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Challenges and opportunities
for cross-border acquisitions by
Chinese construction enterprises


Jun Ying Liu
Department of Construction Management,
Tianjin University, Tianjin, People’s Republic of China

Sui Pheng Low
Department of Building, National University of Singapore,Singapore, and

Miaomiao Niu
Department of Construction Management, Tianjin University, Tianjin, People’s Republic of China
Purpose – In recent years, several high-profile cross-border acquisitions made by Chinese enterprises have attracted the world’s attention. However, none of these acquisitions were related to Chinese construction enterprises despite their expanding role in the international construction market. The purpose of this paper is to evaluate the objectives and impediments faced by Chinese construction enterprises in cross-border acquisitions based on existing theories and research studies.

Design/methodology/approach – Based on a literature review and the analysis of the current status of cross-border acquisitions in China, an industry-wide questionnaire survey was conducted to investigate the objectives and impediments of cross-border acquisitions faced by Chinese construction enterprises.

Findings – The main objective of Chinese construction enterprises towards cross-border acquisitions is to create new markets and to optimize the industrial structure. Although a majority of the construction enterprises demonstrated an intention for cross-border acquisitions which is driven by their past and current overseas activities, their preparation for cross-border acquisitions is impeded by concerns over post-acquisition issues and a lack of knowledge and experience. Originality/value – The paper originally contributes to a better understanding of the current status of cross-border acquisitions by Chinese construction enterprises based on an analysis of their objectives and impediments, which will be useful for researchers and practitioners. Keywords China, Construction industry, Acquisitions and mergers, International business Paper type General review

Journal of Technology Management
in China
Vol. 6 No. 2, 2011
pp. 140-152
q Emerald Group Publishing Limited
DOI 10.1108/17468771111139391

1. Introduction
As an important strategy for internationalization which brings to the acquiring enterprises various advantages, the concept of cross-border acquisition has attracted increasing academic interests recently (Vaara, 2002; Shimizu et al., 2004; Deng, 2009). Previous researches concentrate on the objectives of cross-border acquisitions. Sarala (2010) claimed that acquisition is an important mechanism through which firms grow and gain access to new resources. Shimizu et al. (2004) concluded the objectives of cross-border mergers through a theoretical perspective and argued that the objective of acquisitions can be viewed:

(1) as a mode of entry/diversification in a foreign market; (2) as a dynamic-learning process; and
(3) as a value-creating strategy.
These objectives can be seen as the drivers behind cross-border mergers and acquisitions (M&As).
Although the objectives of cross-border acquisition claim to benefit the enterprises, especially the purchaser, researches have shown that cross-border acquisitions often failed to achieve their objectives and as a result of which the success rate of cross-border acquisitions is relatively low (Colombo et al., 2007; Meyer, 2008; Barmeyer and Mayrhofer, 2008). Some studies have ascribed the low success rate to the problems of integrating separate organizations with different organizational cultures and management process systems (Quah and Young, 2005). These factors can turn out to be impediments for cross-border acquisitions that need to be considered during the preparation stage. When preparing for an acquisition, the purchaser should view it as an investment of capital (cash or stock) in the target, which is expected to produce a stream of cash flows. Consequently, an acquirer must forecast revenues, costs, assets and liabilities of a target firm (Very and Schweiger, 2001).

Nevertheless, researches on the application of a theoretical framework relating to, and the process for cross-border acquisitions are few and far between (Very and Schweiger, 2001; Duncan and Mtar, 2006), especially in the context of the Chinese construction industry. Over the past years, many construction firms have grown extremely large through expansion of services and acquisitions (ENR, 2010). Nonetheless, large Chinese construction enterprises, in particular, have not successfully garnered any significantly large-scale cross-border acquisitions yet although some have tried to adopt cross-border acquisitions as part of their strategic plans. The current status of cross-border acquisitions therefore needs to be investigated. The objectives of, and impediments faced by Chinese construction enterprises in cross-border acquisitions should be identified. This study is therefore to gain a better understanding of the strategies of Chinese construction enterprises relating to cross-border acquisitions and to identify their corresponding motivations and impediments. The research is developed as follows: first, the theoretical perspectives on the objectives and preparation for cross-border acquisitions will be reviewed. Second, the context of China in relation to cross-border acquisitions will be analyzed. Third, a survey will be conducted to investigate the objectives of, and impediments faced by Chinese construction enterprises in cross-border acquisitions. 2. Objectives of cross-border acquisitions

Cross-border acquisition has often been seen as foreign direct investments (FDI) or a mode of entry. Historically, economic perspectives such as transaction cost economics (TCE) and ownership-location-internalization (OLI) framework have provided dominant theoretical foundations on which cross-border M&As research studies were based (Shimizu et al., 2004). The OLI paradigm posits that the extent, geography and industrial composition of foreign production undertaken by multinational enterprises (MNEs) are determined by the interaction of three sets of interdependent variables, namely the ownership advantage (O-advantage), location advantage (L-advantage) and internalization advantage (I-advantage), or known more commonly known as the eclectic paradigm (Dunning, 1993, 2000). The O-advantage derives from the resource-based view (RBV) (Barney, 1991),




which as one of the motivations behind the acquisition, is to search for firm resources to achieve sustainable competitive advantages. In some cases, the strength of a firm can be pursued through extremely strong specialty advantages in just a few specialized fields. For this reason, specialty factors should also be considered, which then completes the paradigm as the OLI þ S paradigm (Low et al., 2004). Dunning’s (1993, 2000) theory was proposed based on transnational corporations, but can also be applied to MNEs in the developing countries, especially Chinese outward direct investments firms (Zhao and Pablos, 2010). The TCE showed that vertical acquisitions can be explained in terms of the customer’s need to reduce the risk of opportunistic behavior by a supplier who owns assets that are specific to the buy-sell transaction (Dalziel, 2008) in the perspective of microeconomics. This stream of work emphasized the minimization of the risks and inefficiencies in entering the foreign markets in which transaction costs played a key role (Shimizu et al., 2004). Larsson and Finkelstein (1999) claimed that strategic, organizational and human resource management should also be considered simultaneously to explain for successful M&A.

Previous researches on organizational-learning theories have argued that cross-border acquisition is a dynamic-learning process. The organizational-learning process produces new knowledge that in turn can result in competitive advantage and improved firm performance (Hitt et al., 2...

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