Deficiency of Dynamic Capabilities in Acquired Foreign Subsidiaries

Abstract

When two parties of strong dynamic capabilities are combined into a new identity, we expect it to be successful and have dynamic capabilities. However, in cross-border mergers and acquisitions (M&As), we have seen many cases of struggles by a newly established subsidiary when an acquirer successful in its home market acquires a foreign target which is quite successful in its host market. In this paper, we use the eBayi¯s acquisition of EachNet in China to explore what contributes to the deficiency of dynamic capabilities in a foreign subsidiary by drawing on two streams of literature, dynamic capabilities literature and managerial behavior literature. We argue that internal bounded reliability challenges can constrain the subsidiary from developing dynamic capabilities in sensing and seizing opportunities in local markets. By combining the dynamic capabilities perspective with bounded reliability, we provide an extended explanation at the micro-foundational level for deficiency of dynamic capabilities at ...