Acquisitions  in  Developed  Markets:    Challenges  for  Emerging  Market  Multinationals  

     

     Department  of  International  Business  Studies  

Uppsala  University  

Spring  2011  

     

Maria  Ardila    

   

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Abstract  

 This  paper  departs  from  the  observation  that  emerging  market  multinationals  (EM  

MNCs)  rapidly  conquer  global  markets,  at  the  same  time  as  our  knowledge  about  the  

operations  of  MNCs  in  general  is  almost  exclusively  derived  from  mature,  well-­‐

established  markets.  In  particular  this  is  true  when  it  comes  to  post  acquisition  

processes,  which  arguably  reflects  a  passed  pattern,  where  firms  in  emerging  markets  

rather  were  targets  for  acquirers.  The  objective  of  this  paper  is  therefore  to  describe  

how  EM  MNCs  integrate  and  control  their  acquisitions  in  order  to  sustain  and  advance  

their  international  competitiveness.  Since  the  main  interest  in  this  endeavor  resides  in  

the  processes  of  integration  and  control,  the  empirical  evidence  consists  of  a  careful  

study  of  one  case:  Bharat  Forge  Limited,  an  Indian  MNC  that  over  the  two  last  decades  

has  grown  into  a  global  player  in  its  field,  mostly  through  acquisitions.  Since  there  are  no  

theories  specifically  focusing  on  integration  and  control  processes  of  EM  MNCs,  this  

paper  builds  five  expectations,  based  on  US-­‐  and  Eurocentric  theories.  The  expectations  

were  more  or  less  met.  The  case  displayed  a  rapid  internationalization  process  in  order  

to  acquire  strategic  assets.  It  also  displayed  ingenious  strategies  to  keep  production  

costs  down.  In  line  with  expectations,  it  showed  as  well  as  a  low  degree  of  management  

turnover.  However,  the  expectation  that  there  would  be  no  interference  in  marketing  

and  financial  integration  was  only  partly  met.  The  interference  consisted  in  supplying  

design  and  low  cost  products  when  needed.  The  fifth  expectation  was  met,  in  the  sense  

that  the  relationship  between  BFL  and  Kilsta  can  be  categorized  as  symbiotic.  In  terms  of  

control,  however,  the  evidence  from  the  case  study  suggests  that  the  distinction  between  

strategic  and  operational  control  is  indistinct.  The  match  between  the  theoretical  

framework  and  the  case  suggests  that  prior  theories  to  a  large  extent  are  useful  for  

understanding  post  acquisition  processes  of  EM  MNCs.  There  may  also  be  some  room  to  

amend  these  theories  to  better  fit  a  globalized  world,  in  which  various  resources  seem  to  

be  somewhat  more  evenly  spread  than  before.  

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Table  of  Contents  

 

1.  Introduction  ...................................................................................................................................  4  

2.  Literature  Review  ........................................................................................................................  7  2.1  Prior  waves  of  internationalization  ..............................................................................................  8  2.2  The  origins  of  the  present  wave  of  EM  MNCs  .............................................................................  9  2.2.1  Institutional  context  and  challenges  to  become  global  leaders  .............................................  10  2.2.2  How  EM  MNCs  challenge  long-­‐term  established  multinationals  ...........................................  12  

 .....................................................  13    ..................................  16  

2.4.1  Expected  problems  ...................................................................................................................................  16  2.4.2  Acquisition  integration  ...........................................................................................................................  17  2.4.3  Control  ...........................................................................................................................................................  19  

 ................................................................  19  2.6  Expectations  on  Bharat  Forge  Ltd  ...............................................................................................  20  

3.  Methodology  ...............................................................................................................................  21  3.1  Research  design  .................................................................................................................................  21  3.2  Data  collection:  sources  and  source  criticism  ........................................................................  23  

4.  Bharat  Forge  Limited  ...............................................................................................................  24  4.1  Company  history  ...............................................................................................................................  24  4.2  Internationalization  and  growth  .................................................................................................  25  4.3  Value  Creation  ....................................................................................................................................  27  

5.  Case  Analysis  ..............................................................................................................................  28  5.1  Subsidiaries  integration  and  control  .........................................................................................  28  5.2  Pros  and  cons  of  the  acquisition  for  Bharat  Forge  Kilsta  ...................................................  30  

6.  Discussion  and  Conclusions  ..................................................................................................  32  

7.  References  ...................................................................................................................................  36  

Appendix  1:  Interview  questions  .............................................................................................  38    

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1.  Introduction    

Critics  of  foreign  direct  investment  (FDI)  pointed  out  that  MNCs  create  concentration  of  

power  and  restrain  competition  in  different  nations.  Others,  less  pessimistic,  recognized  

that  MNCs  are  instrumental  for  transferring  capital,  technology  and  organizational  skills  

between  countries.  Many  years  have  gone  since  the  first  wave  of  MNCs  begun  to  expand  

and  now  we  are  seeing  as  a  result  of  FDI,  a  new  wave  of  MNCs  from  less  developed  

countries  operating  and  expanding  in  the  global  arena.    

   

Over  the  past  two  decades,  MNCs  from  industrialized  countries  have,  through  foreign  

direct  investment,  transferred  capital,  organizational  and  technological  skills  to  firms  in  

developing  economies.  Today  we  are  witnessing  how  emerging  market  MNCs  are  

investing  abroad  on  their  own,  capitalizing  on  the  benefits  gained  from  experienced  

global    inward  direct  investment  (OECD  2006).  

 

Dupoux  et  al.  (2011)  identify  in  China,  India,  Brazil,  Mexico  and  Russia  the  top  one  

hundred  firms,  from  16  rapid  developing  economies  (RDEs),  in  terms  of   global  

challengers  because  they  have  shown  outstanding  growth  records  of  in  average  18  

percent  annually  between  2000  and  2009.  They  represent  diverse  industries  such  as  

industrial  goods,  consumer  durables,  technology  equipment,  telecommunication,  

pharmaceuticals,  and  information  technologies,  among  others.  Dupoux  et  al.  (2011)  also  

shows  that  these  firms  are  internationalizing  increasingly,  not  only  through  export  

operations,  but  also  through  foreign  direct  investment,  including  acquisitions.  In  the  

past  decade,  about  60  percent   -­‐border  deals  have  taken  

place  in  developed  markets.  These  deals  have  also  been  larger  than  those  held  in  

developing  countries.  The  average  value  of  deals  in  industrialized  countries  mounted  up  

to  $554  million  compared  to  $337  million  in  less  developed  countries  (Dupoux  et  al.  

2011).  

 

The  fact  that  EM  MNCs  are  increasingly  internationalizing  through  acquisitions  in  

developed  markets  challenges  prior  perceptions  of  EM  MNCs  as  acquisition  targets,  

which  raises  a  number  of  questions.  First,  these  firms  differ  significantly  from  mature  

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market  MNCs  in  that  the  firms  competitive  advantage  is  generally  based  on  low-­‐cost  

production  rather  than  on  technological  breakthroughs  (Kumar  &  McLeod  1981).  In  

addition,  EM  MNCs   resources  and  experience  in  the  global  arena,  as  

their  counterparts.  As  a  result,  their  internationalization  strategies  are  also  substantially  

different.  These  firms  often  target  developed  countries  in  search  for  strategic  assets  

(Buckley  2006;  Li  2007),  which  testifies  to  an  internationalization  driven  by  asset  

seeking  rather  than  by  an  asset-­‐exploiting  nature  (Dunning  1998;  Mathews  2006).    

 

Secondly,  foreign  acquisitions  are  known  to  be  intrinsically  complex  events,  where  the  

parties  involved  differ  in  many  dimensions  (Fubini  et  al.  2006).  The  targets  are  

embedded  in  different  national  cultures,  and  are  likely  to  have  different  rules,  

procedures,  conventions  and  strategies  (Greenwood  et  al.  1994),  because  they  belong  to  

different  national  economic  and  institutional  systems.  These  factors  purportedly  explain  

why,  despite  the  increasing  scale  and  speed  of  mergers  and  acquisitions  (M&A),  

academic  researchers  have  consistently  shown  that  on  average,  M&A  deliver  mediocre  

performance  outcomes  (Fubini  et  al.  2006).    

 

Prior  research  on  M&

et  al.  2003;  Haspeslagh  

and  Jemison  1991).  Only  few  studies  have  looked  at  these  processes  within  the  context  

of  EM  MNCs  (Kumar  2009).  Therefore,  this  paper  is  preoccupied  with  the  question  of  

how  EM  MNCs  integrate  and  control  their  acquisitions  in  order  to  sustain  and  advance  

their  international  competitiveness.  In  so  doing,  a  subordinated  aim  is  to  develop  a  

theoretically  driven  frame  for  analysis,  based  on  prior  knowledge  of  M&A,  which  can  

yield  expectations  on  the  empirical  analysis.  Understanding  how  EM  MNCs  integrate  and  

control  their  acquisitions  is  important,  first  because  it  is  an  increasing  phenomenon,  and  

also  because  there  may  be  lessons  to  learn  from  these  experiences  of  value  to  developed  

 

 

The  empirical  body  of  this  paper  consists  of  a  case  study  on  Bharat  Forge  Limited  (BFL),  

an  Indian  multinational  that  manufactures  various  forged  and  machined  components  for  

the  automotive  and  non-­‐automotive  sector.  

Director  BN  Kalyani,  says  that  it  is  imperative  for  Indian  companies  to  climb  the  value  

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chain  through  adequate  investment  in  R&D.  He  wants  Indian  industries  to  look  for  

intellectual  and  design  product  leadership  and  not  focus  on  cost  alone.    Since  the  

beginning  in  1961,  BFL  has  done  significant  achievements,  rising  to  a  leading  position.  

Today  BFL  is  the  supplier  to  almost  all  global  original  equipment  manufacturers  (OEM),  

such  as  Mercedes-­‐Benz,  Toyota,  BMW,  Volkswagen  and  Audi  among  others.  Additionally,  

every  second  truck  built  in  the  US  and  in  Europe  has  some  part  made  by  Bharat  Forge  

Ltd.    

 

The  internationalization  strategy  of  BFL  is  to  grow  through  different  forms  of  external  

associations  with  other  companies.  This  research  focuses  on  the  integration  and  control  

of  the  acquisitions  that  BFL  systematically  made  between  2003  and  2005,  mainly  in  the  

European  market,  notably  including  Swedish  Imatra  Kilsta  AB.    

 

Companies  can  grow  through  organic  expansion  (start-­‐ups)  or  through  various  forms  of  

external  associations  as  for  example  M&A.  Among  the  external  associations,  M&A  imply  

higher  levels  of  integration.  However,  mergers  differ  from  acquisitions  in  that  mergers  

aim  at  the  total  integration  of  two  or  more  partners  into  one  new  corporation  while  

acquisitions  permit  a  degree  of  choice  regarding  the  level  of  integration  (Haspeslagh  and  

Jemison  1991).    

