The Role of Local Context in the Cross‐border Acquisitions by Emerging Economy Multinational Enterprises
| Date | 01 July 2017 |
| DOI | http://doi.org/10.1111/1467-8551.12231 |
| Author | Surender Munjal,Peter J. Buckley |
| Published date | 01 July 2017 |
British Journal of Management, Vol. 28, 372–389 (2017)
DOI: 10.1111/1467-8551.12231
The Role of Local Context in the
Cross-border Acquisitions by Emerging
Economy Multinational Enterprises
Peter J. Buckley and Surender Munjal1
Centre for International Business, Leeds University Business School, University of Leeds, Leeds LS2 9JT, UK,
and 1James E. Lynch India and South Asia Business Centre, Leeds University Business School, Universityof
Leeds, Leeds LS2 9JT, UK
Corresponding author email: S.Munjal@lubs.leeds.ac.uk
This paper explores the role of local context in cross-border acquisitions by emerging
economy multinational enterprises (EMNEs). It argues that the importance of local con-
texthas remained despite the increased global integration of the world economy.Hypothe-
ses are tested using data on Indian acquisitions hosted in 70 countries over an eight-year
period. Results, which are consistent across number and value of cross-border acquisi-
tions, show that the local context in host countries oers contrasting benefits. Emerging
economy multinational enterprises exploited these benefits by embedding in host coun-
tries through acquisitions. The acquisition strategy is conventional in the motivesunder-
pinning internationalization, but novel in its geographical clustering of host countries,
and idiosyncratic owing to the EMNE’s ability to draw on home country embeddedness.
The paper develops theoretical implications and extends the concept of embeddedness,
treating it as a series of internalization or quasi-internalization decisions across a variety
of local contexts by multinationals.
Introduction
The evolving literatureon globalization vs. region-
alization strategy has seemingly overlooked the
role of local context where the multinational en-
terprise (MNE) is embedded – that is, the degree
to which the MNE’s economic activities are in-
tegrated within the external local environment at
home and in host countries (Dacin, Ventresca and
Beal, 1999; Nohria and Gulati, 1994). In a special
issue on ‘the firm’s strategy of globalization and
regionalization’ published in the British Journal
of Management, Ghobadian, Rugman and Tung
(2014, p. 1) suggest that, although globalization
of market and economic forces aid in the interna-
tional expansion of the MNE, local context is still
an important determinant in shaping the MNE’s
internationalization strategy. Scholars (e.g.Meyer,
Mudambi and Narula, 2011; Smith et al., 2012)
supporting this point of view advocate explor-
ing the firm’s internationalization based on local
context.
Embeddedness in any local context ‘demon-
strates [how] market exchange is linked with, and
defined by, larger and more complex social pro-
cesses’ (Dacin, Ventresca and Beal, 1999, p. 320),
and therefore covers two key dimensions – (i) re-
source endowment and (ii) institutional frame-
work – of local context, as explained by Meyer,
Mudambi and Narula (2011). Resources and insti-
tutions provide the opportunities and constraints
of embeddedness. Host country resource endow-
ment is usually treated as benefits or attractions
associated with local embeddedness, and the in-
stitutional framework is generally regarded as a
set of constraints that provides fundamental po-
litical, social, and legal ground rules [establishing]
the basis of production, exchange, and distribu-
tion’ (Davis and North, 1971, p. 6).
© 2017 British Academy of Management. Published by John Wiley & Sons Ltd, 9600 Garsington Road, Oxford OX4
2DQ, UK and 350 Main Street, Malden, MA, 02148, USA.
Local Context in the Cross-border Acquisitions 373
The success of the MNE’s internationalization
strategy often lies in managing and exploiting dif-
ferences in local contexts wherein the MNE is em-
bedded (Buckley, 2009; Ghemawat, 2001). Multi-
ple embeddedness – headquarters (at home) and
subsidiaries in dierent host countries – allows the
MNE to benefit from the heterogeneity of loca-
tions in which it is embedded because ‘neither the
MNE nor the contexts are monotholic’ (Meyer,
Mudambi and Narula, 2011, p. 239). Multiple em-
beddedness gives temporary and sustainable com-
petitive advantages and strategic agility, i.e. abil-
ity to deal with changes, to the MNE (Huang
et al., 2015; Junni et al., 2015). However, to ex-
ploit these heterogeneous benefits, the MNE has
to bear transaction costs associated with manag-
ing the dierences in local contexts (Bjerregaard
and Jonasson, 2014; Hennart, 2009).
