Effect Of Foreign Capital M & A On Market Structure And Enterprise Behavior

Cross-border mergers and acquisitions (M&As) have become the main style of Foreign Direct Investment worldwide. After China's accession to WTO, the proportion that valve of cross-border M&As sales accounted for inward FDI in China has increased gradually and influential cross-border M&As cases happened frequently. In this context, this paper summarizes features of Foreign Capital M&As and analyses mechanism that Foreign Capital M&As affect Chinese market structure and enterprise behavior. After that, taking automotive industry and retail industry for example, this paper makes a empirical analysis on the mechanism.Features of Foreign Capital M&As are reflected in six respects, including scale, buyers, industry selection, location selection, target firm selection and pattern selection of M&As. Regarding scale, total and average value of Foreign Capital M&As has increased rapidly. Cases of huge deals emerged frequently. Concerning buyers, competitive multinational corporations (MNCs) and private equity funds (PE), replacing small foreign investors, have become promoters of Foreign Capital M&As. Considering industry selection, Foreign Capital M&As focused on manufacturing, but increased rapidly in services. Regarding location selection, Foreign Capital M&As focused on eastern region of China, but increased rapidly in central and western region. MNCs tended to select leading enterprises and state-owned enterprises as target firms. Pattern of M&As MNCs selected tended to be diverse.According to SCP analysis of industry organization, this paper hold that Foreign Capital M&As will affect decisive factor of market structure, making Chinese market structure change, further having an influence on enterprise behavior. This paper chooses concentration and barriers to entry as decisive factors influencing market structure. Foreign Capital M&As has made market concentration growing, however, the growth of market concentration does not necessarily mean that MNCs will monopolize Chinese market, on the contrary, MNCs may play a role in optimizing the structure of Chinese market. When entering Chinese market, MNCs face policy barriers rather than structural barriers. However, with China's accession to WTO, the policy of encouraging Foreign Capital M&A have been put forward, policy barriers are decreased, which will facilitate MNCs to enter Chinese market by M&A. After becoming incumbents, MNCs could reconstruct higher structural barriers taking advantage of dominance. Overall, Foreign Capital M&As promote China's fragmented market structure to a monopolistic competition or oligopoly market structure. Different market structures lead to different competitive behavior. Under the two market structures, this paper analyses competitive behavior of enterprises from three aspects of price behavior, research and development and advertising. Under Monopolistic competition market structure, which is not conducive to technological innovation, enterprises often compete through price wars and increasing advertising input. Under oligopolistic market structure, firms tend to compete through technological innovation, differentiation strategy, rather than simply price and advertising.Taking automotive industry and retail industry for example, this paper empirically analyzes status of Foreign Capital M&As, then effect on industry market structure and enterprises behavior of Foreign Capital M&As. The results show that: Foreign Capital M&As have increased the concentration of automotive industry significantly and built higher barriers to entry for new entrants, making Chinese automotive industry became middle high oligopolistic market structure. This oligopolistic market structure, different from high concentration of automotive market in the planned economy area, was the result of market competition, breaking administrative monopoly, optimizing the Chinese automobile industry structure. In retail industry, entries of MNCs have improved the existing structure with characteristics of small-scale, scattered distribution, single type of retailers and transition to competition, optimizing the industrial structure of retail. After entry of MNCs, automotive enterprises competed through price war, accelerating the speed of launching new models, increasing advertising costs, multi-brand and product series strategy. Competitive behaviors of retailers include flexible pricing strategy, technological innovation, and private brand strategy.