Understanding cross‐border mergers and acquisitions of African firms: The role of dynamic capabilities in enabling competitiveness amidst contextual constraints

• Author: Taina Eriksson,William Y. Degbey,Peter Rodgers,Nnamdi Oguji
• Published date: 01 January 2021
• DOI: http://doi.org/10.1002/tie.22138
• Date: 01 January 2021

RESEARCH ARTICLE

Understanding cross-border mergers and acquisitions of

African firms: The role of dynamic capabilities in enabling

competitiveness amidst contextual constraints

William Y. Degbey

1

| Taina Eriksson

2

| Peter Rodgers

3

| Nnamdi Oguji

4

1

Department of Marketing and International

Business, Turku School of Economics,

University of Turku, Turku, Finland

2

Centre for Collaborative Research (CCR),

Turku School of Economics, University of

Turku, Turku, Finland

3

School of Business, University of Leicester,

Leicester, UK

4

Department of Marketing, University of

Vaasa, Vaasa, Finland

Correspondence

William Y. Degbey, Department of Marketing

and International Business, Turku School of

Economics, University of Turku, Turun

Yliopisto, Turku FI-20014, Finland.

Email: william.degbey@utu.fi

Abstract

This article builds on existing international business literature that examines the

drivers of cross-border mergers and acquisitions (M&As) within emerging and devel-

oping economy contexts, theoretically exploring how dynamic capabilities (DCs) are

connected to these drivers, and how African emerging multinational enterprises

(EMNEs) can pursue them to achieve competitiveness. The article's contribution is

the development of a DC framework and testable propositions for African EMNEs'

cross-border M&As. The theoretical framework shows the division of DC

dimensions—sensing, seizing, and transforming—and establishes explanations for

their linkage with institutional and resource drivers for African EMNEs' cross-border

M&A competitiveness. In addition, the article outlines managerial implications to this

effect. Overall, the article contributes to the emerging literature on the international

expansion of African EMNEs through cross-border M&As by underscoring the role

of DCs.

KEYWORDS

African firms, dynamic capabilities, emerging multinational enterprises, internationalization,

mergers and acquisitions

1|INTRODUCTION

Research shows that mergers and acquisitions (M&As), especially

cross-border ones, have become a fundamental international growth

strategy for many firms from emerging or developing economies

(Degbey & Ellis, 2017, 2019; Liou & Rao-Nicholson, 2017; Oguji &

Owusu, 2017; Peng, 2012). At the same time, while African countries

have experienced dramatic economic growth in recent years, interna-

tional business (IB) research attention on Africa has also been growing

owing to the marked rise in the cross-border economic activities of

African firms (Boso, Adeleye, & White, 2016; Ibeh, Wilson, &

Chizema, 2012; Oguji, Degbey, & Owusu, 2018).

Despite this progress, the extant literature on the effective man-

agement of African firms—an important source of competitiveness—

has far better informed us about the challenges confronting these

organizations or firms than how they actually achieve competitiveness

(Mellahi & Mol, 2015). Scholars identify the liability of Africanness

(Ngwu, Adeleye, & Ogbechie, 2015) as a challenge, which confronts

internationalizing African firms as they struggle to compete with hith-

erto dominant Western multinationals, not only in foreign markets,

but also in markets within the African continent. In addition, the IB lit-

erature identifies other challenges such as global competitiveness, lim-

ited management capabilities, and inadequate cross-cultural

capabilities (Boso, Adeleye, Ibeh, & Chizema, 2018). In an exploratory

DOI: 10.1002/tie.22138

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© 2020 The Authors. Thunderbird International Business Review published by Wiley Periodicals LLC

Thunderbird Int. Bus. Rev. 2021;63:77–93. wileyonlinelibrary.com/journal/tie 77

study of three failed internationalization cases of South African firms,

Ajai (2015) found that ineffective handling of strategy, management,

and organizational issues contributed to these firms' failure rather

than external factors. Furthermore, scholars identify the challenge of

the global competitiveness of African firms to span the national, sec-

toral, and firm levels (Adeleye & Esposito, 2018). They argue that the

lack of competitiveness centers on issues such as limited economies

of scale and a relatively poor quality of service (Amankwah-Amoah,-

2018), liabilities of smallness and newness (Ngwu et al., 2015), as well

as infrastructural, skills, and regulatory deficits (Newman et al., 2016).

Furthermore, research has revealed that cross-border M&As have

become the most preferred internationalization mode for emerging

multinational enterprises (EMNEs) (Aybar & Ficici, 2009; Liou & Rao-

Nicholson, 2017). Yet, unlike the mainstream M&A literature

(Haleblian, Devers, McNamara, Carpenter, & Davison, 2009), there is

a lack of research directly examining the drivers and outcomes of the

internationalization of African firms (Boso et al., 2018). This again

highlights that the dominant focus on the contextual constraints

(or challenges) of these firms has taken our attention away from

equally focusing on how they effectively manage to achieve competi-

tiveness in international markets. Similarly, Mellahi and Mol (2015)

and others (Liou & Rao-Nicholson, 2017; Zoogah, Peng, &

Woldu, 2015) note that we know very little about these African firms,

and consequently, theoretical explanations of what drives them to

compete internationally and how they deploy their domestic compe-

tencies to operate outside their home markets remain elusive.

