A Study On The Influence Of Foreign Capital M&A On Industrial Competitiveness Of Host Countries

Competitions are unavoidable in human society. And currently, as major and powerful actors in business market, MNEs have replaced their original Greenfield investments with foreign capital mergers and acquisitions (M&As) since 1990s, through which exert profound influences on the host countries, especially those developing host countries. Foreign capital M&A can be a double-edged sword. On one hand, it can be an important explanatory variable for the economic development of host countries and the promotion of their international competitiveness; on the other hand, it can also damage dramatically the industrial competitiveness of host countries and accordingly endanger the industrial security and the economic security of host countries. However, under current situations, there are definitely deliberate estrangement between studies on foreign M&A and studies on industrial competitiveness, which hence produce the impossibilities of a furtherance fathoming into the problems existing. Therefore, to break through the deliberate estrangement, probing into the influences of foreign capital mergers and acquisitions on industrial competitiveness from the perspective of host countries can be indisputably of comparatively profound theoretical and practical significance.Resorting to the outstanding 'diamond model' propounded by Porter, three mediated variables can be organized: technology factor, market structure factor and industrial structure factor, by which the influences of CM&A on the industrial competitiveness of host countries can be probed into. Among them, technological "Spillover Effects" of CM&A is one of the major factors which host countries deliberately intend for. The game analysis upon the technological spillover of CM&A in asymmetrical information demonstrates that, if the degree of technological spillover of CM&A isn't below the critical point, then generally it is advantageous to the industrial development of host countries, which, to some extent, indicate the rationality of "technology replaces market" strategy of host countries. Yet as transnational corporations predominate the process, host country should consider whether technological spillover effects can make up for the market profit abandoned; or there will be considerable risks of being entrapped disadvantageously by the technological spillover effects of foreign capital M&A, or, to be more specific, because of the predominance of MNE in the transactions of international technology transfer, it will enable them to monopolize and control the technology transfer efficiently and accordingly render host countries, especially those developing countries, to be inevitably dependent on internal foreign technology helplessly.Foreign capital M&A influence the market structure of host countries by means of changing the monopolization and the competitions among corporations in the markets of host countries, and eventually further influences the industrial competitiveness. The determinants of marker structure, such as industrial concentration degree, product differentiation degree and entry barriers, are the important and primary indexes which can influence the competitive advantages of corporations and industries. Both the general analysis on the effects of transnational mergers and acquisitions on market structure of host country and the exploration on the basis of predominate producer theory illustrate that CM&A pose a potential threat of monopolization. However, the dependent factors like the restrictions on enterprise scale economy and technology may restrict foreign capital M&A not to be anti-competitive. And, moreover, the effective and efficient macro adjustment control and micro regulation of host countries on the markets are essential and of great necessity.The conditions of industrial structure can directly reflect the competitiveness of industrial structure and the economic development of a country. And efficient adjustments on industrial structure can effectively strengthen and enhance industrial competitiveness. The industrial structure optimization effects of foreign capital M&A on host countries derive from the efficient explorations on the comparative advantages of host countries and the initiations on establishing new competitive advantages in host countries. The mechanism of this kind of industrial structure optimization effects is demonstrated comprehensively in the co-actions with the other effects originating from the M&As, for examples, capital promotion effects, technological spillover effects, industrial linkage effects, competition and demonstration effects, etc. Nevertheless, the industrial promoting effects of foreign capital, to a very large extent, is potential and is restricted by the economic development situation, the industrial transfer undertaking ability and the industrial linkage ratio of foreign capital, etc, in host countries.Since China got its membership in WTO, the speed of foreign capital M&A has been considerably increased. And recently the mergers and acquisitions tend to extend to the leading enterprises and the service industry. In the long run, to the development oflabor intensive industry in China, the advantages of foreign capital mergers andacquisitions outweigh the disadvantages. In principle, we should be positive to foreigncapital mergers and acquisitions on labor intensive industry, which in essence, canenhance the competitiveness of the industry and help to realize a sustainabledevelopment. And because the pillar industries and the leading industries of our countryare mostly located in capital intensive industry, the influences of foreign capital mergersand acquisitions on capital intensive industry are comparatively complicated. Hence thestrategic guidance and the rational regulation of government appear to be primarilyimportant and indispensable. The lock-in effects of foreign capital on technology,especially on new and high technologies and core technologies, make it unrealistic forour country to depend sorely on foreign capital for breakthroughs in high technologies.The government should pay attention to this and devote great efforts to cultivate theindependent innovation ability of domestic enterprises. Through both the advantageousand the disadvantages influences on technology promotion, market structure andindustrial structure of our country, foreign capital mergers and acquisitions furthermoreimpose both beneficial and harmful influences on the industrial competitiveness in China.Therefore, when making strategies and measures on foreign capital mergers andacquisitions, overall considerations and reflections on the relationships between foreigncapital mergers and acquisitions and the development of national industry, therelationships between foreign capital mergers and acquisitions and the strategy of"technology replaces market", and the appropriate orientation of government andenterprises in promoting industrial competitiveness, etc., would definitely be extremelycritical and essential. And, to realize the long-term target of enhancing the industrialcompetitiveness significantly and promoting the national economy's stable and healthdevelopment of our country, on basis of our current situation, related strategies andmeasures to propel technological spillover of foreign capital mergers and acquisitionsand promote efficient competition and industrial development should be indisputablyimplemented.