 

Different  fields  involved  in  M&A  research  aim  at  exploring  variables  that  influence  the  

performance  of  firms  before  and  after  the  acquisi  Cartwright  and  

Schoenberg  (2006)  identified  a  number  of  categorically  distinct  perspectives  of  M&A  

studies.  Firstly,  finance  scholars  have  focused  on  the  issue  of  whether  acquisitions  are  

wealth  creating  or  wealth  reducing  events  for  shareholders.  Secondly,  the  strategic  

management  research  has  identified  the  importance  of   strategic  fit  and  process  factors  

that  may  explain  the  performance  variance  between  individual  acquisitions.  Recent  

extensions  of  this  perspective  have  analyzed  the  value  creation  mechanisms  into  

acquisitions  based  on  resource  sharing  and  knowledge  transfer  (Capron  et  al.  2002).  

The   process  literature  discusses  the  choice  of  integration  strategy  and  acquisition  

process.  Both  strategy  and  organizational  behavior  researchers  point  out  that  no  matter  

how  attractive  the  acquisitions  appear  on  paper,  value  is  not  created  until  after  the  

acquisition,  when  capabilities  are  transferred  and  people  from  both  organizations  

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collaborate  to  achieve  the  expected  benefits  or  discover  others  (Haspeslagh  and  Jemison  

1991).  They  argue  that   intimately  hinge  upon  the  

appropriateness  of  decision-­‐making,  negotiation  and  integration  processes.    

2.  Literature  Review    

Since  little  is  known  about  how  emerging  market  MNCs  integrate  and  control  their  

acquisitions,  I  am  going  to  review  existing  literature  on  how  developed  market  MNCs  

carry  out  this  process.  On  the  basis  of  that  literature  I  build  five  expectations  at  the  end  

of  the  literature  review.    

 

Traditionally  the  international  business  literature  has  separated  the  analyses  of  the  

internationalization  process  and  the  entry  mode.  However,  in  this  case  I  consider  it  

important  to  combine  these  processes,  because  I  argue  that  the  crafting  of  EM  MNCs  

competitive  advantage  to  gain  global  leadership  starts  with  their  internationalization  

strategy.  Since  this  strategy  is  often  carried  out  through  acquisitions,  a  well  executed  

internationalization  depends  on  how  well  EM  MNCs  integrate  and  manage  their  

acquisitions.  

 

This  review  is  organized  around  a  series  of  challenges  and  questions,  derived  from  my  

research  problem.  In  order  to  analyze  how  EM  MNCs  integrate  their  acquisitions  it  is  

necessary  to  give  a  review  about  what  we  know  on  the  origin  of  EM  MNCs,  their  main  

characteristics,  why  they  are  internationalizing  through  acquisitions  and  how  they  

integrate  and  control  their  acquisitions.    

 

In  the  first  part  I  outline  prior  waves  of  internationalization  and  describe  how  MNCs  

from  Europe,  the  US  and  Japan  show  different  organizational  structures  and  behavior,  

yielding  both  advantages  and  disadvantages  that  they  have  tried  to  overcome  over  the  

years.  However,  all  of  them  have  in  common  the  fact  that  they  internationalized  to  

exploit  existing  resources  developed  in  their  country  of  origin.  In  the  second  part  I  

describe  the  historical  background  of  EM  MNCs.  How  changes  in  the  industrial  

production,  especially  the  outsourcing  trend  gave  rise  to  a  wide  range  of  suppliers  that  

gradually  grew  into  the  EM  MNCs  that  are  being  the  object  of  this  analysis.  This  part  is  

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divided  in  two  subparts;  the  first  is  a  brief  description  of  EM  MNCs  institutional  context  

and  the  challenges  that  they  must  overcome  to  become  global  leaders.  In  the  second  

subpart  I  outline  how  this  new  wave  of  EM  MNCs  are  challenging  long-­‐term  established  

MNCs,  by  putting  forward  alternative  business  models  of  production  and  distribution.  In  

the  third  part,  I  describe  the  strategic  goals  that  EM  MNCS  pursue  when  doing  

acquisitions  and  why  they  choose  acquisitions  as  entry  mode.  In  the  fourth  part,  I  review  

the  literature  on  integration  of  acquisitions,  which  mainly  centers  on  studies  of  

traditional  western  MNCs  with  the  exception  of  Japan.    In  the  last  part,  I  will  review  

recent  literature  on  the  integration  of  EM  MNCs  acquisitions.  However,  this  field  of  

knowledge  is  new  and  is  not  as  deep  as  prior  studies  on  developed  market  MNCs.    

 

2.1  Prior  waves  of  internationalization    International  Business  researchers  identify  three  prior  waves  of  firms  global  expansion.  

According  to  Bartlett  &  Beamish  (2011),  the  first  wave  were  European  MNCs  whose  

major  international  expansion  occurred  in  1920s  and  1930s.  This  was  a  period  of  rising  

tariffs  and  discriminatory  legislation  that  forced  MNCs  to  build  local  production  

facilities.  In  that  way,  they  were  able  to  modify  products  and  marketing  approaches  to  

meet  local  market  needs.  However,  the  existing  communication  barriers  limited  

s  worldwide  spread  operations,  resulting  in  

a  multinational  comprised  of  very  autonomous  national  firms  that  were  managed  as  a  

portfolio  of  offshore  investments,  rather  than  as  international  business  units.  A  pitfall  of  

this  multinational  strategy  is  that,  although  decentralized  decision-­‐making  allows  local  

responsiveness,  it  often  leads  to  reinvention  of  the  wheel  caused  by  a  lack  of  

communication  and  knowledge  integration.  

 

The  second  wave,  characterized  by  American  companies  in  the  1950s  and  1960s,  was  a  

most  technologically  advanced  market  that  spread  new  technologies  and  management  

processes  (Bartlett  and  Beamish  2011).  The  management  approach  focused  on  

delegating  responsibility  while  retaining  overall  control  through  sophisticated  

management  systems.  Foreign  subsidiaries  could  adapt  products  and  strategies  to  their  

local  markets,  but  they  were  dependant  on  headquarters  in  regards  to  new  products,  

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processes  and  ideas.  Significant  flows  of  information  for  coordination  allowed  

headquarters  to  transfer  knowledge  and  capabilities  worldwide.  However,  foreign  

subsidiaries  were  considered  only  as  extensions  of  domestic  operations  that  adapted  

and  leveraged  the  capabilities  and  resources  developed  at  home.  The  disadvantage  of  

this  international  strategy  was  that  the  amount  of  information  flows  to  coordinate  

activities,  tight  controls  and  the  role  of  the  subsidiaries  due  to  the  ethnocentric  

approach  from  headquarters,  resulted  in  a  less  efficient  and  less  responsive  

organization.  However,  this  type  of  organization  proved  to  be  successful  at  that  time  and  

was  widely  adapted  by  other  organizations  (Bartlett  and  Beamish  2011).  

   

Contrary  to  its  predecessors,  Japanese  companies  that  expanded  in  the  1970s  and  the  

1980s,  developed  a  competitive  strategy  based  on  cost  reduction  and  quality  assurance  

that  required  tight  control  over  product  development,  procurement  and  manufacturing.  

This  resulted  in  a  centrally  controlled,  export-­‐based  internationalization  strategy  that  

moved  some  assembly  operations  abroad  but  kept  all  major  value-­‐adding  activities  at  

home.  With  the  capabilities  and  resources  kept  at  home  they  achieved  efficiency.  They  

could  exploit  economies  of  scale  and  they  managed  to  transfer  knowledge  and  

capabilities  to  its  s s  lack  of  resources  and  responsibilities  

undermined  their  motivation  and  ability  to  respond  to  local  market  needs.  The  

drawback  of  this  global  strategy  was  the  central  groups  lack  of  understanding  of  foreign  

market  needs  and  production  realities  that  consequently  affected  the  level  of  

responsiveness  in  the  foreign  markets  (Bartlett  and  Beamish  2011).    

 

Prior  waves  of  MNCs  have  shown  organizational  advantages  and  disadvantages.  All  of  

them  developed  their  competitive  advantages  at  home  and  their  structure  and  

organization  were  considered  efficient  at  that  time,  which  made  them  role  models  for  

other  MNCs.  Nowadays,  independent  of  nationality,  every  MNC  strives  for  an  effective  

and  flexible  organizational  structure  that  can  manage  the  integration  of  capabilities  of  

the  foreign  subsidiaries  to  be  responsive  to  the  ever  changing  environment  in  which  

they  operate.  

 

2.2  The  origins  of  the  present  wave  of  EM  MNCs    

  10  

The  70s  and  80s  were  not  only  the  years  of  Japanese  international  expansion,  but  also  

the  outset  of  significant  changes.  First,  the  world  economic  scene  with  lower  tariffs  and  

decreasing  trade  barriers  promoted  by  the  World  Trade  Organization  and  regional  

agreements,  stimulated  economic  activity  (Child  et  al.  2003).  Second,  the  fall  of  

transaction  cost  economies  as  the  only  dominant  paradigm  to  explain  industrial  

organization  was  challenged.    

 

Sturgeon  (2002)  depicts  how  the  failure  of  large  US  corporations  to  respond  effectively  

to  new  competition  from  Asia  caught  the  attention  of  sociologists  and  organizational  

theorists  who,  by  observing  alternatives  way  of  organization,  helped  to  build  the  

production  network  paradigm.  They  explained  how  trust,  reputation  and  long-­‐term  

relational  contracting  could  create  stable  external  economies  that  impede  the  

aggregation  of  economic  activity  within  the  same  corporation  (Sturgeon  2002).  As  a  

result,  the  traditional  way  of  organizing  MNCs  characterized  by  a  vertical  integrated  

hierarchical  structure  transformed  into  a  deverticalized  industrial  landscape  comprised  

by  external  ongoing  interactions  between  firms.  Sturgeon  (2002)  argues  that  a  network  

structure  stimulates  the  development  of  industries  through   flexible  specialization ,  

allowing  firms  to  reconfigure  the  production  system  according  to  the  rapidly  changing  

demand  and  the  rise  of  new  markets.  

competences  areas  that  are  considered  essential  to  the  formation  of  competitive  

advantage,  such  as  R&D,  marketing  and  other  activities  related  to  brand  development  

(Sturgeon  2002).    

