What Role Do Acquisitions Play in Asian Firms' Global Strategies? Evidence from the Medical Sector, 1978–1995

Asia Pacific Journal of Management, 19, 489–502, 2002c© 2002 Kluwer Academic Publishers. Manufactured in The Netherlands.

What Role Do Acquisitions Play in Asian Firms’Global Strategies? Evidence from the MedicalSector, 1978–1995

WILL MITCHELL [email protected] Fuqua School of Business, Duke University, Box 91020, Durham, NC 27708-0120, USA

J. MYLES SHAVERCarlson School of Management, University of Minnesota, 3-424 Carlson School of Management, 321-19th AvenueSouth, Minneapolis, MN 55455, USA; Stern School of Business, New York University, New York, USA

Abstract. This study compares the use of acquisitions by Asian, European, and North American firms operatingin the U.S. medical sector between 1978 and 1995. We examine the incidence of acquisitions, the relative emphasisthat acquirers place on resource deepening and resource extension, and the post-acquisition retention of acquiredresources. We find substantial similarity in the asset-seeking role of acquisitions for medical sector firms fromdifferent continents, coupled with intriguing differences concerning what we refer to as asset keeping. The resultssuggest that there are many common causal factors that underlie the strategies of firms from different regions, butthat some regional differences remain.

Introduction

What role do acquisitions play in Asian firms‚ global strategy? The conceptual litera-ture and popular press offer contradictory answers to this question. Some analysts sug-gest that companies from the Asia-Pacific are unusually reluctant to acquire other compa-nies. In contrast, others view Asian firms as using acquisitions to unfairly target westerntechnology and business skills that the Asian firms lack. Although the public profile ofthis question subsided with the economic slow-down in many Asian economies, the de-bate about the contradictory answers will undoubtedly revive as the economies regainstrength. Moreover, there is a deeper conceptual issue underlying this question, whichis whether Asian firms tend to follow distinct strategies in their global expansion, orwhether their globalization efforts reflect more general business tendencies shared byfirms across regions of the world. The unifying theme in both the empirical and con-ceptual discussions, then, is whether Asian firms are somehow unique, or whether theirbusiness practices reflect common business strategies when they compete in commonarenas.1

We approach this question as an empirical issue. Nonetheless, we have fairly strongviews going into the study. We recognise that national laws and cultures shape businesspractices in distinct ways. At the same time, though, we believe that there are strong un-derlying causal threads that define a general set of business practices that tend to emerge in

490 MITCHELL AND SHAVER

international markets. Ultimately, we believe that there is an ongoing convergence, in whichmajor distinctions between the notions of business strategy and international strategy aredisappearing. For instance, Mitchell and Shaver (2001) show that strategy choices betweendomestic and foreign firms within a particular business environment are often not pro-nounced. As a result, our expectation is that there will be few differences in the acquisitionstrategies of Asian firms and their western competitors.

Because our motivation is to assess whether or not there are differences in firm acquisitionstrategies, an analysis of fine-grained data can provide an empirical benchmark by whichto motivate and inform future research. We explore the acquisition strategies and post-acquisition resource outcomes of firms operating in the U.S. medical sector between 1978and 1995. The sample includes more than 30 firms from the Asia-Pacific (Japan, Australia,and Korea), about 160 firms from Europe, and about 2000 firms from the U.S. This sectoroffers an opportunity for detailed comparison of the activities of a moderate number offirms. The results offer a route to analysis of business activities in other sectors and providepreliminary generalization.

