Critical Review
Thesis
This is a critical review on research paper Case Studies on Successful M&A Practices in Acer & Lenovo: A Dynamic Capabilities Perspective. The first section of this paper will discuss the purpose, rationale and related literature of this research paper. The second section will discuss the research methodology and design used in this paper. The final section will discuss the main findings and the implication related to this study.
Introduction
Historical information shows that about 70% of the M&A (merger & acquisitions) have led to value destruction and only 30% of the M&A lead to value creation. This case of empirical research is focused on the practices of successful M&A which lead to value creation in comparison to the M&A which crate less value (Schweige, Ivancevich.& Powever, 1987, p. 127-154). This research shows how traditional resources are not adequate for successful cross-border M&A, the DC (Dynamic capabilities) play their pivotal part. Due to many failures in the cross border M&A in Taiwan, China and many other countries in the world, better understanding on the basis of research is required for examining the reasons behind failure of these M&As (Ranft & Lord, 2002, p. 420-441).
Purpose of Study
This research uses DCP (Dynamic Capability Perspective) for highlighting the pivotal role of organizational learning, from the perspective of multinational enterprise from developing economies as the latecomers in the accelerated internationalization process (March, 1991, p. 71-87). This research is done for developing a dynamic model for successful cross-border M&A with computable key success factors in the Chinese industry, understanding how firms developing and utilizing their dynamic capabilities in an M&A and examining how these forms develop and handle its dynamic capabilities in a cross-border M&A through organization experience and learning (Barkema, Bell & Pennings, 1996, p. 151-166). This research explores its aforementioned objectives through identifying the critical dynamic capabilities needed for successful Chinese cross-border M&A, how these dynamic capabilities can be achieved in ex post M&A and ex ante M&A stages of a cross-border M&A, requirements for value creation in profitable and successful M&A and KSFs (Key Success Factors) for Chinese cross-border M&A (Teece & Pisano, 1994, p. 537-556).
Rationale of Study
This research focuses on mainly four components. The study is based on cross-border M&A within Chinese market and aims to search for the right means for achieving value creation through academic streams of dynamic capabilities perspective in ex post M&A integration process (Winter, 2003, p. 991-995). The main objective of this cross-border M&A is value creation successfully. In this process DC (dynamic capabilities) matter the most in integration stage of ex post M&A and ex ante event. The dynamic capability of strategic integration of new merged firms in M&A serves as a bridge for value creation, with 70% of the M&A are reportedly failing (Peng, 2006). Firms from emerging markets have inherent disadvantages, which include lack of capabilities and resources. They lack the market and financial advantages of developed economies (Erramillie et al., 1997, p. 735-757). A research on Korean manufacturing companies engaged in OFDI revealed that they do not have the competitive advantages of local firms in developed markets (Jeon, 1992, p. 526-543), but they are being forced to compete with Japanese and U.S. companies on their home turf with their weakened position (Kimura and Lee, 1998, p. 109-127). Also, due to China’s weak national system of innovation, it becomes difficult for Chinese firms to have access and/or develop any technological capabilities and assets (Huang, 2003). Thus, domestic inability for building competences and knowledge compels firms in using OFDI as alternative means to enhance their ability for creating competitive advantage (Deng, 2007, p. 71-81). To summarize, it is evident that going global is important for the Chinese firms as they need to enter the fiercely competitive world of M&A in cross border transactions. This is not limited to buying and acquiring a firm, it also involves challenge of successful integration (Peteraf, 1993, p. 179-191).
Related Literature
Cross-border M&A is extensively large topic with many inter-disciplinary actions. This research has used theoretical approaches of multiple streams of literature on topic of in context of general management and Chinese context specifically for describing cross-border M&A in Taiwan and Mainland China. After the review of literature, limited research was found conducted on Chinese technology industry. M&A capabilities development and studies over politic motives are highly fragmented (Young, Huang & McDermott, 1996, p. 295-314). The importance on past international M&A experience, issues and size of target like moral hazard in managerial behaviours get ignored.
