When a company decides to expand into a foreign country, new markets are not the only benefit. When conditions are suitable, productivity in the company's country of origin where it conducts its business can improve – as a result of the foreign acquisition. Just don’t divert all your investments to the foreign market, urges the knowledge.insead.edu website.
Additional benefits of foreign acquisitions
There are considerable costs associated with an expansion to foreign markets. As complexity and coordination increases when a company wants to operate in new markets, it has to bear additional costs above those incurred by local firms. These extra costs stem from limited local knowledge, possible discriminatory attitudes of local stakeholders and the difficulties of managing distant subunits of the company. Still, cross-border mergers and acquisitions can offset these costs. They can bring learning that is transferable to the company’s domestic business. Therefore, efficiency and productivity can be increased, especially when a company that is more successful at innovations is acquired. To take full advantage of the possible knowledge and expertise gains, there has to be some investment in the home country, of course.
According to a study done by Laurence Capron from INSEAD and Olivier Bertrand, from Skema Business School (both of them are academics with strategy being their area of interest), companies that engaged in foreign acquisitions recorded higher productivity in their domestic operations than companies that made no foreign acquisitions.
Transferring the acquired knowledge
It can be difficult to transfer newly-available expertise back home. For example, in order to get all the advantages from the latest developments in IT, it is necessary to invest in new computer systems. Or for deploying innovative management practices, you often need new infrastructure and equipment. An example of a successful acquisition was the case of a Dutch banking corporation and a Brazilian bank. When some IT engineers and managers were relocated to the central headquarters of the Dutch company, their shared skills significantly improved the online offerings of the corporation by enabling the creation of new online products.
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