 

However,  the  deverticalized  industrial  landscape  led  to  a  reversed  landscape  from  the  

suppliers  gave  place  to  the  rise  of  specialized  suppliers  that,  in  

order  to  meet  the  growing  demand  for  full-­‐service,  had  to  add  new  competence  areas,  

had  to  improved  quality  and  increased  the  scope  and  scale  of  their  operations  (Sturgeon  

2002).  Countries  like  Korea,  Singapore,  China  and  India  among  others  benefitted  

tremendously  from  inward  internationalization  at  home  by  serving  as  suppliers  to  

original  equipment  manufacturers  (OEM)  (Sturgeon  2002).  

2.2.1  Institutional  context  and  challenges  to  become  global  leaders      

  11  

Emerging  market  MNCs  are  firms  that  originate  in  countries  that  over  the  past  twenty  

years  have  adapted  free  market  policies  and  have  experienced  rapid  economic  

development.  In  the  early  90s,  these  markets  were  characterized  by  a  domination  of  

state  owned  enterprises  and  a  lack  of  international  competition  due  to  protectionist  

barriers.  These  barriers  and  a  lack  of  resources  made  local  firms  base  their  strategies  on  

low  cost  products  rather  than  on  competition  supported  by  leading  edge  technology  or  

product  differentiation  (Kumar  et  al.  1981) ,  many  of  these  

countries  underwent  trade  liberalization  and  suddenly  local  firms  were  surprised  by  a  

wave  of  multinationals  from  Western  Europe,  North  America,  Japan  and  South  Korea  

that  challenged  them.  Many  of  the  local  companies  disappeared  or  sold  off  their  

businesses.  However,  those  that  survived  had  to  restructure  their  businesses  and  exploit  

new  opportunities  (Elango  and  Pattnaik  2007)      

 

According  to  Khanna  and  Palepu  (2006),  firms  from  industrialized  countries  are  well  

known  for  efficient  innovation  processes,  management  systems,  and  sophisticated  

technologies,  but  they  also  have  access  to  significant  financial  resources  and  talent.  

American  and  European  companies  can  raise  large  sums  of  money  at  a  low  cost  because  

of  fairly  well  established  financial  markets.  They  can  hire  talent  easily  because  the  labor  

markets  on  both  continents  work  well  and  there  are  plenty  of  intermediary  companies  

that  search  and  recruit  manpower.  In  contrast,  firms  from  developing  markets  face  from  

the  outset  what  these  authors  called  institutional  voids.  Their  markets  are  characterized  

by  an  absence  of  effective  regulatory  systems  and  contract-­‐enforcing  mechanisms.  They  

lack  soft  infrastructure  that  makes  markets  work  efficiently.  Apart  from  a  few  stock  

exchanges  and  government-­‐

intermediaries  like  credit  rating  agencies,  merchant  bankers  or  venture  capital  firms.  In  

addition,  most  developing  countries  do  not  have  easy  access  to  a  wide  variety  of  

educated  people  and  they  lack  scientific  institutions.  Wooldridge  (2010)  argues  that  

emerging  market  firms  face  two  big  interconnected  problems.  The  first  is  recruiting  and  

retaining  workers  at  a  time  of  rapid  growth.  The  second  is  producing  a  world-­‐class  work  

force  virtually  overnight.  He  argues  that  the  combination  of  rapid  growth  and  high  staff  

turnover  means  that  they  are  always  in  danger  of  loosing  the  skills  that  made  them  

successful.  These  are  the  reasons  that  explain  why  emerging  market  firms  lack  the  

required  resources  to  invest  in  R&D.  

  12  

 

2.2.2  How  EM  MNCs  challenge  long-­‐term  established  multinationals      

Although  EM  MNCs  have  not  created  their  competitive  advantage  at  home  and  are  not  

characterized  for  making  technological  breakthroughs  to  exploit  and  gain  global  

leadership,  they  have  developed  a  distinctive  approach  to  the  value  chain  and  a  

particular  way  of  innovation  that  have  come  to  be  their  competitive  advantage.  

 

Over  the  years,  many  of  these  EM  MNCs  have  benefited  from  international  players  that  

have  offshored  some  of  its  production  in  order  to  reduce  costs.  The  position  in  the  value  

chain  as  suppliers  have  made  that,  in  turn,  they  also  focus  on  cost  reduction  in  order  to  

be  profitable.  As  a  result  they  have  rethought  their  value  chains.  Sirkin  et  al.  (2008),  

point  out  that  contrary  to  western  MNCs  that  consider  rapid  developing  economies  as  

low-­‐cost  locations  that  can  only  support  low-­‐cost  work;  EM  MNCs  can  differentiate  the  

particular  advantages  from  one  location  to  another.  They  disaggregate  and  modularize  

the  value  chain  by  finding  optimal  locations  around  the  world.  Some  of  these  choices  

focus  on  low  cost,  some  focus  on  where  the  right  talent  and  skills  can  be  found  and  some  

in  being  close  to  customers.  This  strategy  has  resulted  in  significant  advantages  in  terms  

of  cost  and  scale  (Sirkin  et  al.  2008).    

 

In  addition,  because  EM  MNCs  have  had  access  to  technology  by  being  suppliers  of  

experienced  MNCs,  they  have  been  able  to  adapt  technological  innovations  to  the  

emerging  market  contexts.  With  the  available  resources  and  local  knowledge  of  what  

people  want,  need  and  the  limitations  constraining  their  choices,  EM  MNCs  respond  

 meaning  

that  instead  of  adding  features  to  a  product,  they  strip  the  product  down  to  its  essential  

components  (Wooldridge  2010).  Today  some  of  them  are  well  known  as  copiers,  

simplifiers  and  adapters  of  technology,  products  and  services.  This  way  of  innovation  is  

different  to  Western  MNCs,  which  have  people  in  research  labs  and  creative  

departments  to  pursue  new  ideas,  technologies,  materials  and  processes.  They  keep  

databases  with  market  knowledge  and  thousands  of  patents  on  file  (Sirkin  et  al.  2008).    

 

  13  

One  example  of  frugal  innovation  is  Haier,  a  Chinese  leader  company  that  compete  with  

Whirlpool,  Electrolux  and  GE  in  the  white  goods  market.  They  discovered  through  

washing  machines  to  clean  vegetables  like  sweet  potatoes.  As  a  response,  Haier  modified  

its  product  to  satisfy  that  need  (Liu  2002).    

 

Many  EM  MNCs  have  internationalized  by  being  contractors  to  existing  multinationals  

that  after  operating  in  their  home  markets  have  subsequently  carried  them  to  supply  

their  regional  operations  across  borders  (Elango  et  al.  2007;  Mathews  2006).  These  

links  with  experienced  MNCs  have,  in  addition,  facilitated  the  acquisition  of  technology  

and  foreign  markets  knowledge  needed  to  implement  a  rapid  internationalization  

strategy  (Mathews  2006).  From  a  resource  base  perspective,  experienced  multinationals  

have  traditionally  been  cautious  when  considering  partnerships  or  other  contractual  

alliances  because  of  the  risk  of  spreading  technological  knowledge  and  tacit  know-­‐how,  

whereas  EM  MNCs  recognize  the  value  of  partnerships  and  other  types  of  alliances  in  

terms  of  the  acquisition  of  resources,  in  order  to  compensate  for  their  deficiencies  

(Mathews  2006).  

 

The  difference  in  the  internationalization  patterns  of  EM  MNCs  have  resulted  in  a  

rnationalization  (Dunning  

1988;  Mathews  2006).  One  can  argue  that  EM  MNCs  have  developed  their  competitive  

advantage  through  an  inward  internationalization,  facilitated  by  their  

position  in  the  value  chain,  that  has  permitted  them  to  benefit  from  spills  of  technology  

and  tacit  know-­‐how  that  developed  market  MNCs  possess.  This  has  resulted  in  a  

competitive  combination  of  low-­‐cost  knowledge  management  and  frugal  innovation.  

 

2.3  The  goals  of  EM  MNCs  acquisitive  internationalization      

According  to  Bertoni  et  al.  (2008),  EM  MNCs  acquisitions  are  intended  to  get  access  to  

well-­‐established  brands,  distribution  networks,  new  know-­‐how  and  resources,  

especially  through  horizontal  and  related  acquisitions.    

 

  14  

Other  reasons  that  explain  why  EM  MNCs  are  expanding  through  acquisitions  are  that  

the  less  developing  countries  have  been  growing  at  higher  rates  than  industrialized  

countries,  allowing  their  MNCs  to  accumulate  large  amounts  of  money  that  permit  an  

international  expansion  through  acquisitions.  Dupoux  et  al.  (2011)  in  a  report  on   global  

challengers  (EM  MNCs)  shows  an  average  annual  growth  rate  of  18  percent  between  

2000  and  2009.  It  tripled  the  average  annual  growth  rate  achieved  by  both   global  

peers  (MNCs  headquartered  in  developed  countries)  and  the  non-­‐financial  firms  among  

the  S&P  500  (capitalization-­‐weighted  index).  The  average  operating  margin  (earnings  

before  interest  and  taxes,  or  EBIT)    

was  7  and  6  percent   eers  and  S&P  500  

respectively.      Figure  1:  Global  Challengers  Exhibited  strong  Sales  Growth  and  Margins  

 Source:  BCG  2011    

 

Another  advantage  that  facilitates  acquisitions  is  that  ownership  is  concentrated  in  

business  families  and  founding  entrepreneurs,  which  permits  them  to  make  long-­‐term  

bets  on  growth  without  having  to  worry  about  losing  control  of  their  companies  when  

their  firms  stock  price  fall  (Kumar  2009).  

 

Contrary  to  firms  in  Japan  and  Korea,  which  became  global  through  organic  growth  

because  they  had  a  reputation  of  technological  innovation  and  quality  products  at  

affordable  prices,  EM  MNCs  facing  constantly  increasing  competition,  acknowledge  that  

in  order  to  become  truly  global,  and  to  be  able  to  compete  in  foreign  and  domestic  

  15  

markets  with  global  players,  their  competitive  advantage  can  no  longer  rely  only  on  cost  

advantages.  They  need  to  be  competitive  based  on  quality  and  innovation  as  well.    