While the extant literature has underscored the importance and

dominance of contextual constraints or challenges to African firms'

competitiveness in international markets, we argue that scholars need

to move from simply focusing on the challenges these African firms

face to also including factors that help provide theoretical explana-

tions for their competitiveness in international markets. We argue that

while context is important to ascertain the constraints on these Afri-

can firms, it is also important to explore how these firms are able to

develop competitiveness amidst these challenges. We anchor our dis-

cussions in this article to the theoretical building blocks of institutions

and organizational resources (Zoogah et al., 2015) and to the dynamic

capability (DC) approach/conceptualization (Teece, 2007, 2009;

Teece & Pisano, 1994; Teece, Pisano, & Shuen, 1997).

Zoogah et al. (2015) note that the effectiveness of

organizations—which encompasses outcomes such as

competitiveness—from the African environment is influenced by

(a) the high uncertainty of the African context; (b) the increasing influx

of diverse private, public, and nongovernmental (third-sector) organi-

zations; (c) the interconnectedness of the formal and informal econo-

mies; and (d) a growing number of African countries transitioning from

socialism to capitalism. Additionally, Lebedev, Peng, Xie, and Ste-

vens (2015) identified the determinants of M&As in and out of emerg-

ing economies, including additional new determinants pertaining to

emerging economies (i.e., institutions, national pride, and latecomer

disadvantage), and that these determinants equally affected

internationalizing African firms as they are transitioning and emerging

economy firms. Zoogah et al. (2015) proposed institutions and organi-

zational resources as two key theoretical building blocks to examine

the effectiveness of African firms, while also noting that not all African

firms can effectively match their firms' resources to absorb the learn-

ing opportunities provided in the international/developed markets

(Liou & Rao-Nicholson, 2017). Similarly, from the viewpoint of M&As

undertaken by emerging economy firms, Lebedev et al. (2015) identi-

fied how the new determinants noted earlier can be linked to the two

theoretical building blocks of institutions and organizational resources

proposed by Zoogah et al. (2015). Yet, some of these African firms

pursuing cross-border M&As lack the capacity to dynamically deploy

resources to take advantage of the learning opportunities in target

international markets (Zoogah et al., 2015). This indicates that African

firms that continue not only to survive but also to thrive require cer-

tain capabilities in order to continue to deploy their firms' resources

and drive growth. Consistent with this assertion, a recent Special Issue

Editorial underscores the importance of capabilities in the life of Afri-

can firms and poses the following two crucial questions: “What kinds

of…capabilities do African firms need to internationalize rapidly? Do

African firms possess…capabilities that give them a competitive

advantage over firms from outside the continent?”(Boso

et al., 2018, p. 6).

We contribute to this discussion by proposing that the DC

approach is needed as an additional theoretical building block to

address both the Africa n firms' contextual co nstraints and the M&A

determinants that lead them to achieving competitiveness in their

cross-border M&A end eavors. Thus, we seek to extend the theo reti-

cal building blocks o f institutions and reso urces to effectivel y align

them to accumulate, utilize, integrate, and reconfigure the resource

base afforded in international markets (Eriksson, 2014;

Teece, 2014). DCs—the ability of the firm to integrate, build, and

reconfigure internal an d external resource conf igurations to address

rapidly changing environments (Teece, 2014; Teece et al., 1997)—

provide theoretical explanations for the drivers of these firms' inter-

national expansion a nd their competitiv e advantage. Our appr oach

to DCs is consistent with the seminal ideas of Teece et al. (1997),

who conceptualize DCs as a focal element in facilitating the differen-

tial performance of organizations under conditions of change. There-

fore, the focus on DCs i n this study aligns w ith M&As, which are

indeed characteriz ed as change events (Degb ey &

Pelto, 2013, 2015). C onsequently, we seek to t heoretically addre ss

our core research ques tion: How do DCs enhance the competitivene ss

of EMNEs from Africa t hrough cross-borde r M&As? The growing body

of literature on EMNEs purports that these firms prefer cross-border

M&As as their predominant foreign direct investment (FDI) mode

because it helps them in catching up with peers from mature,

advanced economies (Awate, Larsen, & Mudambi, 2012; Ibeh,

Uduma, Makhmadshoev, & Madichie, 2018; Mathews, 2002), and in

aiding them to augment strategic assets required to build competi-

tive advantage and enh ance value creatio n (Degbey, 2016a;

78 DEGBEY ET AL.