Paper to be presented at EMNET, Agadir, Morocco 21-23, November 2013 by Nguyen H. L. & Larimo J. University of Vaasa, Finland
Liability of Origin and Acquisition Strategies of Emerging MNCs in Advanced EconomiesIntroduction
Acquisition is one of the most popular strategies for MNCs to enter to foreign countries Firms
perform acquisitions for numerous reasons: mainly for getting new competences, creating
synergies, overcoming entry barriers, and/or for increasing market share (Vermeulen and
Barkema, 2001). In the 1980s and 1990s, most acquisitions were made by MNCs from advanced
economies such as from the United States, Western Europe and Japan. However, recently MNCs
which are from various emerging economies like Brazil, Russia, India, and China have started
influencing the world economies by their acquisitions of major MNCs from advanced economies.
Outward foreign direct investments from Latin America have been significantly increased
overtime since 2000 up to 2009. In 2009, this trend was affected by the world financial crisis with
decreasing of 44 per cent, however, it was up 121 per cent again in 2010 (WIR, 2012).
In 2011 Latin American and the Caribbean FDI overseas slowed down. The number of FDI
projects established overseas by Latin American and Caribbean companies fell by 6%, compared
with 10% growth in 2010. However, Brazil is still the leading outward investor from the region,
followed by Mexico, Chile and Bermuda. Outward FDI from Mexico did not grow in 2011, while
Chile saw a 16% growth in overseas FDI projects (The FDI Report, 2012).
Brazilian FDI annual outflows have increased from $2.2 billion in 2000 to $2.5 billion in 2005
and further to $11.5 billion in 2010. Brazilian FDI outflows in 2010 amounted to 15% of the
forty three-country, Latin America and the Caribbean region's total. 15% is an increase from 7%
in 2005. Brazil is perennially one of the top sources of FDI outflows from the region. In addition,
in 2010 cross-border M&A net purchases by Brazilian companies totaled $7.8 billion, an increase
from $2.5 billion in 2005. In 2010, Brazilian MNEs accounted for 50% of the region's overall
M&A purchases, in 2005 they accounted for only 25% of the total. Furthermore, the value of
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Paper to be presented at EMNET, Agadir, Morocco 21-23, November 2013 by Nguyen H. L. & Larimo J. University of Vaasa, Finland
greenfield FDI projects from Brazil destined to the rest of the world totaled $8.8 billion in 2010,
up from $3.2 billion in 2005. (Utter, 2011)
Most Brazilian TNCs have affiliates in the United States. Brazil has also established strong FDI
positions outside the Americas, particularly in Europe. The countries outside Latin America host
a greater portion of Brazilian outward FDI than those countries within. Important locations are
Canada, Portugal and the United States. Brazilian companies have also successfully developed
strong positions in industry segments outside agriculture, including banking (Banco Bradesco,
Banco do Brasil and Unibanco), petroleum refining (Petrobras), steel products (Gerdau and
Tupy) and aircraft (Embraer). (Daniels, Krug, and Trevino, 2007).
According to Verma et al. (2011), 60 % of total outward FDI using acquisitions by EMNCs took
place in developed economies, and this number increased to more than 70% since recession
started. These international expansion is ripe for further study (Luo and Wang, 2012). Fetscherin
and Beuttenmuller (2012) specified that, Chinese investments in developed countries are
expected to grow significantly in the next few years. Similarly, Kumar (2006) maintains that
Indian outward investments play more and more important role in the world economies. In the
same vein, Aulakh (2007) noticed that international acquisitions (IA) have become a main entry
mode for emerging country multinational companies (EMNCs) into other countries.
Researchers on IA have noticed that successful rate of post-acquisition is rather low (Stahl and
Voigt, 2008; Reus and Lamont, 2009), especially, in the case of acquisitions made by EMNCs in
advanced economies (Pant and Ramachandran, 2012). Sauvant (2008) noticed additional
challenge of integration process for EMNCs to perform their OFDI through mergers and
acquisitions. In the case of China merger and acquisitions abroad, up to 2008, the failure rate was
70% of total (People Daily, 2009). Garg and Delois (2007) conclude that Indian MNCs are more
successful in developing countries but they are less likely to be successful in developed countries.
Researchers (e.g. Riad and Vaara, 2011) have noticed that in IA, national identity and national
culture are often invoked. In IA by EMNCs, the change of ownership of the acquire units creates
uncertainties for their operations, thus causing a negative psychological effect on employees.
Wooldridge (2010) argues that EMNCs face big problems from recruiting and retaining workers.
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Paper to be presented at EMNET, Agadir, Morocco 21-23, November 2013 by Nguyen H. L. & Larimo J. University of Vaasa, Finland
Similarly, Aguzzoli and Geary (2013) find that Brazil MNCs faced challenges with human
resource management in their Canadian subsidiaries.