 

Aguiar  et  al.  (2006)  in  the  first  report  on  the    show  that  57  

percent  of  EM  MNCs  M&A  activity  was  directed  to  mature  markets  whereas  43  percent  

to  developing  countries.  Interestingly,  China  and  India,  which  are  above  the  average,  

directed  around  75  percent  of  their  acquisitions  to  developed  countries.  One  example  of  

an  EM  MNC  that  has  expanded  through  acquisitions  is  the   rgest  and  

oldest  business  group.  This  group  has  been  taking  active  steps  to  establish  itself  as  a  

global  MNC.  In  1907  the  group  set  up  its  first  overseas  representative  office  (Tata  Ltd)  in  

London.  After  the  Second  World  War  it  opened  an  office  in  New  York.  However,  they  

,  when  they  begun  expanding  in  

countries  less  developed  than  India.    However,  in  recent  years,  

overseas  investments  have  taken  place  in  advanced  industrialized  economies.  Of  the  29  

destinations  of  foreign  investment  reported  between  2003  and  2007  only  six  were  done  

in  developing  countries  (Goldstein  

countries  centers  on  acquisitions  of  well  know  foreign  brands  such  as  Corus,  the  

commercial  truck  operation  of  Daewoo,  Tetley  Tea,  Jaguar  and  Land  Rover.  According  to  

Goldstein  (2008),  these  acquisitions  had  four  aims.  The  first  is  accessing  new  markets  

(business  products  outsourcing  BPO,  steel,  cars  and  trucks).  The  second  is  integrating  

the  value  chain  (steel).  The  third  is  brand  control  of  tea  and  cars  and  the  fourth  is  

technology  acquisitions  (Goldstein  2008).  Another  example  of  the  need  to  acquire  

technology  to  become  a  global  leader  is  the  Chinese  MNC  Haier  that  despite  ranking  

number  one  of  all  Chinese  enterprises  still  remains  very  dependent  on  foreign  firms  for  

key  components  and  technology,  including  high  performance  compressors  and  sensors  

(Duysters  et  al.  2009).    

 

In  sum,  EM  MNCs  prefer  acquisitions  not  only  because  they  have  money,  but  also  

because  they  can,  in  a  short  period  of  time,  gain  access  to  the  strategic  assets  mentioned  

above.  Otherwise,  developing  superior  capabilities  and  building  brands,  although  viable,  

may  take  long  time  and  much  effort.    

 

  16  

However,  emerging  market  MNCs  have  to  weight  the  cost  of  internalization.  There  are  

direct  costs  of  doing  business  in  advanced  markets;  wages  are  far  higher  than  in  

developing  countries,  they  have  to  deal  with  different  institutional  systems,  culture  and  

language,  among  others.  The  major  challenge  of  overseas  acquisitions  is  to  integrate  the  

acquisitions  with  existing  operations,  which  can  be  a  slow  and  costly  process.      

 

2.4  Developed  market  firms  integration  and  control  of  acquisitions      Prior  research  on  acquisitions  of  developed  market  enterprises  shows  that  they  have  

increasingly  served  as  a  strategy  for  rapid  foreign  expansion.  Companies  have  expanded  

across  national  borders  in  a  race  with  rivals  to  get  to  new  foreign  regions  and  countries  

(Ghoshal  1987).  The  advantages  of  international  acquisitions  are  that  they  have  the  

potential  of  enhancing  firm  performance,  by  providing  access  to  a  valuable  pool  of  

critical  routines  previously  not  available  to  the  firm  (Ghoshal  1987).  They  help  foreign  

companies  gain  market  power  (Barton  and  Sherman  1984),  redeploy  assets  into  more  

productive  uses,  and  exploit  and  acquire  technological  knowledge  (Capron  1998).  

   

Child  et  al.  (2003)  argue  that  acquisitions  offer  the  acquiring  company  the  option  of  

whether  or  not  to  introduce  changes  in  management  practice.  Prior  research  on  

integration  and  control  focuses  particularly  on  the  control  mechanisms  used  by  MNCs,  

by  looking  at  the  role  of  expatriates  and  transfer  of  managers  (Harzing  1999,  cited  in  

Child  et  al.  2003).    Others  analyze  instead  the  degree  of  centralization  according  to  

where  the  most  significant  decisions  are  taken  (Brooke  and  Remmers  1972,  cited  in  

Child  et  al.  2003).    The  degree  of  integration  is  critical  not  only  because  more  or  less  

integration  yield  better  or  worse  performance  but  also  because  an  inappropriate  level  of  

integration  due  to  cultural  factors  may  result  in  sub-­‐optimal  solutions  (Child  et  al.  

2003).    

2.4.1  Expected  problems      There  is  extensive  research  that  emphasizes  the  challenges  and  difficulties  of  realizing  

the  potential  of  acquisitions.  According  to  Haspeslagh  and  Jemison  (1991),  one  of  the  

reasons  that  explain  failure  in  acquisitions  is  that  managers  may  make  over-­‐optimistic  

estimates  of  a  proposed  acquisition  value.  Additionally,  their  research  suggests  that  

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there  are  problems  that  can  be  expected  after  the  negotiation.  One  of  them  is  referred  to  

as  determinism,  which  implies  not  reacting  to  unexpected  events.  Often  pre-­‐acquisition  

estimated  value  is  translated  into  specific  performance  expectations  that  become  

targets.  However,  post  acquisition  reality  is  very  different  from  pre-­‐acquisition  analysis  

no  matter  how  careful  this  analysis  was.  Frequently,  after  the  acquisition  has  taken  

place,  additional  information  becomes  available  because  of  unexpected  events  arise  such  

as  changes  in  the  industry,  technology,  the  competitors  reactions,  changes  in  other  parts  

of  the  parent  firm  or  problems  related  to  different  ideology  of  the  integrated  firms.  

Determinism  is  hence  a  label  for  when  managers  ignore  those  changes  and  hold  the  

original  justification  instead  of  trying  to  adapt  to  them.  Other  possible  problems  are  the  

impact  of  the  acquisition  on  individual  managers  and  employees  and  a  lack  of  leadership  

to  conduct  the  combined  firm  towards  a  new  or  common  purpose  (Haspeslagh  and  

Jemison  1991).    

2.4.2  Acquisition  integration    Prior  research  on  post  acquisition  integration  of  related  firms  shows  that  this  process  

varies  substantially  between  organizations.  Haspeslagh  and  Jemison  (1991)  identify  two  

key  dimensions  that  provide  a  basis  for  choosing  a  particular  approach  to  post-­‐

acquisition  integration.  The  first  is  the  need  for  strategic  interdependence  to  secure  

value  creation  that  would  not  exist  if  the  firms  operated  separately  and  is  commonly  

between  both  firms.  The  second  concerns  the  need  for  organizational  autonomy,  

referred  as  well  to  as  the  need  to  preserve  the  organizational  culture,  or  

organi

acquired  should  have.   Strategic      point  in  different  

directions.  On  the  one  hand  value  creation  requires  a  strategic  fit  to  transfer  capabilities  

and  overcome  possible  resistance,  whereas  the  need  for  organizational  autonomy  in  

practical  terms  needs  to  question  whether  autonomy  is  essential  to  preserve  the  

strategic  capability  that  motivated  the  acquisition.    

 

A  study  done  by  Child  et  al.  (2003)  on  foreign  acquisitions  in  the  UK,  found  some  

differences  in  the  acquisition  decisions  and  integration  processes  among  American,  

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Japanese  and  other  European  countries  firms.  For  the  study,  they  adopted  Haspeslagh  

ost  acquisition  integration.    

Absorption  involves  a  high  need  for  strategic  interdependence  in  order  to  create  

the  expected  value,  and  a  low  need  for  organizational  autonomy  to  achieve  good  

results.    

Preservation  refers  to  a  low  need  for  strategic  interdependence  between  the  two  

firms,  but  a  high  need  for  organizational  autonomy.  The  management  intends  to  

preserve  the  source  of  the  acquired  benefits  intact.    

Symbiotic  involves  a  high  need  for  strategic  interdependence  and  a  high  need  for  

organizational  autonomy  because  the  acquired  capabilities  need  to  be  preserved  

 

 

The  main  differences  were  found  in  that  American  acquirers  generally  ensure  that  their  

acquisitions  are  profitable  at  the  time  of  purchase.  They  are  interested  in  quick  returns  

rather  than  in  gaining  a  new  asset  that  has  the  potential  to  pay  off  only  in  the  longer  

term.  They  tend  to  absorb  the  acquired  into  the  parent  company  systems  and  to  demand  

rapid  achievement  of  high  financial  performance.  This  philosophy  is  applied  in  a  

considerably  consistent  and  ruthlessness  way,  often  leading  to  the  achievement  of  high  

performance  (Child  et  al.  2003).  

 

Contrary  to  Americans,  Japanese  companies  were  less  concerned  to  buy  companies  that  

were  making  a  profit  at  the  time  of  purchase,  which  reflects  a  more  long-­‐term  oriented  

approach.  Rather  than  assuming  the  role  of  the  controlling  owner  through  new  senior  

managers,  they  appoint  advisers  to  monitor  events  in  the  new  subsidiaries.  With  this  

acquisition  strategy  they  achieve  as  good  results  as  Americans  and  get  more  

acknowledgement  given  the  fact  that  not  all  their  acquisitions  performed  well  at  the  

time  of  the  purchase.  The  Japanese  fit  somewhere  in  between  the  preservation  and  

symbiotic  approach.  

 

In  general,  all  the  nationalities  reported  little  post-­‐acquisition  change  in  terms  of  job  

rotation  of  managers,  employment  policy,  marketing  decisions,  emphasis  on  managing  

the  total  supply  chain,  degree  of  outsourcing  and  range  of  suppliers  (Child  et  al.  2003:  

  19  

78).  Areas  of  major  change  in  all  nationalities  involved  change  in  strategy,  R&D,  training,  

reward  systems,  IT  integration,  cost  control  and  operations.    

 

2.4.3  Control    In  terms  of  control,  Child  et  al.  (2003)  used  a  distinction  between   strategic  and  

operational  control.  The  first  refers  to  larger  long-­‐term  issues  of  concern  to  senior  

management,  such  as  final  approval  for  the  subsidiary s  budget,  capital  expenditure,  

appointment/termination  of  senior  personnel,  acquisition/divestment,  formation  of  

new  alliances,  changes  in  the  direction  of  the  company  and  the  introduction  of  new  

products.  Operational  control  refers  to  daily  operations  concerning  mainly  subsidiar  

management,  such  as  operational  decision-­‐making,  planning,  the  degree  of  cost  control  

exercised,  and  the  use  of  financial  control  systems.  The  study  found  that  72  percent  of  

the  acquiring  companies  tended  to  take  over  many  key  decisions  (Child  et  al.  2003).  

 

However,  the  study  found  that  not  only  national  background  of  acquirers  influence  post  

acquisition  policy.  Other  factors  such  as  size,  workforce  competencies,  culture  and  

competitive  environment  influenced  the  post  acquisition  process.    

2.5  Integration  and  control  of  EM  MNCs  acquisitions      

In  a  study  done  at  Hindalco,  an  Indian  steel  company,  Kumar  (2009)  found  that  the  

acquirer  did emphasize  on  cutting  costs  through  synergies,  greater  efficiency  and  

lower  head  count,  because  they  connected  their  acquisitions  into  their  low-­‐cost  

production  machinery  at  home.  For  them  it  was  more  important  to  acquire  the  skills,  

brands  and  distribution  channels  that  would  allow  them  to  build  a  global  value  chain  

and  to  become  world-­‐class  companies.    Kumar  (2009)  argues  that  EM  MNCs  acquire  

only  to  meet  strategic  goals;  Hindalco  did

planning  takeovers  and  evaluating  results  they  did -­‐term  results,  they  

were  content  to  realize  the  benefits  from  acquisitions  over  time.  In  addition,  the  

management  developed  a  simple  four-­‐step  process  to  help  meet  its  initial  objectives.  

