Strategic Motives for Cross-Border Mergers and Acquisitions in the Digital Era

1. ABSTRACT
2. INTRODUCTION
2.1. Rationale and significance of the research
This paper will analyse the strategic motives of companies for cross-border mergers and
acquisitions in the digital era. Uddin, Moshfique, and Boateng (2014) claims, that cross-
border mergers and acquistions occur when foreign and domestic companies that are separate,
come together in a target country in which only one company ceases to exist. Over the past
deacades, globalisation has impacted people and communities worldwide and has
significantly influenced sustainable development. Moreover, in the digital era, fast-paced
changes occur in technology, the mobility of goods, services, capital, labour, and capital
increased, our economies, societies and the natural environment has changed and made our
world connected more than ever before (Brocke and Sinnl 2011). Consequently, companies
are becoming more competitive as boundaries are getting less rigid and therfore they are
willing to develop globally. Cross-border mergers and acquisitions (CM&As) happen to be
one of the ways for achieving their targeteds as they are among the most important
phenomena of modern economies (Kwoka, 2002). Barkman (2008) claims that cross-border
mergers and acquisitions in terms of economic importance, it is a positive global effect. The
study indicated that mergers and acquisitions are a global phenomenon economically wide.
One of the reason is because, it gives the chance to enterprises to directly access resources,
technologies, achievements of a target company, knowledge in order to strengthen and build

core competencies, as well as gaining competitive advantage(Anand and Khanna 2000, Helfat
and Peteraf 2003). Thus, it enables expansion of the firms business, technological scopes, to
overcome rigid core crisis, and it is the best way to create capabilities for a company
(Eisenhardt and Martin 2000). CM&As can be a tool for increasing market share, diversifying
products and services, gaining new skills, operational flexibility, improving learning,
innovation, sharing risk and more (Buckley, Clegg and Wang 2002, Benito 2005, Wei and Liu
2006).One of the top priorities for most companies is profit growth and to achieve that,
companies are willing to take significant measures like CM&As.
Moreoover, one of the most popular motive behind many CM&As is to increase the efficiency
in production in the business. To increase the scale of production companies in the same
indsutry are merging. Additionally, CM&As also expand market reach. Increasing the scale of
services in more countries also benefits businesses by attracting diverse professionals that can
bring new ideas and help the firm to achieve its targeteds.
Even if CM&As could increase a firms share prices greatly, some obstacles can also occur. A
great majority of businesses believe that CM&As are complicated and contains many risks
and challanges that can lead the firms to failures. Different countries have different business
regulations, and consequently, labour and tax issues can arise when merging companies
accross borders. Karim and Mitchell (2000) claims that it presents multiple challenges and
obstacles as well, such as, the difficulty of evaluating target firms, cultural and institutional
differences, and the liabilities of foreignness among others. In addtiion, emerging markets
usually do not have refined their business market structure such as developed countries have,
and therfore, imposes a requirement of deep knowledge of the host country's implicit rules
and behaviour. From the other side, the rigorous regulation of developed countries, such as
the labour norms, requires a foreign firm to possess an advanced knowledge of these rules to

successfully manage an acquired firm (Carbonara and Caiazza, 2008a, b). This result with
several complex variables to CM&As deals and complicates the business merging process.
Understanding the strategic motives for CM&As of both countries involved in and learning
from similar cases are imperative.
2.2. Research questions
This paper will raise several research questions, in order to fill the defined research gap:
RQ1: What are the strategic motives for CM&As in the digital era?
RQ2: What are the consequences and challanges of investments in CM&As?
2.3. Research aim and objectives
The first research objective is to overview the cross border mergers and acquisitions by
explaining definitions and types of cross-border mergers and acquisitions with appropriate
literature. Secondly, to explore strategic motives for cross border mergers and acquisitions
and recent trends and patterns. Thirdly, to critically evaluate the main challenges that
businesses faces. Furthermore, one of the objectives is to analyse the cross border factors that
influences the decisions for cross-border mergers and acquisitions. In addition, another
research objective is to explore the consequences of today’s huge investments in cross border
mergers and acquisitions activities.
The aim of the research is to provide new insights into cross border mergers and acquisitions,
based on received wisdom from existing literature, to examine the challenges, issues that
company faces, and to recommend proper solutions for them. Moreover, to highlight the
strategic motives of businesses and what are the consequences of investments in cross-border
mergers and acquisitions.

