This is a self-archived – parallel published version of this article in the 

publication archive of the University of Vaasa. It might differ from the original. 

Determinants of equity changes in partial 

acquisitions of Finnish multinationals in foreign 

markets 

 

Author(s): Oguji, Nnamdi; Owusu, Richard A.; Larimo, Jorma 

Title: Determinants of equity changes in partial acquisitions of 

Finnish multinationals in foreign markets 

Year: 2019 

Version: Publisher’s PDF 

Copyright ©2019 Emerald Publishing Limited. This manuscript version is 

made available under the Creative Commons Attribution–

NonCommercial 4.0 International (CC BY–NC 4.0) license, 

https://creativecommons.org/licenses/by-nc/4.0/ 

Please cite the original version: 

 Oguji, N., Owusu, R. A. & Larimo, J., (2019). Determinants of 

equity changes in partial acquisitions of Finnish multinationals 

in foreign markets. Baltic journal of management 14(2), 268-

290. https://doi.org/10.1108/BJM-05-2018-0179 

 

 

 



Determinants of equity changes in
partial acquisitions of Finnish

multinationals in foreign markets
Nnamdi Oguji

Marketing Department, University of Vaasa, Vaasa, Finland
Richard Afriyie Owusu

Marketing Department, Linneuniversitet Ekonomihogskolan Vaxjo,
Vaxjo, Sweden, and
Jorma Larimo

Marketing Department, University of Vaasa, Vaasa, Finland

Abstract
Purpose –When entering foreign markets, multinationals can acquire part of a foreign firm and can increase
or decrease their equity stake over time. However, extant studies have mainly focused on equity stake
acquired during initial market entry. The paper aims to discuss this issue.
Design/methodology/approach – This study fills this gap by using the Uppsala model to analyze six
cases of international acquisitions of Finnish multinationals in global markets.
Findings – The authors found that firms change their equity stake in partially acquired foreign subsidiaries:
when they have learned about the host country and businesses of the partially acquired firms, when they
have gained target-specific experience, when they build trust and ensure relationship commitment and finally,
when they jointly develop and exploit opportunities.
Originality/value – This study is one of the first to apply the Uppsala model to empirically analyze
international acquisitions, thus paving the way for behavioral and process-oriented approaches. The study
contributes to knowledge of post-entry strategies of multinationals.
Keywords Equity changes, Internationalization process, Partial acquisition, Post-market entry,
Staged acquisition
Paper type Research paper

1. Introduction
The expansion of globalization in the last few decades has been accompanied by a
significant increase in the number of acquisitions with an average yearly value of over
$2 trillion (UNCTAD, 2015). Acquisitions are said to have become the most important
foreign direct investment vehicle for multinationals seeking foreign market entry (Brouthers
and Dikova, 2010), and as a strategy for overcoming knowledge limitations and speedily
establishing positions in foreign markets ( Johanson and Vahlne, 2009). Nevertheless, foreign
acquisitions face various challenges due to the need to integrate the new foreign subsidiary.

When entering foreign markets, multinationals have the option to acquire fully at the
beginning or acquire partly and increase their level of equity over time. Full acquisition is an
acquisition in which the acquiring firm takes 100 percent ownership of the target firm
(Contractor et al., 2014). Partial acquisitions are takeover transactions where the acquiring
firm has less than 100 percent ownership (Shahrur, 2005). Staged acquisition is an
acquisition that requires an initial partial equity stake (i.e. a partial acquisition) with a
contractual requirement to acquire the remaining equity over several years (Meyer and
Tran, 2006; Oguji and Owusu, 2017).

