Isomorphic or Not? Article Critique Example

In “Isomorphic or Not?: Examining Cross-Border Mergers and Acquisitions by Chinese Firms,” Monica Yang (2009) looks at the conditions under which firms from emergent markets seek to mimic the strategies of other firms when engaging in mergers and acquisitions.  Yang’s qualitative research evaluates prior literature in the field of mergers and acquisitions (M&A) while seeking to determine whether isomorphism and other mechanisms effect cross-border mergers and acquisitions by Chinese firms.  Yang’s findings have both theoretical and practical implications:  Yang’s innovative approach to isomorphism examines which aspects of M&A strategy are most effective in the context of conformity and how these strategies might apply to emerging markets; additionally, her findings will assist business managers in determining how to apply conformity to their own foreign expansion strategies (2009).  The purpose of writing this critique is to evaluate the strengths and weaknesses of the research questions, literature review, methodology, results, and implications of Yang’s study.

Research Questions

Yang’s (2009) article addresses two fields of investigation when evaluating the effectiveness of cross-border M&As, dividing her research questions into a two-pronged approach which considers both the strategic decisions required of acquiring companies and the factors which impact upon the success or failure of conformity in cross-border M&As.  Using cross-border M&As by Chinese firms between 1985 and 2006 as the foundation for her research, Yang (2009) first contextualizes the variables which shape a firm’s decision to pursue a M&A.  These factors include the “location of the target firm, the product relatedness of the acquiring and target firms, the ownership structure after M&A, and the size of the deal” (Yang, 2009, p.44), and are accepted within relevant literature as “significant factors affecting the magnitude of the merger” (p.44).  Thus, Yang’s first research question asks whether “conformity in terms of the four major decisions on cross-border M&As increase over time” (2009, p.44).  Her second and related research question takes a more theoretical approach as she asks whether the mimetic, coercive, and normative mechanisms found in institutional theory have an effect on the conformity of cross-border M&As (Yang, 2009).  These isomorphic mechanisms have practical applications beyond the institutional theory from which they derive:  the mimetic mechanism looks at how related firms have failed in similar attempts; the coercive mechanism looks at regulatory changes; and the normative mechanism considers entry into the WTO (Yang, 2009).

Literature Review

Although Yang doesn’t provide her paper with a dedicated Literature Review section, instead incorporating this information into her Introduction, she provides a comprehensive assessment of the traditional approaches to M&A that have dominated the field, and relates this information to her own research questions by first addressing the unique characteristics of Chinese firms engaging in cross-border M&As.  As Yang (2009) points out, Chinese companies attempting to invest in foreign markets lack the autonomy of their European and North American counterparts because the “dominant owner of nearly all Chinese firms that undertake cross-border M&As is either the government or its agencies” (Yang, 2009, p.43).  This raises issues about the motivations of Chinese firms as they engage in international expansion given that the influence of these firms’ major shareholder–the Chinese government–will affect their individual M&A strategies.  Yang (2009) also notes that the research of Buckley and colleagues (2007), Deng (2004), and Luo and Tung (2007) have limited themselves to evaluating the motives and challenges faced by firms from emerging markets while failing to establish a clear set of strategies which are unique to emerging markets alone.

According to Yang (2009), China presents a unique and valuable case study for her research because of the unique level of government involvement in international expansion, a situation wherein the government itself may act as an agent of conformity, thereby influencing the reasons which motivate and contribute to cross-border M&As.  Yang also addresses the limitations faced by prior research which tended to investigate only one element of imitation, namely, that in which “isomorphism is often recognized as mimetic behavior on decisions such as branching, market entry, or choice of entry mode” (Yang, 2009, p.44).  It is this traditional approach which Yang (2009) seeks to expand upon by forming research questions which utilize a multiple-basis approach that incorporates other forms of isomorphism as they relate to cross-border M&As.

Methodology

The primary source of data for Yang’s (2009) study is provided by the Thomson Financial Corporation and uses a sample size of 1,004 cross-border M&As over a twenty-one year period with the specification that the acquiring firm is based in China.  These acquiring firms represent the financial industry (43.2%), the manufacturing industry (20.2%), and the services and utility industries (Yang, 2009).  The dependant variable-­-conformity in cross-border M&As–was coded so as to take into account the product relatedness between the acquiring and target firms as well as the target location.  The percentages of the four strategic decision were calculated to determine an overall measure of conformity for each firm and was analyzed to determine whether “different aspects of the M&A were affected equally by conformity pressures” (Yang, 2009, p. 48).

Results

Yang’s (2009) research determined that there is a “significant negative relationship” (p.52) between a firm’s overall degree of conformity and time that is substantially supported by the decision of ownership and the decision of the target location.  A positive relationship between time and degree of conformity only occurs in relation to the size of the deal and the product relatedness of the target and acquiring firms (Yang, 2009).  Yang (2009) also notes that industry failure experiences of similar firms is “positively associated with the number of incomplete M&As initiated by Chinese MNEs” (p.52), as is membership in the WTO.  Additionally, the overall degree of conformity is negatively associated with regulation policy given that regulatory changes generally result in a decrease of conformity in cross-border M&As (Yang, 2009).

Implications

According to Yang’s (2009) research, the strategic choices of cross-border M&As are vulnerable to a number of variables with the result that “not all strategic choices of cross-border M&As react to the forces of conformity in the same way” (p.53).  Despite the controlling role played by the Chinese government in state-owned firms, this doesn’t necessarily result in conformity, especially with the increased growth of private-owned Chinese firms and the resulting levels of competition (Yang, 2009).  Yang’s (2009) study also has implications on the manner in which inter-organizational imitation affects a firm’s M&A strategies by demonstrating that “not all aspects of M&A decisions react equally to pressures of conformity” (p.53).  Yang suggests that future research efforts may be best directed towards companies which demonstrate the lowest level of conformity in order to better understand the motivations behind their decisions, especially given that research has traditionally focused its attention on firms which “jump on the bandwagon” (Yang, 2009, p.54) in terms of M&A conformity.

Conclusion

The critiquing process provided an opportunity for me to assess and review the various approaches employed by Yang in her research of cross-border M&As specific to Chinese firms.  Overall, she provided a strong case for further explorations of conformity, given the major role that they play when firms consider or attempt M&As in emerging foreign markets.  This critique was especially valuable because it provided me with evidence documenting the unique needs of Chinese M&As, given the the large role that the Chinese government has traditionally had in affecting the M&As of these particular firms.

References

Buckley, P., Clegg, L., Cross, A., Liu, X., Voss, H., & Zheng, P. (2007). The determinants of Chinese outward foreign direct investment. Journal of International Business Studies, 38(4): 499-518. Retrieved from http://westminsterresearch.wmin.ac.uk/4938/1/Buckley_et_al_2007_-_2_final_author_version.pdf

Deng, P. (2004). Outward investment by Chinese MNCs: Motivations and implications. Business Horizons, 47(3): 8-16. doi: 10.1016/S0007-6813(04)00023-0

Luo, Y. & Tung, R. (2007). International expansion of emerging market enterprises: A springboard perspective. Journal of International Business Studies, 38(4): 481-98. doi:10.1057/palgrave.jbs.8400275

Yang, M. (2009). Isomorphic or not?: Examining cross-border mergers and acquisitions by Chinese firms, 1985-2006. Chinese Management Studies, 3(1): 43-57. doi.:10.1108/17506140910946133