Clarifications on Choice of Theories

There is also a recent Uppsala model referred to as the 2013 model (Vahlne &

Johanson 2013). One might argue why the choice of the 2009 model rather than the 2013 model? There is also a recent argument by Vahlne and Johanson (2013) that the eclectic paradigm cannot be combined with the Uppsala model because both studies have different assumptions. Finally, some proponents of the choice of theory chosen for this dissertation have argued why not combine argued TCE with Institutional theory? Clarifications to these theoretical issues and questions are discussed in the following discussions.

The recent integration of dynamic capability theories (Teece, Pisano & Shuen 1997; Zollo & Winter 2002; Vergne & Durand 2011) to the internationalization process model (Vahnle & Johanson 2013) in an attempt to address the evolution of multinational enterprise provides evidence of the central assumption of this study. That is, the ongoing interactions between firms and their environment build up a firm capability referred in this dissertation as host country capability. The 2009 model was utilized because it provided specific constructs needed to explain

international acquisitions. More so, some constructs in the 2013 model are com-plimentary to constructs in the 2009 model.

For example, Vahlne and Johanson (2013) refer to opportunity development ca-pability as capabilities needed to identify opportunities and to mobilize relevant resources both within the own firm and within other firms involved in the oppor-tunity. Opportunity development capability is not different from the opportunity development referred in Johanson and Vahlne (2009) as both result from the in-teraction between partners who build knowledge together and come to trust each other as they commit themselves further to the relationship. They also refer to internationalization capability as the capability required to approach and develop different markets and locations under various circumstances. These are general operational capabilities needed to manage the operations of a firm in diverse mar-kets which is beyond the scope of this study. Finally, they refer to networking capability as relational capability needed to build, sustain and coordinate relation-ships in a network type context. As with their (2009) model, a firm enjoys a spe-cific network position because of their relational or network capability. Thus, both are complimentary.

The recent argument by Vahlne and Johanson (2013) that the eclectic paradigm cannot be combined with the Uppsala model because both studies have different assumptions deserves some clarifications. They argued that while the eclectic paradigm is rooted in neo-classical economics primarily for macroeconomic stud-ies, they cannot be combined with the Uppsala model rooted in behavioral theory because they are mainly for micro-level studies. I contend that we cannot make a realist argument that macroeconomic theories cannot be combined with microe-conomics theory to explain the evolution of MNEs because several studies have successfully combined or tried to reconcile eclectic paradigm and microeconom-ics theories. For example, with transaction cost econommicroeconom-ics to explain the evolu-tion of MNEs (see Rugman 2010; Dadzie 2012). While this study does not at-tempt to use the eclectic advantages i.e. Ownership, Location and Internalization advantages in explaining the choice of acquisition strategies, it does however ex-plore the motives of FDIs postulated by this paradigm as it provides a descriptive and holistic explanation of the motives of outward foreign direct investment (Rugman 2010). As Rugman also suggested, these motives of outward FDIs can be successfully combined with internalization theory (microeconomics theory).

Rugman suggested that market-seeking, efficiency-seeking and resource-seeking motives are situations where host country specific advantages matters and home country advantage do not matter when determining outward FDIs. In contrast, strategic asset-seeking motives are situations in which both host country specific advantages and home country specific advantages matters (ibid).

Finally, some proponents of the choice of theory chosen for this dissertation may argue that combining TCE and institutional theory are more compatible with this study than the choice of theories explored because TCE and institutional theory are theoretically complimentary to advance IB studies on entry strategies. Brouth-ers and Hennart (2007) posit that IB field can be advanced by the combinative effects of institutional factors with other decision-making criteria, such as TCE dimensions. In retrospection, Martinez and Dacin (1999) supported the combina-tive effects of TCE and institutional theory as they both address the efficiency and legitimacy concerns of their respective limitations in providing a full-scale expla-nation of organizational behavior. This support is shared in recent studies such as Puck et al. (2009) and Zhang, Zhong, Wen and Jiang (2014) that combined both TCE and institutional theory to explain the choice of conversion of ownerships strategies and the choice of control ownership strategies of multinationals.

TCE does not capture the “How” and “Why” questions leading to the resource commitments of parent MNEs. It ignores the sociological aspects (Granovetter 1985; Martinez & Dacin 1999; Lu 2002) and the complexities of the market envi-ronment (Zhang et al. 2014: 1) which the integration of Uppsala model and insti-tutional theory offers a better complementarity than TCE and instiinsti-tutional theory.