Background and research questions

We draw upon a routine-based perspective on business dynamics as the conceptual guidefor our study. By business dynamics, we mean the ways in which firms change in the faceof constraints to change. The routine-based perspective draws most directly on work fromthe resource-based view of strategy (Penrose, 1959) and behavioral and evolutionary viewsof the firm (Cyert and March, 1963; Nelson and Winter, 1982), along with key ideas fromecological (Hannan and Freeman, 1984) and transaction cost theory (Williamson, 1999).The routine-based perspective on business dynamics views firms as bundles of routinesthat provide firm value but also create constraints on how businesses change. Researchin the field of strategy has focused on acquisitions as a means of overcoming barriersto change and has argued that the market-for-firms helps business overcome failures indiscrete resource exchange (Capron, Dussauge and Mitchell, 1998). Karim and Mitchell(2000) show that acquisitions are a key source of business change and that businesses canretain both similar and distinct acquired resources. Few studies compare how domesticand international firms use acquisitions, while even fewer studies examine post-acquisitionbusiness reconfiguration.

At the outset, we will define the concepts of routines and resources. In our approach, theelemental units of analysis within firms consist of routines, where routines are identifiablepatterns of activity embodied in human or capital assets (Nelson and Winter, 1982). Routinesconsist of multiple related transactions that take place over time either within a firm or viainteraction with external parties. Routines are often tacit, either because they are intrinsicallyuncodifiable or because they require the interactive participation of multiple people andsystems. Several routines combine together to create particular resources. Resources, whichwe view as synonymous with the term capabilities, are stocks of knowledge, skills, financialassets, physical assets, human capital, and other tangible and intangible factors (Wernerfelt,1984; Amit and Schoemaker, 1993). Empirically, we will use product lines as the operational

WHAT ROLE DO ACQUISITIONS PLAY IN ASIAN FIRMS’ GLOBAL STRATEGIES? 491

measure of resources in our discussion of acquisitions, as we discuss later in the paper, withthe assumption that different product lines require different sets of routines.

Acquisitions are one of the major means by which firms overcome constraints to chang-ing their business practices and market activities (Karim and Mitchell, 2000). Increasingly,the strategy literature has begun to consider how firms restructure to maintain a competitiveadvantage in changing environments. Researchers have developed the concept of intangi-ble assets and their failure in markets for discrete resource exchange. Market failure inthe exchange of tacit resources stems partly from potential opportunism and partly fromknowledge and learning limitations within organizations.

Theorists have argued that in the cases of tacit resources, the market for firms is often moreefficient than the market for resources, so that obtaining tacit resources is often a goal ofacquisitions (see Capron, Dussauge and Mitchell, 1998). The routine-based perspective onstrategy argues that tacit resources reside in an organization’s structure via the routines thatthe organization maintains (Nelson and Winter, 1982). Routines include norms, proceduresand conventions around which an organization functions. The embeddedness of routinessupports acquisition; routines may remain intact and personnel with critical experience maytransfer to the new organization. Acquisitions may serve to minimize issues of boundedrationality and time compression diseconomies that constrain the content and speed oflearning (Dierickx and Cool, 1989), making acquisitions preferred to internal development.Exchange of information, which tends to be a tacit resource, often fails in the market fordiscrete exchange. Not only is information often tacit and uncodifiable, valuable informationalso suffers from appropriability issues: exchange opportunities may be limited due toprotecting the knowledge resource, and, moreover, information acts as a public good andhas severe impactedness problems (Teece, 1986).

These arguments all suggest that acquisition of tacit resources through the buying andselling of firms or business units may be more robust than the market for discrete exchange.Capron, Dussauge and Mitchell (1998) show that acquisitions have become an increasinglycommon means for both European firms and American firms to redeploy resources thatthey lack to and from target businesses. Anand, Capron and Mitchell (2001) show thatpost-acquisition resource redeployment improves performance of both domestic and cross-border acquisitions by European and North American firms.

Our study poses three research questions concerning the incidence of acquisitions, therelative emphasis on resource deepening and extension (asset seeking), and post-acquisitionresource retention (asset keeping). As we stated in the introduction, our approach in the paperis the systematic comparison of the strategy of Asian firms within the U.S. medical sector.