While many international business (IB) studies have been concerned with how and why
multinationals choose their entry mode at the time of market entry (e.g. Benito et al., 2009),
the question of why multinationals increase or decrease their equity commitments over time

Baltic Journal of Management
Vol. 14 No. 2, 2019
pp. 268-290
© Emerald Publishing Limited
1746-5265
DOI 10.1108/BJM-05-2018-0179

Received 6 May 2018
Revised 19 August 2018
9 November 2018
3 December 2018
5 December 2018
Accepted 7 December 2018

The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1746-5265.htm

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after initial market entry in foreign acquisitions has gained limited attention. Extant studies
related to this issue can be classified into three streams. First, there are studies that have
accounted for changes in entry modes (e.g. Benito et al., 2009; Putzhammer et al., 2018) or,
more specifically, why international joint ventures (IJVs) change to wholly owned
subsidiaries (Puck et al., 2009; Song and Zeng 2015). Second, there are studies that imply
that the reasons for changes in entry mode are differences in actual operations established
at initial entry compared to the strategic intentions before entry (Santangelo and Meyer,
2011). Third, there are studies that focus on the effects of post-entry equity changes on
aspects of performance (Magnusson, 2007; Ogasavara and Masiero, 2012). While all these
streams provide some evidence of changes in entry modes and investigate the antecedents
or results of equity changes in foreign subsidiaries, they do not account for entry mode
changes in the context of acquisitions. As a result, they are all limited in explaining why
MNEs change their equity stake in acquisitions after market entry.

The study by Puck et al. (2009) shows that IJVs are changed into wholly owned subsidiaries
(WOS) as a result of: gaining local knowledge possessed by the foreign IJV partner, reduction
in the level of perceived political, economic, social and legal uncertainty and the level of internal
pressures faced in the IJV. Santangelo and Meyer (2011) suggest that unforeseen opportunities
induce foreign investors with modest initial objectives to revise their strategic intentions after
entry and, if favorable conditions emerge, increase their commitment. They found out that in
the presence of institutional voids, investors are prone to invest in ex-ante information searches
that enable them to reduce the likelihood of ex-post commitment decrease. Benito et al. (2009)
re-conceptualized foreign operation mode as one consisting of mode packages in the form of
mode continuation, within mode change, mode role change, mode additions and deletions and
full mode change. Ogasavara and Masiero (2012) found that changes in equity of Japanese
foreign subsidiaries in Brazil are aimed at improving their longevity.

While informative, these three streams of studies have the following limitations.
First, the timing of increasing commitment decisions from IJVs to WOS is different from
the timing of commitment decisions in acquisitions. The limited duration of IJVs makes
the conversion from IJVs to WOS more evident than in acquisitions. Duration does not
limit the decision to increase or decrease commitment decisions in acquisitions.
Consequently, the circumstances, mechanisms and reasons leading to the change from IJV
to WOS cannot be generalized for equity changes in international acquisitions. Second,
whereas in acquisition there is the likelihood of unneeded assets or redundant resources
due to the difficulty in separating desirable assets from undesirable assets (Das and Teng,
2000), in IJVs, assets are desirable assets and easily separable as both partners come to
form the IJV with only the assets each desire (Hennart and Reddy, 1997). Consequently,
the conversion from IJVs to WOS or the full acquisition of IJVs is less complex than the
conversion of partially acquired targets to full acquisition due to difficulties in valuating
assets when the assets of the target firm include non-desired assets that are not
easily separable. Third, the study by Santangelo and Meyer (2011) focuses on all FDI
projects and cannot be generalized to the acquisition context. Fourth, the study by Puck
et al. (2009) and Magnusson (2007) assume that ownership is either whole or partial.
Ownership in acquisition is, however, a continuum within a range of percentage
ownership. Thus, it may not necessarily be a full acquisition and may not necessarily be
divested completely. Fifth, the study by Benito et al. (2009) provides a holistic
conceptualization that firms do change their entry modes in the foreign market. However,
they did not specifically address the “how” and “why” questions and their study was not
in the context of acquisitions. Finally, Ogasavara and Masiero (2012) showed that firms
aim to increase their equity stake to improve the longevity of the acquired firm. However,
they did not account for the determinants or mechanisms leading to equity changes of the
foreign-acquired subsidiaries.

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The purpose of this study is to address these gaps in the literature via the following
research question:

RQ1. Why domultinationals increase or decrease their equity commitments in international
acquisitions over time?

