A Study On MNC’s Cross-Border M&As And Integration

In the last three decades,foreign direct investment(hereafter refer as FDI),especially Greenfield,has been playing a significant role in China’s economic development.The number of acquisition activities of foreign multinational corporations(hereafter refer as MNCs)in China have multiplied sharply and more and more foreign investors recognize China as a potential market that can offer a great number of possible sellers,buyers,cheap work force as well as other incentives that make penetrating the Chinese market a strategic investment.Nestléhas long seen these benefits and uses its“traditional”method to maintain its leading position in such an unfamiliar market,which is to partner with Chinese leading companies.However not all MNCs were able to last long on such a competitive atmosphere.Even for Nestlé,reaching a leading position wasn’t at all a simple thing.Similar to many foreign MNCs,and its previous strategy of penetrating a new market,Nestléchose M&A as entry mode which,based on its own previous experience,is a safe and faster method.However due to various factors such as operation and cultural differences,conflicts with its Chinese partners were the major issues influencing its strategies.Despite these difficulties,Nestléwas able to outweigh through the right understanding of the characteristics of the Chinese market and how to conduct business in China.This dissertation first gives an introduction to the existing theories of mergers and acquisitions;we then apply these theories to Nestlé’s activities in China.We focus on the strategy adopted by Nestléin China.It highlights the difficulties encountered by the firm in its management from both Nestléand its Chinese partners.Based on the nature of the acquisition and the way of integration,the author tries to understand the attitude of the sellers(in our case the Chinese partners)in regard to Nestlé’s approach and what happened after the acquisition.In existing researches,given the versality of acquisition,it is not surprising to see many researches took several theoretical perspectives,such as Learning Theory(Haleblian and Finkelstein,1999),Social Class Theory(Palmer and Barber,2001),Evolutionary Theory(Ahuja and Katila,2001),and Agency Theory(Mallette and Fowler,1992).Researches have answered many questions such as when deals occur,what happen after the acquisition,and why some acquisitions are more successful than the other.However many of these researches are based on the buyers’(acquiring companies’)perspective,and chosen acquirer as decision-maker,while sellers are mostly discrete over the acquisition decision,because being acquired is a sign of weakness,and always conclude with negative outcomes to them and sometimes even characterize as misfit or failures.However,in 2004,Graebner and Eisenhardt studied acquisition from the angle of the seller and proposed the theories“courtship”style acquisition and alliance governance.We were very inspired by their work and enhanced their theories by proposing a new concept based on their theories.Through interviews with Nestlé,Totole,Yinlu,Hsu Fu Chi,and Haoji,we found their acquisition with Nestléis very similar to Graebner and Eisenhardt’s proposed“courtship”acquisition and“alliance”governance,but in a Chinese way.Using the same research methodology of Graebner and Eisenhardt,we further analyzed on when and to whom they sell.We extended the theories and further proposed a new angle,the Chinese-style“marriage”,which is the“ruzhui”acquisition and“coaching”governance,which best describe Nestlé’s acquisition and integration in China.This is a very important contribution to the management research.“Ruzhui”is the Chinese pinyin of the characters入赘,which means a groom marries into and lives at the bride’s family.A“ruzhui”style acquisition emphasizes the level of matching of both sides.Under such acquisition,money is not the only considered factor by the sellers,more important is the transferred right over and what is kept under the seller’s control.What kind of long-term returns can the sellers expect and to what extent can the sellers control such returns.Whereas after the acquisition is performed,the buyer(acquiring company)had to consider the potential risks brought by an acquisition in an unfamiliar industry and culture.At this time,“coaching”governance becomes useful.The buyer,by proposing requirements on profit growth,will only provide guidance,and delegate operation powers to the acquired party(in our case the seller)who is more familiar to the business operation,in order to drive the company’s development.This is a model of a trainer coaching his athletes.A coach always wants the best result of his coachees,who also need the guidance from their trainer,both sides are interdependent.In order to achieve the company’s growth,both parties rely on each other.We hope that this study will be useful for future researches in this area,and handful to Chinese enterprises.Chapter One gives an in-depth introduction of the overall dissertation including existing research background,existing researches and its limitation,as well as our research methodology.Chapter Two is the theoretical framework of the dissertation.We first introduced the origins of internationalization and M&As,entry strategies for cross-borders M&As,as well as the types of cross-borders M&As.Chapter Three is about the history of Nestlé.Henri Nestléfounded the company Nestléin Switzerland in the mid 1860’s.Farine Lactée Henri Nestlé,the name of Nestlé’s first product,which saved many infants’life.Nestléexpanded very quickly to Europe and rest of world.In 1905,Nestlémerged with the Anglo-Swiss Condensed Milk Company and this was the beginning of Nestlé’s expansion.In this chapter an in-depth introduction on the Nestléwas made.We went through its history,how it relied on M&A to grow into a world top food manufacturer today.Chapter Four analyses Nestlé’s activities in China,including its management style and commitments.Nestlécame to China because of the large potential markets.Now,they have manufacturing factories in many cities in China.What made Nestlésuccessful in the Chinese market will be revealed in this chapter.Chapter Five is the most important part of this dissertation and deeply analysed the form that Nestlécame into China.Nestléfirst came into China in 1908,and established its first office in Shuangcheng which is located in the Heilongjiang province where it develops itself.At that time,Nestléwas still unfamiliar with the local culture and didn’t have much power,so it chose partnership.It first partnered with Totole,and then chose joint venture(hereafter refer as JV)with Yinlu and Hsu Fu Chi to strengthen itself.Together with the three partners,Nestléwon a great popularity in both old and new generations in China.This chapter comprises of three parts.First part analyses Nestlé’s successful acquisition and integration of Totole.Second part analyses Nestlé’s successful acquisition and integration of Yinlu.And Third part analyses Nestlé’s successful acquisition and integration of Hsu Fu Chi.Chapter Six is also an important part of this dissertation.We examined the acquisition from the seller’s perspective,and further compared the acquisition and integration of Nestléand its Chinese partners as that of a Chinese style“marriage”within a matriarchal society.Based on Graebner and Eisenhardt’s proposed theories on“courtship”style acquisition and alliance governance,we enriched their concepts and extended to a new angle,the“ruzhui”acquisition and“coaching”governance.The last chapter summarizes key findings of this study,points out limitations encountered during the research,and concludes with the author’s sincere suggestions to future related researches.Overall,by combining the findings from the case study and from interview records,this thesis replied the questions of,what is the motivation behind selling the company and how do they choose their acquirer?Finally,how both parties integrate?This dissertation contributes in theory,practice,and methodology.We also contribute in providing practical guidelines for Chinese acquiring companies in their M&As.Practitioners in the M&A field such as M&A advisory companies can also gain valuable insights from our findings.