A Comparative Ownership Advantage Framework for Cross-Border M&As: The Rise of Chinese and Indian MNEs

Abstract

Unlike multinational enterprises from developed economies (DE MNEs), MNEs from emerging economies (EE MNEs) commonly do not have absolute ownership advantage in management, technology, and know-how. Yet some of them have recently undertaken aggressive cross-border mergers and acquisitions (M&As). This phenomenon challenges the current understanding in the international business literature (particularly Dunning's ownership-location-internalization [OLI] paradigm), which posits that the primary objective of foreign direct investment (FDI) is to leverage MNEs' ownership advantage in host markets. EE MNEs' cross-border M&As therefore create a research gap between theory and reality. Integrating the comparative advantage theory with Dunning's OLI paradigm, this article develops a comparative ownership advantage framework characterized by five attributes: (1) national-industrial factor endowments, (2) dynamic learning, (3) value creation, (4) reconfiguration of value chain, and (5) institutional facilitation and constraints. We then propose five propositions on the cross-border M&As undertaken by Chinese and Indian MNEs, and test these propositions with a dataset of 1,526 cross-border M&As from 2000 to 2008. Preliminary results support the new comparative ownership advantage framework, which explains both the differences and commonalities between Chinese and Indian MNEs' cross-border M&As.

Keywords: Comparative Ownership Advantage, Emerging Economy Mnes, Cross-Border M&As, Global Strategy