Academic journal article Management International Review

Acquisitions by EMNCs in Developed Markets: An Organisational Learning Perspective

Academic journal article Management International Review

Acquisitions by EMNCs in Developed Markets: An Organisational Learning Perspective

Article excerpt

Abstract:

* Building on an organisational learning perspective, we argue that emerging market firms' international experience and home-country characteristics are core sources of learning. Furthermore, we argue that these factors constitute important determinants of emerging market firms' acquisition behaviour in developed countries (south-north acquisitions).

* We test our hypotheses on a sample of 808 south-north acquisitions. The acquisitions were undertaken in Europe, Japan and North America (Canada and the US) between 1999 and 2008 by firms from the emerging economies of Brazil, Russia, India and China.

* As suggested by the internationalisation process model, our results show that emerging market firms undertake acquisitions in developed countries in an incremental fashion. Acquisition experience in developed markets increases the likelihood of exploitative expansion, while acquisition experience in developing markets does not appear to have any effect. The results also show that a lack of market and knowledge-based resources at home curbs explorative acquisitions by firms in emerging markets.

Keywords: Emerging markets. South-North acquisitions * Organisational learning. Home-country characteristics * International experience * Related and unrelated acquisitions * Exploration and exploitation

Introduction

Multinational corporations from emerging countries (EMNCs) are not only growing at a faster rate than most multinational corporations (MNCs) from developed economies but, in recent years, they have also invested massively abroad: Foreign direct investment (FDI) from emerging markets represented 16% of global FDI flows in 2008 and 28% in 2010 (UNCTAD 2011). The foremost example of this "seismic shift in global business" is probably Lenovo's acquisition of IBM's personal computer business in 2005. (1) At the time, Lenovo was a little-known Chinese corporation but it has since become the world's fourth-largest PC manufacturer.

Firms from emerging countries have traditionally served as targets rather than acquirers in cross-border acquisitions. However, they are progressively becoming more active in acquiring firms in developed economies (Cantwell and Barnard 2008; Sauvant 2008; Duysters et al. 2009). In 2010, cross-border mergers and acquisitions accounted for 30.7% of the outward FDI (OFDI) flow from developing economies, while the corresponding figure from developed economies was only 25.2% (UNCTAD 2011). The sizeable gap in technological and marketing capabilities between developed market firms and emerging market firms tends to translate into the exclusion of EMNCs from alliances with stronger partners in the industry. Even when EMNCs are able to establish alliances with stronger partners, they are likely to possess weaker bargaining power over knowledge spillovers. In contrast, acquisitions always give the acquirer more control over the returns from the acquired strategic assets (Athreye and Godley 2009). Therefore, "south-north acquisitions" represent an important way for emerging market firms to expand their activities, and to acquire and develop tangible and intangible resources (Luo and Peng 1999; Hitt et al. 2005; Wright et al. 2005; Thomas et al. 2007). Yet, entering a new cultural bloc--such as developed markets does not come without costs. EMNCs are exposed to new rules, procedures, conventions and ways of doing business (Johanson and Vahlne 1977, 2009).

The literature suggests that organisational learning, that reduces entry barriers in foreign markets, favours the gradual entry of firms in other markets (Johanson and Vahlne 1977; Barkema and Venneulen 1998; Luo and Peng 1999; Thomas et al. 2007), and substantial international experience is needed to benefit from a foreign venture (Barkema and Drogendijk 2007). This study adds to the literature by testing whether the prediction of an incremental internationalisation pattern is valid for EMNCs that have decided to enter a developed market. …

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