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Mergers and Acquisitions Best Practice

The Art Of Acquiring In Emerging Markets

by Satu Teerikangas

Table of contents

Executive Summary

  • Current practice and theory consider that success in acquisitions rests on three pillars: strategy, predeal financial considerations, and postdeal integration.

  • The chapter is based on a real-life case study of a Nordic industrial multinational’s experiences of selecting, negotiating, and running an acquired business in China. A total of 30 face-to-face interviews were conducted with both the European and Chinese parties, as well as with relevant suppliers and local authorities in China.

  • In emerging and developing market contexts, the above three-fold conceptualization of acquisition success needs to be supplemented with relationship management and cultural and institutional intelligence.

Introduction

The first merger and acquisition (M&A) deals were recorded in the late 19th century in the United States. At present, more than a century later, spurred by economic and legislative advances and the liberalization of trade, acquiring firms are expanding their interest toward new opportunities in emerging markets and the developing world. “Moving east” is not entirely new, though.

A similar move toward the “east” was witnessed in the early 1990s, as Western multinationals engaged in joint ventures with Chinese and Eastern European counterparts and established alliances with Japanese partners. This active joint venturing and alliancing was not without its difficulties, as witnessed by the poor success rate of many such a venture (Lunnan and Haugland, 2008; Reus and Rottig, 2009). An extensive body of literature examines how to successfully navigate cooperation with competitors (Hughes and Weiss, 2007; Kale and Singh, 2009), particularly along the East–West cultural divide.

Today, some 20 years later, multinational firms are going overseas again. They are seeking opportunities for corporate expansion via mergers or acquisitions in the emerging markets and the developing world. Beyond mere opportunity, though, there is an element of competitive threat as giants from the emerging markets are at the same time aggressively purchasing wellknown Western brands (Kale and Singh, 2012). Clearly, the logic of competition has become global, and this is reflected in large firms’ acquisitive behavior in targeting a truly global span of prospects, instead of focusing on the developed world only. As acquiring in the emerging markets is on the rise, what are the repercussions on the executives involved? How should firms manage acquisitions in emerging markets? Questions such as these are the focus of the present chapter.

Extant practice and theorizing considers that success in acquiring rests on the three pillars of strategy, predeal financial considerations, and postdeal integration (Faulkner, Teerikangas, and Joseph, 2012). Based on a real-life case study of an anonymized Nordic industrial multinational’s experiences of selecting, negotiating, and running an acquired business in China, I argue that, in emerging and developing market contexts, such a threefold conceptualization of acquisition success needs to be supplemented with relationship management and cultural and institutional intelligence. I provide an overview of the key learning points from the case study before concluding on the managerial repercussions of managing the acquisition process in the emerging world.

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Further reading

Books

  • Faulkner, David, Satu Teerikangas, and Richard J. Joseph (eds). The Handbook of Mergers and Acquisitions. Oxford, UK: Oxford University Press, 2012.
  • Hofstede, Geert. Culture’s Consequences: Comparing Values, Behaviors, Institutions, and Organizations Across Nations. 2nd ed. Thousand Oaks, CA: Sage Publications, 2001.
  • House, Robert J., Paul J. Hanges, Mansour Javidan, Peter W. Dorfman, and Vipin Gupta (eds). Culture, Leadership, and Organizations: The GLOBE Study of 62 Societies. Thousand Oaks, CA: Sage Publications, 2004.
  • Thomas, David C., and Kerr Inkson. Cultural Intelligence: Living and Working Globally. 2nd ed. San Fransisco, CA: Berrett-Koehler, 2009.

Articles

  • Brouthers, Keith D., and Gary J. Bamossy. “Post-formation processes in Eastern and Western European joint ventures.” Journal of Management Studies 43:2 (2006): 203–229. Online: http://tinyurl.com/orhddjb
  • Cyr, Dianne J., and Susan C. Schneider. “Implications for learning: Human resource management in East–West joint ventures.” Organization Studies 17:2 (1996): 207–226.
  • Doz, Yves L. “The evolution of cooperation in strategic alliances: Initial conditions or learning processes?” Strategic Management Journal 17:S1 (1996): 55–83.
  • Graham, John L., and N. Mark Lam. “The Chinese negotiation.” Harvard Business Review October 2003, 82–91. Online: http://tinyurl.com/ppvth6n
  • Hughes, Jonathan, and Jeff Weiss. “Simple rules for making alliances work.” Harvard Business Review November 2007: 122–131. Online (reprint): www.spibr.org/HBR_Simple_Rules_for_Making_Alliances_Work.pdf
  • Kale, Prashant, and Harbir Singh. “Managing strategic alliances: What we know now, and where do we go from here?” Academy of Management Perspective August 2009: 45–62. Online: http://tinyurl.com/nzes2rc
  • Kale, Prashant, and Harbir Singh. “Characteristics of emerging market mergers and acquisitions.” Chapter 22 in: Faulkner, David, Satu Teerikangas, and Richard J. Joseph (eds). The Handbook of Mergers and Acquisitions. Oxford, UK: Oxford University Press, 2012; pp. 545–564.
  • Li, Guangyu, and Jonathan Woetzel. “What China’s five-year plan means for business.” McKinsey Quarterly July 2011. Online: http://tinyurl.com/qfxo5mw
  • Lieberthal, Kenneth, and Geoffrey Lieberthal. “The great transition.” Harvard Business Review October 2003: 26–40. Online: http://tinyurl.com/pyln5hw
  • Lunnan, R., & Haugland, S. (2008). Predicting and Measuring Alliance Performance: A Multi-Dimensional Analysis, Strategic Management Journal 29(5): 545-556.
  • Pye, Lucian W. “The China trade: Making the deal.” Harvard Business Review July 1986. Online (preview): http://hbr.org/1986/07/the-china-trade-making-the-deal/ar
  • Reus, Taco H., and Daniel Rottig. “Meta-analyses of international joint venture performance determinants: Evidence for the theory, methodological artifacts and the unique context of China.” Management International Review 49:5 (2009): 607–640.

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