These  steps  were  standard  ones,  related  to  finance,  organizational  issues,  business  

processes  and  markets.    

 

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In  the  organizational  integration,  they  did ement  structure  systems  or  

people  unless  necessary.  However  they  sent  experts  from  their  main  divisions  to  

support  the  integration  processes  temporally.  In  regards  to  financial  integration,  they  

unified  the  reporting  systems  because  they  wanted  the  acquired  and  acquirer  to  speak  

the  same  financial  language,  see  the  same  reports,  and  set  similar  benchmarks.  In  terms  

of  business  process  integration,  they  moved  the  processes  that  could  be  managed  

abroad  and  in  which  cost  reduction  could  be  achieved  to  low-­‐cost  locations.  In  terms  of  

acquiring  capabilities,  when  they  found  that  an  acquired  had  better  processes,  they  

encouraged  the  subsidiary  to  implement  similar  processes  in  other  subsidiaries.  For  

example,  the  management  of  Hindalco  found  out  that  Novelis,  a  company  acquired  in  the  

U.S.,  relied  on  value-­‐based  management  systems,  so  it  engaged  Novelis  managers  to  

develop  similar  processes  in  all  its  units  in  India.  In  terms  of  market  integration,  since  

they  are  based  in  fast-­‐growing  home  markets,  they  could  use  their  foreign  subsidiaries  

to  supply  the  growing  demand  at  home  (Kumar  2009).  

 

Based  on  this  specific  literature,  several  expectations  may  be  expressed  regarding  the  

internationalization  and  the  integration  and  control  of  acquisitions  done  by  EM  MNCs,  

such  as  Bharat  Forge  Ltd.    

2.6  Expectations  on  Bharat  Forge  Ltd        

The  first  expectation  is  in  regards  to  the  reasons  for  internationalization  and  the  

benefits  expected  from  the  acquisitions.  A  rapid  internationalization  process  is  expected,  

facilitated  by  sufficient  financial  resources  and  a  strategic  supplier  position  in  the  value  

chain  that  needs  to  be  protected  and  improved.  The  internationalization  is  probably  

motivated  by  the  need  to  acquire  strategic  assets,  such  as  access  to  new  markets,  

technology,  management  capabilities,  and  brands.  In  sum,  strategic  issues  that  make  

possible  a  global  leadership  position.    The  benefits  expected  from  the  acquisitions  

arise  from  the  differences  between  developed  market  MNCs  and  EM  MNCs.  They  differ  

in  their  origin  and  internationalization  strategies  and  therefore  I  expect  an  aspiration  to  

combine  the  better  of  two  worlds.  On  the  one  hand,  the  target  companies  might  be  

superior  in  terms  of  technology  and  know-­‐how  required  to  operate  in  advanced  

markets.  Western  Europe  and  the  US  are  known  worldwide  for  being  leaders  in  

technological  advances  and  for  having  MNCs  with  widely  international  experience.  On  

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the  other  hand,  EM  MNCs  are  used  to  operating  in  turbulent  but  growing  economies.  In  

addition,  EM  MNCs  have  different  innovative  ideas  in  terms  of  production,  distribution  

systems  and  they  are  experts  in  identifying  possible  cost  reductions  due  to  the  fact  that  

they  operate  at  a  greater  scale,  and  are  headquartered  in  low-­‐cost  countries.    

 

The  subsequent  expectations  are  related  to  integration  and  control  of  the  subsidiaries,  

the  question  here  is  to  answer  to  what  extent  prior  theories  on  control  and  integration  

of  developed  market  enterprises  will  help  to  analyze  EM  MNCs  integration  and  control.  

   

The  second  expectation  focuses  on  organizational  integration.  

management  turnover,  because  EM  MNCs  typically  

due  to  a  lack  of  managers  with  experience  in  a  global  context.  Moreover,  if  acquisitions  

are  intended  to  acquire  skills,  not  major  changes  are  expected  in  order  to  identify  

potential  skills  that  benefit  other  subsidiaries.  However,  because  of  cost  considerations,  

some  of  the  production  might  be  relocated  to  low-­‐cost  countries  and  consequently  the  

number  of  workers  involved  in  those  processes  may  be  reduced.  The  third  expectation  

relates  to  marketing  integration.   ct  much  interference  from  the  acquirer,  

because  the  local  subsidiaries  are  expected  to  have  more  knowledge  than  headquarters  

about  their  home  and  closest  markets.  The  fourth  expectation  concerns  financial  

integration.  Since  operating  in  developed  countries  imply  higher  costs,  I  expect  tight  

financial  controls  in  regards  to  cost  management  to  keep  the  production  costs  as  low  as  

possible.  The  fifth  expectation  is  related  to  integration  and  control.  Applying  Haspeslagh  

 integration  typology,  I  expect  a  symbiotic  relationship  with  both  a  

high  need  for  strategic  interdependence  due  to  the  need  for  acquiring  and  transferring  

of  capabilities  and  a  high  need  for  organizational  autonomy,  because  the  organizational  

culture  might  be  different  to  the   In  terms  of  control,  I  expect  headquarters  to  

take  over  strategic  decisions  that  affect  the  long-­‐term  performance  of  the  firm  and  low  

influence  in  the  daily  operations  due  to  differences  in  the  institutional  and  economic  

context.  

3.  Methodology  

3.1  Research  design      

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This  paper  takes  an  interest  in  how  EM  MNCs  integrate  and  control  their  acquisitions  in  

order  to  sustain  and  advance  their  international  competitiveness.  The  ambition  is  

therefore  to  describe  a  phenomenon,  which,  it  was  argued  in  the  introduction,  has  been  

poorly  covered  in  prior  research.  In  order  to  describe  such  a  vast  phenomenon  as  

multinational  companies  from  emerging  markets,  one  strategy  could  have  been  to  

conduct  an  extensive  analysis  of  many  samples  that  would  say  something  about  the  

entire  population.  However  in  this  study,  emphasis  is  rather  on  the  processes  of  

integration  and  control,  which  calls  for  a  more  intensive,  descriptive,  analysis  (Yin  

1994).  At  the  outset  the  intention  was  to  conduct  a  comparative  analysis  for  which  

reason  I  contacted  three  companies,  however  only  receiving  one  positive  answer.  I  will  

therefore  conduct  a  single  case  study  that  arguably  is  representative  of  the  population.    

 

Teorell  and  Svensson  (2007:  222)  suggest  four  criteria  for  selecting  strategic  cases  to  

study.  The  first  is  to  choose  relevant  and  meaningful  cases;  the  second  criterion  is  cases  

with  variation;  the  third  cases  that  can  be  generalizable,  and  the  last  criterion  cases  that  

complement  extensive  results.  I  consider  the  chosen  case  a  relevant  case  because  BFL  is  

an  important  global  player.  It  is  a  firm  that  from  the  outset  has  tried  to  overcome  

institutional  voids,  such  as  the  lack  of  a  qualified  work  force  and  technological  

capabilities  that  normally  characterize  small  and  large  firms  from  emerging  markets.  

Therefore  one  can  argue  that  BFL  is  somehow  representative  of  emerging  market  firms.  

On  the  one  hand,  by  adaptation  BFL  has  become  a  leading  EM  MNC,  in  that  sense  it  is  

comparable  to  EM  MNCs  such  as  Tata,  Haier,  Hindalco  and  others  that  have  overcome  

their  voids.  On  the  other  hand,  if  we  say  that  most  emerging  market  firms  lack  a  

qualified  work  force  and  are  weak  in  terms  of  R&D,  then  BFL  is  not  representative.  

However,  it  can  be  taken  as  an  example  of  what  emerging  market  firms  need  to  do,  to  

become  successful  MNCs.  Additionally,  the  fact  that  BFL  has  pursued  an  acquisitive  

internationalization  in  advanced  markets  makes  its  process  of  integration  and  control  

interesting  in  their  own  right.  This  case  is  selected  because  I  consider  it  a  relevant  case  

for  all  emerging  market  firms  and  generalizable  to  successful  EM  MNCs.  

   

According  to  Yin  (1994),  one  of  the  criticisms  of  case  studies  is  that  they  provide  little  

basis  for  generalization,  however  he  argues  that  case  studies  are  generalizable  to  

theoretical  propositions  and  not  to  empirical  populations  or  universes.  The  case  study  

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does  not  represent  a  sample  and  my  goal  is  to  expand  and  generalize  theories  (analytic  

generalization)  and  not  to  enumerate  frequencies  (statistical  generalization).  

 

The  ambition  is  not  to  test  an  existing  theory  with  the  case  study,  in  the  sense  that  I  will  

be  able  to  falsify  it.  I  will  rather  describe  a  phenomenon  by  way  of  consuming  theory;  

probe  the  usefulness  of  a  theoretical  framework.  It  is  therefore  a   disciplined  

and  Bennett  2004:  74),  which  means  that  theory  will  

guide  data  collection  and  analysis.  There  are  no  previous  theories  developed  specifically  

for  M&A  of  EM  MNCs.  I  therefore  decided  to  use  existing  theory  developed  for  M&A  

generally,  presented  in  the  literature  review.  The  data  collection  and  classification  is  

based  on  two  similar  studies,  which  were  published  in  1991  and  in  2003  respectively,  on  

advanced  market  MNCs.  Both  studies  are  more  profound  in  scale  and  scope  than  this  

one  since  they  are  a  combination  of  surveys  and  case  studies.  Both  projects  took  around  

five  years  and  covered  more  issues  apart  from  acquisition  integration.  The  researchers  

conducted  about  two  interviews  on  each  case  and  used  archives  as  well.  However,  the  

fact  that  for  profit  organizations  are  constantly  searching  for  more  effective  ways  to  

operate  and  that  organizational  patterns  have  changed  dramatically  since  the  outset  of  

the  disaggregated  value  chain  structure,  I  considered  it  interesting  to  investigate  more  

about  these  changes  within  the  context  of  emerging  market  MNCs.  

