Emerging market firms are increasingly visible in the global economy. A significant number of these emerging market firms expand to developed economies through cross-border acquisitions (M&A). For example, in 2007, the Tata Group of India obtained a 100 percent stake in the Anglo-Dutch Steel manufacturer Corus.

In a recent paper, my colleagues Manish Popli, Faisal Mohammad Ahsan and I examined how connected boards through shared directors (board interlocks) can play a role in the cross-border acquisitions of emerging market companies.

We drew on evidence from sociology and strategic management disciplines that social networks are critical components in virtually all economic activities, which acts as channels of interorganizational information flow and other tangible and intangible resources. This was particularly important in our context of emerging market firms who seek to accelerate their internationalization and exploit their competitive advantage in the global economy. These firms seek to fill their resource voids by acquiring technological resources and capabilities to bridge the gap with established multinational companies. Our empirical analysis is conducted using 935 publicly listed firms from India during 2003-2013.

We found that board connections of emerging market firms with multinational enterprises positively impact the number of cross-border acquisitions undertaken by emerging market companies. Additionally, these board interlocks enable the firms from emerging markets to garner resources, learn through vicarious experience, and gain legitimacy in its overseas ventures.

Our article made some important contributions concerning internationalization of emerging market companies through the M&A route, with several implications for practice. Our results suggested that in additional to traditional resources and ownership advantages, formal ties are critical for globalization. Such ties are important resources for emerging market firms. Hence, managers should account for such resources when evaluating their competitors and their propensity to make cross-border acquisitions.

Further reading:

• Board Interlocks and Cross-Border Mergers and Acquisitions: An Emerging Market Perspective. Academy of Management Proceedings Vol. 2018, No. 1