Introduction
Multinational Enterprises (MNEs) opt merger and acquisition
(M&A) as the primary mode to enter the foreign market due to synergies,
growth, increase supply-chain, and eliminate competition. The resource-based,
industry-based, and institution-based view helps MNEs to determine a strategy
to enter into the new market. Chinese and Indian MNEs are also following the
same concept to enter into a foreign market. Chinese and Indian MNEs have a competitive
advantage in their respective home countries, China in the industry based and
India in technology-based. China has the advantage of support from Government
side whereas a disadvantage of suspicious actions by the host country. India does
not have the advantage of support from Government side but due to being private
firms government trust is high in the host country in comparison to the Chinese
MNEs. Chinese and Indian MNEs conversion ratio is not in good figure though
Indian MNEs leads the acquisition by 67 percent to 47 percent of Chinese MNEs.
The MNEs lack the management techniques and capabilities due to which they have
been criticized in post-acquisition stages.
Discussion
1. Why have M&As emerged as the primary mode of foreign
market entry for Chinese and Indian MNEs?
China has a competitive advantage back in the home country
in energy, mineral, and mining and India has an advantage in high tech and
software services. So Chinese and Indian MNEs have chosen M&As as the
primary mode of foreign market entry to support and better their advantages
back in their home country. The merger process helps to form a single business
by merging and the acquisition helps to take over the established business in
the host country. In most of the host country, the MNEs are obliged to tie up
with the local firms so M&A is advantageous in such conditions. Also,
M&A helps the MNEs to reduce risk in entering the new market segment and
also reduce business risk while operating solely.
2. Drawing on industry-based, resource-based, and
institution-based views, outline the similarities and differences between
Chinese and Indian multinational acquirers.
The industry-based view is based on the external factors
that affect the competitiveness in the industry, and factors creating external
threat and opportunities. China and India have already gained a competitive
advantage in their respective home country. China being stronger in
manufacturing industries and targeting in energy, minerals, and mining crucial
supply to the manufacturing industries. India in other hand has strength in a world-class
leadership position in high-tech and software industries and M&A in the
same sector.
The resource-based view is based on internal strengths and
weakness regarding its capabilities and human resources. The MNEs from both
countries seem to be weaker in international experience, management knowledge,
and handling capabilities. The effect can be seen in the post-acquisition stage
when both nation MNEs taking "high road" to acquisitions to have the
autonomy, and keep acquirers top management intact.
According to Peng Mike W (2014), (pg 47) "The
institution-based view of strategy has emerged as a leading perspective in
Strategic Management. It incorporates the institutional dimension when offering
relevant answers to the fundamental questions of strategy. One of the
challenges of this perspective is to develop stronger measures of
institutions". The resource-based view focuses on legal rules and
regulations and is influenced by the state and society. The Chinese MNEs are
mainly state-owned enterprises so they have strong support from the government
but are suspicious in the eye of the host nation. The Indian MNEs are privately
owned and do not have support as of Chinese MNEs but are trusted by the host
nation government. The Indian MNEs provide value to shareholders but the
Chinese MNEs destroy value for their shareholders.
3. ON ETHICS: As CEO of a firm from either China or India
engaging in a high-profile acquisition overseas, shareholders at home are
criticizing you of "squandering" their money, and target firm
management and unions-as well as host country government and the media are
resisting. Should you proceed with the acquisition or consider abandoning the
deal? If you are considering abandoning the deal, under what conditions would
you abandon it?
It certainly takes a certain time for the growth curve to
climb up while doing business as MNE. As of example in the case, putting all
the eggs in one basket is risky so the eggs should be kept in different baskets
so that the risk can be minimized. The acquisition process is the same in the case
of investing in a foreign nation. The growth level in the home country gets
saturated at a certain time so it is best to go global and M&A helps the firm
to be globalized.
As I see the factor or driver can be Synergistic motives as
it can be explained by industry, resource, and institution-based rationale. To
enhance the M&A market and consolidate market power in the industry based
rationale, to leverage superior resources is resource-based, and to overcome
legal constraints from the government the institution based rationale is
necessary. So there is a high possibility if any considering factors are taken
into the sum, the growth is universal. That means I am 100% positive towards
continuing the M&A processes.
Conclusion
The best source to enter a foreign market is the process of
merger and acquisition due to synergies effect, growth rate, and helps to
eliminate competition. The MNEs entering new markets must have competitive and
differential products or product lines as China has an advantage in the
manufacturing industries and India has an advantage in the technology. The MNEs
should compare internal and external environment using Strategy Tripod of resource-based,
industry-based and institutional-based view to have a competitive advantage in
the new market. They should also consider factors of post-acquisition since
many MNEs fails to sustain in the long run due to incapability in the
management of the acquired institution.
References
Peng, Mark W. (2013). Business Strategy, Business-level
Strategies. Retrieved May 15, 2019, from
Sahlanis Argyroula. (2015, June 30). Emerging Markets:
Emerging Acquirers from China and India. Retrieved May 15, 2019, from
Palmer Barclay. (2019, April 25). Why do companies merge
with or acquire other companies? Retrieved May 15, 2019, from