 

3.2  Data  collection:  sources  and  source  criticism    This  section  gives  an  account  of  the  empirical  material  used  for  the  case  study.  I  have  

examined  secondary  data,  such  as  reports  and  articles  published  on  Bharat  Forge  

,  B.  Kalyani,  published  in  

2006.    As  primary  data  I  did  one  interview  at  Bharat  Forge  Kilsta  Sweden,  with  the  

production  manager.  All  sources  are  derived  from  the  company  itself,  which  makes  it  

likely  to  be  biased.  As  a  measure  to  reduce  the  bias  to  some  extent,  I  chose  to  interview  a  

person  that  had  been  with  the  company  before  the  acquisition.  The  interview,  which  

was  recorded,  was  conducted  in  a  semi-­‐structured  way.  It  followed  prepared  questions  

(appendix  1),  but  the  interviewee  was  also  allowed  to  flesh  out  his  arguments.  After  the  

interview,  I  compared  the  information  obtained  with  secondary  data,  which  allowed  me  

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to  generalize,  to  some  extent,  in  regards  to  the  other  subsidiaries  acquired  by  BFL.  This  

comparison  also  served  to  triangulate  different  sources  on  the  same  questions.    

4.  Bharat  Forge  Limited        Bharat  Forge  Limited  (BFL)  is  an  Indian  global  multinational  that  manufactures  various  

forged  and  machined  engine  and  chassis  for  the  automotive  and  non-­‐automotive  sector.  

Since  the  beginning  in  1961,  BFL  has  done  significant  achievements,  rising  to  a  leading  

position  in  the  merchant  forging  industry  in  its  50  years  of  existence.  Today  BFL  is  the  

leading  supplier  to  almost  all  manufacturers  of  passenger  cars  and  commercial  vehicles,  

of  components  that  are  critical  for  the  safety  and  performance  of  automobiles.    

4.1  Company  history    

Bharat  Forge  Limited  is  the  50-­‐year-­‐old  flagship  of  the  $  2.4  billion  Kalyani  Group.  It  

came  into  existence  in  1961,  at  a  time  when  policy  favored  self-­‐sufficient  indigenous  

industry  because  there  was  an  urgent  need  for  it.  By  1965,  BFL  had  set  up  forging  

facilities;  however  there  was  no  technology  base  available  in  India  and  BFL  had  to  obtain  

it  by  itself.    

 

In  the  early  80s,  BFL  started  exporting  crankshafts  and  crack  links  to  the  USSR  and  by  

1985,  BFL  had  achieved  a  leadership  position  in  India.  However,  despite  a  long-­‐decade  

of  concerted  efforts  to  enter  Western  markets,  quality-­‐conscious  Europe  and  the  US  

rejected.  In  an  interview  with  Janve  et  al.  (2011),  Kalyani  says,   Nobody  believed  that  

they  could  produce  to  the  required  quality  and  consistency,  an .    

However,  Bharat  Forge  took  this  challenge  seriously  and  in  the  late  1980s  invested  in  

modernizing  their  facilities  and  in  leapfrogging  technologies.  The  technology  was  so  

advanced  that  they  had  to  struggle  to  master  it;  they  had  to  replace  low  skilled  

workforce  with  skilled  staff  (with  at  least  a  degree  in  engineering).  After  turning  around  

the  company  they  learnt  to  master  the  technology.  They  achieved  a  far  more  reliable  

process  and  consistent  output,  and  soon  the  potential  customers  realized  that  BFL  could  

supply  technological  complex  products  in  a  highly  cost-­‐effective  way  (Janve  et  al.  2011).    

 

  25  

Such  proactive  investments  in  state-­‐of-­‐the-­‐art  technologies  have,  in  fact,  been  BFL  

driving  force.  Today,  BFL  does  not  only  provide  a  high  technology  production  platform,  

but  it  offers  a  high  level  of  customization  with  the  support  of  its  own  machining  

facilities,  which  enable  high  product  quality  and  delivering  in  very  low  cycle  times.    

4.2  Internationalization  and  growth        

 Exports  boomed  throughout  the  90s,  and  in  2001,  BFL  set  the  goal  to  become  one  of  the  

top  global  players  in  the  automotive  forging  industry  within  five  years.  To  achieve  this  

goal  they  had  to  expand  to  markets  of  North  America,  Europe  and  Asia,  with  an  

emphasis  on  Europe  because  they  considered  that  all  the  technological  developments  in  

the  field  happened  there.  Therefore,  in  order  to  become  more  responsive  to  conditions  

of  rapid  change,  high  innovation  costs,  and  the  scramble  for  strategic  positioning  in  

many  sectors,  BFL  started  thinking  in  terms  of  inorganic  growth.  The  goal  was  to  be  in  

the  passenger  cars,  chassis  business,  trucks,  crankshafts  and  front  axles  (Thomas  2006).  

 

In  an  interview  with  Thomas  (2006),  B  Kalyani  explained  that  two  reasons  motivated  

the  acquisitions  in  developed  markets.  The  first  was  that  OEMs,  especially  European  

companies,  preferred  to  use  vendors  in  their  proximity  for  a  certain  set  of  products  

where  they  could  afford  to  trade-­‐off  cost  disadvantages.  The  second  reason  was  that  

existing  companies  came  with  contacts,  networks  and  relationships.  He  added  that  

although  it  is  possible  to  replicate  that,  it  takes  time.  BFL  targeted  and  acquired  

systematically  enterprises  with  superior  technology  that  supplied  parts  to  passenger-­‐

car  makers  or  made  forged  products  for  the  truck  industry  that  lay  outside  its  offerings.  

In  less  than  five  years,  BFL  made  a  number  of  acquisitions,  raising  its  consolidated  

revenue  from  $112  million  in  2001  to  over  $700  million  in  2006  (Kalyani  2006).  

 

Since  Bharat  Forge  was  good  at  chassis  components,  they  focused  on  Carl  Dan  

Peddinghaus  GmbH  (CDP)  the  second  largest  forging  company  in  Germany,  which  was  

the  best-­‐known  and  most  respected  company  in  the  chassis  component  business.  The  

company  was  in  trouble  and  immediately  after  it  went  into  bankruptcy  Bharat  Forge  

Ltd.  started  bidding  for  it.    At  the  end  of  2003  BFL  acquired  CDP  for  $50  million.  Then,  by  

the  end  of  2004,  BFL  acquired  CDP  Aluminiumtechnik,  a  company  that  manufactures  

aluminium  components  for  automotive  applications,  for  $8  million.  Both  companies  

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were  based  in  Germany  and  had  about  one  thousand  employees.  CDP,  founded  in  1839,  

is  one  of  the  oldest  and  the  largest  forging  companies  in  Germany.  CDP  Aluminium-­‐

technik,  founded  in  1997,  provided  BFL  an  entry  into  the  hi-­‐end  and  fast  growing  

aluminium  component  business.    

 

These  movements  quickly  consolidated  BFL  position  across  the  vehicle  market  segment.  

BFL  set  up  a  centre  of  excellence  in  Germany  with  specific  focus  on  frontline  product  

development  capability  and  participation  in  the  product  development  initiatives  of  

customers  (Thomas  2006).  B.  Kalyani  points  out  that  the  acquisitions  of  CDP  have  

benefited  BFL  tremendously  by  increasing  capacity  by  40  percent,  alleviating  a  part  of  

the  production  that  was  heavily  concentrated  to  India.  The  subsidiaries  located  in  

Germany  have  the  same  capacities,  as  those  located  in  India.  The  only  difference  is  that  

iaries  operate  at  a  minor  scale  (Thomas  2006).  

 

In  September  2005,  Bharat  Forge  acquired  Swedish  Imatra  Kilsta  AB,  along  with  its  

wholly  owned  subsidiary,  Scottish  Stampings  (subsidiaries  of  the  Imatra  Forging  Group).  

The  Imatra  Forging  Group  bought  this  company  in  1988,  which  from  the  outset  

belonged  to  Bofors  and  produced  components  for  the  automotive  sector  since  1914.  

Bharat  Forge  Kilsta  was  known  for  a  long  tradition  in  forgings  and  an  outstanding  

reputation  for  quality  and  technology.  However,  due  to  an  economic  downturn  in  2004,  

the  Imatra  Group  started  cutting  jobs  as  a  result  of  a  drop  in  revenues  (Management  

Paradise  2011).  With  these  two  acquisitions,  Bharat  Forge  reached  a  position  as  one  of  

second  largest  manufacturer  of  heavy  crankshafts  in  Europe  (Bharat  Forge  2005).    

 

The  next  step  was  to  continue  setting  a  global  footprint  in  the  US.  In  2005  BFL  entered  

its  largest  market,  by  acquiring  Federal  Forge  Inc,  a  43-­‐year-­‐old  established  name  for  

designing  and  manufacturing  complex  forged  steel  parts  for  passenger  cars,  such  as  

control  arms,  links,  steering  knuckles  and  connecting  roads,  with  a  significant  client  list.  

In  2004,  before  the  acquisition,  Federal  Forge  Inc  had  filed  for  Chapter  11  of  the  US  

Bankruptcy  Code,  driven  by  rising  steel  prices  and  downward  pressure  on  prices  from  

OEMs  (Thomas  2006).  

 

  27  

In  December  2005,  BFL  entered  into  a  joint  venture  (JV)  with  FAW  Corporation,  holding  

a  52  percent  stake  in  the  JV.  FAW  is  the  largest  automotive  group  in  China  with  a  leading  

position  in  both  passenger  cars  and  commercial  vehicle  sectors.  With  this  agreement  the  

Chinese  p

huge  market  and  a  second  low  cost  base  from  which  they  serve  its  global  customers  

(Thomas  2006).  

4.3  Value  Creation    

With  these  acquisitions,  BFL  completed  its  global  dual-­‐shore  capability  strategy.  They  

can  produce  all  their  core  products,  crankshafts,  beams,  knuckles  and  pistons  in  a  

minimum  of  two  locations  worldwide.  In  order  to  better  serve  its  customers  across  

borders  and  to  meet  the  requirements  of  just  in  time  delivery,  the  strategy  is  having  a  

dual-­‐shore  forging  manufacturing  capability,  dual-­‐shore  design  capability  and  dual-­‐

shore  machining  capability.  This  means  having  more  than  one  design,  manufacturing  

and  machining  base  for  all  core  components.  In  that  way  they  have  one  facility  close  to  

the  customers,  for  jobs  that  require  intensive  collaboration  between  customer  and  BFL,  

and  one  facility  in  a  low  cost,  but  technologically  competitive  destination,  such  as  India  

or  China.  The  production  hubs  focus  on  product  design,  development  and  manufacturing  

high-­‐end  critical  components,  which  are  products  that  are  more  technologically  complex  

and  can  earn  higher  margins  and  in  low  cost  locations  they  produce  high  volume  

manufacturing  of  products  of  which  demand  is  more  predictable  (Sirkin  et  al.  2008).  

