Workshop The Impact of Emerging Multinationals on Global Development Milan, May 30-31 2013 Chinese and Indian M&As in Europe: An analysis of the strategic motivations Lucia Piscitello Vittoria Giada Scalera Politecnico di Milano Department of Management, Economics and Industrial Engineering
Agenda Introduction Theoretical framework Chinese and Indian M&As in Europe and strategic motivation Data and methodology Results Final comments and future research Vittoria Giada Scalera 2
Introduction The internationalization process of EMNEs is increasingly oriented towards advanced countries o Process of capability upgrading through h the global l competition i to fill the technological gap, offset EMNEs (technological and marketing) competitive disadvantages and climb the innovation ladder (Hennart, 2012; Luo & Tung, 2007) Main aim: to acquire advanced technology, innovative resources and valuable knowledge because of the lack in their home countries (Tolentino, 2000; Rasiah & Gammeltoft, 2009) Entry mode: cross-border M&As described as the most rapid and suitable way to gain strategic capabilities, taking advantage of the financial exigency of the target firms, especially in advanced countries (Child & Rodrigues, 2005; Gammeltoft, et al. 2010; Rui & Yip, 2008; Stucchi, 2012). Vittoria Giada Scalera 3
M&As by EMNEs and motivations EMNEs investing in high-income income countries may be involved in market- and strategic-asset-seeking FDI, and more specifically, they more likely choose acquisitions because of the lack of firm-embedded technological knowledge and of other strategic resources as predicted by transaction cost research and resource base view (Anand & Delios, 2002; Anderson & Gatignon, 1986; Slangen & Hennart, 2007) This argument should be much more consistent in the case of knowledge-intensive firms (e.g. Anderson & Gatignon, 1986; Hennart & Park, 1993) Vittoria Giada Scalera 4
M&As by EMNEs and motivations Which are the real motivations underlying the M&As by EMNEs (in advanced d countries)? Generally, the literature uses country-specific characteristics as proxy But Is this sufficient for the complex case of EMNEs? Are the classical motivations suitable in the case of EMNEs? Relevance of the topic also due to limited empirical contributions using firm-level data Vittoria Giada Scalera 5
M&As by EMNEs and motivations Starting from the three main FDI motivations suggested by Dunning s eclectic paradigm (Dunning, 1977, 1993) market-seeking, efficiency-seeking and resource-seeking (including a subset that is known as strategic-asset-seeking), g), we disentangle these aggregated categories in order to fit the case of EMNEs investments in advanced countries Vittoria Giada Scalera 6
Data Deal and company data BvD Zephyr: M&A information Bvd Orbis: Company and financial data Public announcements LexisNexis i BvD Zephyr Annual reports and websites of the parent and the subsidiaries Vittoria Giada Scalera 7
Sample M&As Host countries: 27 European countries Home countries: China and India Time period: 2003-2011 Industrial Sectors: high tech and medium-high tech manufacturing sectors ochemicals and Pharmaceuticals ocomputer, electronic and optical products oelectrical Equipment And Components omachinery and equipment nec n.e.c. omotor vehicles oother transport equipment Vittoria Giada Scalera 8
Sample Industrial Sectors Brazil China India No. % No. % No. % Total 38 2.24 88 5.18 298 17.6 Manufacturing 19 100 64 100 180 100 Automotive 0 0 7 10.9 40 22.2 Chemicals & non metallic prod. 4 21.1 13 20.3 57 31.7 Construction 2 10.5 1 1.56 9 5 Food, beverages 5 26.3 5 7.81 5 2.78 Energy & Primary Sector 1 5.26 5 7.81 6 3.33 Machinery & equipments 3 15.8 27 42.2 29 16.1 Metals & metal products 3 15.8 3 4.69 16 8.89 Textiles & wearing apparel 1 5.26 3 4.69 18 10 Vittoria Giada Scalera 9
Sample Exclusion criteria 1. deals undertaken by individual or unknown investors, and operations with undisclosed acquirer 2. deals in which the acquirer is a sovereign wealth fund (SWF) or the global ultimate owner (GUO) is not settled in China or India 3. deals without a codifiable public announcement ( 20%) Vittoria Giada Scalera 10