We aim to analyze and deepen our understanding of equity changes in acquired foreign
subsidiaries using internationalization process theory ( Johanson and Vahlne, 1977, 2009).
To do this, we integrate it with literature on international acquisitions and undertake
empirical case studies of Finnish MNEs’ acquisitions in foreign markets. Thus, the
main contribution of our study is to develop propositions and a framework of equity
changes in international acquisitions. We believe that while considerable IB research has
focused on equity stake at entry, uncovering the later changes or continuum of changes
will bring a process and behavioral approach to the study of acquisitions, which has
previously been done mainly using cross-sectional and quantitative methods together
with economic theories. This is a major contribution to the research on acquisitions.
It opens a new area of research that will enable researchers to delve into the processes and
managerial firm interactions that occur during the process from partial acquisitions to full
acquisitions or divestment.

2. Internationalization process model and foreign acquisition
2.1 Uppsala internationalization process model
The internationalization process model or Uppsala model ( Johanson and Vahlne, 1977, 2009)
is rooted in organizational learning and resource dependence theory. The focus of our study
is on the 2009 model. However, the 1977 model is referenced where necessary.

The two versions of the internationalization process model are shown in Figure 1.
The 1977 model is shown in Figure 1(a) and the 2009 model is shown in Figure 1(b). The
main difference between the 1977 model ( Johanson and Vahlne, 1977) and 2009 version
( Johanson and Vahlne, 2009) is the role of business networks in internationalization.

The core of the 2009 model, like the 1977 model, is the state and change variables and
how they impact each other. The state variables refer to the current situation of
internationalization from which the change variables are analyzed. In the 1977 model,
psychic distance and the lack of knowledge about foreign markets led to a liability of
foreignness. In the 2009 model, the main limitation is a liability of outsidership, i.e. lack of
relevant relationships. The 2009 model is a dynamic process depicting how mutual

Change VariableChange Variable

Market
Commitment

Commitment
Decisions

Current
Activities

Market
Knowledge

Network
Position

Relationship
Commitment

Decisions

Learning
Creating

Trust-Building

Knowledge
Opportunities

State Variable State Variable
(a) (b)

Notes: (a) Basic mechanism of internationalization; (b) the business network internationalization
process model
Source: Johanson and Vahlne (1977, 2009)

Figure 1.
Internationalization
process model

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relationships and commitment between a firm and its partners in business networks
build up their knowledge and opportunities. The four variables in the 2009 model are
network position, knowledge opportunities, relationship commitment decisions and learning
and trust-building.

Scholars have used Johanson and Vahlne (1977) to argue that the choice of acquisition is
a result of learning (e.g. Andersson et al., 1997; Lin et al., 2009). For example, the model of
Andersson et al. (1997) depicts how firms undertake international acquisition through
learning from a direct or indirect relationship with their business partners with or without a
local presence. Other studies (e.g. Figueira-de-Lemos and Hadjikhani, 2014) have used the
Uppsala model to show how firms increase or decrease their commitment in response to
perceived beneficial or detrimental conditions. The foregoing studies have contributed to
our understanding of different commitment decisions, such as divestment, wait-and-see,
market-exit and re-entry.

The Uppsala model (1977) and studies, based on it referred to in the foregoing, have been
criticized for being deterministic (Andersen, 1993). It has also been claimed that the model
has a stage assumption and, therefore, cannot be used to explain the internationalization of
born global firms and international acquisitions (Oviatt and McDougall, 2005). Johanson
and Vahlne (2009) answered these criticisms by arguing that the Uppsala model does not
specify the form that increased commitment might take because commitment decisions
may increase or decrease depending on performance. Consequently, the model is by no
means deterministic.

In this study, it is argued that the Uppsala model can be used to study international
acquisitions on the assumption that an acquisition is much more likely to be successful if
it is preceded by some previous relationship between the acquirer and the target firm
( Johanson and Vahlne, 2009). Öberg (2014) found that the ability to learn about each other,
gain knowledge about the business environment, develop trust and possibly establish new
relationships with customers of the acquired firm is critical to success. Furthermore, for
post-acquisition integration to go further, the parties must speedily learn about each other
and develop trust after the acquisition (Holland and Salama, 2010). Consequently,
acquisitions without a previous relationship with the target firm may result in conflicts
and a likelihood of failure (Andersson et al., 1997). In addition, the advancement of the
Uppsala model to one that takes into cognizance the role of business networks, trust and
knowledge development in business relationships, addresses the criticisms previously
leveled against it.

