Mcdonald's Five Forces

Topics: Developed country, Developing country, Emerging markets Pages: 33 (9981 words) Published: August 10, 2011
Mergers and acquisitions form the majority of FDI deals in the developed world, but remain relatively scarce as a mode of entry in the developing world. The infrequent use of M&A as a foreign direct investment (FDI) entry modality into developing regions has motivated this study. As a first step in exploring the M&A paradigm in developing markets this paper will classify and rank the M&A attractiveness of 117 developing economies. Further, the distinction between FDI attractiveness and M&A attractiveness at a country and regional level will be illustrated. Mergers and acquisitions, as a mode of FDI are rare in developing countries. Only 26, 9 percent of the 11059 FDI developing economy deals documented in this study and concluded between 2004 and 2006 were cross border merger and acquisition deals, the remaining 73% of deals were all greenfield. Within the period 2002 to 2004, mergers and acquisitions made up a mere 19% of the total number foreign direct investment (FDI) deals concluded in developing economies. In contrast, cross- country mergers and acquisitions held far greater appeal in the developed world where M&A’s outnumbered greenfield FDI deals by making up 51% of the total FDI deals concluded over the same period 2002 to 2004 (UNCTAD, 2007). The clear preference for greenfield deals in the developing world indicates that there exist elements within locations attractive to M&A’s which are distinctive from those locations attracting greater greenfield activity. In order to understand these elements, M&A attractive and unattractive locations must first be identified and classified. M&A and greenfield are two distinct modes of entry with differing motivations and dissimilar host country effects. M&A involves the purchase of a controlling share of stock in an existing host country firm with production capacity (Raff et al, H., Ryan, M. and Stähler, 2008) whereas 1

greenfield investments see the foreign firm building its own independent business, and sourcing all resources directly from the market (Nocke and Yeaple, 2007). The FDI attractiveness of economies has been well explored in the literature. However, research on the role of FDI in economic development is dominated by a generalised view of FDI where the separation of entry mode strategies was not central. Several authors have commented on the underreporting of M&A as a process distinct from the FDI umbrella in the literature; these same authors have begun to explore in greater depth the M&A concept (Kogut & Singh, 1988; Raff et al, Ryan & Stähler, 2005; Nocke & Yeaple, 2007 & Haller, 2008). The M&A literature is concentrated on the developed economies of the world as the greatest volume of M&A activity has historically occurred in developed regions. Much of the literature on M&A’s describes the increasing number of these deals and its importance in global FDI, often by referring to the global total (Haller, 2008; Bjorvatn, 2004; Horn & Persson, 2001, Shimizu, Hitt, Vaidyanath, Pisano, 2004). None of these studies have referred to the relative scarcity in utilisation of M&A‘s in the developing world relative to the developed regions of the globe. This paper aims to make a contribution not just to the emerging literature on M&A’s but also to its particular developing economy paradigm. The methodology of this study allows for the identification and ranking of FDI attractive economies, M&A attractive economies and for the distinction to be drawn between M&A attractive economies at the country level and M&A attractiveness at a regional level. At the country level M&A attractive economies are economies which attracted more M&A than greenfield deals internally i.e. economies attracting a greater ratio of M&A activity to greenfield investments. Regional M&A attractive economies were defined as economies which whilst

attracting large volumes of M&A activity within a region were not attracting a greater number of


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