Prior research has also argued that control mechanisms are at the heart of the relationship
between the acquirer and the acquired firm (Calori et al., 1994: 362). While control has received
attention in joint venture research (e.g. Geringer and Herbert, 1989; Glaister and Buckley, 1998;
Luo, et al., 2001), it has been very much ignored in acquisition (e.g. Calori et al. 1994; Lees
2003; Bijlsma-Frankema 2004; Nguyen and Hassett, 2011). In IA, where cultural differences and
geographical distance cause additional challenges (e.g. Chang and Taylor, 1999; Child et al.,
2003; Very and Schweiger, 2001) organizational designs and control of such operations are even
more critical (e.g. Meckl, 2004; Very and Gates, 2007). Researchers (e.g. Luo and Tung, 2007;
Mathews, 2006, Garg and Delois, 2007; Johnson et al., 2011) argue that FDI by emerging MNCs
facing challenges in developed economies. Hennart (2012) and Narula (2012) raised the question
that if we need more to explain these investments by EMNCs. Buckley et al. (2010) and Du and
Boateng (2012) raised the important of understanding of factors influence performance of
acquisitions by EMNCs in advanced economies. In the same vein, Ramachandran and Pant
(2010) suggest that the concept of liability of country of origin can be useful to understand the
character of EMNC disadvantages in foreign country. The purpose of this paper is therefore to
discuss acquisition strategies of EMNCs in advanced economies. In particular, we analyze
strategic motives of acquisitions by EMNCs and how EMNCs manage their acquired units to
reduce liability of country of origin (LOO), to gain support from local stakeholders and therefore
increase performance of acquired units in advanced economies.
This study makes the following contributions. First, as researchers rose the question that if
current theories which are based on Western firms can explain behaviors of EMNCs (e.g Luo and
Tung, 2007, Hennart, 2012, Narula, 2012). Similarly, Holtbrügge, and Kreppel (2012) maintain
that “FDI of firms from BRIC countries cannot be comprehensively explained by factors that
motive FDI of firms from developed countries. This study explores acquisition motives of MNCs
from an emerging country of Brazil to find out if their motives are different with those from
advanced economies. In addition, since IA research has focused surprisingly little on
management control of acquired units. Most previous acquisition research has focused on
managing and monitoring the integration process (e.g. Calori et al., 1994; Lees 2003; Very and
Gates, 2007). Control of acquired units is particularly challenge for parent firms because acquired
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Paper to be presented at EMNET, Agadir, Morocco 21-23, November 2013 by Nguyen H. L. & Larimo J. University of Vaasa, Finland
units totally differ than traditional subsidiaries as they have been operated by their own board
members and under their own organizational culture. These problems often cause by liability of
country of origin. This study is among the first to analyze how EMNCs can cope with the LOO
by exercising right control strategies.
The paper is organized as follows. First, we discuss strategic motives of foreign acquisitions by
EMNCs in advanced economies. Next we elaborate the LOO caused by acquisition by EMNCs in
advanced economies. Then we discuss strategic control in IA by EMNCs in advanced economies.
After that we discuss our methodology, introduce and analyse our cases. We then continue with
elaborating the results and concluding the paper with implications for both international business
scholars and managers.
Motives of foreign acquisitions in advanced economies by EMNCs
MNCs enter to foreign countries for four main reasons: market, resource, assets, and efficiency
seeking (Dunning, 1988). Facing time pressure for rapid market entry, firms often choose
acquisition for their foreign penetration (Hennart and Park, 1993) since it allows firm to gain
foothold in the market faster than greenfield investment mode. IA can help firms to increase their
market power when they acquire competing firms, suppliers, and/or distributors (Hitt et al.,
2001). MNCs can also use IA to access new resources and technology (Vermeulen and Barkema,
2001, Desyllas and Hughes, 2008). Through IA, MNCs can also diversify their business activities
by acquiring new products and new markets thus reducing risks (Chan-Olmsted and Chang,
2003). Furthermore, Bradley, Desai, and Kim (1988) suggest that firms carry out IA to achieve
synergies by combining their activities with those of other firms. Besides, managers may perform
acquisition to achieve their personal benefits rather than the overall interest of the company (Seth
et al., 2000).
Results of previous studies show that EMNCs invest in advanced economies to overcome tariff
and non-tariff barriers and to reduce the level of exposure to political risk at home (e.g. in Russia)
(OECD, 2006). According to Rugman and Li (2007), Gammeltoft, Barnard, and Madhok (2010),
Wu, Hoon, and Yuzhu (2011) EMNCs carry out their IA in advanced economies for knowledge /
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Paper to be presented at EMNET, Agadir, Morocco 21-23, November 2013 by Nguyen H. L. & Larimo J. University of Vaasa, Finland
technology seeking, resource seeking, and branding seeking. EMNCs may perform acquisition
abroad as they receive special support from home country government. This is the case of
Chinese firms who are pushed to go abroad by ”Go Global” policy since 2000 by Chinese
government (Wu et al., 2011). EMNCs are also interesting in acquiring natural resources such as
oil and gas in advanced economies (Wu et al., (2011) or simply for diversification reason
(Boateng, Quian and Tianle, 2008). Similarly, FDI from Latin America to advanced economies to
exploit firm-specific advantages (Daniels, Krug, and Trevino, 2007). In addition, Daniels et al.,
(2007) suggest that in Latin America, Brazilian MNCs have significant investment outside the
Americas due to historic and cultural region. As Brazil is the only Portuguese speaking country in
the region, there are substantial investments by Brazilian MNCs in Portugal and the Portuguese
speaking countries in Africa. As Hispanic population in the US has grown rapidly, Latin
American firms are increasing their FDI in US to serve their community. Brazilian MNCs
perform foreign investment is also to be close to its key customers to meet their specific needs
(UNCTAD, 2004). According the finding from Daniels et al., (2007), primary outward FDI from
Latin America MNCs in the past two decades is market seeking behaviour. Furthermore, they
also found some FDI investments by Latin America MNCs were to secure resources such as
Petroleum. Glauco and Luiz (2011) maintain that objectives of Brazil MNCs to internationalize
are to compete, to learn, and to acquire capabilities directly in the main areas and with global
companies. In their study, Holtbrügge and Kreppel (2012) found that OFDI of Brazilian MNCs is
to gain access to new markets and to obtain access to technology and management know-how.