 

Bharat  Forge  bought  loss-­‐making  companies  with  attractive  client  bases  in  Europe,  US  

and  China,  and  the  strategy  has  paid  off.  Kalyani  (2006)  states  that  with  a  global  

manufacturing  network  they  not  only  have  global  capacity,  but  they  have  added  

intellectual  capital  and  a  valuable  set  of  global  practices.  They  use  benchmarking  within  

the  group  to  ensure  that  the  best  practices  are  shared  and  assimilated  by  all  the  units,  

which  helps  further  improve  the  value  of  each  activity.  Furthermore,  he  adds  that  the  

management  of  intellectual  capital  is  a  different  challenge  and  not  an  easy  task.  

However,  they  are  working  at  it  through  structured  and  unstructured  integration  

processes.  

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5.  Case  Analysis      The  above  described  internationalization  strategy  suggests  an  internationalization  and  

technological  leapfrogging  strategy.  With  those  acquisitions  and  a  center  of  excellence  in  

Germany,  BFL  passed  from  being  an  exporter  with  distance  relationships  to  having  close  

business  relationships  with  its  customers.  BFL  targeted  firms  that  facilitated  the  

entrance  into  the  European  and  US  market  in  a  very  strong  position.  Contrary  to  other  

EM  MNCs,  such  as  the  Tata  Group,  which  pioneered  expansion  into  emerging  markets,  

Bharat  Forge  Ltd.  started  focusing  on  upgrading,  expanding  and  securing  its  capabilities  

in  terms  of  technological  advancements  in  developed  countries.  BFL  became  a  world-­‐

class  organization  through  its  acquisitions,  which  to  some  extent  helped  it  to  

compensate  the  deficiencies  that  are  typical  of  EM  MNCs,  such  as  investments  in  R&D  

and  having  a  qualified  work  force.    

 

Opposite  to  developed  market  enterprises  that  through  outsourcing  have  reduced  the  

scale  and  scope  of  their  operations,  BFL  is  augmenting  the  scale  and  scope  of  its  

operations  by  offering  the  design,  machining  and  manufacturing  of  products,  which  is  in  

accordance  with  its  strategy  of  scaling  up  its  position  in  the  value  chain.  These  are  

aspects  that  confirm  the  first  expectation  on  EM  MNCs  patterns  of  rapid  

internationalization  to  get  strategic  assets  that  enable  a  global  leadership  position.  

 

5.1  Subsidiaries  integration  and  control    In  terms  of  organizational  integration,  BFL  operates  its  facilities  in  an  interdependent  

way.  In  most  of  the  subsidiaries,  the  management  team  has  remained  in  place,  the  

company  has  kept  its  own  board  of  directors  and  the  management  has  kept  a  high  level  

of  autonomy  in  terms  of  daily  operations  and  marketing  after  the  acquisitions.  They  

argue  that  although  the  world  economy  has  become  increasingly  global,  there  is  still  a  

high  degree  of  diversity  among  regions.  So  in  order  to  be  responsive  to  the  requirements  

of  suppliers,  customers  and  government  officials,  they  expect  local  managers  to  act  on  

the  ground  of  their  experience  and  judgment  to  take  such  decisions  (Sirkin  et  al.  2008).  

However,  in  an  interview  with  Thomas  (2006),  Kalyani  stresses  the  need  to  develop  

global  managers  with  the  ability  to  operate  across  borders  with  confidence  and  who  can  

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operate  in  spite  of  high  ambiguity  and  frustration.  This  suggests  that  in  the  future  there  

will  be  more  management  rotation  across  the  subsidiaries    

 

BFL  turned  around  its  unprofitable  acquisitions  in  only  one  year.  B.  Kalyani  (2006)  

explains  that  they  improved  subsidiary  performance  by  combining  the  technology  and  

engineering  capability  of  the  Europeans  with  Indian  management  practices,  

philosophies  and  strategies.  After  the  acquisitions  took  place,  headquarters  set  up  a  

team  comprised  by  three  to  four  persons  from  finance  and  costing,  two  to  three  people  

from  operations  and  two  to  three  people  from  marketing.  Every  six  weeks,  they  go  to  

one  subsidiary  to  conduct  an  analysis  and  make  a  report  with  an  action  list  to  be  

implemented  (Money  Life  2006).    

 

In  this  study,  an  interview  took  place  at  Bharat  Forge  Kilsta,  which  allowed  me  to  

corroborate  secondary  data  from  2006,  in  terms  of  integration.  In  Kilsta,  for  example,  

there  are  no  managers  from  headquarters.  However,  there  is  a  group  of  advisors,  as  

mentioned  above,  that  follows  performance  and  gives  specific  recommendations.  This  

confirms  the  second  expectation  on  little  change  related  to  organizational  integration.  

However  today,  it  depends  on  the  subsidiary.  In  Germany  for  example,  there  are  

temporally  management  rotations  at  middle  management  levels.  In  addition,  specialists  

in  different  fields  travel  around  to  support  and  integrate  production  capabilities.  

(Johansson  2011)  

 

Concerning  marketing  integration,  there  is  a  high  level  of  integration  in  the  R&D  and  

sales  order  processes.  Through  a  common  system,  BFL  integrated  the  global  engineering  

capability  into  its  low  cost  engineering  centre  in  India,  having  70  percent  of  the  design  

done  in  India.  BFL  evaluates  periodically  the  profit  margins  of  each  order  and  relocates  

orders  with  lower  margins  in  the  lower  cost  plants  and  replace  them  with  higher  margin  

products  (Johansson  2011;  Sirkin  et  al.  2008).  In  that  way,  BFL  cuts  the  cost  and  reduces  

the  cycle  time  for  new  products  significantly.  BFL  keeps  an  EBITDA  margin  of  20  percent  

while    most  profitable  competitors  only  achieve  between  10  and  15  percent  (Sirkin  et  

al.  2008).  Therefore  the  third  expectation  regarding  marketing  integration  is  partially  

met.  On  the  one  hand,  headquarters  are  not  involved  in  the  sales  process  since  every  

subsidiary  manages  its  own  customers.  On  the  other  hand,  there  is  a  significant  

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influence  and  support  from  headquarters,  not  only  in  terms  of  providing  low  margin  

products,  but  also  in  terms  of  designing  products  when  needed,  if  for  example,  there  is  a  

big  order  that  a  subsidiary  with  lower  capacity  cannot  handle.    

 

Additionally,  in  regards  to  financial  integration,  in  terms  of  capital  expenditure,  future  

projects  are  required  to  have  a  return  of  around  20  percent,  a  requirement  that  can  be  

difficult  to  meet  in  a  mature  market  such  as  Sweden.  I  argue  that  BFL  has  to  a  great  

extent  a  centralized  decision  making  process  since  subsidiar  project  proposals  are  

discussed  periodically  with  the  CEO  and  the  group  of  managers  that  come  periodically  

from  headquarters.  This  indicates  that  the  fourth  expectation  on  financial  integration  is  

met  because  not  only  decision  making  is  to  a  great  extent  centralized,  but  also  

headquarters  is  constantly  reevaluating  the  sales  orders  in  high  cost  countries  in  order  

to  coordinate  design  and  production  issues.  However,  despite  the  cost  control,  BFL  

recognizes  that  global  leadership  can  only  be  achieved  with  advanced  technology  and  

therefore  it  is  constantly  tapping  into  new  technologies.  This  suggests  that  BFL  does  not  

hesitate  when  it  comes  to  meet  customer  requirements.    

5.2  Pros  and  cons  of  the  acquisition  for  Bharat  Forge  Kilsta    

The  main  advantage  with  the  acquisition  for  the  local  company  was  that  this  type  of  

production  requires  huge  capital  investments  that  the  former  owners  could  not  afford.  

Since  Bharat  Forge  Ltd.  had  a  growth  strategy  in  the  European  market  it  was  the  ideal  

owner.  After  the  acquisition  took  place,  this  subsidiary  remained  the  same  in  terms  of  

management  and  the  number  of  employees.  In  terms  of  production,  the  only  change  was  

a  relocation  of  auto  parts,  which  moved  to  Germany,  leaving  only  the  production  for  the  

trucks  and  transport  sector  in  Sweden.  (Johansson  2011)  

 

However,  in  2008  and  2009,  due  to  the  economic  crisis,  there  was  a  large  drop  in  

demand,  forcing  BFL  to  downsize  its  operations  worldwide  and  to  close  the  subsidiary  

located  in  Scotland.  Bharat  Forge  Kilsta  had  to  lay  off  about  half  of  its  employees,  and  

because  the  crisis  in  Sweden  also  affected  the  banking  sector,  headquarters  were  forced  

to  provide  financial  support.  Today  Bharat  Forge  Kilsta  has  recovered  from  the  crisis  

and  has  almost  the  same  number  of  employees  that  they  had  before  the  crisis.  However,  

despite  the  demand  is  increasing,  it  has  been  difficult  for  them  to  guarantee  the  return  

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expectations  that  are  required  at  the  corporate  level,  to  invest  in  new  projects  

(Johansson  2011).  

 

During  the  crisis,  BFL  cut  costs,  reduced  waste  and  became  leaner.  They  stopped  capital  

expenditure  for  more  than  one-­‐and-­‐a-­‐half-­‐year,  and  focused  on  developing  new  

processes,  new  technologies  and  new  markets,  like  the  non-­‐automotive  business  in  

power-­‐generation  equipment,  railways,  making  components  for  marine  equipment,  

ships  and  high-­‐pressure  components  for  the  offshore  oil  and  gas  exploration.  B.  Kalyani  

sees  growth  opportunities  for  the  company  in  those  markets  because  the  major  

components  to  manufacture  power  equipment  are  forged  ones.  Although  BFL  continues  

to  grow  in  the  automotive  industry,  they  expect  around  40  percent  of  their  revenues  to  

come  from  the  non-­‐automotive  industry  in  this  decade.  B.  Kalyani  argues  that  they  have  

become  more  cautious  in  order  to  avoid  the  same  problems  that  they  faced  during  the  

crisis;  risk  taking  is  necessary  to  generate  growth  (Business  World  2010).  

 

Although  no  jobs  were  removed  when  the  acquisitions  took  place,  unexpected  events  

such  as  the  economic  crisis,  forced  BFL  to  discharge  staff.  Otherwise,  as  expected,  major  

changes  occurred  in  order  to  build  an  efficient  global  value  chain,  such  as  relocation  of  

activities  related  to  production.  After  recovering  from  the  economic  crisis,  however,  the  

Swedish  subsidiary  considers  that  its  requirements  to  augment  capacity  are  restricted,  

despite  the  fact  that  demand  is  growing.  This  is  partly  because  BFL  can  respond  to  an  

increasing  demand  with  the  support  of  production  from  a  low  cost  country  and  partly  

because  the  probability  of  greater  returns  is  higher  in  emerging  countries.  However,  

having  to  align  local  goals  to  global  goals  is  understandable  from  the    

perspective,  as  a  result  of  being  part  of  a  multinational  (Johansson  2011).  