2.4. Structure of the dissertation
3. LITERATURE REVIEW
This chapter will critically discuss and provide a summary of the research aim and objectives,
including core knowledge and theories to the particular topic and area of research in order to
show the relevance and originality of the research problem.
Over the past decades, the trend of globalisation is rising and as it grows worldwide, many
businesses are inclined to develop globally. Many companies seek for increased opportunities
and cheaper alternatives to build companies internally through cross-border mergers and
acquisitions (CM&As). On the other hand, a great majority believe that CM&As are very
complicated and contains variables that can lead a business to failures. To build a better
understanding, it is important to know why and how IT companies merge with or decide to
acquire other company in this digital era.
3.1. Conceptualisation of cross-border mergers and acquisitions
3.1.1. Evoulution
According to Whitaker (2016:3-5) mergers and acquisitions (M&A) are historically a recent
phenomenon linked to a certain form of economic developmnet. The evolution of M&A
market shows a globalisation of this tool as a leading business transformation mechanism.
However, Gregoriou and Renneboog (2007) argued that because of the rapid development in
global economy, mergers began to take place intensively during 1980’s and started to shape a
new “behavior” in an excessively competitive economical environment.

DePamphilis (2009), Gaughan, P. A. (2010), Sherman, A. J. (2010) in their research claimed
that for more than a cenutry the M&A market has been expanding globally to new territories
and new sectors. That resulted with an increased awarness of such transactions and with the
number of sector concerned by cross-border deals in countries over the world. Institue of
Mergers, Acquisitions and Alliances (IMAA) as an academic institution has conducted a
research which covers the years between 1985 and 2015 in which shows how M&A's have
intensified over the years worldwide.
In addition, Whitaker (2016: 5) claims that this mechanism of ownership change and also
corporate value transformation has ups and downs. Moreover, the way how cross-border
M&As are accepted and used still differentiate between countries.
Over the past three decades most of the world FDI has been carried out via CBM&A
(UNCTAD, 2000, 2012). Chen and Findlay (2003) reported that CBM&A became an
important entry mode of FDI by multinational corporations.
According to many authors, merger and acquisitions have evolved in five waves (Sudarsanam
2003, Stigler 1950, Chandler 1991). Furthermore, as seen from past experience M&A are
triggered by economic factors (Sudarsanam 2003). The key role in designing the process of
M&A between companies or organisations plays the macroeconomic environment, which
includes monetary policies, the growth in GDP and interest rates (Martynova and Renneboog
2008).
3.1.2. Definitions
Merger and acquisitions happens when two legal entities‘ assets and liabilities are combined
to become one legal entity (Frantlikh 2003). If we are to define merger and acquisition
separately, according to Scott (2013), mergers are a combination of two or more companies in
which the assets and liabilities of the selling fimrs are absorbed by the buying firm.

