212 Part 2: Strategic Actions: Strategy Formulation
Different Strategic Rationales Driving Cross-Border Acquisitions
Strategic Focus
As is true for acquisitions between firms headquartered in the
same nation, a clear strategic rationale should be the founda-
tion for all cross-border acquisitions. The decision to acquire a
company should be carefully identified, examined, and agreed
upon by key decision makers throughout the firm prior to final-
izing an acquisition decision. The most successful acquisitions,
including cross-border ones, are products of a rational decision
process that is grounded in careful analysis of a proposed
transaction with its strategic rationale as a guiding force.
The strategic rationale sometimes finds firms deciding to
acquire ownership percentages of target firms to see if a full
acquisition is warranted at a later date. This seems to be the
situation with Alibaba Group Holding Limited, the Chinese-
based company that is the world’s largest e-commerce plat-
form as measured by volume of transactions. Today though,
China remains the firm’s primary focus. Saying that the firm
“must absolutely globalize and it must be a successful effort,”
Alibaba’s CEO has committed the firm to thinking globally
and taking actions accordingly. With the strategic rationale
of “becoming more global” as a driver, the firm is acquiring
parts of firms outside its home market, including its 9 percent
purchase of U.S. online retailer Zulily, Inc. and its investments
in mobile messaging app-maker Tango, also a U.S. firm. The
following statement describes the rationale or logic driving
Alibaba’s acquisitions:
“We have made, and intend to continue to make, strategic
investments and acquisitions to expand our user base, enhance
our cloud computing business, add complementary products and
technologies and further strengthen our ecosystem.”
While some of Alibaba’s strategic acquisitions will
take place in China, a host of others will be cross-border
transactions.
In other cases, altering a firm’s competitive scope provides
a strategic rationale for cross-border acquisitions. For exam-
ple, based in Oxford, England, Circassia Pharmaceuticals PLC
recently acquired Swedish-listed Aerocrine AB. Historically,
Circassia competed with a laser-like focus on a single tech-
nology platform used to produce allergy vaccines. Aerocrine
is an asthma-diagnostic company. Thus, the acquisition
finds Circassia moving into the asthma market. According to
Circassia’s CEO, this transactions moves the firm closer to its
goal of becoming “a self-sustaining specialty biopharmaceutical
company focused on allergy and asthma.”
Based in Spain, Banco Popular Español S.A. is pursuing
acquisitions outside its home market. The bank’s CEO noted
that the rationale for this action is to prevent the firm from
being too dependent on a single economy when that econ-
omy suffers from an economic downturn. In his words:
“In future crises, we would like the bank to be more diversified
so we don’t have the same level of dependence on a single
economy that we have now. This will be a limited diversification,
mainly in Latin America and done in a very gradual way over time
without rushing.”
Thus, it seems that the bank is committed to carefully examine
each target before concluding that it should be acquired.In mid-2015, Altice SA, a Luxembourg-based cable-and-
telecom company controlled by French cable investor Patrick
Drahi, was in advanced talks to buy U.S. firm Suddenlink in
a transaction valued at between $8 and $10 billion. Already
possessing communications companies from France to the
Caribbean, many of which were acquired, adding Suddenlink
to the fold would result in Altice being one of the world’s larg-
est cable and broadband market companies. An analyst cap-
tures Drahi’s rationale for the string of cross-border acquisitions
Altice has completed and intends to complete in the future in
the following manner:Zulily.PNG
Alibaba has taken an ownership position in U.S.-
based Zulily (an e-commerce company) for the
purpose of becoming a more global firm.