TCE studies explore the reasons behind the transactions not the causes of the rea-sons leading to these transactions and do not capture other motivations influenc-ing firms’ strategic behavior when proprietary assets are not their primary motiva-tion. Asset specificity of the target firm only matters when it affects the primary strategic motives of investments of the parent MNEs. A firm with high R&D ca-pability investing in resource-seeking investments may not be primarily con-cerned with the specificity of their assets and may still opt for partial and full ac-quisition. Rather than focusing on the asset specificity of the investment, focusing on the motives provides a useful way to capture the primary strategic reasons mo-tivating the investment decisions of parent MNEs. Finally, construct from TCE are already captured within the theories selected for this study. For example, cul-tural aspects in TCE are already integrated into informal institutions in institu-tional theory. Experience is captured from the Uppsala model. Asset specificity of the investments is incorporated in strategic asset-seeking motives.

Two main theories were explored to aid the development of constructs and theo-retical framework to answer the research questions. Figure 8 shows acquisitions as events and the levels of analysis that affects the acquisition event.

Figure 8. Acquisition as Events and Choice of Theories

The choice of multiple theories reflects the complex nature of acquisition events as they can be viewed on multiple levels of analysis. By integrating multiple theo-retical lenses, it is possible to address the different phases of the acquisition pro-cess and capture the multiple levels of analysis that influences acquisition deci-sions.

Acquisition is a process that starts from interactions between two or more firms and such interaction evolves into several outcomes. Examples includes, IJVs buy-outs (Puck et al. 2009); learning, development of knowledge opportunities and capabilities (Eriksson, Johanson, Majkgard & Sharma 1997; Chetty et al. 2006;

Johanson & Vahlne 2009). Due to this interaction process, it was necessary to integrate a process theory “internationalization process theory” to elucidate the capabilities parent firms attain due to their interaction with target firms and target environment. It has been argued that such firm-type interaction is best studied using dynamic theories (Monge 1990). Thus, internationalization process theory (Johanson and Vahlne 2009) was utilized because it captures the evolving interac-tions between firms before the acquisition decision, during and after the decision (change and state variables). More so, it was essential to integrate institutional theory and internationalization process theory to answer the research questions of this study because empirical evidence suggest that the outcomes of firms interac-tions is moderated by institutional influences (Santangelo & Meyer 2011).

There are several studies linking acquisition to industry drivers such as maturity of industry, growth of industry, concentration of industry and industry consolida-tion (Chen & Hennart 2004; Chen 2008). For example, Chen and Hennart (2004) found a positive relationship between the concentration of industries and the like-lihood of Japanese MNEs preference for full acquisition. They argued that their preference is aimed at market power consolidation. Similar industry driver but a contradictory finding is established in Chen (2008) who showed that partial

ac-quisition are aimed at speeding up entry into rapidly growing markets, control capacity expansions in mature industries and also for market power consolidation.

Thus, there are industry drivers leading to acquisitions. Not limited to industry drivers, there are also other strategic motivations (e.g., resource motives, acquir-ing competencies and immobile strategic assets) within the MNE that trigger ac-quisition decisions. Consequently, the choice of exploring Dunning strategic mo-tives of FDIs is aimed at capturing all possible strategic reasons that motivate acquisition decisions.

While internationalization process theory focuses on overall process level activi-ties, the institutional theory focuses on the country levels. The Dunning’s strate-gic motives capture the manifestation of the industry drivers and other motiva-tions leading to acquisition decisions within the firm. Thus far, these theoretical lenses are complementary to each other and provide additional constructs to cap-ture events in the acquisition process leading to entry decisions, changes in entry decisions and acquisition performance.

Finally, acquisition decisions involve managerial decision making. A typical ac-quisition decision making process starts with developing objectives/motives and passes through systematic search and screening, negotiation, due diligence, deal closure, acquisition integration and post-deal evaluation (Parenteau & Weston 2003; Carpenter & Sanders 2007; DePamphilis 2007; Garbuio, Lovallo & Horn 2010). This process steps reflects the need for multiple theoretical lenses. For example, setting of motives in the acquisition decision-making process is cap-tured by the Dunning’s strategic motives of FDIs. Institutional theory captures most of the relevant factors explored in the search, screening, negotiation and due diligence stages in the acquisition process. Institutional theory predicts the varia-tion in the degree of FDIs inflows into emerging and developing countries com-pared to advanced economies (Asiedu 2002; 2006; UNCTAD 2010; Owusu &

Habiyakare 2011). Institutional theory predicts that the high cost of screening of targets and due diligence in developing and emerging economies is due to the poor information institutions that govern financial transparency (Balakrishnan &

Koza 1993; Whittington 2000; Zhou et al. 2007; Moskalev 2010). Institutional theory (informal institutions) also captures the potential negotiation complexities that may emerge when negotiating acquisition deals in cultural distance markets (Graham 1985; McDevitt 2006; Jackobsen 2008). Finally, institutional theory depicts the performance of acquisitions (Chacar, Newburry & Vissa 2010; Reddy, Locke & Scrimgeour 2010; Ramanathan et al. 2010; Doran & Ryan 2012; Feres

& Reynaud 2012; Brito, Ribeiro & Vasconcelos 2013).