Although, the buying firm may be a considerably different organisation after the merger, it
retain its original identity. Whilst, acquisiton is the purchase of an asset such as a plant, a
divison, or even an entire company.
Other author clamis that merger is the combination of two or more companies in creation of a
new entity or formation of a holding company (European Central Bank, 2000, Gaughan, 2002,
Jagersma, 2005, Awasi Mohamad and Vijay Baskar, 2009). In addtion, acquisition is the
purchase of shares or assets on another company to achieve a managerial influence (European
Central Bank, 2000, Chunlai Chen and Findlay, 2003, Awasi Mohamad and Vijay Baskar,
2009), not necessary by mutual agreement (Jagersma, 2005, Awasi Mohamad and Vijay
Baskar, 2009)
The purcahse of the trade name and assets of an aquiree by an acquirer headquartered outside
the country where the acquired company
CBM&A is defined as the purchase of the trade name and assets of one company (an
acquiree) by another company (an acquirer), headquartered outside the country where the
acquired company is located as the combination of two companies of diff erent nationalities.
In a cross-border acquisition, the control of assets and operations are transferred from a local
to a foreign company, with the former becoming an affi liate of the later (UNCTAD, 2000).
Kotter and Schlesinger (2005) described that mergers and acquisitions occur when two
separate firms come together in which only one company ceases to exist. Following the
merger and acquisition, the acquired company is subject to managerial, economic and legal
control of the acquiring company. In a takeover or an acquisition, one company takes over the
control of assets and liabilities of another company. Acquisitions may range from partial to
complete acquisitions. With complete acquisition (100% control), the acquired fi rm ceases to

exist. In terms of merger, two companies combine, but few companies really merged.
UNCTAD (2000) suggests that mergers and acquisitions basically mean acquisitions.
Therefore, despite all kinds of theories and definition to differentiate merger from acquisition,
the acquirer companies usually prefers to call it M&A, that leads to the word merger and
acquisition being used interchangeably today. Unless the deal is being generally recognised as
a hostile takeover by the acquirer, where then it would be seen as a pure acquisition, in any
other cases, M&A will be generally recognised as the same.
3.1.3. Types of CM&As
Mergers and acquisitions can be generally classified to congeneric M&A and
conglomerate M&A. Congeneric M&A can be further breakdown to horizontal M&A and
vertical M&A.
• Horizontal M&A occurs when two companies in the same industry come together to
combine, and most probably are competitors (Chunlai Chen and Findlay, 2003). The
motives behind a horizontal M&A are mainly to tap into new market segment, to
achieve cost saving, and increase market.
• Vertical M&A occurs between two companies in different stages of production; for
example manufacturing and marketing combine (Chunlai Chen and Findlay, 2003).
The motives that is driving vertical M&A is the intention to reduce dependencies and
to reduce overhead cost and to gain the scale of economies.
• Conglomerate M& A involves two unrelated businesses, with the purpose to
diversify capital investment and also to achieve scale of economies. (Gaughan, 2002).
3.2. The importance of strategic motives for CM&As in the digital era

In the Digital Revolution, started during the 1980s and is ongoing, technology advanced and
developed from analog, electronic and mechanical devices to the digital technology which is
available today. It all started with one fundamental idea: Internet (Ries 2011).
The time when change with an exact beginning and an end has passed. Digital transformation
has become global. It can be seen through technology, business, and leadership. It affects
every one in all aspects, and yet it remains partially unexplored (Ries 2011). Disruptions rate
are accelerating and have become continuous. The digital transformation has windened the
gap between change and a business ability to adapt. It revolutionized the ways we
communicate, spend our time, work, and consume.
The digital era compels companies to react or else. To succeed in this era, leaders must grasp
these changes. The Digital Revolution is sometimes also called the Third Industrial
Revolution. According to many authors, multinational companies outperform other
enterprises and that they are responsible for much of the world's innovations, expenditures,
and research and development (Criscuolo et al. 2010, Criscuolo and Martin 2009, Greenaway
and Kneller 2007, Helpman et al. 2004).
Moreover, a wide part of the foreign direct investment (FDI) of multinational companies takes
the form of cross-border mergers and acquisitions, especially among developed countries and
in industries with a high R&D intensity UNCTAD (2005, 2007).
As can be seen in a research of Harvard Business Review (2018), M&A activity did not
disappoint in 2017 and 2018. Every once in a while it is possible to see a new mega merger or
purchase not only from some of the biggest IT vendors and service provider giants, but also
solution providers and IT distributors.
Some of the biggest technology cross-border acquisitions and mergers that happened in 2017
are: