Firstly, with the rapid liberalisation of trade barriers and resulting increase in competition in emerging markets (Cavusgil et al., 2008), these acquisitions provide avenues for these EMMs to access other markets quickly and at a much greater scale than merely entering developed markets through greenfield ventures since organic growth requires exposure to greater risks with uncertain payback potential.
Secondly, EMMs are typically less technologically-endowed, and when faced with the prospect of having to take on larger global competitors to achieve ‘strategic intent’ (Hamel and Prahalad, 1989), such acquisitions provide for technological leapfrogging and the opportunity to tap upon the innovative and technological capabilities of the acquired companies. The acquired firms and their firm-specific resources are by themselves a source of competitive advantage (Capron and Hulland, 1999) to the EMMs and by virtue of the size advantages and access to new resources, these EMMs become somewhat inimitable (Ghemawat, 1986).
Additionally, as a company’s reputation is manifested through the quality of its products/services (Aaker 1989) and becomes its competitive advantage (Dollinger et al., 1997), such acquisitions of established companies provide EMMs the necessary reach. These superior resources gained allow them to earn Ricardian rents (Peteraf, 1993). For e.g., by working closely with the management team, such acquisitions jumpstart the market entry process by quickly providing the necessary technological and management know-how, tacit institutional knowledge/skills, competencies that can be transferred/employed to further the EMM’s cause. In essence, the EMM does not need to bear substantial pioneering costs and the transference of knowledge increases its survivability (Shaver et al., 1997). Another e.g. could be the production assets that are imperfectly immobile and available for long-term use; translating into sustainable competitive advantage (Rumelt 1987). However, it may be noted that such specialised technological or even human assets can be double-edged swords; causing these EMMs to become inflexible and less responsive (Peteraf, 1993).
Thirdly, EMMs are typically mass-market in their product offering and thrive on low-cost/low-price leadership as their competitive advantage (Porter, 1985). However, in order to gain market share in advanced economies, differentiation may be necessary given the higher purchasing power and the demand for higher value products/services. Such acquisitions provide the avenue for this to occur.
Fourthly, through these acquisitions, causal ambiguity in terms of efficiency (Lippman and Rumelt, 1982) becomes amplified as competitors seeking to imitate activities or processes that may be sources of efficiency may not be able to accurately attribute the causes due to the additional factors from the newly acquired firm(s) thrown into the mix. For e.g., in comparison with other hotel chains, although it is clearly observed that IHC was increasingly more efficient in its use of resources (with regards ROA, ROC and ROE) over time from 2003-7, would-be imitators may not be able to pinpoint exactly whether it was because of the acquisition of the new firm, a result of other cost-cutting activities, a combination of these, or even others.
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