2.2 Network position
The Uppsala model emphasizes that the existing business relationships a firm occupies
within its business network make up the network position of the firm. According to
Johanson and Vahlne (2009), the network position makes it possible for the firm to identify
and exploit opportunities, determine which geographical markets to enter and decide upon
the corresponding entry mode to use to enter the market. It provides the firm with alliance
learning, centrality (the extent to which a firm occupies a central position such that it has
independent access to other network ties) and structural hole position (a firm’s brokerage
locations between two otherwise disconnected firms in the network) (Lin et al., 2009). Thus, a
firm’s network position is pivotal to how, when and where its internationalization process
will start.

Partial acquisition can serve as existing relationships that form part of a firm’s network
position. Added to the fact that firms can have business relationships with a target firm
before undergoing acquisitions, it can be argued that partial acquisition and target-specific
experience (relationship-specific knowledge) can provide a platform (state variable) from
which knowledge, trust or commitment to the firm-specific relationships develop, leading to

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a commitment decision. It can be increasing commitments such as increasing equity stake in
the acquisition or decreasing equity commitments depending on the outcome of previous
commitment decisions (Figueira-de-Lemos and Hadjikhani, 2014).

2.3 Knowledge opportunities
The 2009 model assumes that knowledge opportunities serve as the basis for relationship
commitment decisions. Thus, the knowledge opportunities that are inherent in the firm’s
relationships with its partner firms initiate the process of learning, creating opportunities
and building trust.

Full acquisition or increase in equity commitments can be seen as an outcome of
knowledge opportunities or a consequence of trust-building and relationships the partners
develop during their interaction in previous exchange relationships (e.g. partial acquisition,
distributor relationships). It can also be seen as an opportunity that develops as a result of
the interaction between partners who build knowledge together and come to trust each other
as they commit themselves further to the relationship ( Johanson and Vahlne, 2009).
Opportunity development entails gradually and sequentially increasing recognition and
exploitation of an opportunity in the existence of trust (Holm et al., 2015). The opportunity
that develops from this relationship may be unilateral, with the parent firm learning about
the target firm’s needs, capabilities, markets and networks from an outsidership position
( Johanson and Vahlne, 2009); bilateral, when two interacting firms identify an opportunity;
or multilateral, when multiple firms identify an opportunity (Duarte and García-Canal, 2004).
Conversely, in the absence of opportunity development, a firm might have no reasons to
keep its ongoing relationship with the target firm. In the case of pre-existing partial or full
acquisition, the relationship may get dissolved, and consequently, the parent MNE will
divest their investments (Figueira-de-Lemos and Hadjikhani, 2014).

2.4 Learning, trust-building and relationship commitment decisions
The nature of a direct relationship with an existing partner firm drives the dynamic and
cumulative processes of learning and trust-building and their subsequent relationship
commitment decisions. Firms that have valuable network partners or existing relationships
in the target market or with a target firm, gain privileged access to information about the
market, the target firm and their business network. Market research may be unable to
identify such privileged information that the firm has access to. Consequently, the firm
enjoys insidership within its network ( Johanson and Vahlne, 2009, p. 1423). It is supposed
that firms that enjoy such an insidership position will have a tendency to increase their
commitments or make a full acquisition. For example, studies have found support that firms
increase their commitments or acquire partner firms as a result of explorative alliance
learning (e.g. Yang et al., 2011).

When the existing or previous relationship with a target firm is that of a partial
acquisition without an option to acquire fully, a firm willing to increase its commitment or
equity stake can still acquire more through renegotiations with the target firm. If it is a
publicly listed firm, this can be achieved by acquiring the remaining equity from the public
market offerings. The firm’s willingness to increase its equity stake in the target firm will
result from trust and the positive outcome of learning and relationship building. Otherwise,
the outcome will be one of decreasing commitments in the target firm. Building trust in
business relationships takes time because it is not based on formal agreements but a shared
history of at least minimal satisfactory joint business experience ( Johanson and Vahlne,
2009, p. 1418). This explains why the increment in commitment decisions in acquisitions
may take several years.