The liability of country of origin and acquisitions of EMNCs in advanced economies
Country-of-origin is defined as the country where corporate headquarters of the company
marketing the product or brand is located (Johansson et al., 1985). The liability of origin is
regarded as a direct consequence of the national origins of the firm (Bartlett and Ghoshal, 2000).
The term ‘liabilities of origin’ seeks to capture those disadvantages of MNEs that emerge as a
consequence of where they are from (Ramachandran and Pant, 2010). This liability of often
causes disadvantages for the performance of the unit as they lack support from local stakeholders.
This is due to the fact that local stakeholders often have negative stereotypes toward firms from
other countries (Moeller et al., 2013). Morgan (2001) maintains that MNCs are social
constructions and characterized by their national institutional contexts.
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Paper to be presented at EMNET, Agadir, Morocco 21-23, November 2013 by Nguyen H. L. & Larimo J. University of Vaasa, Finland
In international expansion of MNCs, acquisitions are often seen to have a negative impact
on employees of acquired units (Olubukunola and Uwuigbe, 2009). This is because the
differences in beliefs, values, and practices between acquirers and acquired firms can cause
clashes in the operations of acquired units (Teerikangas and Very, 2006). According to social
identity theory (Tajfel, 1981), organizational members tend to hold negative view about members
of out-group. Kramer (1999) maintains that perceptual biases such as negative characteristics and
bad intentions are often associated with out-group. Similarly, Sitkin and Stickel (1996) argue that
out-group members are often evaluated as unethical and incompetent by in-group members. This
negative bias and cultural stereotypes are often the cases of cross border acquisitions (Hogg and
Terry, 2000; Krug and Nigh, 2001).
Country of origin of MNCs often is understood not only in terms of their administrative
bureaucracy, but also in terms of how they identify themselves and how their host country
stakeholders regard them (Moeller et al., 2013). Researchers show that country of origin of a
MNC (Harzing and Sorge, 2003; Noorderhaven and Harzing, 2003) has strong influence on how
local stakeholders perceive MNC´s value, business practices, and its product quality (Thakor and
Lavack, 2003). As EMNCs are origin from developing countries, they often face negative image
in local stakeholders. Sauvant (2008) noticed problem in international acquisitions in advanced
economies by EMNCs that local stakeholders may feel that national pride suffers. According to
Ashkenas et al. (1998) employees in acquired firms often go through the process of psychodrama:
uncertainty, anxious, insecure, and even angry. Employees from acquired units are often proud of
themselves as they are from advanced economies. They are often confident about their
competence, knowledge, the way they work and how things should be done in the company.
Furthermore, they often have the stereotyped knowledge toward companies from other countries
and how things are done there (Ailon-Souday and Kunda, 2003). Employees in advanced
economies may have problem as they find themselves work under new bosses and the new rules
from parent firms based in emerging economies. As a result, employees can easily loose their
motivation and commitment to their work. This can be further fueled by acquiring managers who
adopt an attitude of superiority (Hambrick and Cannella, 1993). Furthermore, local firms may
consider foreign firms entering into joint venture relationship with local firms by making partial
acquisition of local firm in order to use this joint venture as Trojan horse to steal knowledge from
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Paper to be presented at EMNET, Agadir, Morocco 21-23, November 2013 by Nguyen H. L. & Larimo J. University of Vaasa, Finland
local partners (Reich and Mankin, 1986; Hamel, 1991; Hennart et al., 1999). As Meunier et al.
(2011) pointed out that local US people may be afraid that the Chinese investment in the US may
act as a Trojan Horse of Chinese values and politics. In the same vein, Wu et al., (2011) point out
that US public media sees China unfavorably.
Similarly, local government as well as other key players in countries of acquired units
may also have a negative reaction to the new owners of the acquired units. More specifically,
local authorities may refuse to renew land contract to EMNCs. Local suppliers or local
distributors may also demand higher price for their inputs and services towards EMNCs than for
MNCs from Western economies. Local suppliers as well as local distributors may refuse to
supply the inputs or refuse to distribute the products. As a result, performance of acquired units
may be decreased over time due to an unrealized synergy between acquirers and acquired units
and due to boycotting activities towards the acquired units and their products by local
stakeholders. Things that separate an acquirer and an acquired firm are also their organizational
culture and business practice (Evans and Mondavo, 2002). As firms have differences in the way
they operate, their attitude toward environment, local communities, bribery, local stakeholders
may refer to EMNCs as “them” versus “us”. According to Tavares (2008), one of the most
challenging that Latin American MNCs, especial Bazilian MNCs face when carrying out their
investment abroad is the cultural issues. The importance of cultural difficulties in
internationalization probably has a lot to do with the fact that many Latin American companies
are relatively recent to the host countries (Tavares, 2008). The second biggest problem found in
her study (Tavares, 2008) is that Latin American MNCs have to cope with is dealing with local
business environment idiosyncrasies including local legislation and local business practices and
these can be overcome with the help from local partners. In short, the strategies of EMNCs for
their acquired units have to differ from those from advanced economies (Buckley and Mirza,
1988) in order to gain the support from local people.
