Friday, 14 September 2012

Growth Through Acquisition: The Story Of Emerging Market Multinationals

The global expansion of emerging market multinationals has become one of the hottest trends in international business circles over the past decade. 

Typically, these firms started out small but have internationalised in a rather accelerated fashion.

Originating from a wide variety of industries including resources, IT, consumer electronics and pharmaceuticals, their expansion has come primarily via the acquisition route. This has seen them accessing mainly developed economies and buying out existing technologies, brands and companies in those markets.

The reason for this strategy is simple. Unable to develop many technologies for themselves due to a lack of homegrown resources, going out and buying it represents the most expedient way forward. Interestingly, this type of expansion strategy differs significantly from those employed by the older, established Western multinationals, which were more likely to favour collaborative partnerships as a means of growth.

So, is this drive to internationalisation through acquisition a positive or negative for these emerging market dynamos? At this stage, the jury is still very much out. That’s because many of these international expansions have not been implemented long enough for the true nature of any profitability impacts to become apparent. In reality, I believe we’ll need at least a decade before the full ramifications can be assessed.

For already established companies, however, I would say this tendency of emerging multinationals to acquire often generates negative short-term consequences, with the resulting increased competition for a finite pool of resources and talent creating the usual associated challenges. On the other hand, the push to acquire may actually provide opportunities for some established organisations to partner with these emerging market companies, to form alliances and benefit from an association. This could lead to joint collaborative projects in terms of developing new products and processes that perhaps would not have otherwise emerged.

Author: Dr Vikas Kumar - Associate Professor and Director EMIRG, University of Sydney Business School





2 comments:

  1. Would the growth strategy not depend on the particular industry? The existence of smaller players who can be aquired or the availability of resources to service a bigger market? Emerging markets also tend to have a more diverse pool of uncertanities which will make a "one size fits all" strategy hard to device. Fluctuating policy due to political grappling and socio-economic deviations can be hard to predict and plan for.

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    1. Yes, the growth strategy like any other strategic initiative will depend on a host of other factors, including the industry and resources and capabilities to serve a bigger market. However, the growth witnessed in the recent past has been across a broad spectrum of industries from cement (cemex, Mexico), aircraft manufacturing (embraer, brazil), steel and auto ( Tata, India), to computers (lenovo, china). Also, the companies being acquired are not necessarily smaller than the acquirers. This is because the acquisition for global growth is not limited with the objective of serving one host market. Acquisitions are sometimes being made to improve competitiveness back in the home markets.

      With respect to uncertainties, emerging markets are arguably more uncertain than the developed markets. Nevertheless, looking at the economic gridlock that some of the developed regions such as Europe is in currently show that operating and planning with uncertainties has now become a norm for businesses.

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