First, we would like to assess whether Asian firms are more or less likely than their westerncompetitors to acquire other companies. It is generally accepted that Asian firms tend toemphasize internal development of new resources in place of acquisitions of other companies(Anand and Kogut, 1997), but this image may under-estimate their acquisition activity.Although acquisitions have been relatively uncommon within many Asian economies untilrecently,2 this lack of traditional action at home may have tended to obscure more vigorousacquisition strategies in global activities. Most often, only the high profile acquisitions oflarge companies receive attention, such as Sony’s acquisition of Columbia in 1989, whichsparked popular fears of foreign influence in the U.S. (Farhi and Auerbach, 1989). This


emphasis on highly visible large-scale acquisitions, though, might miss the ongoing use ofsmaller-scale acquisitions in the business practices of many firms. We suspect that manyAsian firms commonly use acquisitions as a means of gaining access to new resources thatthey need to compete outside their home markets.

Research question 1. Are Asian firms operating in the U.S. more or less likely toacquire other companies, when compared to firms from Europe and North America?

Second, we would like to determine whether Asian acquirers place differing emphasis onresource deepening and resource extension acquisitions. By resource deepening, we meanusing acquisitions to acquire resources that are similar to current resources, while resourceextension involves obtaining new resources that are distinct from a firm’s current resources.

Acquirers commonly build on current capabilities with their acquisition activities. Forinstance, businesses may pursue a strategy to develop and effectively exploit a core com-petence (Prahalad and Hamel, 1990). Similarly, the knowledge-based view of the firmacknowledges that the ‘capacity for aggregation’ is important for recipients to be able toadd new knowledge to existing knowledge (Grant, 1996). Along with sheer resource ac-cumulation, the relatedness or commonality of resources may determine whether firmsobserve opportunities for learning. Prior knowledge enhances learning because memory isdeveloped by associative learning (Huber, 1991). Kogut and Zander (1992) note that firmslearn in areas closely related to their existing practice because the sharing of a commonstock of knowledge facilitates the transfer of knowledge within groups.

Although related resources have benefits, drawbacks also arise. The lack of balancebetween exploration and exploitation of current capabilities and resources can be self-destructive for an organization. Firms also need to be concerned about falling into com-petency traps where routines or actions that led to good performance in the past areused repeatedly even though they may be far from optimal (Levitt and March, 1988).Therefore, acquisitions may also serve to pursue change via what we refer to as resourceextension.

Resource extension occurs when acquirers obtain targets’ resources that are distinct fromtheir own. Since the publication of Cantwell’s (1989) thesis, the international businessliterature has hypothesized that host countries with advantages in resident technology at-tract foreign investment (Kogut and Chang, 1991). The terms “reverse internalization” and“asset seeking” are commonly used to describe this form of expansion (Dunning, 1990;Eun, Kolodny and Scheraga, 1996). Acquirers often have incentives to obtain distinct re-sources in changing environments. Obtaining distinct resources forces an organization topursue greater degrees of coordination and integration, and may thus develop greater corecompetencies and dynamic capabilities. Firms may also retain distinct resources if theyprovide a unique competitive advantage. Teece (1986) notes the importance of complemen-tary assets that can be utilized in conjunction with other capabilities or assets and may beneeded for the successful commercialization of an innovation. Complementary assets maycome in the form of distinctive resources that firms obtain via acquisitions.

Resources have different value for different buyers depending on the potential synergythat they believe will come from owning the assets (Wernerfelt, 1984). Barney (1988)


stressed that acquisitions may create value when there are private and uniquely inimitablecash flows between the acquiring and target firm. By private and unique, Barney means thatother buyers could not realize the potential synergies that may be created and even if theydid, they could not duplicate the synergy. Based on Barney’s theories of unique synergies,Harrison, Hitt and Ireland (1991) proposed that firms can create uniquely valuable synergywhen differences exist in resources. Though dominant theories predict that similarities inresources create value and are most likely, acquirers may obtain resources that are distinctfrom their own. Wernerfelt (1984:179; italics in original) reminds us that “candidates forproducts or resource diversification must be evaluated . . . in terms of their long-term capacityto function as stepping stones to further expansion.”

