How to Synergize Different Institutional Logics of Firms in Cross-border Acquisitions: A Matching Theory Perspective.
| Verfasser | Cheng, Cong |
1 Introduction
Cross-border acquisition often requires firms to adjust their dominant institutional logic to address the institutional discrepancies between the acquirer or the acquiree. But how to synergize different institutional logics of firms in cross-border acquisitions presents a critical challenge for acquirers especially those from developing countries conducting acquisition in developed countries. Institutional logic refers to "the socially constructed, historical patterns of material practices, assumptions, values, beliefs, and rules by which individuals produce and reproduce their material subsistence, organize time and space, and provide meaning to their social reality" (Thornton & Ocasio, 1999: 804). Cross-border acquisitions undertaken by firms from developing economies have become a significant power in global markets. Nevertheless, the road to cross-border acquisitions for most firms from developing economies with little experience in the global markets is fraught with challenges. Hurdles such as the imbalanced developments of global economies, diversification of international markets, and unique social, institutional, and cultural environments pose serious challenges to these firms from developing economies and force them into "crossing the river by feeling the stones" (Chen, 1986: 279). Considering that the dominant institutional logic behind these acquiring strategies is to seek valuable assets such as advanced technology (Luo & Tung, 2007, 2018; Rui & Yip, 2008), marketing competence (including brand and channel) (Rui & Yip, 2008), and R&D resources (Cheng & Yang, 2017; Deng, 2009, 2012), this situation is even more formidable when firms from developing economies intend to acquire firms in developed countries where the competitive landscape is challenging. Thus, according to Chung et al., (2016), we refer to the acquisitions made by developing country acquirers in developed markets as bottom-up cross-border acquisitions). In contrast to top-down acquisitions initiated by established multinational corporations (MNCs), firms from developing economies typically face a significant gap in resource base and capabilities with established MNCs from developed economies (Madhok & Keyhani, 2012). The tortuous process of Geely's acquisition of Volvo to obtain a world-class auto brand and the unfavorable attitudes of the western public media when Lenovo acquired IBM's personal computing division to obtain advanced personal computer technologies are prime examples (Rabbiosi et al., 2012). Drawing upon the institutional logic perspective, we argue that, after setting aside the preconditions of resources and capabilities, the incompatibility of different institutional logics is the main reason behind the failure of cross-border acquisitions by firms from developing economies. For example, the dominant institutional logic of seeking strategic assets among firms from developing economies always contradicts the institutional logic, such as commercial logic, in developed markets (Pache & Santos, 2013).
Recent literature has given considerable attention to how firms deal with external environmental challenges caused by different sociocultural markets (Battilana et al., 2015; Ramus et al., 2017). In general, firms are more likely to face turbulent environments in international markets, where environmental turbulence can lead to uncertainty of opportunities, including unstable relationships between members (Reay & Hinings, 2009), unrealistic goals (Sine et al., 2006), mismatched resource allocation (Almandoz, 2012), and threats (Davis et al., 2009), but also disrupt the balance between different logics within an organization, which creates potential opportunities for the institutional logic in the marginal position to challenge the dominant institutional logic (Almandoz, 2012; Smith et al., 2017). Therefore, the most efficient way for firms to respond to environmental turbulence is to adjust their internal institutional logic, such as rebuilding organizational benefit, value, and following practical guides to fit the external institutional standard (Mtar, 2010; Thornton et al., 2012). However, it is not always easy for firms to change their dominant institutional logic, which hinders a firm from attaining its acceptable goals (Pache & Santos, 2013; York et al., 2018), defining its organizational boundaries (Battilana & Dorado, 2010), and guiding the firm's strategy implementation (Battilana et al., 2015). As a result, firms must balance their existing institutional logic and external environmental requirements and adopt the coexisting institutional logics. However, the coexistence of institutional logics often goes hand-in-hand with institutional complexity. Prior research has attested that institutional complexity is always triggered by the coexistence of divergent institutional logics in a firm (Besharov & Smith, 2014; Greenwood et al., 2011), and that it is common for multiple institutional logics to coexist (Henrich et al., 2017). In some cases, the competition among institutional logics in a firm is helpful for organizational restructuring, resource utilization, and competitiveness improvement (Dunn & Jones, 2010; Misangyi et al., 2008; Reay & Hinings, 2009). Nevertheless, in some other cases, such competition may result in resource depletion and organizational dysfunction that is inconsistent with the firm's original goals. This complexity raises an important question for academics and practitioners, i.e., is there an alternative approach to help firms synergize their dominant institutional logics? In particular, in the cross-border acquisition context, acquirers and merged parties often follow different or even conflicting dominant institutional logics, while firms from developing economies are often at a disadvantage in doing so (Mondal et al., 2021). The cross-cultural and cross-border contexts of dynamic international operating environment may further amplify such challenges for both the acquirer and acquiree (Sarala & Vaara, 2010).
