by Rui Torres de Oliveira
Emerging markets firms are increasingly looking for opportunities in developed economies that frequently result in acquisitions. The common wisdom sees these foreign acquisitions in developed markets as being knowledge-seeking for upgrading from low- to high-value capabilities and activities of emerging market companies. However, we also know that these emerging market multinational enterprises have a light-touch or no integration due to capabilities differences. Therefore, in this paper in the Global Strategy Journal, we uncover: How can an emerging market firm upgrade their capabilities through an acquisition of a developed market firm without formally integrating this new firm.
We adopt a phenomenon-based research approach where we examined the case of an automotive Chinese supplier that acquired a technologically advanced firm in Germany and made sense of how they manage to upgrade its position in the automotive global value chain. The Chinese firm is very interesting in itself as it is a firm that since its incorporation in 2004, it has grown to a billion US dollar company in 2017 and in the manufacturing sector. The company achieved that through consecutive successful acquisitions. Therefore, we analysed Joyson in a longitudinal and phenomenon-based approach and we used the global value chain and social integration literature to explore the role of social integration adopted by the Chinese firm and how they managed to achieve upgrading through the acquisition.
Our study offers three take away:
First, before the acquisition, both firms’ revenues were much lower than after the acquisition, thus indicating the effectiveness of the acquisition and upgrading mechanisms. Therefore, and even if it was not immediately clear to us how the upgrading was happening, we could realise that upgrading was happening.
Second, we demonstrate that multiple types of social integration mechanisms, namely environmental, affective, cognitive, and behavioural were put in place between the two organizations, which ensured different types of upgrading and the effectiveness achieved by the Chinese firm. For instance, environmental and cognitive social integration mechanisms are crucial for gaining initial legitimacy. Similarly, we highlight the relevance of affective social integration for initiating processes and functional upgrading, while cognitive social integration mechanisms become important for initiating intersectorial upgrading. We also see different combinations of social integration mechanisms being relevant for refining the upgrading (e.g., environmental and affective social integration in the case of process upgrading, environmental and cognitive social integration in the case of functional upgrading, and behavioural social integration in the case of intersectorial upgrading).
Third, the most important take away from our research is the fact that the extant literature on M&As does not picture an acquisition without integration. With our research, we start to uncover (to our knowledge for the first time) how an emerging market multinational firm can upgrade without formal integration after acquiring a developed market enterprise. Uncovering these mechanisms allows us to understand why in recent years we have observed a larger number of acquisitions that are not deemed to formally integrate but the academic and professional literature have been silence on.
From a practical perspective, our research highlights the importance of social integration across organizational boundaries given it is a key factor that facilitates knowledge transfer from developed market firms for upgrading, particularly if no formal or structural integration occurs. This suggests that the development of mechanisms to facilitate strong socially integrated relationships with acquired firms is central for emerging market firms when acquiring developed market ones. These social mechanisms allow the acquired firm to better understand the parent firm’s underlying strategies and characteristics, and to shape its actions to better facilitate upgrading. Therefore, emerging market managers need to put in place combinations of social integration mechanisms during different phases of the acquisition. The upgrading and success that Joyson achieved by becoming a global lead firm through a developed market acquisition also serves as an example for other emerging market firm managers to learn from and replicate.
Overall, we helped to explain how firms can still upgrade, even if they do not formally and structurally integrate.
Source: Torres de Oliveira, R, Sahasranamam, S, Figueira, S, Paul, J. Upgrading without formal integration in M&A: The role of social integration. Global Strategy Journal. 2020; 10: 619– 652. https://doi.org/10.1002/gsj.1358
About the author of the blog post:
Rui is passionate about helping leaders develop their capabilities in managing large institutions and dealing with large and complex problems. Rui is very involved on research and has published several peer-reviewed articles in these topics, including Global Strategic Journal, Strategic Entrepreneurship Journal, Journal of Business Research, Small Business Economics, Social Indicator Research, Journal of Retailing and Consumer Services, Journal of Leadership and Organizational Studies, International Journal of Emerging Markets, The International Trade Journal, Qualitative Market Research. Rui is also very involved with Australian Federal and Local governmental institutions, namely on identifying the future trends and opportunities for businesses.
Rui spent almost two decades in the industry before entering academia. During this time, he worked for several multinational companies in international environments. Before he moved to Australia to teach and research at the University of Queensland and now at the Queensland University of Technology, he lived in the US where he taught. Before living in the US, Rui lived in China for more than 7 years holding senior management positions.
Apart from analysing and create strategies to tackle large organisational problems, Rui is very involved in Global Value Chain and how political, economic, and geostrategic pressures are changing purchasing system, logistics, etc. Rui has been studying the Global Value Chain from a Western but also an Asian perspective and is very familiar with the business system dynamics that the different global value chain impresses in the different products and services.
Research Interests: Internationalization Strategy, Enterpreunership, Global Value Chains, Asia