Learning from a previous relationship entails learning about the partner’s/acquisition
target’s business, partner/target assets, culture, organizational processes and the external

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business environment. Such learning associated with a firm’s prior acquisition experience
has been shown to increase the likelihood that the firm will engage in subsequent
international acquisitions (Collins et al., 2009).

Learning and knowledge development are also about the business environment. In the
case of countries with different or unstable institutions like emerging economies, acquiring
companies have to deal with unclear and changing rules (Santangelo and Meyer, 2011; Oguji
and Owusu, 2017). Even in highly-developed countries with stable institutions like the USA
and Sweden, new governments change tax policy or legislation on foreign investments,
which foreign companies do not expect. Learning about local institutions (both formal and
informal) is also vital for foreign subsidiary survival and increasing commitments.
Knowledge about host country institutions enables the firms to lobby these institutions,
develop capabilities for coping with or even benefiting from institutional pressures and to
search for better alternatives on contractual terms in acquisition negotiations. In addition,
learning about and influencing institutions can be done through partially acquired
companies (Frynas and Mellahi, 2003; Oguji and Owusu, 2017).

2.5 Conceptual framework
Our integration of the Uppsala model and acquisition strategies is summarized in Figure 2.
Based on the foregoing literature review, a firm’s acquisition entry strategy can start
through an existing or non-existing relationship with a target firm or acquisition of host
country knowledge through the firm’s market presence and ongoing business in a particular
host country. Firms may acquire partially, which means that they buy only part of
the target firm and have to compromise with other owners in decision making, or they may
have the strategy of acquiring in stages, i.e. they intend to acquire more of the target firm as
time goes on. Thus, their equity in the target firm could increase with time, but could also
decrease if they decide to sell off part of their equity. Firms may also acquire fully at the
beginning, or this may happen later in the relationship after staged acquisition.

State variables such as knowledge opportunities, host country knowledge and
target-specific experience explain the current state of the relationship ( Johanson and
Vahlne, 2009). Change variables include the outcomes of the relationship, such as
acquisition strategies. The levels of learning and trust-building also show the evolution of
the relationship ( Johanson and Vahlne, 2009). The firm’s network position is made up of its
valuable network partners or existing relationship with a target firm in a host country that
provides the company privileged access to information about the market, its relationship
partners and business network ( Johanson and Vahlne, 2009).

The existing relationship between a parent MNE and a foreign target (e.g. distributor
relationship, supplier–customer relationship, partial acquisition) builds the MNE

Network Position

Target-Specific Experience

• Partial Acquisition
• Full Acquisition
• Increasing Equity
• Decreasing Equity

• Learning
• Trust-Building 

Knowledge Opportunities

Host Country Knowledge

State Variable
Change Variable

Figure 2.
Conceptual framework:
integration of Uppsala
model and acquisition

strategies

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target-specific experience (Oguji and Owusu, 2017). The target-specific experience evolves
into knowledge opportunities ( Johanson and Vahlne, 2009) for which an acquisition by the
parent MNE is an outcome. Through this acquisition and accumulation of knowledge about
doing business in the host country, the firm’s host country knowledge develops (Chen, 2008;
Puck et al., 2009; Vahlne and Johanson, 2013) which in turn enables it to initiate the next
commitment decisions such as increased equity or full acquisition. An increase (e.g. full
acquisition) or decrease (e.g. market-exit or divestments) in equity stake depends on the
outcomes of learning and trust-building. Increasing commitments enables the firm to
effectively exploit local market opportunities ( Johanson and Vahlne, 2009). Exploiting local
market opportunities may also require subsequent full acquisition and can aim at
developing new competencies or product market extension. Thus far, we assert that the
basic dynamic of the Uppsala model fuels equity changes in acquisition due to the
relationships that both parties build by learning and trust-building, which leads to new
knowledge opportunities and further development of the relationships toward increasing
equity or decreasing equity stake (or subsequent divestment). The following discussion will
center on partial acquisition at the time of market entry as a precursor to changes in equity
stake when the acquiring firm has to build trust, gain market and host country knowledge
and, gain deeper knowledge of target firm assets.

