The effects of cross-border and cross-industry mergers and acquisitions on home-region and global multinational enterprises

We examine the effects of international and product diversification through mergers and acquisitions (M&As) on the firm's risk–return profile. We identify the rewards from different types of M&As and investigate whether becoming a global firm is a value-enhancing strategy. Drawing on the theoretical work of Vachani (Journal of International Business Studies, 22 (1991), pp. 307−222) and on Rugman and Verbeke's (Journal of International Business Studies, 35 (2004), pp. 3−18) metrics, we classify firms according to their degree of international and product diversification. To account for the endogeneity of M&As, we develop a panel vector autoregression. We find that global and host-region multinational enterprises benefit from cross-border M&As that reinforce their geographical footprint. Cross-industry M&As enhance the risk–return profile of home-region firms. This effect depends on the degree of product diversification. Hence there is no value-enhancing M&A strategy for home-region and bi-regional firms to become ‘truly global’.

Can British multinational enterprises finance economic development in South East Asia?

Purpose – The purpose of this paper is to shed new light on the debate about the role of foreign direct investment (FDI) and public policy in fostering economic development. Specifically, can the capital inflow of multinational enterprises (MNEs) and the ability of the subsidiaries to raise funds locally help promote development? This paper addresses this issue by examining the capital structure and financing sources of foreign subsidiaries of MNEs. Design/methodology/approach – This paper integrates the capital structure theories in finance with internalization theory in international business. It uses an original primary dataset collected by a survey of 101 foreign subsidiaries of British MNEs in six emerging economies in the ASEAN region. Findings – There are three significant findings. First, these subsidiaries rely heavily on internal funds generated within the MNEs and less on external debts raised in the host countries. Second, the foreign subsidiary's capital structure is influenced by the home country of origin of the parent firm and the parent firm's financing sources. Third, these subsidiaries have used the financial resources to develop business networks with local small and medium enterprises (SMEs) which contribute to economic development of the host countries. Originality/value – This paper examines the internal capital market within the MNE. It provides theoretical and empirical support for the capital structure theory of the hierarchy financing approach and also for internalization theory by addressing FDI inflows by MNEs and the raising of funds locally. These findings have important implications for public policy, namely the facilitation of MNE entry to encourage economic development.

How remote are R&D labs? Distance factors and international innovative activities

This paper shows that value creation by multinational enterprises (MNEs) is the result of activities where geographic distance effects can be overcome. We submit that geographic distance has a relatively low impact on international research and development (R&D) investments, owing to the spiky nature of innovation, and to the unique ability of MNEs to absorb and transfer knowledge on a global scale. On the one hand, MNEs need to set up their labs as close as possible to specialized technology clusters where valuable knowledge is concentrated, largely regardless of distance from their home base. On the other, MNEs have historically developed technical and organizational competencies that enable them to transfer knowledge within their internal networks and across technology clusters at relatively low cost. Using data on R&D and manufacturing investments of 6320 firms in 59 countries, we find that geographic distance has a lower negative impact on the probability of setting up R&D than manufacturing plants. Furthermore, once measures of institutional proximity are accounted for, MNEs are equally likely to set up R&D labs in nearby or in more remote locations. This result is driven by MNEs based in Triad countries, whereas for non-Triad MNEs the effect of geographic distance on cross-border R&D is negative and significant.

Why the home region matters: location and regional multinationals

Much of the literature in international business analysing the multinational enterprise uses the country as the relevant environmental parameter. This paper presents both theoretical and empirical evidence to demonstrate that country-level analysis now needs to be augmented by analysis at the ‘regional’ level of the broad triad markets of Europe, North America and the Asia Pacific. The great majority of the world's 500 largest firms concentrate their activities within their home region of the triad. This study uses variance component analysis and finds that this home region effect outperforms the country effect. Together, the regional and industry effects explain most of the geographic expansion of multinational enterprises (MNEs), whereas country, firm and year effects are very minor. The new data and variance component analysis on the activities of large MNEs reported here suggest that new thinking is required about the importance of large regions of the triad as the relevant unit of analysis for business strategy to supplement the conventional focus on the country.

Intrafirm causal ambiguity in an international context

This paper examined the incidence of intrafirmcausalambiguity in the management's perception concerning the critical drivers of their firms’ performance. Building on insights from the resource-based view we developed and tested hypotheses that examine (1) linkage ambiguity as a discrepancy between perceived and measured resource–performance linkages, (2) characteristic ambiguity for resources and capabilities with a high degree of complexity and tacitness, and (3) the negative association between linkage ambiguity and performance. The observations based on the explicit perceptions of 356 surveyed managers were contrasted with the empirical findings of the resource/performance relationship derived by structural equation modelling from the same data sample. The findings validate the presence of linkage ambiguity particularly in the case of resources and capabilities with higher degree of characteristic ambiguity. The findings also provide empirical evidence in support of the advocacy for a negative relationship between intrafirmcausalambiguity and performance. The paper discusses the potential reasons for the disparities between empirical findings and management's perceptions of the key determinants of export success and makes recommendations for future research.