Overcoming Strategies And Effects Of Outsider Disadvantages In Cross-border Mergers And Acquisitions

With the development of The Times and the popularization of the Internet,the operation of enterprises is no longer satisfied with a certain country,and more enterprises begin to shift their eyes to the international market.If an enterprise wants to be in the upper reaches of the industry and become famous in the world,cross-border merger and acquisition is undoubtedly a good choice,and Chinese enterprises are no exception.However,cross-border M&A is not an easy road to go,even can be said to be extremely tortuous.Although a few enterprises have won the victory in cross-border M&A,most of them fail to do so,and even fall at the initial stage of cross-border M&A--the M&A transaction stage.As an outsider,Chinese enterprises often face some extra operating costs when operating in the host country market with different culture,society,economy,politics,religion,laws and regulations,which local enterprises of the host country do not need to bear.As a result,foreign enterprises have a competitive disadvantage compared with the host country enterprises.Zaheer(1995)defined it as "outsider disadvantage".Overcoming the outsider disadvantage is a necessary condition for Chinese enterprises to go international.However,the existing research lacks understanding of how Chinese enterprises overcome the outsider disadvantage.Therefore,this paper chooses the classic case of Geely’s merger and acquisition of Volvo to analyze the disadvantage of outsiders in the process of cross-border merger and acquisition.It aims to solve the following three problems:1.What outsider disadvantages did Geely encounter when acquiring Volvo?2.How did Geely overcome these disadvantages?3.Did these overcoming strategies help Geely achieve its original acquisition goals?Firstly,this paper introduces the meaning of outsider disadvantage and organizational identity,and then studies the impression management theory and organizational legitimacy theory with the aim of overcoming outsider disadvantage,and takes them as the theoretical basis of this paper.Then,according to the main content of this paper,the literature on crossborder mergers and acquisitions,outsiders’ disadvantages,sources of outsiders’ disadvantages and strategies to overcome outsiders’ disadvantages are read and sorted out.Then,this paper explains the reasons and background of case selection,combs and returns the process of Geely’s acquisition of Volvo,and analyzes the sources of outsiders’ disadvantages from three levels--external image level,organizational identity level and information acquisition level.It is found that there are three sources of disadvantages in cross-border M&A: negative image,organizational identity asymmetry and information asymmetry.The negative image includes negative national image and negative corporate image,which is mainly caused by the host country’s bias against China and its enterprises.The asymmetry of the industry status,corporate culture and management mode of both parties leads to the asymmetry of organizational identity,which makes the acquired enterprises face the risk of brain drain and resource drain.However,the lack of information communication channels between the two countries leads to incomplete information of Chinese enterprises obtained by the acquirer,which leads to doubts on the motivation and profitability of the acquisition.Then,through the research and analysis of Geely’s overcoming methods,it is found that Geely mainly adopts the methods of image remodeling,isolating organizational identity and establishing communication mechanism to overcome the above sources of disadvantages.Specifically,the image can be remodeled by borrowing third parties,displaying forces and external financing.The method of isolating organizational identity can deal with the asymmetry of organizational identity.Take the initiative to release management signals and establish communication channels to establish a communication mechanism to reduce information asymmetry.Thirdly,through the analysis of Geely’s market power,research and development ability and business ability after the merger,this paper tests whether the above overcoming strategies help Geely achieve the merger and acquisition target.The analysis of market power proves that Geely’s image reconstruction strategy has successfully reversed the foreign consumers’ perception of Geely and increased the global sales of Geely and Volvo.Research and development capability analysis shows that Geely’s strategy of isolating organizational identity is effective,which retains Volvo’s core research and development team,obtains technical support from Volvo,and improves its own research and development innovation ability.The analysis of operation capacity shows that the acquisition has improved Geely’s profitability,debt paying ability,operation ability and development ability to varying degrees,and reached Geely’s goal of improving profitability and industry position through the acquisition of Volvo.The results show that the cross-border merger is a success,and Geely’s strategy to overcome the disadvantage of outsiders is effective and can be used for reference.Finally,the conclusion of this paper is summarized and some suggestions are given for the future cross-border mergers and acquisitions.The research results of this paper have important reference significance for Chinese enterprises that want to conduct cross-border mergers and acquisitions in developed countries when dealing with the disadvantage of outsiders.