The issue of resource extension versus resource deepening commonly arises in the pop-ular press and in public policy debates about Asian firms, although with other terms. Thesedebates often depict Asian firms as seekers of western technology, using acquisitions to ex-tend their business skills beyond what they already possess. In this view, which is especiallycommon in the U.S., acquisitions by Asian firms would tend to involve mainly resourceextension, rather than resource deepening.

Counter to this common view of Asian firms, though, we suspect that resource extensionacquisitions will be no more common among Asian firms than among European and NorthAmerican companies. We have two reasons for this expectation. First, as we discussedabove, many European and North American companies use resource extension acquisitionsas means of undertaking important business changes (Karim and Mitchell, 2000). Second,Asian firms, like their competitors, have strong incentives to use resource deepening ac-quisitions as means of building on their existing skills to the extent that they exist. Forexample, if past resource extending investments aid Asian firms in developing a uniqueset of resources, the firms might choose to deepen this resource base rather than furtherextending it (Amsden, 1989). For example, Japanese firms are more likely to use de novoinvestments compared to European firms (e.g., Anand and Kogut, 1997) and de novo in-vestment tends to be the entry mode choice of firms with strong sources of competitiveadvantage (e.g., Hennart and Park, 1993; Shaver, 1998). As a result, we turn to the data toassess if there are differences in the resource deepening and resource extension profiles offirms from different continents.

Research question 2. Are Asian firms operating in the U.S. more or less likely thanEuropean and North American firms to undertake resource deepening or resourceextension acquisitions?

Third, we turn to the issue of post-acquisition resource retention. Acquiring firmscommonly divest all or part of their target businesses in the years following acquisitions.Both the popular press and the business literature have frequently viewed such divestitures assigns of acquisition failure. In contrast, Capron, Mitchell and Swaminathan (2001) suggestthat post-acquisition asset divestiture is part of an active program of business reconfigura-tion, in which firms must acquire resources that they do not need along with resources thatthey do need if they use acquisitions to make needed changes. Therefore, firms that are themost active in their dynamic use of acquisitions may well also be among the most active intheir post-acquisition resource divestiture.


We do not have strong expectations concerning resource retention. It is possible that Asianfirms are more likely to retain acquired resources than are North American and Europeanfirms. Firms from some Asian economies, particularly Japan, have a reputation for takinga “long-run view” on strategy. Yet, the extent to which this differs from the set of firms inU.S. and Europe might not be pronounced. Moreover, given the arguments that divestituresare part of the acquisition process, there might be differences in the rate of divestiture,even if there are differences in short-run versus long-run views. Therefore, we seek onlyto determine whether Asian firms tend to be “asset keepers” even if they are not “assetseekers.”

Research question 3. Are Asian firms operating in the U.S. more or less likely thanEuropean and North American firms to retain resources that they have acquired inacquisitions?

In summary, we will explore the comparative use of acquisitions by Asian firms. We willexamine the incidence of acquisitions, the relative use of resource extension and resourcedeepening acquisitions, and the extent of post-acquisition resource retention. While somedifferences in the acquisition strategies of Asian and western firms may emerge, we expectto find substantial commonality in their strategies.

Data

The study uses data from several editions of the “Medical & Healthcare Marketplace Guide,”published from 1975 to the present. The guides include information concerning U.S. andnon-U.S. firms operating in the U.S. medical sector, including information about whatproduct lines they offer each year. The guides include information about almost all medi-cal sector firms of any appreciable size and also contain information about many smallerbusinesses. We gathered initial information concerning more than 2,500 medical sectorfirms. We examined panel data for firms operating in 1978 and 1983. Of those firms op-erating in 1978 and 1983, we identify those that had undertaken acquisitions by 1995. Wechose the 1978 and 1983 panels as baselines for the study, using information from the1975 guide to provide data concerning prior characteristics of the firms. The firms in the1983 panel are companies that entered the guides after 1978, either because they were newentrants to the health sector or because the guide did not record information for them in1978.