The synergy creation in cross border M&A lists major schools for synergy generalizations and searches for synergy roots. However, synergy can be created from prior experiences, M&A capabilities, especially from DC (Dynamic Capabilities) (Zollo & Winter, 2002, p. 339-51). The paper also investigates dynamic capabilities origins view by looking at competence, resources, learning and knowledge of the firm and concludes with only dynamic capabilities that can renew the internal resources and utilize the outside factors through learning, innovation and knowledge creation helping firms in winning in their cross-border M&A ventures. Since, integration has important role in the process of M&A, it also affects the strategic intent and synergy of the M&A (Spender, 1996, p. 45-62). Thus, strategic integration is link that holds value creation and M&A together. With only right dynamic capabilities executed into place, link grows stronger and crates value helping to get new opportunities for reaching the firm’s growth ambition. For expanding organizational learning as process of dynamic capabilities perspective (DCP) and specific key content for analyzing the phenomenon of cross-border M&A has been the priority of the research paper.
Research Methodology and Design
In this case Interpretive approach has been used which rests on idealism that holds the perception about world being the creation of mind. By nature, interpretivism promotes value of qualitative data to pursue knowledge (Kaplan 2001, p.23-25). The interpretive approach is related to uniqueness of a situation which contributes to underlying pursuit of contextual depth. Choosing the right method is important for conducting successful research. There are three criteria for selection of approach which are nature of the research problem, nature of intended audience for reporting and researcher’s personal experiences. Firstly, there should be a match between approach and then problem. In case a phenomenon or concept is needed to be understood due to limited research on it, qualitative approach should be used as it is exploratory and useful when researcher is unaware of the important variables needed to be examined. In the research of Chinese cross-border M&A phenomenon, there is limited research available for computer hardware industry. Many factors affect the IT industry in Taiwan and China, thus, identifying key successful factors is not easy. The research conditions justify the usage of qualitative method. Secondly, personal experience of researcher and training is also important in selection of method. Finally, the intended audience of this research is IT managers, business scholars, etc. Broader qualitative approach based on exploration and description is more appropriate for providing insights. To summarize, qualitative interpretative approach is justified since the research is performed in natural settings, where events and human behaviour occurs and data gets reported in words rather than numbers. This research seeks believability on the basis of insight, coherence and instrumental utility through the process of verification. Hence this approach is interpretive with qualitative characteristics suitable for this study.
In this case, three data sources such as interviews, archival records and documents are used as the researcher had access to these resources. On one hand, sources like physical artefacts and observation are suitable for action research. To elaborate the main aspects of the intended data documents like mass media articles, newspaper clippings, letters, emails, blogs, administrative documents, meeting minutes and announcements are used. Archival records is another source which includes organization records, service records, personal records, survey data and other external and internal publications like reports, press releases and industry data. Also, Interviews are also used to collect data through Informal and formal meetings between groups of people for the purpose of gaining information about a specific concern (Avkiran, N. K., 1999, p. 991-1013).
Ethical Issues
Since imperative approach case study is people-oriented, ethical issues arise. Firstly, it is impossible for getting useful data from official sources in the Chinese companies apart from the information available in the annual reports. When permission is given to interview the official sources, the results are superficial and cooked. Thus, the only way to gain any significant information is through connections and personal relations. When data is gained this manner, the researcher needs to ensure the confidentiality of interviewees and maintain non-disclosure agreement. Past employees were found more willing to talk about their previous organization. For the purpose of data collection, data triangulation was performed. Researcher double checked with the interviewees about the information shared by them to ensure any discrepancy is removed. Finally, researcher has encouraged the interviewees to share information openly with there being no right or wrong choices.
Future Research
This research has proposed a theoretical model that links the key dynamic capabilities which includes the strategic integration and organization learning with cross-border M&A. However, political and cultural factors that hinder or enhance the development of dynamic capability is absent from this study. The impact of Westernization and traditional Chinese values on the managerial style and its execution can be one of the research topics. Also, the impact of ‘open system’ on firms and political system behaviours in cross-border M&A is another topic from social and political perspective. Additionally, creating a global learning organization in the cross-border M&A is another possible research topic. Finally, more research studies on use of foreign talents in cross-border M&A from point of view of human resources management is another research direction.
