Internalization and Resource AcquisitionSohum DaftaryAdvisors: Minyuan Zhao & Lisa Tang

Big Blue and Little Red: A Story of an Acquisition May 1st, 2015 Lenovo acquires IBM’s ThinkPad division Hands-off & Lighter-touch approach Wholesale access to brand, technology, and markets (Zhou and Huang, 2014)

Outline

Research Question & Theoretical Development Operationalization Data Sources & Sample Selection Results Next Steps

Knowledge-Based View of the Firm

Global Question: How do firms acquire resources when the knowledge they seek is tacit and requires complementary knowledge?

Narrower Question: Are firms more likely to be acquired if the resources they possess are dependent on each other?

Hypothesis: Higher levels of a firm’s integration are positively associated with an acquisition of the firm.

Firm internalization or interdependence

Acquisition

Knowledge-Based View of the Firm Boundaries of the firm are determined by the nature of knowledge it

contains and how efficiently the firm can organize and transfer that knowledge (Kogut and Zander, 1993).

In contrast to Transaction Cost Economics Theory: firms are opportunistic actors

3 Reasons for Hypothesis: Hard to contract: Knowledge transfer is more difficult if the knowledge is tacit

and not codified (Kogut and Zander, 1993). Hard to export: Internalized firms lack of experience teaching new knowledge

(Teece, 1977, McFetridge, 1984). Hard to steal: Essential technology requires complementary knowledge (Zhao

2006, Belderbos and Somers 2015).

Visual Representation of Theory

Hard to Contract or Steal

Tacit and not codified

(there’s no explicit blueprint for the

technology)

Lack of Experience in Exporting Technology

The Key Technology

Requires Other Technologies

More likely to buy

Decision Map for Acquiring Resources

Image Source: Capron and Mitchell 2012

Operationalization of Theory

Firm internalization or interdependence

AcquisitionTheory

ProxiesSelf-citation score Was the company

acquired? (1/0)

(Zhao 2006, Belderbos and Somers 2015)

Data Sources

Sample Selection

Semiconductor & Related Industries (SIC Code 367) Only firms in the United States First year of analysis is 2006 Acquisition window from 2005-2008

Small Sample with Missing Values

3 Million -> 1

Million Citations

425 Firms left after

NBER Matching

5255 Firms from Orbis 2006

Results

NBER’s missing self-citation data

Preliminary results do not suggest a rejection of the null hypothesis

Next Steps

Use a newer patent citations data set from UC Berkeley's Lee Flemming Build a custom self-citation score algorithm Integrate subsidiaries’ technology into the self-citation score Observe multiple samples of firms by the year

References

Belderbos, R., & Somers, D. (n.d.). Do Technology Leaders Deter Inward R&D Investments? Evidence from Regional R&D Location Decisions in Europe. SSRN Electronic Journal SSRN Journal. doi:10.2139/ssrn.2577821

Capron, L., & Mitchell, W. (2012). Build, borrow, or buy: Solving the growth dilemma. Boston: Harvard Business Review Press.

Hall, B. H., A. B. Jaffe, and M. Trajtenberg (2001). "The NBER Patent Citation Data File: Lessons, Insights and Methodological Tools." NBER Working Paper 8498.

Huang, S. (2014). HOW CHINESE “SNAKE” SWALLOWS WESTERN “ELEPHANT”: A CASE STUDY OF LENOVO’S ACQUISITION OF IBM PC DIVISION. Journal of International Business and Economy, 15(1), 23-50.

Kogut, B., & Zander, U. (1993). Knowledge of the Firm and the Evolutionary Theory of the Multinational Corporation. Journal of International Business Studies J Int Bus Stud, 24(4), 625-645. doi:10.1057/palgrave.jibs.8490248

Teece, D. J. (1977). Technology Transfer by Multinational Firms: The Resource Cost of Transferring Technological Know-How. The Economic Journal, 87(346), 242. doi:10.2307/2232084

Zhao, M. (2006). Conducting R&D in Countries with Weak Intellectual Property Rights Protection. Management Science, 52(8), 1185-1199. doi:10.1287/mnsc.1060.0516