Post-Merger Integration and Innovation of Reverse M&As: The Dynamic Transformation of Complementarity & Compatibility, Knowledge Management, and Trust Building

Mergers & Acquisitions (M&A) is a critical way for emerging market multinationals (EMNEs) to source strategic assets, overcome the “liability of emergingness” (LOE), and achieve innovation upgrading. A deliberately designed post-merger integration (PMI) process is required to achieve the aims. However, despite increasing attention to the PMI conducted by EMNEs, the understanding of its process and mechanisms remains insufficient, especially for the M&As conducted by EMNEs that acquire firms from advanced markets (which are termed as reverse M&As or RM&As in this paper). Through a multi-case study of Chinese MNEs, we illustrate the process through which PMI and post-merger innovation unfold by identifying a set of dynamic and interactive mechanisms including the complementarity, compatibility, knowledge management, and trust building. To be more specific, we find the transformation of complementarity and compatibility and consider knowledge management and trust building as the facilitators of this transformation. We further propose knowledge management and trust building as the mechanisms to alleviate LOE from different perspectives. The differentiation between exploitative innovation and exploratory innovation is also highlighted based on different conditions and PMI stages to achieve them. In sum, we reveal the dynamic and holistic process of PMI and post-merger innovation in the specific context of RM&As.