Academic journal article Management International Review

Learning before Making the Big Leap: Acquisition Strategies of Emerging Market Firms

Academic journal article Management International Review

Learning before Making the Big Leap: Acquisition Strategies of Emerging Market Firms

Article excerpt

Abstract:

* In the past two decades, emerging market countries have opened their markets, resulting in increasing competition from foreign firms. To cope with the influx of new competition, these firms need to develop skills and competencies on par with their new international rivals. One of the strategies employed by firms in these markets is the use of serial acquisitions to build capabilities and has been referred to as the springboard perspective.

* We use a sample of 175 acquisitions made by Indian firms during the period 2000-2006. Findings support the underlying premise of the study that firms acquire targets serially but of increasing value in a sequential manner to learn and build capabilities. By acquiring targets in this manner, these firms seek to minimize risk as well as optimize their ability to learn from the acquisitions.

* The results of this study offer broad support for the recently advanced springboard perspective which expands the Uppsala model to include acquisitions. While unconventional, this strategy is a potential option for emerging market firms to acquire competencies to cope with the rapid increase in competitive pressure.

Keywords: Emerging market MNCs * Acquisitions--Internationalization. Springboard perspective * Emerging markets * India

Introduction

Traditionally, most emerging markets have been highly regulated, with restricted competition and largely closed to foreign entry. Over the last two decades, a key change in many of these markets has been a clear transition to a much more liberal regulatory regime which encourages competition, especially from foreign competitors in their home markets. As a result, firms from these economies face challenges to increase their competitive strengths to compete. Since these firms operated largely with minimal competition in many product segments wherein a pent-up demand existed for most offerings (Aulakh et al. 2000), they faced several barriers to developing competencies to compete with international rivals internally (Kriauciunas and Kale 2006). In many instances, incumbent firms hold dominant market positions and possess several competitive advantages as well as significant institutional leverage over foreign firms (Khanna and Palepu 2006; Gaur and Kumar 2009). While these advantages can be leveraged in the near term in domestic markets or other emerging markets, they are not sufficient for success in global markets where these firms seek to operate in the current (third) wave of internationalization (Ramamurti and Singh 2009).

Some firms which operate internationally held a market position largely limited to operations in narrow market niches or as suppliers in host countries, and international revenue represented only a minor portion of their revenue generation (Elango and Pattnaik 2007). The need for expansion into new value activities to compete effectively posed challenges, as it required adaptations in strategy, resources, and organizational competencies (Welch and Luostarinen 1993; Calof and Beamish 1995). Therefore, emerging market firms face an unique challenge in developing front-line capabilities to compete in domestic as well as demanding foreign markets (Chittoor et al. 2009). Chittoor et al. (2009) summarizes this scenario by claiming reforms "... fundamentally changed the competitive landscape of the industry, especially for domestic firms, requiring them not only reconfigure their resources and capabilities, but also to acquire new capabilities to survive ..." (p. 187). Therefore, an interesting question for scholars and practitioners would be to gain a better understanding of how these firms adapted to the changed competitive situation.

Given the radical change in their home markets, many firms which held dominant market positions faced two pressing options to ensure their future survival. First, they needed to develop their competencies on a par with international rivals to compete with them or risk losing their existing competitive positions in the home market. …

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