As more and more companies in emerging markets strive to access strategic resources by enacting mergers and acquisitions (M&As) across national borders in developed markets, the need for determining the performance factors for such cross-border deals is becoming more crucial, says Monica Yang, Ph.D., professor of management.
One of the most talked about mergers and acquisitions (M&As) of this decade is that of Chinese automaker Zhejiang Geely’s acquisition of Sweden’s Volvo. Through this move, Geely gained an established brand that epitomizes Swedish technology and design, while Volvo received much-needed capital.
Like Geely, many companies in China are using M&As to expand abroad. According to Monica Yang, Ph.D., professor of management, as companies cross national borders, their ability to determine which factors contribute to a successful deal is becoming more crucial.
Dr. Yang teamed up with Cong Cheng, Ph.D., of the China Institute for Small and Medium Enterprises at Zhejiang University of Science and Technology in Hangzhou, China, to explore this topic. Their paper, “Enhancing performance of cross-border mergers and acquisitions in developed markets: the role of business ties and technological innovation capability,” published in the Journal of Business Research, offers valuable insights on the factors that contribute to the success of such ventures.
Firms from emerging markets such as China are generally at a technological disadvantage compared to those in developed countries. The two researchers investigated whether, when and how these firms successfully connect with the foreign firms they are merging with or acquiring in order to gain specialized knowledge and incorporate advanced technologies in their operations.
“As Chinese firms are coming to developed markets, it’s reasonable to ask whether these firms are strong enough technologically to learn what they buy,” Dr. Yang said. “Can their M&A performance be strengthened when the acquiring firm has strong ties with its suppliers, customers and other business partners?”
The two researchers studied the interactive relationships among business ties, technological innovation capability and performance of M&As initiated by firms in China with firms in developed markets, while controlling for industry type, experience with cross-border M&As and size of the initiating firm. They collected information from senior managers at 186 companies representing a broad range of industries. The companies are based in Zhejiang province. Dr. Yang said this province was chosen because it “has many companies actively and successfully doing business all over the world.”
The managers were asked to consider their most recent M&As with respect to how the following factors affected the M&A relationship:
- The strength of business ties
- Technology innovation capability
- Environmental turbulence (relating to market uncertainty, rapidly developing technologies and unpredictable competitive pressures)
- Cultural distance (the extent of the difference in the national culture of the initiating firm and the acquired firm)
- Satisfaction with the M&A activity
Analysis of the responses confirmed the researchers’ expectations that the business relationships of firms in China play a key role in cross-border M&A performance. It does this by augmenting the firms’ ability to absorb advanced technologies, ensuring that the resulting technological innovation capability is vital to M&A success. They also found that environmental turbulence and cultural distance affect these relationships.
Dr. Yang said data showed that volatility in the business environment produces a greater need for strong business ties between acquiring Chinese firms and their partners. “With stronger business ties, firms can learn more from their partners and improve the performance of M&As,” she explained, adding that keeping the lines of communication open assists the company acquiring the technology to more rapidly absorb new and changing information.
Cultural distance has a negative effect on the performance of cross-border M&As. Difficulties in communicating can impede integration and management of the technological knowledge acquired. “Cultural distance presents significant obstacles and barriers to learning from new partners,” she said.
Dr. Yang’s current research focus is on M&As in high-tech industries, which have been initiated by firms in China toward companies in the United States. “I hope to extend this research to other developed markets as well, such as Germany, France and the United Kingdom,” she said.
Dr. Yang has received multiple honors, including a Fulbright Scholar Award, a Chiang Ching-kuo Foundation Scholar Grant and numerous Bender Research Fellowship Awards. She also received Adelphi’s Madeleine Gardner Career Award for 2018 for leadership development. “I love teaching and research,” she said, “but also wanted to learn about other possibilities and responsibilities down the road and I look forward to giving back to Adelphi in the future.”
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