An ESRC funded research project by Pervez Ghauri, Marcela Miozzo and SERVICES MULTINATIONAL ENTERPRISE ACQUISITIONS IN EMERGING ECONOMIES: CONSEQUENCES FOR LINKAGES WITH DOMESTIC FIRMS An ESRC funded research project by Pervez Ghauri, Marcela Miozzo and Mo Yamin (research assistant: Rebecca Firth)

Motivation M&A key element in the strategy of multinational firms. Telecommunications, financial and business services 60 per cent of M&A. 10-15 M&A in LDCs. Variations among regions: Latin America M&A 60% of FDI, Asia 20%. Project examines how cross border M&A by MNCs in LDCs affect linkages with host country firms, with a focus on the services sector. Are linkages enhanced (more intensive interaction/upgrading of domestic technological and managerial capabilities) or curtailed (as part of internalising affiliate transactions and integrating them in the MNC’s global operations)?

Research questions How does the impact of MNC acquisitions on LDC linkages vary according to MNC corporate strategy? How does the impact of MNC acquisitions on LDC linkages vary according to its organisational structure, in particular, with the degree of autonomy of the affiliate and its role and position in the MNC organisation? How does the impact of MNC acquisition on LDC linkages vary with the type of domestic firm acquired? What is the impact of host government policies on MNC linkage formation in LDCs?

Service MNCs changing strategy and linkages Convergence research on re-location of industry value chain (Kenney, Florida, Batt, Teece, Chesborough), evolution of industrial models (Piore and Sabel, Baldwin and Clark, lean production, open innovation, modularity) and international business (Rugman D’Cruz, Buckey and Ghauri, Ietto Gillies, shift from federative MNC to flagship structure). Core firm (flagship) forms long-term contracts with upstream and downstream value adding partners. Reduction of power of subsidiaries and ‘disembedding’ from local roots. Replacement of linkages between subsidiaries and local businesses with more centralised supply and distribution (Nolan, UNCTAD)

Service MNCs sector and linkages: no strong theoretical predictions Differences in service sector may have differential influence on linkages (Miozzo and Soete). We would expect scale intensive MNCs (retail, telecomms, financial services) to benefit from ‘scale’ in global sourcing. Implications ambiguous: strong linkages with some suppliers/distributors but not necessarily local(?). Specialised suppliers MNCs (advertising, publishing) benefit from knowledge/skills linkage effects with local firms (?). Supplier dominated MNCs (utilities) may have local linkages as operate in regulated environment (?).

Service MNC structure and linkages Linkages with external parties is likely to be a function of the organisational structure of the MNC, namely centralisation and affiliate autonomy (Andersson and Forsgren 1996, Zanfei 2000, Yamin 1999). Suggests that more decentralisation greater affiliate local linkages. However this may depend on whether MNC (local) strategy is ‘market seeking’ or ‘efficiency seeking’. It seems that most firms in services are NOT local market seeking. Post-acquisition linkages depend caeteris paribus on prior embeddedness of the affiliate in the local market.

Methodology Focus on UK MNCs acquisitions in five emerging countries that have attracted large inflows of cross border mergers and acquisitions: Argentina, Brazil, China, Korea, Malaysia Semi-structured interviews with MNC managers (both the HQ and subsidiary) and managers of linked local firms in LDCs and host country policymakers Database: Thompson One Banker Deals. 10 MNCs have so far agreed to provide full access (including to subsidiary managers in the focal countries)

Methodology

Initial findings (focus on HQ declared strategy and organisational pressures) In all cases, acquisitions in focal countries part of broader strategy of regional/global expansion. Except for two (retail type MNCs), acquisitions did not signal interest in local market, but serving global clients present in the region and driven by opportunities (acquire local brands/privatisation).

Initial findings (focus on HQ declared strategy and organisational pressures) In all cases, pressure to integrate acquired entities into the broader networks of MNCs (e.g. supply contracts). Even retailers source non-food materials globally rather than locally. In all cases, MNCs in the process of standardising back office functions (reduces opportunities for linkages). E.g. office furniture and equipment sourced globally. None of the respondents indicated linkages with domestic firms are strategic consideration. Varying degrees of subsidiary autonomy, but only at the operational level.