In the context of globalization of the modern economic system, international companies are trying to reach a new level of business development or, conversely, to get rid of non-profit assets resort to M&A deals. What are the international acquisition strategies? Here is about it.
The effectiveness of international mergers and acquisitions
In the 21st century, the process of internationalization of capital markets has led to an increase in the number of international M&A transactions. International M&A transactions are often associated with significant risks, such as differences in corporate culture and company structure, tax and accounting regimes in each country, as well as levels of liquidity and information asymmetries at the country level.
International M&As are a fairly common development strategy for companies seeking to gain access to foreign markets. The shareholders of target companies most often earn excess returns at the time of the announcement of an international M&A transaction. But the profitability of target companies varies depending on the country, industry, and exchange rates. This is because entering into international M&As is associated with certain risks, namely: economic, political, and cultural distance between the countries of the companies participating in the transaction, differences in the corporate culture of companies, differences in tax regimes in countries. It should also be noted that when making international M&A, there are certain difficulties in assessing future synergistic effects from the transaction. In addition, the level of economic development of countries, the level of liquidity, and information asymmetry at the country level affect the efficiency of international mergers and acquisitions.
In the early 2000s, the world witnessed a growing trend in both the number and volume of international M&A deals initiated by companies from developing countries. Compared to M&A transactions in developed capital markets, M&As initiated by companies from developing countries have their characteristics.
M&A transactions in the foreign market
When entering foreign markets, companies from emerging economies often do not follow the logic predicted by the dominant theoretical approaches in international business. For example, they often choose a way to enter a foreign market that involves large resource investments, such as M&A. The researchers note that foreign M&A transactions are used by companies from emerging economies to obtain strategic resources, technological inventions, global brands, in other words, to compensate for the lack of competitive advantages. M&A can also be used to overcome negative conditions in the country of origin, such as underdeveloped institutions, lack of management experience, or negative reputation at the global level.
Two questions are central to the study of foreign M&A strategies:
- what motivates companies to make international M&A transactions
- what attracts foreign M&A to other countries.
There are the following strategies for companies to exit from an emerging market to a developed foreign market:
- the acquisition of technological resources and their use in their market (upstream acquisition);
- realization of own market and technological resources in the foreign market (exploitative acquisition);
- the acquisition of both technological and market resources (augmentin acquisition);
- realization of own technological advantages in the foreign market (downstream acquisition).
When making the international acquisition, firms are involved in the institutional environment, both in a foreign state and in their own country. In the home market, firms become subject to government regulation in matters relating to foreign direct investment. For example, Chinese companies involved in overseas M&A are dependent on the authorities at several levels, such as using measures to support investment abroad or going through an approval system.