For each panel, we noted the product lines the firms offered in that year, from a list includ-ing 258 possible product lines. We further categorized these product lines into five broadercategories of more distinct sets of resources, including medical devices (184 lines), den-tal devices (5 lines), ophthalmic devices (7 lines), pharmaceutical products (16 lines), andhealthcare services (46 lines). Examples of medical device product lines include productssuch as pacemakers, needles, and CT imaging equipment. Dental devices include items suchas prosthetics and supplies. Ophthalmic devices include items such as optical microscopesand optical diagnostic equipment. Pharmaceutical products include items such as pharma-ceutical medicines, biomaterials, blood products, and drug delivery systems. Healthcare


services include services such as nursing home management, health maintenance organi-zations, and radiological testing services. By tracking firms and their acquirers and thenrecording their product lines in 1995, we identified which product lines the firms haddropped, retained, or added. The database also provided information on firms’ attributessuch as sales levels, founding date, and a brief review of a firm’s history. Karim and Mitchell(2000) describe the data set in more detail. For the current study, we distinguished betweenfirms based in the Asia-Pacific, North America (U.S. and Canada), and Europe. Most of theAsian companies were based in Japan, with a smaller number based in Australia and Korea.

As we noted above, we use product lines, including both physical goods and non- physicalservices, as measures of resources. Penrose (1959) argues that firms may use resources indifferent ways and this ultimately provides firms with their uniqueness. We believe thisdifference in resource use is reflected in the unique product lines and services that thefirms offer. Our theory argues that routines combine together to create resources. Differentresources may involve the use of different routines or a different combination of similarroutines. In our approach, a firm producing two different product lines is either using twodifferent sets of routines, where some of the routines may be common to both product lines,to create those product lines or similar sets of routines that are combined differently. In thelatter case, routines may have different linkages between them that create the combinations.If two firms produce the same product line, we assume that there is substantial similarity inthe routines that underlie the product line. We assume that there is more similarity betweenroutines of the same product lines from different firms compared to different product linesfrom different firms.3

Analyses

In the following analyses, we examine the association between nationality and acquisitionincidence, resource overlap and resource retention, while controlling for many firm effects.We do not focus our efforts on controlling for potential selection effects on unmeasuredvariables (see Mitchell and Shaver, 2001); therefore, we will not rule out the possibilitythat other sources of firm heterogeneity that correlate highly with nationality influence theresults that we report. Given that we wish to assess Asian firms’ strategies, such comparisonsare appropriate.

We start with the analysis of acquisition incidence. The dependent variable, acquisitionincidence, is a 0–1 measure of whether or not a firm made an acquisition between 1978/1983and 1995. We used binomial logistic regression in our analysis to assess how differentfirm characteristics affect the likelihood that a firm engages in an acquisition. Column 1of Table 1 reports the results. The analysis includes 2,198 companies. The Asia-Pacificsubsample included 32 firms, which we compare to 163 European companies and 2,003North American firms.

Compared to North American firms, the results show that Asian firms are equally likelyto use acquisitions. Compared to European firms, the results show that Asian firms are lesslikely to use acquisitions.4 The results control for several other factors, including businesssize, age, scope, experience in the industry (entry before 1978), and whether the firm usedan acquisition to enter the industry. The observation that Asian firms use acquisitions less


Table 1. Binomial logit influences on stability of health sector businesses operating in the U.S., 1978/1983–1995(negative coefficient = outcome is less likely).

Dependent variable:acquire at least Independent variable

one business by 1995 summary stats.

Coef. s.e. Mean s.d. Min. Max.

