Closing Case Emerging Markets: Emerging Acquirers from China and India
Multinational enterprises (MNEs) from emerging economies, especially those from China and India, have
emerged as a new breed of acquirers around the world. Causing “oohs” and “ahhs,” they have grabbed
media headlines and caused controversies. Anecdotes aside, are the patterns of these new global
acquirers similar? How do they differ? Only recently has rigorous academic research been conducted to
allow for systematic comparison (Table 12.8).
Table 12.8
Comparing Cross-Border M&As Undertaken by Chinese and Indian MNEs
Chinese MNEs
Indian MNEs
Top target industries
Energy, minerals, and mining
High-tech and software services
Top target countries
Hong Kong
United Kingdom
Top target regions
Asia
Europe
Top acquiring companies involved
State-owned enterprises
Private business groups
% of successfully closed deals
47%
67%
Source: Extracted from S. Sun, M. W. Peng, B. Ren, & D. Yan, 2012, A comparative ownership advantage
framework for cross-border M&As: The rise of Chinese and Indian MNEs, Journal of World Business, 47:
4–16.
Overall, China’s stock of outward foreign direct investment (OFDI) (1.5% of the worldwide total) is about
three times India’s (0.5%). One visible similarity is that both Chinese and Indian MNEs seem to use
M&As as their primary mode of OFDI. Throughout the 2000s, Chinese firms spent US$130 billion to
engage in M&As overseas, whereas Indian firms made M&A deals worth US$60 billion.
MNEs from China and India target different industries to support and strengthen their own most
competitive industries at home. Given China’s prowess in manufacturing, Chinese firms’ overseas M&As
primarily target energy, minerals, and mining—crucial supply industries that feed their manufacturing
operations at home. Indian MNEs’ world-class position in high-tech and software services is reflected in
their interest in acquiring firms in these industries.
The geographic spread of these MNEs is indicative of the level of their capabilities. Chinese firms have
undertaken most of their deals in Asia, with Hong Kong being their most favorable location. In other
words, the geographic distribution of Chinese M&As is not global; rather, it is quite regional. This reflects
a relative lack of capabilities to engage in managerial challenges in regions distant from China, especially
in more developed economies. Indian MNEs have primarily made deals in Europe, with the UK as the
leading target country. For example, acquisitions made by Tata Motors (Jaguar Land Rover [JLR]) and
Tata Steel (Corus Group) propelled Tata Group to become the number-one private-sector employer in
the UK. Overall, Indian firms display a more global spread in their M&As, and demonstrate a higher level
of confidence and sophistication in making deals in developed economies.
From an institution-based view, the contrasts between the leading Chinese and Indian acquirers are
significant. The primary M&A players from China are state-owned enterprises (SOEs), which have their
own advantages (such as strong support from the Chinese government) and trappings (such as
resentment and suspicion from host-country governments). The movers and shakers of cross-border
M&As from India are private business groups, which generally are not viewed with strong suspicion. The
limited evidence suggests that M&As by Indian firms tend to create value for their shareholders. On the
other hand, M&As by Chinese firms tend to destroy value for their shareholders—indicative of potential
hubristic and managerial motives evidenced by empire building and agency problems.
Announcing high-profile deals is one thing, but completing them is another matter. Chinese MNEs have
particularly poor records in completing the overseas acquisition deals they announce. Fewer than half
(47%) of their announced acquisitions were completed, which compares unfavorably to Indian MNEs’
67% completion rate and to a global average of 80% to 90% completion rate. Chinese MNEs’ lack of
ability and experience in due diligence and financing is one reason, but another reason is the political
backlash and resistance they encounter, especially in developed economies. The 2005 failure of
CNOOC’s bid for Unocal in the United States and the 2009 failure of Chinalco’s bid for Rio Tinto’s assets
in Australia are but two high-profile examples.
Even assuming successful completion, integration is a leading challenge during the post-acquisition
phase. Acquirers from China and India have often taken the “high road” to acquisitions, in which
acquirers deliberately allow acquired target companies to retain autonomy, keep the top management
intact, and then gradually encourage interaction between the two sides. In contrast, the “low road” to
acquisitions would be for acquirers to act quickly to impose their systems and rules on acquired target
companies. Although the “high road” sounds noble, this is a reflection of these acquirers’ lack of
international management experience and capabilities.
AP Images/Gautam Singh
From a resource-based view, examples of emerging acquirers that can do a good job in integration and
deliver value are far and few. According to the Economist, Tata “worked wonders” at JLR by increasing
30% sales and keeping the factory at full capacity. This took place during a recession when European
automakers were suffering. Fiat, for example, could only utilize 40% of its factory capacity in Italy.
According to Bloomberg Businessweek, Lenovo was able to “find treasure in the PC industry’s trash” by
turning around the former IBM PC division and using it to propel itself to become the biggest PC maker
in the world. In ten years it grew from a US$3 billion company to a US$40 billion one. However, Lenovo
knew that worldwide PC sales were going down, thanks to the rise of mobile devices. In response,
Lenovo recently bought “the mobile phone industry’s trash”—Motorola Mobility division—from Google
and endeavored to leverage the Motorola brand to become a top player in the smartphone world. This
deal quickly made Lenovo the world’s third best-selling smartphone maker after Samsung and Apple.
Case Discussion Questions:
1. Why have M&As emerged as the primary mode of foreign market entry for
Chinese and Indian MNEs?
2. Drawing on the industry-based and resource-based views, outline the
similarities and differences between Chinese and Indian multinational
acquirers.
3. ON ETHICS: As CEO of a firm from either China or India engaging in a highprofile 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?
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