The influence of liabilities of origin on EMNE cross-border acquisition completion

Abstract

A recent, and an increasingly salient, trend in the global business landscape has been the rapid rise in outward foreign direct investment (FDI) by multinationals from emerging economies such as India and China. The percentage of total world outward FDI from emerging economies grew from just 5 % in 1990 to a substantive 34 % in 2014 (UNCTAD, 2015). Emerging-market multinational enterprises (EMNEs) have been following trajectories different from those predicted by dominant theoretical perspectives on internationalization. One of these differences is a preference for high-commitment entry modes, such as acquisitions in heterogeneous geographies; this is contrary to the path of incremental internationalization predicted by the Uppsala model (Johanson & Vahlne, 1977). In fact, the cross-border acquisition (CBA) has been recognized as one of the key entry modes for emerging-economy firms, with the value of these acquisitions growing from US$9.5 billion in 1990 to US$152 billion in 2014, accounting for a record-high share of 38 % of the total M&A activity across the globe (UNCTAD, 2015). Scholars have theorized that EMNEs undertake acquisitions in order to obtain strategic assets, such as cutting-edge technology, or global brands, in order to compensate for lack of these conventional firm-specific advantages (Luo & Tung, 2007; Mathews, 2006; Contractor, 2013). Acquisitions may also be used as a means to overcome liabilities of origin, such as underdeveloped institutions in the home country, inadequate managerial capabilities, and the lack of global reputation (Child & Rodrigues, 2005; Bonaglia, Goldstein, & Mathews, 2007; Madhok & Keyhani, 2012). However, a question that has yet to be asked, and the focus of this study, is that, while CBAs may help EMNEs traverse the reputation barrier and gain global capabilities, to what extent do these liabilities of origin influence acquisition completion?.