Absorptive capacity and a failed cross‐border M&A

Ping Deng

Management Research Review, 2010, vol. 33, issue 7, 673-682

Abstract: Purpose - Chinese companies are increasingly using cross‐border mergers and acquisitions (M&A) to source knowledge or strategic assets. For many, global acquisitions have proven to be highly problematic and value‐destroying. The purpose of this paper is to address this critical acquisition failure issue from an absorptive capacity perspective. Design/methodology/approach - Guided by the framework that focuses on how acquiring a firm's weak absorptive capacity damages its ability to assimilate, integrate and apply external new knowledge, one high‐profile Chinese failed acquisition: TCL acquisition of France's Thomson's TV business in 2004 is analyzed empirically. Findings - Acquisition performance of Chinese overseas M&A is found to be substantially affected by the acquiring firm's absorptive capacity at multiple dimensions.Research limitations/implications –The absorptive capacity construct provides an insightful account for differentials in Chinese overseas M&A performance. Practical implications - For decision makers interested in formulating and implementing overseas M&A strategy, appropriate evaluation of their own firms’ absorptive capability should be the first step to take.Originality/value–This is the first paper to apply absorptive capacity arguments to Chinese resource‐driven M&A strategy, and will prompt business academicians and practitioners to think about M&A strategy in new and innovative ways.

Keywords: China; Acquisitions and mergers; Organizational development; Assets management (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:mrrpps:v:33:y:2010:i:7:p:673-682

DOI: 10.1108/01409171011055771

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