International acquisitions and emerging market firms' performance—a structural contingency perspective

Abstract

Entry modes have impact on firms' performance in international markets. Using an organizational structural contingency perspective, we assert that firms with mechanistic structure can enhance their performance in international markets if they choose acquisitions as an entry mode. Mechanistic structure limits organizations' learning capability, which can be managed through acquisitions but not through other entry modes such as joint ventures. For managing limitations associated with the poor knowledge absorption capability of mechanistically structured organizations, firms should not follow the standard integration procedures associated with acquisitions aiming to achieve economies of scale or scope. Rather, they should provide corporate parenting advantage to the newly acquired unit by (a) granting complete autonomy and (b) contributing required resources for future growth, thus treating the acquired business as a strategic business unit. Since mechanistic structures are more common in emerging markets, we explain our perspective using illustrative caselets from these markets.

Corporate name change: Investigating South African multinational corporations' postacquisition performance

“…Recent studies on EMNCs highlight the fact that they may increase their value through international acquisitions because the firm can acquire tangible and intangible resources that are both difficult to acquire through market transactions and challenging to develop internally (Aybar & Ficici, 2009;Bhagat, Malhotra, & Zhu, 2011;Gubbi, Aulakh, Ray, Sarkar, & Chittoor, 2010). Furthermore, such value creation is greater when EMNCs enter developed markets, where target firms are more likely to carry higher quality resources and thus provide stronger complementarities to EMNC' existing capabilities (Agnihotri & Bhattacharya, 2018;Harrison, Hitt, Hoskisson, & Ireland, 2001). Harrison et al (2001) mention that the front-end, high-value skills, and resources available in developed markets, when combined with the low-cost, back-end capabilities in emerging markets, can generate highly valuable resource configurations to achieve higher market valuation and globalization.…”

“…Recent works have explored the EMNC's engagement with the institutional complexity faced in the foreign markets (Agnihotri & Bhattacharya, 2018;Liu, Öberg, Tarba, & Xing, 2018;Muralidharan et al, 2017;Park, Meglio, Bauer, & Tarba, 2018). Research has shown postacquisition integration change over time and can lead to changes in the organizational identity.…”

“…As modern MNCs face increased challenges in orchestrating a network of semi‐autonomous subsidiaries, a foreign subsidiary's responses to multiple stakeholders' demands become an intriguing issue in international research (Mudambi, ). In particular, EMNCs that are facing an additional liability of foreignness and newness will need to carefully craft an integration strategy to ensure a successful integration in their cross‐border mergers and acquisitions (Agnihotri & Bhattacharya, ; Muralidharan et al, ).…”

“…As such, we contribute to the literature of EMNCs' postacquisition strategy on two fronts. First, the EMNCs are believed to have adopted a light integration in their postacquisition in the developed markets, in which the EMNCs grant the acquired subsidiary a high degree of autonomy (Agnihotri & Bhattacharya, ; Kale & Singh, ). The study of the corporate name change at the acquired subsidiary will further delineate whether such a hands‐off approach to maintaining a separate identity at the acquired subsidiary helps EMNCs improve their likelihood of success.…”

Acquisition Behavior of Emerging Versus Developed Market Multinationals

“…Emerging market multinationals (EMMs) have received increasing attention in international business literature in the last two decades (Agnihotri & Bhattacharya, 2018;Buckley et al, 2014;Demirbag et al, 2009;Marchand, 2017;Luo, 1998;Panibratov et al, 2018;Sarapovas et al, 2016). Studies have shown that EMMs differ from developed market multinationals (DMMs) in a number of areas such as strategic flexibility (Luo & Rui, 2009), motivation for expansion (Luo & Tung, 2007), pace of internationalization (Dunning, 2006;Mathews, 2006), and firm specific advantages (Guillen & Garcia-Canal, 2009).…”