 

The  fifth  expectation  derived  from  Haspeslagh  and  Jemison  (1991)  integration  typology  

and  control  was  partially  met.  As  expected,  I  found  the  integration  approach  of  Bharat  

Forge  Kilsta  to  be  symbiotic,   ,  since  substantial  

capability  transfers  in  terms  of  design  and  production  are  needed.  But  there  is  also  a  

context  is  

different  from  the  acquirer s.  As  mentioned  before,  BFL  argues  that  they  grant  the  

subsidiaries  a  high  level  of  autonomy  to  be  responsive  to  change

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local  environment.  According  to  general  aspects  that  characterized  the  different  

nationalities,  EM  MNCs  are  long-­‐term  oriented,  similar  to  the  Japanese  and  contrary  to  

Americans,  who  have  a  short-­‐term  orientation.  BFL  shows  the  patterns  of  other  EM  

MNCs  that  have  expanded  through  acquisitions  of  unprofitable  companies  and  turned  

them  around  into  profitability  in  a  short  period  of  time,  mainly  because  they  integrate  

the  foreign  operations  with  their  home  country  operations  to  reduce  costs.  In  terms  of  

management,  EM  MNCs  use  a  moderate  influence  in  the  daily  operations  of  its  

subsidiaries  by  sending  advisors  from  headquarters,  as  the  Japanese.  However,  EM  

MNCs  integrate  completely  their  acquisitions  through  IT  management  systems  as  

American  MNCs.  

 

However  in  terms  of  control,  I  found  that  the  division  between   strategic  and  

operational  control  has  become  blurred.  Because  continuous  evaluations  are  required  

to  identify  low  and  high  margin  products,  headquarters  has  to  keep  full  control  of  

productions  costs.  This  suggest  that  headquarters  is  also  involved  in  operational  

decision  making  and  cost  control.  Consequently,  one  can  affirm  that  BFL  headquarters  is  

involved  in  both  strategic  and  operational  control  to  a  great  extent.  BFL  headquarters  

have  full  control  of  its  subsidiaries  and  based  on  that,  it  gives  specific  guidelines  to  the  

subsidiaries.  In  turn,  the  subsidiaries  have  autonomy  to  decide  how  they  implement  

headquarters  guidelines.  

6.  Discussion  and  Conclusions      This  study  set  out  with  identifying  a  research  gap;  our  body  of  knowledge  when  it  comes  

to  M&A  is  predominantly  based  on  empirical  evidence  from  developed  markets,  

although  emerging  market  multinationals  are  growing  in  number  and  are  expanding  

rapidly.  In  particular,  I  saw  a  need  to  understand  how  EM  MNCs  integrate  and  control  

their  acquisitions  in  order  to  sustain  and  advance  their  international  competitiveness.    

In  order  to  answer  this  descriptive  query,  I  developed  theoretically  driven  expectations,  

which  were  probed  against  one  EM  MNC;  Bharat  Forge  Ltd.    

 

The  five  expectations  were  by  and  large  met  in  the  case  study.  We  saw  a  rapid  

internationalization  process  in  order  to  acquire  strategic  assets.  It  is  however  worth  

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mentioning  that  in  prior  efforts  by  BFL  to  internationalize,  they  first  had  to  do  their  

homework  properly;  i.e.  investing  in  technological  skills  at  home  and  developing  a  

qualified  work  force  that  could  manage  technological  complex  processes.  In  line  with  

expectations,  we  also  saw  ingenious  strategies  to  constantly  keep  production  costs  

down,  as  well  as  a  low  degree  of  management  and  employee  turnover  based  on  the  

ability  to  organize  an  efficient  value  chain.  However,  the  expectation  that  there  would  be  

no  interference  in  marketing  and  financial  integration  was  only  partly  met.  The  

interference  consisted  in  supplying  low  cost  products  and  design  when  needed.  The  fifth  

expectation  was  met,  in  the  sense  that  the  relationship  between  BFL  and  Kilsta  can  be  

characterized  as  symbiotic.  The  integration  of  management  systems  facilitates  

simultaneously  information  flows  between  headquarters  and  subsidiaries  and  among  

subsidiaries.  Integrating  R&D,  production,  marketing  and  financial  systems  enables  

subsidiar  input  into  activities  that  in  the  past  were  exclusively  centralized.    

 

Additionally,  after  years  of  trial  and  error,  MNCs,  regardless  of  nationality,  have  learnt  

that  the  level  of  local  responsiveness  is  imperative  to  succeed  in  local  markets.  

Therefore  information  from  subsidiaries  is  of  vital  importance  today.  Nowadays,  there  is  

little  concern  regarding  negative  impacts  of  acquisition  due  to  integration  problems;  it  is  

rather  a  matter  of  identifying  cultural  differences  that  a  pluralistic  organization  can  

benefit  from.  

 

In  terms  of  control,  however,  the  evidence  from  the  case  study  suggests  that  the  

distinction  between  strategic  and  operational  control  is  indistinct.  The  match  between  

the  theoretical  framework  and  the  case  suggests  that  prior  theories  to  a  large  extent  are  

useful  for  understanding  post  acquisition  processes  of  EM  MNCs.  There  may  also  be  

some  room  to  amend  these  theories  to  better  fit  a  globalized  world,  in  which  various  

resources  seem  to  be  somewhat  more  evenly  spread  than  before.  

   

To  the  extent  that  this  case  study  can  be  generalized,  it  is  possible  to  say  that  EM  MNCs  

in  some  ways  differ  from  their  developed  market  counterparts.  The  ambition  has  here  

not  been  to  explain  these  differences.  But  for  the  sake  of  discussion,  one  can  begin  by  

questioning  to  what  extent  emerging  market-­‐factors  play  in.  The  global  landscape  has  

changed  significantly  over  the  last  decades.  EM  MNCs  were  born  in  a  globalized  world  

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with  lower  trade  barriers  and  easy  access  to  information  and  technology.  Cooperation  

between  firms  in  the  form  of  strategic  alliances,  joint  ventures  and  others,  are  more  

ingrained  norms,  practices  and  organizational  structures  that  can  prevent  the  necessary  

flexibility  to  adapt  to  changes  in  the  environment.  Evidently,  they  have  benefited  from  

being  latecomers.    

 

Comparing  the  integration  process  and  changes  implemented  by  BFL  in  the  Swedish  

subsidiary  with  acquisitions  of  advanced  market  enterprises,  I  would  argue  that  EM  

MNCs  tend  to  make  more  changes  when  integrating  their  acquisitions  because  they  

integrate  the  new  subsidiaries  into  their  global  production  system.  However,  since  there  

is  no  recent  systematic  research  on  advanced  market  acquisitions,  it  is  difficult  to  affirm  

that  developed  market  MNCs  would  not  do  it  in  the  same  way.  Today,  most  of  them  also  

operate  with  a  global  value  chain.    

 

Another  problem  encountered  in  international  acquisitions  research  is  that  M&A  are  

mostly  analyzed  as  the  same  phenomena  in  both  published  statistics  and  popular  

discussion.  However,  the  fact  that  M&A  differ  in  terms  of  the  degree  of  integration  

makes  me  expect  much  more  organizational  change  in  a  merger;  when  two  or  more  

companies  become  one,  many  tasks  or  departments  tend  to  disappear  in  order  to  avoid  

duplication.  In  international  acquisitions,  on  the  other  hand,  if  the  acquirer  does  not  

operate  in  the  same  location  as  the  acquired,  then  no  major  changes  occur  during  the  

integration  process.    This  differentiation  could  be  interesting  for  future  research.  

 

Certainly  EM  MNCs  share  some  traits  with  companies  that  boomed  in  prior  waves  of  

internationalization.  After  all,  advanced  markets  MNCs  are  also  targeting  emerging  

markets  and  many  of  them  have  set  up  R&D  centers  there.  In  sum,  even  if  this  new  wave  

of  MNCs  somehow  differs  from  their  predecessors,  they  reach  a  point  where,  as  

experienced  MNCs,  they  are  compared  under  only  one  framework.  To  operate  effectively  

in  the  changing  global  business  environment,  MNCs,  regardless  of  the  country  of  origin,  

are  continuously  searching  for  effective  ways  to  integrate  and  develop  capabilities  that  

permit  them  to  be  competitive  in  terms  of  cost,  quality,  flexibility  and  innovation.  Since  

there  are  no  major  differences  between  the  way  experienced  MNCs  and  EM  MNCs  

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integrate  their  acquisitions,  I  conclude  that  MNCs  in  general  have  an  internal  and  

external  need  to  standardize  management  practices.  They  must  have  integrated  

management  systems  that  permit  not  only  the  transfer  of  information,  but  to  do  

benchmarking  among  subsidiaries  and  outside  the  organizations.    

 

Since  the  1960s,  MNCs  are  considered  instrumental  for  transferring  capital,  technology  

and  organizational  skills  between  countries.  What  is  different  now  is  a  reverse  MNCs  

expansion  that  replicates  the  transfer  of  not  only  capital  and  technology,  but  also  of  new  

organizational  skills.  The  question  left  to  answer  is  whether  EM  MNCs  will  be  

instrumental  for  transferring  policies  from   developed    that  permit  emerging  

markets  to  operate  in  a  more  reliable  and  stable  institutional  context.  In  other  words,  

will  this  reverse  MNC  expansion  contribute  to  correct  those   institutional  voids  that  

characterized  emerging  markets?  

  36  

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Appendix  1:  Interview  questions  

 

The  interview  was  structured  with  open  questions,  which  permitted  me  to  corroborate  

prior  published  qualitative  data  about  acquisitions  in  general.  The  following  questions  

were  formulated  for  the  interview:  

 

1. General  background  of  the  acquisition:  reasons  and  consequences.  Has  there  

been  a  management  turnover?    

2. Background  to  major  changes  and  influences  (post  integration  process).  Would  

the  local  management  have  carried  out  these  changes,  had  the  company  not  been  

sold?    

3. Advantages  and  disadvantages/problems  encountered  during  the  integration?  

4. How  the  acquisition  has  contributed  to  profitability  and  growth:  Has  the  

acquisition  managed  to  combine  the  competitive  advantages  of  both  firms?  (Low  

cost  and  technology)  Is  it  a  mutual  transfer  of  different  capabilities?    

5. How  are  you  managing  production  R&D  and  sales?  Do  headquarters  get  involved  

in  marketing  decisions  in  Sweden?  

6. To  know  about  financial  controls,  do  you  use  a  top  down  or  bottom  up  approach,  

in  terms  of  budgeting  and  capital  expenditure?    Who  decides  about  which  

projects  the  subsidiary  starts  up?