Main Findings and Implications
As per the cross-case analysis, both Lenovo and Acer used cross-border M&A as its means for expanding its resources base in establishing foreign brands and acquiring market share. Before the deal, both Lenovo and Acer gained well-known status in domestic market with top notch PC brands. Both these brands enjoyed support of government that enabled them to grow exponentially. The cross case analysis has revealed that Lenovo and Acer are differed in utilization and development of dynamic capabilities. Some of the important findings are:
Firstly, Acer has ample ex ante M&A dynamic capabilities and ex post M&A integration capabilities. It has collected strong M&A dynamic capabilities and experience from four M&A deals of Service Intelligence, Altos, Countepoint and Travelmate before they acquired Gateway and Packard Bell. From their first three deals they lost millions of dollars of their investment and they learned from their Travelmate deal to use local resources to manage operations. During the Gateway deal, Acer had advantages of Taiwan’s IT innovation, strong management team and strong OEM support. Acer had gained ex post M&A integration capabilities and ex ante M&A dynamic capabilities before taking new M&A of Gateway deal through its organizational learning. To the contrary, Lenovo’s acquisition of IBM PC division in 2004 failed miserably in their diversification drive in China where they ended up losing millions in IT services and internet bubbles. Due to lack of any experience in international management and their snake-devour-elephant nature, Lenovo had to experience difficultly ever since. Showing Lenovo had insufficient ex post M&A and ex ante M&A dynamic capability before and after IBM PC division acquisition (Vaara, 2003, p. 859-894).
Secondly, Acer had swiftly integrated its newly acquired Gateway and Packard Bell. They integrated their group managerially, physically, procedurally and social-culturally by utilizing their rich expertise in international management. In case of Lenovo, IBM PC division was ran like separate company because of non-integration of operations and cultural differences.
Thirdly, in field of utilization of dynamic capabilities, Acer has shown execution power in strategy flexibility and agility. The innovations in marketing campaigns and new product development (NPD) are one of the best in industry. Lenovo still has strong position in China and Hong Kong, but were poor in strategic innovation and agility with regard to NPD and marketing campaigns.
Also, findings from this research has shown that Acer enjoyed institutional cultural advantages over Lenovo since Taiwan had better image among western customers while Lenovo suffered from the Chinese stereotype due to bigger institutional distances from West.
Finally, cross-case analysis has revealed that Organizational learning is strong feature of Acer. They learned how to manage their cross-border M&A through experiences with their past deals before the Gateway deal. Knowledge transfer and knowledge creation were implemented properly in the process of M&A integration. Product information sharing, multi brand pursuing and co-branding campaigns were interwoven throughout the new ‘combined’ Acer. Interruptions for absorptive capacity are minimal. In case of Lenovo and IBM PC division, organizational learning exists in major areas like products design and lean management for controlling overheads. However, negative knowledge transfer for lavish spending which IBM did passed on to Lenovo.
Limitations
This study is not without any limitations, in spite of the theory and practice contributions. Firstly, application of qualitative interpretative approach is criticized for being subjective and having limited generalizability (Klein and Myers, 1999, p. 67-94). Interviewees perception can also be subjective. Interviewees from Mainland China and Taiwan can have preconceptions towards each other doe to difference in political systems and their ways of life.
Secondly, difference of eight years in Acer and Lenovo can be the reason for Lenovo in not performing as well as Acer because they lacked time for learning things.
Thirdly, in this research influence and interests of the founder has not been researched thoroughly. The personality of the founder seems to influence the company growth as firms in West change their CEO and Chairman in quicker succession in comparison to China. Acer founder Shih was important player and decision maker between the years 1976 to 2004 and Lenovo’s Liu was in the same position from 25 years and counting. This might have influenced the development of the firm.
Conclusion
This research evaluated the relationship between cross-border M&A events of Chinese firms and utilization of their dynamic capabilities. By applying the method of longitudinal and comprehensive case studies on flagship Chinese PC companies, the results found that successful cross-border M&A needs positive M&A related dynamic capabilities in terms of ex post M&A capabilities and ex ante M&A capabilities, both of them being central in the overall organizational learning process in M&A domain. The research has shown that firms can implement cross-border M&A to obtain sustainable competitive advantage if they learn and grow through suitable trajectory in terms of possessing the necessary ex post and ex ante capabilities. A profitable M&A growth is possible only through organizational learning at the core of dynamic capability, effectively engaged for identifying, accessing and utilizing critical resources for gaining sustainable competitive advantages.
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