Cross-border acquisitions in response to bilateral/regional trade liberalization

Abstract

This note examines why a major change in economic policy will require a change in policy at the firm level. Specifically examined is how bilateral or regional trade and investment liberalization causes a firm to pursue international restructuring or integration of operations. Regional economic integration results in increased competition and a larger market. It also results in new opportunities and threats. In this environment, the search for competitive advantage may require a firm to make a cross-border acquisition, especially within the region. It is suggested in this note that a cross-border acquisition may be needed in order for a firm to internationalize operations; rationalize operations; maximize advantages; and minimize disadvantages. The major drivers of this response are considerations of market share and market power; linkages — both intra-firm linkages and inter-firm linkages; technology/innovation; and cost/efficiency.