Final Report Summary - MII- FDLUX (The impact of Chinese Acquisitions on the Luxury Made in Italy)
In the light of the research objectives set in the GA, the project has contributed to the current debate on the internationalization of Emerging market Multinational Companies (EMNCs) literature in many ways. First, it confirmed a number of claims made in the literature on EMNCs internationalization. Second, it identified certain nuances that are easily missed in broad theoretical studies. Third, it raised some interesting points for further research.
The project, through both in-depth case-studies, confirms a number of claims made in theoretical studies of EMNCs international expansion, particularly into advanced economies. Specifically, the Chinese firms in all case studies confirm the expectation supported by the literature that EMNCs that have secured their position in their home markets are the ones more likely to internationalize to upgrade their competitiveness. All the four case-studies also confirm arguments in the literature that EMNCs seek strategic assets such as brands and higher technology in their acquisitions of DMNCs. The findings also tend to confirm the difficulties postulated “double layered acculturation” theory of cultural differences more as a liability than as an asset, at least in the implementation of the post-acquisition integration strategies. In particular, although in all the four case-studies the findings support the view whereby the Chinese investors were welcomed by the target firms as they offered appealing complementarities, they enabled the targets to become more cost-competitive by also injecting much needed capital, significant cultural clashes tend to emerge. More precisely, the findings offer some valuable insights over the distinctive challenges faced by the Chinese investors in organizing and managing the new entity.
For all the Chinese investors have been difficult to adequately adjust their style of organizing and of managing their operations from their traditional hierarchical mode of organization, as well as the command-and-control based approach to management, to one that is more compatible with the more autonomous work culture prevalent in Italy.
In all four case-studies, the Chinese investors fully embraced the partnering approach. They did so by pursuing structural separation, selective coordination of the activities, by having few replacements in terms of key personnel, by granting the targets high organizational autonomy as well as undertaking gradual integration speed. Within this context, the partnering approach to post-acquisition integration helped to secure these strategic assets by giving autonomy to the target firms’ management team, retaining talents and creating strategic synergies. However, the relative degree of light-touch approach adopted is significantly different. While in the case of Benelli, for example the light-touch approach is clearly an integration of preservation and symbiotic approach, in the case of Meneghetti a partial absorption strategy was implemented. In both instances by considering the national culture of the acquirers characterized by relatively lower levels of uncertainty avoidance (i.e. China: 30 and Italy: 75) and by lower levels of individualism (i.e. China: 20 and Italy: 76) these would have been deemed as the most successful strategies by the literature.
From both the presence of significant cultural clashes experienced by the firms and the partnering approach implanted by the acquirers stems an interesting paradox. While according the literature on Developed market Multinational Corporations (DMNCs), when the headquarters and target are not tightly integrated such issues do not arise, in both instances this was clearly not the case. Both case-studies showed that despite the substantial autonomy granted to the target firm, there were communication and coordination issues stemming from cultural differences. This further reinforce the argument that a fuller understanding of the post-acquisition strategies implemented by Chinese investors and more broadly by EMNCs is not only desirable but it is also a necessity.
The analysis of the four case-studies also highlighted some nuances not easily seen in broad theoretical studies, and raise some interesting research questions for the future. For example, both case-studies show that the acquisition of an DMNC’s brand by an EMNC must be managed carefully in the advanced economy markets, since the low cost image of the EMNC’s products can erode the value of the DMNC’s brand. This is a nuance that is crucial but only finds limited support in the extant literature. In all the case-studies for example showed how Italian and other European customers were concerned about the brand value of the Italian firm deteriorating after its purchase by Chinese firms. The case-studies also show that such erosion of brand image can be prevented, for example by carefully separating the brand identities of the DMNC from that of the EMNC through marketing, communication, and even the separation of the DMNC operations from the EMNC operations.
This separation raises an important and interesting research question. Specifically, since EMNCs acquire DMNCs at least in part to acquire their advanced capabilities, how do EMNCs acquire the capabilities while keeping the two organizations separate since a close or joint working relationship is important for the transmission of tacit capabilities. The in-depth case studies thus highlight nuances that are glossed over in broad theoretical classifications of what to expect with different types of integration strategies. In particular, more research is needed on the types of communication and coordination problems faced when DMNCs are allowed to operate largely autonomously, and the identification of strategies used to successfully address these problems.
Finally, while confirming claims in the literature that EMNCs seek advanced capabilities and brands when acquiring DMNCs, the case-studies also highlight a nuance. That is, advanced capabilities and brand image are often tied to specific locations such as the Italian industrial districts and hence EMNCs that acquire DMNCs for their strategic assets are unlikely to delocalize their production out of the target country. Even so, there may be economies of scale to be realized by sharing some production or procurement activities. Further research can shed light on how EMNCs acquirers of DMNCs balance the need to retain production in the advanced economy with the potential for scale economies from consolidating production in lower cost locations.