Home continenta,b

A Firm home: Asia-Pacific (32 firms) −0.30 0.65 A 0.015 0.12 0 1

B Firm home: Europe (163 firms) 0.97 0.26∗∗∗ B 0.07 0.26 0 1

C Firm home: North America (2,003) C 0.91 0.28 0 1

Other factors

D Business size (sales $bln) 0.12 0.04∗∗∗ D 0.35 1.73 0 33.3

E Business scope (# of lines) 0.23 0.03∗∗∗ E 2.48 3.42 1 56

F Incumbent 1978c 0.25 0.18 F 0.37 0.48 0 1

G Firm founding yeard −0.01 0.00∗∗∗ G 1961 28.8 1668 1993

H Estimated founding yeare −0.08 0.29 H 0.14 0.34 0 1

I Entered the market by acquisition 1.45 0.31∗∗∗ I 0.03 0.18 0 1

Intercept 15.75 5.20∗∗∗

No-covariate LL chi-square 1385.5

Log-likelihood ratio (df ) 314.5 (8) ∗∗∗

Cases 2198

Acquisitions 210

∗∗∗ p < 0.01.aHome continent: + Asia-Pacific: Japan, Australia, Korea; + Europe: Austria, Belgium, Denmark, Finland, France,Germany, Ireland, Italy, Netherlands, Norway, Spain, Sweden, Switzerland, UK, E. Germany, Hungary; + NorthAmerica: U.S., Canada.bAsia-Pacific and European firms are compared to North American firms.cIncumbent 1978 denotes whether the firm was in the 1978 panel or entered the data set only in 1983.dFounding year: Higher number = younger firm.eDummy variable denoting firms for which we lacked precise entry dates (mainly smaller U.S. companies).

than European firms is consistent with previous research that has examined the entry modeof various nations into the U.S. (e.g., Anand and Kogut, 1997). However, the observationthat acquisition activity of the Asian firms does not differ from U.S. (i.e., indigenous firms)is a novel finding. Therefore, the fine-grained analysis that we are able to perform in thispaper suggests that acquisitions play as prominent a role for Asian firms operating in theU.S. medical sector as for North American companies. It is the European firms, however,that appear to use acquisitions differently.

From this point forward, the analyses that we undertake are conditional analyses. Namely,given that firms undertake acquisitions, what do they acquire and do they keep what theyacquire? We first turn to investigating resource deepening and extension. We use ordinaryleast squares regression for this analysis. The analysis includes 568 acquisitions that took


Table 2. Resource extension incidence, by home continent of acquirer (% of target’s lines or categories thatacquirer did not already possess; high % = high “asset seeking”).

Lines (258 types) Categories (5 types)

Asia-Pacific acquirers 83% 77%

European acquirers 80% 73%

North American acquirers 81% 74%

Total 81% 74%

Cases: 1884 product lines in 568 acquisitions, 1978–1995.

place between 1978 and 1995. Tables 2 and 3 report these results. The analyses in these tablesexplore two measures of resource deepening. A “Category overlap” measure denotes thepercentage of five possible medical sector market categories that the acquirer and target hadin common. In parallel, a “Line overlap” measure denotes the percentage of the 258 possibleproduct lines that the acquirer and target had in common at the time of the acquisition. The

Table 3. OLS influences on resource-deepening (greater target-acquirer product line overlap) and extension(lesser overlap) tendencies of acquirers (positive coef. = resource deepening; negative coef. = resource extension).

Dependent variables

Category overlap (%) Line overlap (%) I.V. summary stats.

Coef. s.e Coef. s.e Mean s.d. Min. Max.

Home continents

A Acquirer home: Asia-Pacific 0.13 0.09 0.03 0.09 A 0.02 0.15 0 1(13 firms)

B Acquirer home: Europe 0.02 0.03 0.03 0.03 B 0.20 0.40 0 1(113 firms)

C Acquirer home: North America C 0.78 0.42 0 1(442 firms)

Other factors

D Acquirer scope 0.27 0.01∗∗ D 0.81 1.07 0 5(# of categories)

E Acquirer scope (# of lines) 0.01 0.00∗∗ E 4.97 8.83 0 56

Intercept 0.04 0.02∗ 0.12 0.02∗∗

No. of acquisitions, 1978–1995 568 568 D.V. summary stats.