Sample 90 Acquiror industrial sector 80 70 60 50 40 India China 30 20 10 0 Chemicals, rubber, plastics, non-metallic products Machinery, equipment, furniture, recycling Host country 35 30 25 20 15 10 India China 5 0 AT BE BG CY CZ DE DK ES FR GB HU IE IT NL RO SE SI Vittoria Giada Scalera 11
Sample 14 China 12 10 8 6 4 Machinery, equipment, furniture, recycling Chemicals, rubber, plastics, non- metallic products 2 0 AT BE DE FR GB IT RO SE 30 India 25 20 15 10 Machinery, equipment, furniture, recycling Chemicals, rubber, plastics, non- metallic products 5 0 BE BG CY CZ DE DK ES FR GB HU IE IT NL RO SE SI Vittoria Giada Scalera 12
Methodology Content analysis Content analysis Categorisation of textual information (public announcements of M&As) using a coding frame Category definition and coding rules Formulation of inductive categories Revision i of the categories Check of reliability and validity Feedback loops o Estimation of inter-coder reliability by project members o Triangulation results with theory Result of the reliability test (the amount of agreement or correspondence): 87% Vittoria Giada Scalera 13
Methodology Category defintion 1. Market-seeking FDI: trade support reasons e.g. to access distribution facilities, to facilitate exports, to gain strategic positions in the western markets, to acquire brand names; 2. Technology-seeking FDI : R&D capacity or outputs, innovative products or production processes, design facilities, patent portfolios of local firms, knowledge spillovers 3. Other resource-seeking FDI: access to other type of resources not included in the previous two categories e.g. skilled workforce or raw materials; 4. Global legitimacy-seeking FDI: strategic intent is to become primary global players by conducting FDI with a global/international strategic orientation rather than a multidomestic one (Cui & Jiang, 2009, Rui & Yip, 2008) lack of experience and reputation systematically implementing a global/international oriented strategy, EMNEs aim at becoming legitimate global players (Rugman & Li, 2007) A firm investing in a foreign country could pursuit multiple objectives: hybrid categories that combine two or more of the above-mentioned classes (Dunning, 1993) Vittoria Giada Scalera 14
Results Comparison between Chinese and Indian motivations 35 30 25 20 15 India China 10 5 0 Market Technology Global legitimacy Market - Market - Global Technology - Technology legitimacy Global legitimacy Other Vittoria Giada Scalera 15
Results 12 China 10 8 6 4 2 0 Machinery, equipment, furniture, recycling Chemicals, rubber, plastics, non-metallic products 25 India 20 15 10 5 Machinery, equipment, furniture, recycling Chemicals, rubber, plastics, nonmetallic products 0 Vittoria Giada Scalera 16
Final considerations The complexity of the new scenario requires refined analysis, especially, at firm-level Starting from the existing theories, we looked at the M&As by EMNEs in Europe from an original point of view in order to rethink the traditional context Content analysis of companies public announcements helped us in identifying the main (and new) motivations underlying the internationalisation of EMNEs Chinese and Indian M&As present peculiar and different characteristics: Location choice Industrial sectors Motivations Vittoria Giada Scalera 17
Future research Sample Quality of the sample (textual data) Greenfield investments Machine learning Quantitative analysis Improving reliability Dictionary-based approach Motivation as moderator in the relations: entry mode choice host country characteristics (and distances) performance host country characteristics (and distances) Vittoria Giada Scalera 18
Workshop The Impact of Emerging Multinationals on Global Development Milan, May 30-31 2013 Thank you for your attention! Vittoria Giada Scalera vittoria. i scalera@mail.polimi.it li i i Politecnico di Milano Department of Management, Economics and Industrial Engineering