Control strategies exercised by EMNCs over their acquired units in advance economies
Control has been studied from various perspectives in disciplines such as organisation and
accounting research (e.g. Ouchi and Maguire, 1975; Ouchi, 1979; Eisenhardt, 1985, Ouchi,
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Paper to be presented at EMNET, Agadir, Morocco 21-23, November 2013 by Nguyen H. L. & Larimo J. University of Vaasa, Finland
1979). It has been argued that, organisational control is an important facet of organisational
design (Eisenhardt, 1985). In organisational literature, control has been defined as the process by
which one entity influences, to varying degrees, the behavior and output of another entity through
the use of power and a number of mechanisms (e.g. Geringer and Herbert 1989; Glaister and
Buckley, 1998). There has been little research focusing on control in cross-border acquisition
(e.g. Calori et al., 1994; Bijlsma-Frankema, 2004; Nguyen and Hassett, 2011). Calori et al.
(1994) focused on cross-border acquisition and analysed the extent to which firms differ in the
control they exercise over acquired firms abroad. Folta (1998) focused on governance and
uncertainty and the trade-offs between administrative control and commitment. The findings
suggest that the cost of commitment in the face of technological uncertainty may offset the
benefits associated with superior administrative control. This challenges the view that higher
domains of asset specificity require more integrative modes of governance. Some more recent
studies have focused on the relationship between trust and control in acquisition (e.g. Biljsma-
Frankema, 2004; Inpen and Curall, 2004; Derbyshire, 2006). The findings of these studies reveal
that when there is high trust between acquirers and acquired firms, there is much less need for
control. Researchers have argued that acquisition performance may depend on the adequacy of
the integration process, given a certain level of strategic interdependence and a certain level of
need for autonomy (Haspeslagh and Jemison, 1991; Calori et al., 1994).
Follow Child et al., (2003), we adapt Haspeslagh and Jemison (1991) classification of level of
integration and control between parent firms and acquired units. According to Haspeslagh and
Jemison (1991), there are three type of level of integration, which related to level of autonomy of
acquired units. Absorption involves a high need for strategic interdependence in order to create
the expected value, and a low need for organizational autonomy to achieve good performance.
Preservation refers to a low need for strategic interdependence between the two firms, but a high
need for organizational autonomy. Symbiotic involves a high need for strategic interdependence
and a high need for organizational autonomy because the acquired capabilities need to be
preserved
As discussed earlier, acquisitions often have a negative impact on the employees of
acquired firms resulting in reduction of productivity. This negative impact on performance of the
units is even more serious in the case of acquisitions by EMNCs in advanced economy because
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Paper to be presented at EMNET, Agadir, Morocco 21-23, November 2013 by Nguyen H. L. & Larimo J. University of Vaasa, Finland
of liability country of origin. Local stakeholders may be concerned about the future of the units as
they doubt about the competence and ability of the new owners from emerging economies and if
the new owners are able to lead the acquired firms to grow and gain prosperity. Some local
stakeholders may also be afraid of “invasion” from the east as many EMNCs coming from there.
Others may concern about lost pride as working under employers from EMNCs. Control of
foreign acquired units is often influence behavioral actions of local stakeholders. Local
management teams as well as local employees of the acquired units are those directly influencing
on the performance of the units. They are also the key communicative means between EMNCs
and local communities. Therefore, it is important that EMNCs pay attention to their control
mechanisms exercised over their local employees. Because these tell local employees how their
new employers respect them and believe in their competences, resulting in either to increase or
decrease the negative effect of the liability of country of origin. Furthermore, previous research
has suggested that units need greater autonomy in order to remain in business without going
through radical changes. As the units are granted more autonomy, they are able to maintain their
local uniqueness as well as their organizational culture (Yeheskel at al., 2004). Thus they can
keep their local identity and image.
With local identity, the units are able to continue receiving support from local people.
Therefore, EMNCs may use preservation or symbiotic strategies for their acquired units in
advanced economies at first stage of acquisitions. With these strategies, EMNCs can grant
acquired units more autonomy by narrowing down their control to only some key areas of the
acquired units such as financial or research and development departments. In IA relationship
especially between East and West relationship, there is a high need for trust between partners for
the relationship to work. According to Nielsen (2007) when the need for trust and commitment
from local stakeholders increases the requirement for control diminishes. Therefore, EMNCs may
seek to focus their control over priority activities, rather than control over all activities. Brouthers
and Bamossy (2006) also found that tight control by parent firms normally resulted in poor
performance of units.
According to Belmiro, Matheus, and Aldo (2009), a key for Brazilian MNCs to success in
their foreign markets is to use a clear strategy of collaboration and knowledge sharing rather than
tight control of their foreign acquired units. Similarly, Maehler, Curado, Pedrozo, and Pires
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Paper to be presented at EMNET, Agadir, Morocco 21-23, November 2013 by Nguyen H. L. & Larimo J. University of Vaasa, Finland
(2011), who studied innovation and performance of subsidiaries of Brazilian MNCs in Portugal
suggest that involvement of local stakeholders as well as autonomy of foreign subsidiaries help to
increase level of innovation and value creation for MNCs through their foreign units. In contrast,
Resende and Cyrino (2008) investigated foreign operations of Brazilian industrial MNCs, found
that centralized control is preferred because of elevated achievements in worldwide optimization
costs.