R-square 0.47 0.09 1 0.26 0.42 0 1

Adjusted R-square 0.47 0.09 2 0.19 0.34 0 1

∗ p < 0.10.∗∗ p < 0.05.+Asia-Pacific and European firms are compared to North American firms; + Categories include medical devices,opthalmic devices, dental devices, pharmaceuticals, and healthcare services.


category measures provide an aggregated gauging of resource deepening, while the productline overlap measures provide a more fine-grained gauging.

Table 2 reports descriptive statistics for resource extension tendencies. The straightfor-ward conclusion from the table is that firms from all continents commonly use acquisitionsfor asset seeking purposes. Although Asian acquirers commonly used acquisitions to ob-tain product lines (83% of the acquired lines) and product categories (77% of the acquiredcategories) that they did not already possess, so too did European and North Americanacquirers. A statistical comparison of differential tendencies by continent, based on thechi-squared distribution, is insignificant. On average, resource extension reflected 81% ofthe acquired lines and 74% of the acquired categories.

Table 3 reports multivariate statistical analysis of resource extension differentials. Thetable examines both percentage line and category overlap. The analyses control for acquirerresource scope, which correlates highly with acquirer size and experience. In sensitivityanalysis, we found that the results did not change when we added the number of competitorsthat the firm faced in its product segments (weighted by within-firm product line mix).

The key result in Table 3, in parallel with the descriptive information in Table 2, isthat Asian acquirers have similar resource deepening-extension profiles to European andNorth American firms. This result stands strongly counter to arguments that Asian firmsare systematically more likely than others to seek distinct resources that they lack viaacquisitions. The result also speaks to the existence of underlying general tendencies inwhat firms acquire (given that they undertake acquisitions).

Finally, we turn to the resource retention analysis. The analysis here addresses 1,884target product lines that were acquired in the acquisitions that we studied in Tables 2 and 3.The dependent variables for the retention analysis denote whether, as of 1995, the firmcontinued to offer the product line that it had acquired.

Tables 4 and 5 report the resource retention results. Table 4 reports descriptive statistics,similar to Table 2. Here we do find that Asian-Pacific firms have a greater resource retentiontendency than European and North American firms, particularly for resource extensionlines. A similar result appears for resource deepening lines, but there are few resource

Table 4. Resource retention incidence, by home continent of acquirer (% of target’s lines or categories thatremained at the acquirer or in the industry in 1995; high % = high “asset keeping”).

Total acquired lines Retained by acquirer

A. Resource extension lines

Asia-Pacific acquirers 26 69%

European acquirers 345 37%

North American acquirers 1230 30%

B. Resource deepening lines

Asia-Pacific acquirers 3 100%

European acquirers 42 71%

North American acquirers 238 68%

Note: The distributions of cases differ significantly in panel A (p < 0.05) of the table.

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.


deepening cases involving Asia-Pacific firms, so that the resource deepening comparisonmust be treated cautiously.

Table 5 reports multivariate statistical analysis of resource retention differentials. Theresults in the table distinguish between the home continent of the acquirers and the homecontinent of the targets. The analysis does not differentiate between resource deepening andresource extension cases by firm continent, owing to the small number of deepening casesin the Asia-Pacific subsample.

For Asian acquirers in Table 5, resources were more likely to remain at the originalacquirer than for North American firms. Asian acquirers also were somewhat more likelyto retain acquired resources than European acquirers (the difference between the Asia-Pacific and European acquirer coefficients in rows D and E is weakly significant). Thesemultivariate results are consistent with the descriptive results in Table 4. Thus, the additionof several other explanatory variables does not change the descriptive interpretation.

