Preserving competences and dealing with institutional distance: A comparison between the entry mode of multinational firms from emerging and from advanced countries

This article is about Emerging Market Firms (EMFs) acquiring firms in advanced economies. We claim that EMFs adopt a different entry behavior from that of Advanced Market Firms (AMFs). Namely, as a first hypothesis we claim that, AMFs undertake a partial (rather than a complete) acquisition when they wish to avoid the dispersion of the bundle of information and knowledge residing in the target company, while EMFs are more likely to prefer a greater degree of ownership and control as they lack the needed experience to deal with the relevant complexity and to manage partnerships. Furthermore, we claim that EMFs experience a higher propensity to control the local partner the higher the institutional distance with the host country, since they enjoy a better institutional environment when they invest in advanced countries and, hence, they are less likely to need a local partner. To test our hypothesis, we developed an econometric analysis applied to foreign acquisitions in Italy along the decade 2001-2010 and we study the entry mode of AMFs and EMFs. Our result confirm the first hypothesis and shows that distances in property rights and investment freedom effectively increase the probability to undertake full acquisition for EMFs.status: publishe