The project, through both in-depth case-studies, confirms a number of claims made in theoretical studies of EMNCs international expansion, particularly into advanced economies. Specifically, the Chinese firms in all case studies confirm the expectation supported by the literature that EMNCs that have secured their position in their home markets are the ones more likely to internationalize to upgrade their competitiveness. All the four case-studies also confirm arguments in the literature that EMNCs seek strategic assets such as brands and higher technology in their acquisitions of DMNCs. The findings also tend to confirm the difficulties postulated “double layered acculturation” theory of cultural differences more as a liability than as an asset, at least in the implementation of the post-acquisition integration strategies. In particular, although in all the four case-studies the findings support the view whereby the Chinese investors were welcomed by the target firms as they offered appealing complementarities, they enabled the targets to become more cost-competitive by also injecting much needed capital, significant cultural clashes tend to emerge. More precisely, the findings offer some valuable insights over the distinctive challenges faced by the Chinese investors in organizing and managing the new entity.
For all the Chinese investors have been difficult to adequately adjust their style of organizing and of managing their operations from their traditional hierarchical mode of organization, as well as the command-and-control based approach to management, to one that is more compatible with the more autonomous work culture prevalent in Italy.
In all four case-studies, the Chinese investors fully embraced the partnering approach. They did so by pursuing structural separation, selective coordination of the activities, by having few replacements in terms of key personnel, by granting the targets high organizational autonomy as well as undertaking gradual integration speed. Within this context, the partnering approach to post-acquisition integration helped to secure these strategic assets by giving autonomy to the target firms’ management team, retaining talents and creating strategic synergies. However, the relative degree of light-touch approach adopted is significantly different. While in the case of Benelli, for example the light-touch approach is clearly an integration of preservation and symbiotic approach, in the case of Meneghetti a partial absorption strategy was implemented. In both instances by considering the national culture of the acquirers characterized by relatively lower levels of uncertainty avoidance (i.e. China: 30 and Italy: 75) and by lower levels of individualism (i.e. China: 20 and Italy: 76) these would have been deemed as the most successful strategies by the literature.
From both the presence of significant cultural clashes experienced by the firms and the partnering approach implanted by the acquirers stems an interesting paradox. While according the literature on Developed market Multinational Corporations (DMNCs), when the headquarters and target are not tightly integrated such issues do not arise, in both instances this was clearly not the case. Both case-studies showed that despite the substantial autonomy granted to the target firm, there were communication and coordination issues stemming from cultural differences. This further reinforce the argument that a fuller understanding of the post-acquisition strategies implemented by Chinese investors and more broadly by EMNCs is not only desirable but it is also a necessity.
The analysis of the four case-studies also highlighted some nuances not easily seen in broad theoretical studies, and raise some interesting research questions for the future. For example, both case-studies show that the acquisition of an DMNC’s brand by an EMNC must be managed carefully in the advanced economy markets, since the low cost image of the EMNC’s products can erode the value of the DMNC’s brand. This is a nuance that is crucial but only finds limited support in the extant literature. In all the case-studies for example showed how Italian and other European customers were concerned about the brand value of the Italian firm deteriorating after its purchase by Chinese firms. The case-studies also show that such erosion of brand image can be prevented, for example by carefully separating the brand identities of the DMNC from that of the EMNC through marketing, communication, and even the separation of the DMNC operations from the EMNC operations.
This separation raises an important and interesting research question. Specifically, since EMNCs acquire DMNCs at least in part to acquire their advanced capabilities, how do EMNCs acquire the capabilities while keeping the two organizations separate since a close or joint working relationship is important for the transmission of tacit capabilities. The in-depth case studies thus highlight nuances that are glossed over in broad theoretical classifications of what to expect with different types of integration strategies. In particular, more research is needed on the types of communication and coordination problems faced when DMNCs are allowed to operate largely autonomously, and the identification of strategies used to successfully address these problems.
Finally, while confirming claims in the literature that EMNCs seek advanced capabilities and brands when acquiring DMNCs, the case-studies also highlight a nuance. That is, advanced capabilities and brand image are often tied to specific locations such as the Italian industrial districts and hence EMNCs that acquire DMNCs for their strategic assets are unlikely to delocalize their production out of the target country. Even so, there may be economies of scale to be realized by sharing some production or procurement activities. Further research can shed light on how EMNCs acquirers of DMNCs balance the need to retain production in the advanced economy with the potential for scale economies from consolidating production in lower cost locations.