For Asian targets in Table 5, meanwhile, resources were about equally likely to remainat the original acquirer as for European or North American targets. The results concerningAsian targets must be interpreted cautiously, as they reflect only four firms and nine productlines, but they suggest similarity across business practices at the firm level.

Discussion

We began the paper by asking about the role that acquisitions play in Asian firms’ globalstrategies. We investigated this question in the context of their participation in U.S. medicalsector markets. We stress that the answer to the question is one of relative use, requiringcomparison to the acquisition strategies of firms based in other locations.

The most straightforward answer to the question is that acquisitions play similar rolesfor Asian, European, and North American medical sector firms. Two key similarities arise.First, Asian firms are as likely as North American companies to acquire other businesses.Second, Asian firms are about as likely as other companies to use acquisitions for resourcedeepening and extension purposes.

At the same time, the analysis suggests two intriguing differences. First, Asian firmsoperating in the U.S. do not yet use acquisitions as frequently as their European competitors.This difference might reflect that European firms in the U.S. medical sector use acquisitionsdifferently that all other firms. Alternatively, the difference might stem from Asian firms’more recent entry to U.S. markets compared to European firms.

Second, Asian acquirers are more likely to be “asset keepers.” Firms based in the Asia-Pacific are more likely to retain acquired resources than their North American counter-parts.This difference may reflect somewhat greater long-term stability in business operations.Alternatively, again, the difference may be more ephemeral, reflecting only the earlierstage of acquisition experience at which many Asian firms find themselves. Clearly, thedifferences warrant further analysis.

Overall, the analysis points to the existence of common causal threads in the fabricof business strategy. While some differences in the strategies of firms based on differentcontinents are apparent, the similarities are more striking. The results suggest that firmsthat compete in common market environments tend to converge toward similar strategies.


Notes

1. Research that has discussed knowledge sourcing via cross-border acquisitions includes Kogut and Chang(1991), Eun, Kolodny and Scheraga (1996), Neven and Siotis (1996), Anand and Kogut (1997), and Shan andSong (1997). Domestic knowledge sourcing studies include Blonigen and Taylor (2000), Hall (1987), and Hittet al. (1991).

2. Securities Data Corporation reports that the number of acquisitions in Asia has grown rapidly during the pastdecade, from about 400 per year in 1990 to 2,000 or more acquisitions per year during the late 1990s.

3. We acknowledge that different products can sometimes draw on the same resources. Nevertheless, given thenature of the product classifications we expect this to be less common than different products drawing ondifferent resources. Moreover, due to the nature of this industry, products that draw on the same technologiesare often purchased by different specialists. Therefore, while there might be overlap in technological resources,there often is not overlap in marketing resources. The latter are often a vital element of successful expansionin this sector.

4. We tested that the coefficient estimates of the Asian and European firms (i.e., −0.30 and 0.97) were statisticallysignificantly different and found evidence of such.

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Will Mitchell is the J. Rex Fuqua International Management Professor at the Fuqua School of Business of DukeUniversity. He is a member of the school’s Management Department, focusing on the areas of strategy andinternational management. Will studies business dynamics. His research investigates how businesses change asthe environments in which they compete change and, in turn, how the business changes contribute to ongoingcorporate success or failure. The research emphasizes business-level technical change, including use of infor-mation technology, development of new product technology, and introduction of new organizational technology.His current research focuses on how firms chose among and then manage different modes of change, such asacquisitions, alliances, discrete resource exchange, and internal development.

Myles Shaver is Associate Professor of Strategic Management and Organization at the Carlson School of Man-agement, University of Minnesota.

Myles research interests include the management and economics of international expansion, corporate strategychoices and performance, foreign direct investment location and performance, and firm exporting strategies.

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What Role Do Acquisitions Play in Asian Firms' Global Strategies? Evidence from the Medical Sector, 1978–1995