Table 1. Characteristics of the acquisitions by Brazilian MNCs in the present study (Source: from
Characters of acquired
units
Inco Swift Sunoco Chemical
Polypropylenne
Nansei Sekiyu K. K.
Established year 1902 1955 1886 1968
Location/country of
origin
Canada US US Japan
Business Area One of the world largest
Nickel producers
Meat processor Chemistry Oil
Foreign operations Subsidiaries in Indonesia,
and New Caledonia, and
sales office in Asia, UK.
Sales offices in
several countries in
Asia, and Australia
Subsidiaries in Canada,
and Venezuela, and
sales offices in several
countries
Sales offices in several
countries in Asia
Financial Performance at
the time of acquisition
Weak with USD 1.2
billion in debt
Weak at USD 48.6
million loss in the
quarter ended at
February 2007
Closed down other
plans in 2009 due to
nonfinancial viable.
Made loss at around
USD190 million in the
first quarter of 2010
. Downstream margins for
3 continuous years
Made loss of 95 USD
million in 2007
Year of being acquired 2007 2007 2010 87.5% in 2008 and the
rest 12.5% in 2010
Acquisition value 18.9 USD billion 1.425 USD billion 350 USD million in
cash
50 USD million (87.5%)
and 27 USD million
Being acquired by
EMNC
Vale
(Brazil MNC)
JBS
(Brazil MNC)
Braskem SA
(Brazil MNC)
Petrobras
(Brazil MNC)
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Paper to be presented at EMNET, Agadir, Morocco 21-23, November 2013 by Nguyen H. L. & Larimo J. University of Vaasa, Finland
different leading newspapers from Google news archive)
Holtbrügge and Kreppel (2012) found Brazilian MNCs increase their competitiveness by
developing specific solutions for different markets. They do this by hiring local employees to
have better access to country-specific know-how and to be as close as possible to customers.
Methodology
In this paper we rely on qualitative approach using multiple cases as we believe that cases are
phenomena occurring in a bounded context (Miles and Huberman 1994). In qualitative research
we seek to describe, decode, and translate the phenomenon (Van Maanen, 1983) and building a
complex and holistic view of the issue under research basing on analyzing of words and views of
informants (Creswell, 1998). We adopt multiple case study approach because: 1) the nature
exploratory of our research question, 2) the characteristics of the phenomenon under study
(Eisenhardt and Graebner, 2007): a) acquisitions of firms in advanced economies by EMNCs, b)
the negative effect of LOO, c) control by EMNCs. Since the nature of research question is
exploratory and descriptive it requires a methodology approach that enhances of acquiring of in-
depth information related to relevant issue such as case study approach (Yin, 2003). In addition,
case study approach is justified in this research because the research problem is a contemporary
phenomenon rooted in real-life context that are not clearly evident (Yin, 2003).
A multiple case study is selected instead of a single case study as multiple case studies will
enhance more evident, offering opportunity to compare cases, leading to better theorizing about a
phenomenon (Eisenhardt, 1991; Stake, 2000). In addition, to the nature of research question, the
complexity of the phenomenon of LOO on local stakeholders by the acquisitions of Brazilian
MNCs in advanced economies makes it difficult to gain information through quantitative method.
We collected information for this research from multiple secondary sources. First, we used search
engine: Google News Archive to have relevant cases using key words: “Brazilian MNCs,
acquisitions, takeover, developed economies, advanced economies, etc.” Then we collected
information from different articles from various major newspapers and media such as the New
York Times, Wall Stress Journal, The Hollywood Reporter, Bloomberg, Financial Times
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Paper to be presented at EMNET, Agadir, Morocco 21-23, November 2013 by Nguyen H. L. & Larimo J. University of Vaasa, Finland
Automotive News, BBC News. Furthermore, we also used other sources such as strategic
management textbooks, company websites, and their annual reports.
Acquiring firms Vale JBS
Braskem Petrobras
Established year 1942 1953 In 2002 (consolidation of six companies: Copene, OPP, Trikem Nitrocarbono, Proppet and Polialden)
1953
Location of HQs Rio de janeiro, Brazil Sao Paulo, Brazil Sao Paulo, Brazil Rio de janeiro, Brazil
Business Area Diversified metals and mining business, and logistics and enegy
Animal protein processing company: food, leather, products for pets, biodiesel, collagen, cans and cleaning products.
Chemistry and petrochemical sector
Oil and Gas industry
Total sales 46. 4 billion USD in 2012
38,27 billion USD 21.6 billion USD in 2012
137.3 billion in 2012
International Operations
Present in 37 countries including: offices, operations, exploration and joint ventures
Present in five continents with production platforms and offices in Brazil, Argentina, Italy, Australia, the USA, Uruguay, Paraguay, Mexico, China, Russia and other countries
Braskem's industrial units are located in Brazil, United States and Germany. It also has commercial offices and bases in Argentina, Mexico, Peru, Venezuela, Chile, Colombia, the Netherlands and Singapore
Present in 25 countries: India, Turkey, Angola, and Nigeria. The most important countries for commercial agreements are Japan, United Kingdom and China.
