The modern globalized world has triggered stark change in the actions of many of the actors in traditional society. One such actor that has embraced this change and recognized its benefits is in the area of international business. With globalization providing access to a myriad of new networks, markets, and technology at an unprecedented pace, international business firms have aligned themselves to capitalize on these new opportunities. While inter-firm alliances, mergers, and acquisitions are certainly not a new innovation in international business practice, the modern international business environment has seen a significant increase in the number of mergers, acquisitions, and joint ventures in response to globalization. The motivations for these inter-firm alliances have also changed in conjunction with this recent trend. Traditionally, businesses engaged in inter-firm alliances, mergers, or acquisitions to either increase their market power in a region or territory, or to reduce a firm’s transaction costs. However, in accordance with the globalization of international business activity, firms have had new motivations emerge as reasons for inter-firm alliances, mergers, or acquisitions. The extent that these new motivations arise in firm activity must be examined by studying the following questions: i) why have motivations changed; ii) what are the factors that have led to the formation of these motivations; and, iii) how do these motivations lead the firm to choose on which form of activity to partake. Each of these questions will be addressed in turn.
I. Why have the motivations for inter-firm alliances, mergers, and acquisitions changed?
Corporate firms have long engaged in alliances, mergers, and acquisitions as a strategic tool to optimize their particular economic goals. As described by Andrew Inkpen in his analysis of strategic alliances entitled, Strategic Alliances, the use of alliance formation, mergers, and acquisitions has become a vital source for the continuing success of many firms: “The overall strategic objective of alliance partners is the pooling of resources to create a value in a way that each of the parents could not achieve by acting alone” (Inkpen 404). These strategic objectives were generally used to increase their market power, reduce their transaction costs, or as a defensive reaction to guard against losing a potential opportunity. The market power approach, a strategy utilized by firms to capitalize on a particular market while restraining competition, and the transaction cost approach, a inter-firm relationship to reduce transaction costs between companies, both are reflected in the world economy practices of international firms of most of the past century. While each of these objectives still is prevalent in firm alliance, merger, and acquisition activity today, they have become increasingly less popular as globalization has changed the way multinational firms conduct business in the transforming world economy.
In his journal entitled, Reappraising the Eclectic Paradigm in an Age of Alliance Capitalism, John Dunning makes the case that the world economy has changed significantly, and is on the verge of entering a new phase entirely: “Over the last decade or so, a number of events have occurred that...suggest that the world economy may be entering a new phase of market-based capitalism or, at least changing its trajectory of the past century” (Dunning 461). This new world economy as described by Dunning would serve as a contrast to the “hierarchical capitalism” (463), which dominated most of the past century. Under hierarchical capitalism, Dunning contends that, “the essential characteristic of both these systems is that the governance of production and transactions is determined by the relative costs and benefits using markets and firms as alternative...