Abstract
Purpose: The purpose of this study was to investigate how knowledge flow and productivity affect the absorptive capacity of target firms in emerging markets.Design/methodology/approach: We used self-administered questionnaires to measure absorptive capacity, knowledge flow and productivity constructs. The sample comprised individuals who were employees of firms that completed acquisitions between 2015 and 2017. The acquisitions were publicly announced and the target firms were all in emerging markets.Findings/results: Firstly, our results confirmed the multidimensional nature of absorptive capacity. Secondly, we found a positive correlation between a target firm’s knowledge flow and productivity and its absorptive capacity. Thirdly, our results indicated that knowledge flow and operational processes will support the introduction and integration of external knowledge into a target firm. Therefore, understanding the absorptive capacity of target firms is central to the ability of new and existing knowledge to be assimilated.Practical implications: The realisation of the strategic intent of an acquisition is dependent on effective knowledge flow, supported by efficient communication and operational processes. The target firm’s absorptive capacity is, therefore, a key consideration for acquiring firms. Understanding this will be useful for firms to consider acquisitions of target firms in emerging markets and could potentially enhance their chances of success.Originality/value: This study contributes to the limited body of research on emerging market merger and acquisition activity. It responds to the call for further research to be conducted on emerging markets and the role of absorptive capacity in realising the strategic intent of acquisitions.
Highlights
The most significant relationship was that http://www.sajbm.org between processes involved in effective operational processes and integration of knowledge. This relationship showed that a change in effective operational processes can explain 36% of the change in the integration of knowledge. These results contribute to the mergers and acquisitions (M&A) literature on absorptive capacity by presenting key findings on the absorptive capacity of target firms in EM
This study illustrates the importance of knowledge flow and productivity on a target firm’s absorptive capacity to extract the required value from acquired knowledge and to effectively implement it. This finding is supported by research performed by Du and Sim (2016) who showed that specific characteristics relating to the target firm influence acquisition performance
This study provides a new perspective on target firms as the findings relate to a population sample consisting of EM target firms (Du & Sim, 2016; Grigorieva & Petrunina, 2015)
Summary
Mergers and acquisitions (M&A) are a common internationalisation strategy, firms’ weak absorptive capacity can lead to poor implementation of, or negative performance from M&A perspective – a phenomenon that has long been of interest to management scholars (Ahammad, Tarba, Liu, & Glaister, 2016; Bernad, Fuentelsaz, & Gómez, 2010; Ferreira, Santos, De Almedia, & Reis, 2014).Absorptive capacity can be defined as a ‘... capability that [essentially] resides within employees of an organisation ...’ (Junni & Sarala, 2013, p. 420), and ‘... consists of the ability and motivation of the organisational members to access and make use of external knowledge ...’ (Junni & Sarala, 2013, p. 421). The ability to successfully introduce, integrate and assimilate newly acquired knowledge resources is one of the cornerstones of absorptive capacity. Generalising attributes that influence EM firms’ absorptive capacity from findings in developed economies may be misleading (Khan, Rao-Nicholson, Akhtar, & He, 2017; Xie, Reddy, & Liang, 2017).
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