification to exist for Japanese firms, exporter–MNE ‘between‐group’ TFP heterogeneity is sensitive to the ‘within‐MNE’ investment history heterogeneity. We note that single‐ and two‐affiliate MNEs are statistically more similar to exporting firms than to MNEs with greater foreign affiliate totals. This shows the exporter–MNE TFP threshold to be not as explicit as Helpman et al. (2004, American Economic Review, 94, 300–16) suggest. In fact, our results allow us to identify the MNE‐side width of Girma et al.’s (2005, Economic Letters, 83, 317–24) ‘uncertainty region’ surrounding this threshold. Finally, we also find a strong TFP–market orientation relationship exists where the most productive firms follow complex integration strategies, lesser TFP firms do horizontal FDI, and the least productive MNEs do vertical FDI.     

Option Nature of Company Acquisitions Motivated by Competence Acquisition

The small business establishment is increasingly regarded as growth option creation. It is generally believed that a country will prosper if a sufficient number of small, technology-based companies are established to provide options for the development of new industries. Despite the general belief, empirical evidence concerning the conception of "small businesses as growth options" is yet non- existent. This paper tries to fill this gap by examining empirically the option nature of collaboration and acquisitions through an analysis of 111 small, technology-based company acquisitions. As a result, somewhat contrary to the earlier research, collaborative arrangements were not found to be used as options to acquire small, technology-based companies. Acquisitions, on the other hand, were used as options to enter a new technology or business area. The option nature of acquisitions was related to technology-based variables, such as the lower levels of maturity of the acquired competencies, possibilities to patent the acquired competencies, and the research and development intensity of the acquiring company. Growth option upside realization was found to be linked to market and cooperation-related variables: the relatedness of the acquiring and the acquired company, proactive sales motive of the seller, and favorable industry trend. The finding concerning the performance of the acquisition of related technological competencies would seem to be connected to imperfect markets of new technological competencies possessed by the acquired small businesses.     

Macro‐institutional conditions in Ghana and the challenges to HRM program development and implementation

Multinational enterprises (MNEs) originating from advanced economies with operations in less developed host countries need to have a good understanding of the macro‐institutional conditions of the host country. Given HRM practices are context‐specific and embedded within the institutional and cultural settings of the host country, an exploratory qualitative study approach was employed to ascertain the host country's institutional dimensions (drivers) likely to undermine HRM program implementation in large local companies and in MNEs. Data were drawn from key stakeholder participants, including HR managers from MNE subsidiaries, domestic firms, and officials from key stakeholder institutions. The evidence points to six (6) dimensions of a less‐developed host country's macro institutions that undermine firms' HRM advancement. These include the regulatory system, education and training arrangement, labor market conditions, cultural barriers, political actors' intrusion, and economic uncertainty. The implications thereof are discussed.     

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.     

The pre-acquisition evaluation of target firms and cross border acquisition performance

The paper investigates the impact of the pre-acquisition evaluation of target firms on the performance of cross border acquisitions using data from a sample of acquisitions made by UK firms. The findings provide reasonable support for organizational learning theory, suggesting that the more the acquiring firm learns about the target firm then the better will be the acquisition performance. Specifically, we find support for the hypothesis that thorough evaluation of the strategic and cultural fit positively influences cross border acquisition success. Further, the analysis reveals that detailed evaluation of the target firm's employee and business capability improves acquisition performance. The managerial implications of the findings and directions for future research are also discussed.