Earlier relationship with target firm
No earlier relationship/ Competitors
No ealier relationship No earlier relationship No earlier relationship
Table 2. Characteristics of Brazilian MNCs in the present study (Source: from different leading
newspapers from Google news archive)
In the data collection process, the focus is on words rather than quantification (Bryman and Bell,
2007). The cases were selected based on following criteria: 1) Country of origin: acquirers have
to come from Brazil, acquired firms have to be based in advanced economies; 2) Timing of
acquisitions: the acquisitions should have taken place at least in 2010 at the latest in order to be
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Paper to be presented at EMNET, Agadir, Morocco 21-23, November 2013 by Nguyen H. L. & Larimo J. University of Vaasa, Finland
able to follow the development of the acquired units after the deal; 3) Business relatedness: as the
focus of the paper is to discuss about control of acquired units by parent firms, business area of
parent firms and that of acquired firms have to be in same lines (if they are different, acquired
units may be likely operated as independent units). The sample cases were chosen so that we
have cases with strong, medium level, and low level. This is because we want to investigate how
Brazilian MNCs can cope with different level of LOO. Our data comprises four acquisitions by
Brazil MNCs including the acquisition of, Inco (Canada based) by Vale, Swift (US based) by
JBS, Sunoco Chemicals' polypropylene business (US based) by Brazkem SA, and Nansei Sekiyu
K.K. (Japan based) by Petrobras (see Table 1 and Table 2). The data analysis of the study is a
process of data reduction, data display and information reduction. During this process, ideas were
developed and refined and related to the framework in the literatures, then conclusions were
drawn and verification (Bryman and Bell, 2007). We used pattern-matching and explanation
building techniques for our data analysis (Yin, 2009).
Validity and reliability of the study
The quality of this study is based upon common tests of social science such as reliability,
construct validity and external validity (Yin, 2009). Construct validity refers to building correct
operational measures for the concepts being studied, while external validity regards to the domain
to which finding can be generalized. Reliability relates to operations of the study that repeated
study will give the same results. Regards to construct validity, our strategy in the study is that we
use multiple sources of evidence consisting of companies´ annual report, news articles from
different business journals, news released from both home and host countries’ authorities such.
These multiple sources help to produce more complete, holistic, and contextual portrait of the
object under study (Ghauri and Gronhaug, 2005).
We compared information from different articles and information from the website of the
companies to have the most accurate ones. Regards to external validity, since this is qualitative
research, this study cannot be generalized in a statistical sense but the results of multiple cases
can be generalized analytically (Yin, 2009: 43)
The existing literature was analyzed and compared against the research question to gain more
general points in theoretical construct. The findings of the study can be applied to assist EMNCs
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Paper to be presented at EMNET, Agadir, Morocco 21-23, November 2013 by Nguyen H. L. & Larimo J. University of Vaasa, Finland
to manage their acquired units better in advanced economies. In terms of reliability of the study,
the data collection method was followed other researchers focusing on international acquisitions
using secondary data from public media (e.g. Riad and Vaara, 2011). The information was
carefully selected by at least two experienced researchers involving in the study. Only the most
reliable sources such as Wall Street Journal, Financial Times, The New York Times, Blomberg,
etc. were used to get information for the cases.
Results and Discussion
Motives for acquisitions by Brazil MNCs in advance economies
The results of our case analysis showed that Brazil MNCs acquired firms in advanced economies
with different motives (Table 3) including market seeking (all cases), resource seeking (Vale,
JBS), efficiency seeking (JBS, Petrobras), and asset seeking (Braskem).
Motives Vale JBS
Braskem Petrobras
Main motive . To gain Nickel production technology
Through acquired unit in US, JBS gain their foothold in US, Canada, Australia, South Korea, Japan and Southeast Asia
To enhance markets for greenfield projects in Latin America
To gain foothold to Japan
Secondary motives
. To secure mines resources for productions . To grow
. As base for sequence acquisitions . To grow, . To reduce production costs related to logistics
.To acquire technology and development center in Pittsburgh, PA, which will play an essential role for Braskem in continuing to provide support for clients in product and market development and technical assistance services . To own well known product brands such as Spheripol and Unipol brand brands from To gain good profit through high margin business
.To use this unit as a regional supply hub, serving its Asian clients . To bring biofuel to Japan and other Asian countries e.g. China, Singapore, Taiwan, and Vietnam. . To promote of Petrobras in Japan and Asia
General motives
Technology and Resource seeking
Market seeking Market seeking Market seeking
Table 3. Motives of Brazilian MNCs for acquiring companies in advanced economies (Source:
from different leading newspapers from Google news archive)
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Paper to be presented at EMNET, Agadir, Morocco 21-23, November 2013 by Nguyen H. L. & Larimo J. University of Vaasa, Finland
It is interesting that Brazil MNCs use their acquired units in one country to overcome entry
barriers to other country. For example: JBS used its acquired unit in the US to overcome entry
barriers to South Korea and Japan as its products are banned to those markets. JBS also used the
acquired unit in the US to gain market access to Australia and South Asia. Similarly Petrobras
used the unit in Japan to entry to East Asia countries like China, Taiwan, Singapore, and
Vietnam.
Petrobras also used acquired unit in Japan as distribution hub for its new products such as biofuel
to these markets. Therefore, we found that the common motive that Brazilian MNCs carried out
their acquisitions in US or Canada or in one country in Asia in order to use these units as gateway
not only to that particular country but also to the whole trade regions such North America and
Asia. This is an important motive for EMNCs as it may be costly and time consuming for them to
enter to each country in North America and Asia separately from their home country. Other
motive of Brazil MNCs to acquire firms in advanced economies is to have established brands and
technology. For Vale, its acquisition is to own nickel production technology and nickel mine.
