Changes in Management Practice and the Post‐Acquisition Performance Achieved by Direct Investors in the UK
| Date | 01 September 1999 |
| DOI | http://doi.org/10.1111/1467-8551.00126 |
| Author | Robert Pitkethly,John Child,David Faulkner |
| Published date | 01 September 1999 |
Introduction
During the past decade there has been a significant
amount of direct foreign investment (FDI) into
the UK, made primarily by companies from the
United States, Japan, Germany and France. Apart
from greenfield and expansion projects, inward
FDI has taken place through acquisitions rather
than joint ventures or other forms of cooperation
(Child, Faulkner and Pitkethly, forthcoming).
Acquisitions provide the purchasers with a strong
position from which to introduce changes in the
search for improved performance.
The social justification for acquisitions is, in-
deed, that they bring about improvements in the
performance of the firms that are taken over.
There are several ways in which acquiring com-
panies are expected to have a positive impact on
the performance of their new subsidiaries. They
can provide additional resources, especially work-
ing and fixed capital. They may be in a position to
benefit from economies of scale or scope through
integrating the acquired firms with their own
operations. Horizontal acquisitions enhance the
acquirers’ market positions. Acquiring firms may
also be able to introduce performance-enhancing
improvements to the strategy and management of
their new subsidiaries.
In practice, post-acquisition performance has
often been disappointing (Hitt et al., 1998). Most
studies have focused on the performance of
acquiring firms. Studies of stock-prices or other
indicators of shareholder return indicate that ac-
quiring company shareholders do not necessarily
British Journal of Management, Vol. 10, 185–198 (1999)
Changes in Management Practice and the
Post-Acquisition Performance Achieved
by Direct Investors in the UK1
John Child, Robert Pitkethly* and David Faulkner*
Judge Institute of Management Studies, University of Cambridge, Trumpington Street, Cambridge CB2 1AG and
*Said Business School, University of Oxford, The Radcliffe Infirmary, Woodstock Road, Oxford OX2 6HE, UK
Changes in the competitive performance of 201 UK firms acquired by foreign investors
are examined. Performance improvement was found to be associated with the intro-
duction of changes to management practice rather than with contextual factors such as
acquirer nationality, size, date of acquisition, profitability of subsidiary at acquisition or
sector. The changes having most impact were increased efforts to improve the market
image of the acquired company, the development of new products and services, and
moves towards involving and developing staff. There appears to be more than one
path towards post-acquisition performance improvement, with distinctions emerging
between Anglo-American, Japanese and, to a lesser extent, French approaches. The
successful Anglo-American approach involves a product innovation strategy, increased
decentralization and improved training. High-performing Japanese acquisitions tend
to emphasize a price-competitive strategy, to increase centralization and to adopt a
longer-term HRM policy. The French path towards good post-acquisition performance
includes increased cost control, more open communication and decentralization. The
general conclusion of the investigation is that foreign acquisition can harness the assets
and competencies of UK companies to good effect, but that there is more than one way
of achieving this result.
© 1999 British Academy of Management
1Grateful acknowledgement is made to the Economic
and Social Research Council for funding which sup-
ported the research reported in this paper.
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