Neo-institutional theory assumes that multinational firms from emerging markets are pressured by their environment to adapt to the institutional requirements of the merged party in order to gain legitimacy when they encounter institutional conflicts, i.e., using the dominant institutional logic of the merged party to replace their own. However, this view ignores the role of the firm's active agents and cannot explain the long-term co-existence of two institutional logics in multinational firms. Moreover, adopting a competitive approach to transform their dominant institutional logic is a highly risky strategy for such firms, making them prone to resource waste and organizational dysfunction. In contrast, multinational firms from developing economies respond to institutional complexity with active strategic responses rather than entirely passive adaptations (Greenwood et al., 2011), and the institutional logic of the firm changes dynamically in response to the external environment and key events. While continued environmental turbulence has the potential to expose organizations to greater risk, it also provides them with new opportunities: for example, they can take the opportunity to assimilate and learn from the mature institutional logic components of the host country and adjust their internal institutional logics transformation to meet the objectives of different stages according to changes in the external environment. Accordingly, the research question guiding this article is: When cross-border acquisitions happen, how should acquirers address the institutional complexity inherent in the acquiring parties to facilitate the transformation of the acquirer's institutional logic?
Through the lens of matching theory (Fujiwara-Greve & Greve, 2000; Mitsuhashi & Greve, 2009), we investigate how the acquiring firm transforms the compatibility and complementarity of institutional logics of firms involving in the acquisition. Matching theory postulates that healthy relationships equally consider all members' preferences, opportunities, and constraints by using information "on the characteristics or resources that each side values in the other" (Logan, 1996: 117). Matching theory has been widely applied to study different types of social matches, such as employer-employee matching (Fujiwara-Greve & Greve, 2000), alliance formation (Mitsuhashi & Greve, 2009), between entrepreneurs and potentially valuable contacts (Vissa, 2011), and between firms and research scientists (Mindruta, 2013). When firms from developing economies enter the markets of developed countries, they not only face extremely complex environmental pressures (Schilke, 2018; Wei & Clegg, 2015), but are also subject to disadvantages in terms of internationalization experience, technology accumulation, and knowledge reservation (Deng, 2009; Thomas et al., 2007). In such cases, in order to cater to the dominant institutional logic of the target market, the acquirer needs to match the acquiree's institutional logic.
We explore the process by which firms from developing economies transform their dominant institutional logic through an alternative approach by shifting the perspective to focus only on the matching of dominant institutional logic within the merging parties, rather than on the relationship between the acquirer and the acquiree. We argue that firms from emerging markets often lack ownership advantages (Mondal et al., 2021), such as advanced technology and international operating experience (Rui & Yip, 2008). As a result, they often invest overseas with the intention of seeking strategic assets, using international expansion as a 'springboard' to acquire these assets (Luo & Tung, 2007, 2018), and thereby compensate for their competitive disadvantages in terms of proprietary technology, management know-how, product brands, and distribution networks (Child & Rodrigues, 2005; Kang & Jiang, 2012)...
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