Braskem acquired the unit in the US also because of its well-known brands, and Braskem
planned to use these brands to entry to other North America markets.
Our cases also show that Brazilian MNCs acquire firms in advanced economies to secure for their
inputs from natural resources and to lower logistic costs as examples of Vale and Braskem.
Finally, Brazilian MNCs, in addition, used their acquired unit as bases for further acquisition in
the region. Vale has used Inco as its communication channel to acquire other units in Canada, and
in US. In the same vein, JBS also used SWIFT, and Braskem used Sunoco chemicals PP to make
their subsequence acquisition in the US.
Liability of origin and control strategy by case companies
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Paper to be presented at EMNET, Agadir, Morocco 21-23, November 2013 by Nguyen H. L. & Larimo J. University of Vaasa, Finland
Evidence from the cases suggests that acquisitions by Brazilian MNCs in advanced economies
caused negative effect by LOO which can influence to performance of acquired units (see table 4
for details).
Company Negative effect of Liability of origin Control Strategy Vale Strong
. Negative comments from Canadian media: “this acquisition is disaster for Canadian metal industry…” . Negative reactions from local employees and union “…Brazilian management style cannot be transplanted everywhere in the world…” “…Our business and technology are much more advanced than those of them..” “… Firms from there often do not care for communities and environment…” . one third of the board members of Inco quit their job after the acquisition as they do not want to work under Vale control & ownership
Symbiotic strategy at interceptive stage and absorption strategies in the later stage: . Nickel business will be remained in Toronto with senior Canadian management team and chief . Vale will not lay off Inco´s employees during three year . Improving image by launching public and international relation program . Restructuring the unit in 2009 . Changes board of directors in 2009 and 2010 . Full integration to Vale operations in 2010
Petrobras Medium . Negative comments from Japanese local stakeholders. This was “disappointed for Japanese oil industry” . Comments from local employees: … How come they are our boss? . …”Are new rules from Petrobras ok for us?..” ….”Do they really care about us?..”
Preservation strategy . No significant change in the board of direction of the unit . Granting autonomy in decision making for daily operations to current board of directors. . Increasing commitment from local employees by implementing Corporate Social Responsibility project such as Green Belt Project in local area
Braskem Medium Some part of employees of Sunoco chemical Polypropylene do not want the company being owned by developing firm …We should not sell ourselves to firms from developing countries… . As unknown firm from emerging country of Brazil, Braskem had to pay 5 times earnings before taxes, interests in order to own the acquired firm
Preservation strategy in the interceptive stage and absorption strategy in later stage . Management team and CEO are allowed to remain in place with full right of decision making “We will value the experience of Sunoco chemicals´ key executives, who have in depth knowledge of American market reality” . New president coming from Braskem to introduce Braskem strategy and corporate cultures to the acquired unit for later development stage of the unit.
JBS Light . Only a few employees and conservative local politician have some negative feeling towards acquirer JBS as “… stranger, firm from developing country,... . Most local stakeholders see the acquisition with very positive attitudes: “It is good news for our partnership, customers, our suppliers, and our employees”
Symbiotic strategy in the interceptive stage and absorption strategy in the later stage . “We will keep and create US jobs” (CEO of JBS) . Employing more US worker . New CEO from JBS . Significant influence over Swift business policies and affairs including composition of board of directors. . Highly integration at beginning and full integrated in JBS operations in 2008
Table 4. Liability of origin and control strategies of Brazil MNCs in advanced economies
(Source: from different leading newspapers from Google news archive)
However, there was variation in the level of LOO in each acquisition (see Table 4). The variation
is because “negative image of EMNCs” may be compensated by their great international
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Paper to be presented at EMNET, Agadir, Morocco 21-23, November 2013 by Nguyen H. L. & Larimo J. University of Vaasa, Finland
experiences as well as their financial strength. In the case of EMNCs that have great experience
and strong brands in international markets will be more easily to be accepted by local
stakeholders (In case of JBS) than those that do not have these (Vale case). Similarly, EMNCs
that have strong financial resources will have more power to invest in future development of
acquired firms thus securing future of acquired firms and therefore reducing LOO on local
stakeholders (Petrobras case and Braskem case).
Figure 2 Control strategy of Brazilian MNCs exercise over their acquired units in advanced
economies
As can be seen from Table 4, all Brazilian MNCs in the study did not impose any radical
change on their acquired units at least at during the first years of acquisitions. At this interceptive
stage, they use preservation or symbiotic strategies for their acquired units. These are evidenced
that all management teams were remained in their positions in all acquired units. The rationale for
that is that Brazilian MNCs want to reduce LOO and to build up trust with current employees as
new employers and also to have time to learn new technology, learn local culture and find out the
best way to manage the units.
Control strategy
Low
Tight Control/Absorption
Less control/Preservation
or Symbiotic
Motives
Stage of development
Strategic importance
Strategic support
Interceptive stage
Later stage
+ Performance of acquired
units
-
+
+ High
Liability of origin
-
-
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Paper to be presented at EMNET, Agadir, Morocco 21-23, November 2013 by Nguyen H. L. & Larimo J. University of Vaasa, Finland
Furthermore, related to control strategy (see Figure 2), we found that in the interceptive stage,
Brazilian MNCs are willing to grant to their acquired units in advanced economies high
autonomy in order to reduce negative effect of LOOs. In the case of JBS where negative effect of
LOO is just lightly, JBS was able to point new CEO coming from JBS for its acquired unit soon
after the acquisition completed. Other cases, in the later stage/development stage of the acquired
units, depending on motives of acquisition, Brazilian MNCs have different control strategies and
how they will compose board of directors of acquired units.