MNEs without a previous relationship with a target firm may seek partial acquisition
due to information asymmetry they face (Xu et al., 2010) as a result of differences in financial
institutions that govern financial transparency and disclosure (Zhou et al., 2007) that makes
assets valuation costly. Chen and Hennart (2004, p. 1128) argued that parent firms
confronted with these challenges opt for partial acquisition as a means to build reciprocity
or a “hostage” into acquisition contracts, something that the seller would want to avoid if the
underlying assets of the firm are a “lemon.”

Trust and commitment between the acquiring firm and the partially acquired target
should be an antecedent to knowledge sharing and, thus, the performance of the alliance
relationship (Yuliani and Vanessa, 2007). It is believed that increasing levels of trust or
commitment to the relationship between the parent firm and partially acquired firm should
enhance the tendency of the acquiring MNE to increase their equity commitments in the
partially acquired targets. In contrast, the failure of both parties to develop mutual trust and
commitment in their relationship may hinder knowledge sharing and knowledge
opportunities. Thus, in the absence of knowledge opportunities or trust, parent MNEs
will decrease their commitment to the target firm.

Empirical evidence suggests that MNEs that do not possess sufficient knowledge of the
value of the target firm’s assets and business are more likely to opt for partial acquisition at
the time of market entry, especially in technology acquisitions (Folta and Miller, 2002). These
studies argue that MNEs opt for partial acquisition to bide time and enable them to gain
target-specific knowledge and market knowledge. During this period, the acquiring MNE
becomes an insider, thereby allowing it to gather information on the target company, target
technology and host country market. This gives it an information advantage over outsiders
when subsequently buying out the target (Dapena and Fidalgo, 2003; Folta and Miller, 2002).

In addition to gaining knowledge about the target assets, partial acquisition also gives
the parent MNE a means to gain institutional knowledge on how to deal with challenges
arising from restrictive mergers and acquisition (M&A) laws, non-transparent
institutions, institutionalized corruption and political risks of host countries (Oguji and
Owusu, 2017). Partial acquisition could also provide a platform for developing political
strategies in host countries (Boddewyn and Brewer, 1994; Schuler, 1996) and for shaping
government policy (Hillman, 2003).

In summary, using the Uppsala model to explore and analyze acquisition entry strategy
provides us a framework for studying how acquisition strategy evolves from initial

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relationships through partial acquisition to full acquisition or divestment. The core of the
framework is how target-specific experience and host country knowledge are transformed
through learning and trust to expand knowledge opportunities and impact commitment
decisions about the level of equity stake in acquisition and its expansion or reduction over a
period of time.

3. Research design
3.1 Case study research methodology
For this study, a multiple case study research approach via abductive theory-building
was chosen because it is the best way to explore the subject and contribute to theory in
a situation where there are no pre-existing results to test with quantitative studies
(Figueira-de-Lemos and Hadjikhani, 2014). In other words, our theoretical framework
provides themes for data collection, analyzing the empirical data and relating our results to
existing research and theories. The method of using extant theory in theory-building case
study research is referred to as “systematic combining” (Dubois and Gadde, 2002) or “in vivo
approach to theory-building” (Andersen and Kragh, 2010), and has been applied similarly to
address criticism of the Uppsala model (Figueira-de-Lemos and Hadjikhani, 2014).

Furthermore, the multiple case study method allows us to investigate in-depth the
determinants of equity changes in acquisitions within their empirical contexts (Yin, 2009).
There is rather limited research on the determinants of equity changes in acquisitions.
This makes it necessary for us to utilize a case study and qualitative research approach in
order to explore in-depth the determinants of equity changes in acquisitions through the
experiences of the informants triangulated with secondary data (Gummesson, 2006).

3.2 Data collection and analysis
Primary data were collected mainly using face-to-face interviews. We collected secondary
data available from company web pages and other documentations from the case companies
in addition to data on foreign acquisitions of Finnish companies from the FDI data bank of a
Finnish University. The interviewees were acquisition managers (Vice President/Director
M&A) of the acquiring firm who were responsible for acquisition decisions during market
entry and eventual changes in equity later on. Thus, the case firms are the level of analysis
while the unit of analysis is the firm-specific acquisitions in foreign markets.