Following these arguments, this paper argues
that local context determines the firm’s strategy of
internationalization, its range for geographic ex-
pansion, choice of location, amount of foreign di-
rect investment (FDI) and scope of internaliza-
tion. It contributes to the evolving literature on
multiple embeddedness by identifying its theoret-
ical foundations in internalization theory (Buck-
ley and Casson, 1976). It argues that the basic
premise of the multiple-embeddedness approach
lies in the MNE’s endeavour to create greater
utility through successive internalization of loca-
tion attributes across borders (Hashai and Buck-
ley, 2014). Using internalization theory within the
multiple-embeddedness approach is apposite, be-
cause it allows us to probe into both opportunities
and challenges in a given local context presented
to the MNE. We are thus able to extend internal-
ization theory by developing the notion of optimal
embeddedness based on the balance of cost and
benefits of engagement by the MNE with aspects
of the host country.
The findings, based on the empirical context of
cross-border acquisition by Indian MNEs, sug-
gests that embeddedness in a number of host
countries makes the internationalization of MNEs
from emerging economies geographically more
clustered. This allows emerging economy multi-
national enterprises (EMNEs) to create a strate-
gic portfolio of subsidiaries that are firmly embed-
ded in specified local contexts, which enables them
to derive distinct but complementary (locational)
benefits from these local contexts. However, em-
beddedness in a number of host countries entails
transaction costs that further aect the MNE’sde-
cision on the internalization of markets (Buckley
and Casson, 1976).
The study further finds thatthe embeddedness in
the home country shapes the entrepreneurial abil-
ities of EMNEs. This has a significant impact on
their embeddedness decision in host markets and
dierentiates them from traditional MNEs that
originate from advanced economies. These dier-
ences add value to the study of emerging econ-
omy MNEs (Munjal, 2014a; Ramamurti, 2012).
Thus, this study further contributes to the liter-
ature on emerging economies by modelling local
contexts within the internationalization strategies
of Indian MNEs through cross-border acquisi-
tions, especially because many earlier studies give
an inadequate view of the geographical distribu-
tion of cross-border acquisition by Indian MNEs.
Local context, embeddedness
and internationalization
Globalization has led to increasing integration
of the world economy, but dierences among lo-
cal contexts have remained (Ghobadian, Rugman
and Tung, 2014; Rugman and Oh, 2013). Schol-
ars (e.g.Buckley and Ghauri, 2004; Gammelgaard,
McDonald and T¨
uselmann, 2009) argue that the
MNE exploits these local dierences by creat-
ing an internal hierarchy whereby subsidiaries are
floated with special mandates: (i) to take advan-
tages of local resource endowment; and (ii) in re-
sponse to the local institutional framework. The
embeddedness of headquarters and subsidiaries
in a variety of locations ultimately influences the
evolution, behaviour and performance of MNEs
(Cantwell, Dunning and Lundan, 2010; Meyer,
Mudambi and Narula, 2011; Meyer et al., 2009;
North, 1992).
Theoretically,the fundamental principle of mul-
tiple embeddedness lies in the location choice for
exploitation of local advantages and through suc-
cessive internalization of cross-borderactivities by
the MNEs. Hashai and Buckley (2014, p. 48) sug-
gest that the MNE are ‘ableto create greater utility’
by internalizing advantages attached to a specific
location. Dunning (1977, 1988) associates loca-
tion advantages with the variation in the resource
endowments between home and host countries.
He suggests that dierences in both man-made
and natural resource endowments among coun-
tries inform the MNE’s motivation to internalize
© 2017 British Academy of Management.
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