The Legitimacy Strategy Of Cross-border M&A Under The Liability Of Foreignness

In the context of China’s initiative for “the Belt and Road”,more and more companies choose to open foreign markets through mergers and acquisitions to go international.According to the statistics of Price Waterhouse Coopers,so far only 13% of Chinese enterprises’ overseas mergers and acquisitions are profitable,and more than 50% of Chinese enterprises’ overseas mergers and acquisitions are unsuccessful.Among them,70% of the failures are due to the institutional and cultural distance.A large number of“going-out” enterprises have the not acclimatized symptoms,which reflects the serious problem faced by Chinese enterprises going abroad “legitimacy deficit”.The legitimacy deficit caused by the “liability of foreignness” is a serious problem faced by many Chinese companies in the process of crossborder M&A.If companies do not adopt strategies,it will affect the M&A performance and even threaten the success of the M&A.Faced with the threat of “liability of foreignness”,companies should have a comprehensive,deep and clear understanding of what legitimacy strategies they need to adopt.Therefore,this paper examines the case of Geely’s cross-border M&A of Proton,a typical cross-border M&A case of Chinese companies entering Southeast Asian countries,and analyzes the M&A legitimacy crisis caused by the existence of “liability of foreignness” from the perspectives of institutional distance theory,social network theory,and information asymmetry theory.Then we also explore the mechanism of overcoming the“liability of foreignness” from the perspective of legitimacy strategy.In addition,while most studies on legitimacy are qualitative in nature,this paper also introduces a test to analyze the effect of legitimacy strategy using financial data.Geely’s M&A case is an excellent example of “the Belt and Road”,so the analysis of the “liability of foreignness” faced by Geely and the legitimacy strategies adopted by Geely will be useful for future Chinese investors in countries along the way.The study finds that Geely was threatened by a legitimacy deficit at both the macro and corporate levels in cross-border M&A because of the liability of foreignness,generating the crisis of unfamiliarity,discrimination and relationship.In the face of the liability of foreignness,Geely adopted the legitimacy strategies of compliance strategy,selection strategy,manipulation strategy and creation strategy,respectively.The analysis of the short-term performance of the M&A parties and the long-term performance of the acquired parties demonstrates that Geely’s legitimacy strategies ultimately have significant effects,weakening the resistance from all parties due to the liability of foreignness,greatly enhancing the recognition and support of the stakeholders of the acquired parties,and gaining more regulatory legitimacy,normal legitimacy,and cognitive legitimacy.