The cases were selected using theoretical sampling (Eisenhardt, 1989), i.e. we selected cases
that would achieve adequate matching with the conceptual abstraction (Figueira-de-Lemos
and Hadjikhani, 2014). We did this by identifying the key constructs for the study (see the
conceptual framework, Figure 2) and purposively sampling cases from the FDI internal
data bank of a Finnish University. Our cases have been chosen based on acquisitions
made between 2000 and 2013 to ensure we could find the appropriate managers responsible
for the acquisitions. We focused our search on Finnish manufacturing companies and a
total of 13 suitable companies involving 41 cases of equity changes in partially acquired
subsidiaries were initially identified. After contacting the managers, six case companies
comprising of six cases of equity changes in acquired foreign subsidiaries agreed to
participate in the interviews.

We selected Finnish investments because of the unique context of Finland as a small and
open economy whose medium- and large-sized companies are dependent on IB for their
growth. Finnish firms are highly internationalized, however, their relative smallness confers
greater challenges in their foreign acquisitions compared to firms from large economies like
the USA and Japan (Laanti et al., 2009). For these reasons, they very much fit the theoretical
requirements of this study. The business sectors of the cases selected are manufacturing
and services of elevators and cranes, paper, energy, purification processes, casting

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solutions, meat and poultry and food processing. Their market capitalization ranges from
€79m to €20bn (Bloomberg, 2015). The selected case companies, business sector, number of
employees, number of subsidiaries and sales revenue for 2016 are shown in Table I.

The face-to-face interviews took place in 2015 and lasted for an average of 50–60 min
each. A digital voice recorder was used to record and store the data to ensure dependability
and repeatability. Our coding process or data reduction was done via within-case analysis
through a cyclic process of axial coding, selective coding and open coding (Sobh and Perry,
2006, p. 1204) to capture emerging themes and relate to our conceptual framework. Our
findings from the within-case analysis were organized into a meta-matrix table (Table II),
which enabled cross-case analysis through a search for commonalities, comparison and
generalizability (Welch et al., 2011, p. 745).

Ontological appropriateness was achieved by formulating the appropriate research
question for qualitative research (Yin, 2009). Contingent validity was achieved via
theoretical sampling as described in the case selection process above. Multiple perceptions
of participants were achieved in three ways. First, we ensured the triangulation of interview
data and secondary data sources to achieve consistency. For example, equity stake informed
by the managers was triangulated with those reported in their website and press releases.
Second, we ensured that there was consistency in transcription of the interview data by the
three researchers (Patton, 2002). Third, we sent the transcribed interviews to the
interviewees for verification (Patton, 2002). Methodological trustworthiness was achieved
by the establishment of a case study database comprising of interview guide questions, a
summary of the data collected from each case study (Tables II and III), and interviewee
anonymity and confidentiality confirmation. Construct validity was ensured by using
existing theory (i.e. internationalization process theory and literature review) which
provided the constructs for this study.

4. Results
Table II shows mostly secondary data collected for each case acquisition such as host
country of acquisition, equity stake at entry and during change, year of entry and year of
equity change, parent’s total sales in year of target acquisition and year of equity change,
foreign sales in year of entry and year of equity change, target annual sales prior to
acquisition, total FDI experience prior to target acquisition and after equity change,
market growth and political risk situation of the target host country. From the secondary

No. Companies Business sectors

Number of
employees
(2016)

Number of
subsidiaries

(2016)

Sales
revenue
(2016)

A KONECRANES Manufacturing and Services: cranes for
shipbuilding, ports, automotive, waste to
energy and steel equipment

10,950 42 EUR 2.1bn

B ATRIA Manufacturing: meat and poultry
production, food processing, convenience
food business

4,315 18 EUR 1.35bn

C KONE Manufacturing and Services: elevators,
escalator and automatic building doors

52,100 60 EUR 8.8bn

D KEMIRA Manufacturing and Services: pulp and paper,
oil and gas, mining and water treatment