In cases of the acquired units are strategically important such as acquisition is to gain technology,
as base for further acquisitions, to secure future markets, as base to serve multiple markets, or as
base to overcome entry barriers in other important markets (cases of Inco, Swift, and Sunoco
Chemicals PP) Brazil MNCs use absorption strategy and exercise tight control over them and
delegate key personnel coming from their own companies to the board of directors of acquired
unit gradually. In the case of the units are just for supportive purposes such as acquisitions to
gain economies of scale and scope, to secure resources, or to gain logistic advantages, Brazil
MNCs preservation or symbiotic strategy and allow high autonomy for them (cases of Nansei
Sekiyu K K).
Conclusions
As EMNCs, especially firms from BRIC countries have started to influence more and more
global economies through their outward investments, researchers have called for further studies
of motives of their acquisitions and management strategies in post-acquisition of their acquired
units in advanced economies. Although there are many studies related to integration processes in
mergers and acquisitions, there is a lack of investigation regarding how parent firms from
emerging countries can manage better acquired units in advanced economies via the deployment
of proper control strategies. In addition, although, there are studies dealing with cultural clash in
post-merger and acquisitions, and liability of foreignness in general, there are, however, few
studies considering the negative effect of country of origin in post acquisitions as a result of
EMNCs acquiring of firms in advanced economies. Such effects undermine the performance of
acquired units during post-acquisition stage. Therefore, it is important for both researchers and
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Paper to be presented at EMNET, Agadir, Morocco 21-23, November 2013 by Nguyen H. L. & Larimo J. University of Vaasa, Finland
managers to tackle the problems of negative effect. This study is the first to analyze how
Brazilian MNCs can use their integration and control strategies to minimize this negative effect.
Since EMNCs often lack of managers with international experience, in their post acquisitions we
suggest that no major changes should be taken place in the interceptive stage. However, because
of cost considerations, in the later of post-acquisition some of the production can be relocated to
their home country or to other subsidiaries in low cost countries. Using Haspeslagh and Jemison
(1991) integration typology, we suggest that a symbiotic relationship between acquiring firms
form emerging countries and acquired firms from developed countries. This is because: first,
there are high need for both strategic interdependence due to the need for acquiring and
transferring of capabilities and for organizational autonomy, because the organizational culture
are great different between acquirers and acquired firms. More specifically, EMNCs will focus
more on strategic decisions that affect the long term performance of the firm such as financial
control. They give more autonomy for management team of acquired firms on the daily
operations due to differences in the institutional and economic context and to reduce the negative
effect of country of origin. In addition, related to marketing activities, EMNCs should also give
more autonomy to acquired firms as acquired firms have more knowledge than EMNCs about
their markets as also about their neighboring markets. Furthermore, EMNCs need to open to local
culture, employ more local managers, and maintaining in investing in local research and
developments, and placing local concerns.
This is often issue of Brazilian MNCs as Ozaki et al., (2012) found in their case study of
Brazilian subsidiaries that subsidiaries´ autonomy to adapt to particular country is limited. The
framework for control strategy of Brazilian MNCs is summarized in Figure 2. Our findings
related to motives of Brazilian MNCs for acquiring firms in advanced economies are: 1) to gain
markets and technology from the West. This motive is consistent with the finding from previous
studies (e.g. Gammeltoft et al., 2010; Rugman and Li, 2007; Wu et al., 2011; Holtbrügge and
Kreppel, 2012), 2) to own natural resources. This motive is in line with Wu et al., (2011) and
Daniels et al., (2007). Our study extends previous studies by showing that Bazilian MNCs
acquired firms in advanced economies also for overcoming entry barriers to the third and fourth
markets, for using them as base for further sequence acquisitions in regions.
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Paper to be presented at EMNET, Agadir, Morocco 21-23, November 2013 by Nguyen H. L. & Larimo J. University of Vaasa, Finland
One of limitations of this study is small number of cases (4). For future study, we argue that the
impact of LOO may differ depending on location of acquired firms and other geographic factors
(i.e. geographic distance, regional area). Therefore, larger empirical data from Brazilian MNCs as
well as location of acquired units from different advanced economies are of interest. In addition,
in this paper we excluded factors from the host country which may also influence to LOO such as
the openness of the host country. Local stakeholders in the highly opened economies may be
more willing to accept the acquisition by Brazilian MNCs or on the other hand, low opened
economies may have more negative view on the acquisition by them. Therefore, future studies
could investigate if these factors influence level of LOO of local stakeholders towards Brazilian
MNCs. Furthermore, the size of foreign firms may also influence the level of LOO to local
stakeholders. Our study include only large Brazilian MNCs, further study may include
acquisitions of foreign units in advanced economies by Brazilian SMEs. Finally, our study and
discussion related to motives of Brazilian MNCs acquiring units in advanced economies and their
control strategies did not include other two factors such as ownership advantages and
internalization advantages (Dunning, 1988) of EMNCs. Therefore, future studies can expand our
study further by adding these two factors in the study of strategies and behaviors of EMNCs are
of interests.
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