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CHEN, S.-F. S. (2008). The Motives for International Acquisitions: Capability Procurements, Strategic Considerations, and the Role of Ownership Structures. Journal of International Business Studies. 39, 454-471.

Article Summary

The field of international business comprises business connections among various stakeholders. These stakeholders include the government and members of the private sector. Moreover, such commercial deals are not limited to partners within the same geographical boundaries (Chen, 2008, p. 455). The business associates go into these deals with different objectives. For example, the government engages with members of the private sector for political reasons plus monetary gain. Multinational Enterprises (MNE) are a major aspect of international business. They are trade organizations with an international strategy in terms of their manufacture and market sectors. In addition, they have several operations in multiple countries (Chen, 2008, pp.455). On the other hand, various factors influence trade among countries. This is due to the differences in business policies, legal frameworks, political structures, and environment of these nations.

For Multinational Enterprises to thrive in a country, they need to weigh the outcomes of adopting an established business organization in relation to establishing new entities. In most cases, these companies collaborate with indigenous corporations in order to improve the quality of their products. Nonetheless, certain MNEs prefer full ownership of the business (Chen, 2008, p. 456). Another major aspect of international business involves capacity building of the company. Depending on the kind of business venture, the indigenous organizations may outdo MNEs with regard to complementary competence (Chen, 2008, pp. 457). Therefore, the foreign investors must work in partnership with the local firms in order to access natural resources, knowledge on the country’s market and government approval.

            Time factor is also influential in international acquisitions. MNEs ought to consider the time taken to establish a new firm in a foreign country in comparison to obtaining an existing company. In most cases, acquiring a new business organization in these nations is time consuming due to issues concerning logistics, construction, and legal clearance. As such, purchasing an established enterprise ensures that the foreign investors get into the market at a fast rate and are able to compete with other producers in the same field. Additionally, this reduces chances of rivalry with indigenous businesses in the same industry (Chen, 2008, p. 458). Consequently, the international financiers are able to gain the confidence of the nationals and at the same time access necessary resources within the country.

            Nonetheless, acquisition of local firms by the multinational investors has its shortcomings. For example, the purchase of prosperous indigenous businesses comes at a higher price than its real worth. At times, the buyer lacks an assurance of total transfer of the firm’s assets due to substandard contracts. In addition, the transaction involves the transfer of employees and the managerial system, which is risky and hectic in terms of its outcomes (Chen, 2008, p. 460). Therefore, MNEs have to evaluate the risk involved in acquiring existing firms and the time consumed in establishing a new company before making a decision. Furthermore, the foreign investors may decide on full or partial ownership to avoid these risks. In conclusion, Multinational Enterprises need to ensure that they gain maximum profits from their investment while maintaining a healthy relationship with the citizens, competitors and government of their target country.

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