4,818 43 EUR 2.4bn

E COMPONENTA Manufacturing: design, engineering and
casting solutions

4,500 5 EUR 545m

F FAZER Manufacturing and Services: Food
processing and contract catering

15,000 12 EUR 1.6bn
Table I.
Case companies and
characteristics

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T
ot
al

sa
le
s

(M
€
)

Fo
re
ig
n
sa
le
s

(M
€
)

FD
I

ex
pe
ri
en
ce

(n
um

be
r
of

fo
re
ig
n

un
its
)

G
D
P

G
ro
w
th

(%
)

Po
lit
ic
al

R
is
k

(E
ur
om

on
ey

po
lit
ic
al

ri
sk

ev
al
ua
tio

n)

Ca
se

Co
m
pa
ny

H
os
t

Co
un

tr
y

E
qu

ity
St
ak
e

(%
)

Y
ea
r
E
nt
ry
-

Ch
an
ge

A
B

A
B

T
ar
ge
t
A
nn

ua
l

Sa
le
s

A
B

A
B

A
B

1
K
O
N
E
CR

A
N
E
S

So
ut
h

A
fr
ic
a

19
–
10
0

20
07
–
20
09

1,
48
3

2,
10
3

1,
39
6

1,
98
0

8M
€

37
42

5.
6

3.
2

59
.8
9

59
.7
9

2
A
T
R
IA

E
st
on
ia

76
–
10
0

20
04
–
20
05

76
5

83
3

55
92

23
.2
M
€

5
6

7.
4

6.
3

65
.3
2

66
.4
2

3
K
O
N
E

B
ul
ga
ri
a

60
–
10
0

20
11
–
20
13

4,
98
7

6,
27
7

4,
83
6

6,
11
4

10
8

10
9

0.
05

0.
03

58
.1
6

54
.3
1

4
K
E
M
IR
A
/

T
IK
K
U
R
IL
LA

R
us
si
a

70
–
10
0

20
07
–
20
09

2,
52
3

2,
83
3

2,
15
9

2,
10
9

10
.7
M
€

14
6

15
5

8.
2

5.
2

56
.5
0

61
.4
8

5
CO

M
PO

N
E
N
T
A

T
ur
ke
y

55
–
88
–
93
,6

20
06
–
20
07
–

20
13

34
3

36
2–

54
5

28
1

29
8–

49
9

20
9M

€
5

6
8.
4

6.
9– 2.
1

50
.4
4

50
.1
8–

51
.9
5

6
FA

ZE
R

D
en
m
ar
k

59
–
10
0

20
01
–
20
05

68
1

91
6

23
2

44
0

13
17

3.
7

2.
6

94
.6
8

95
.1
9

N
ot
es

:
A
,y

ea
r
of

en
tr
y;

B
,y

ea
r
of

ch
an
ge
;p

ol
iti
ca
lr
is
k,

E
ur
om

on
ey

po
lit
ic
al

ri
sk

ev
al
ua
tio

n
(1
00

m
in
us

th
e
co
un

tr
y
in
de
x
va
lu
e)

Table II.
Case study
data matrix

277

Finnish
multinationals

in foreign
markets



Ca
se

Co
m
pa
ny

H
os
t

co
un

tr
y

T
ar
ge
t
na
m
e
an
d

eq
ui
ty

st
ak
e

N
et
w
or
k
po
si
tio

n
be
fo
re

pa
rt
ia
l

ac
qu

is
iti
on

K
no
w
le
dg

e
op
po
rt
un

iti
es

H
os
t
co
un

tr
y

kn
ow

le
dg

e

T
ru
st
-b
ui
ld
in
g

an
d
re
la
tio

ns
hi
p

co
m
m
itm

en
t

Le
ar
ni
ng

1
K
O
N
E
CR

A
N
E
S

So
ut
h

A
fr
ic
a

D
yn

am
ic
Cr
an
e

Sy
st
em

s
(1
9–
10
0%

)
Lo

ca
la

ge
nt

si
nc
e

19
90
s
an
d

di
st
ri
bu

to
r
si
nc
e

20
07

be
fo
re

pa
rt
ia
l

ac
qu

is
iti
on

an
d

no
su
bs
id
ia
ry

op
er
at
io
ns

In
ad
di
tio

n
to

op
po
rt
un

iti
es

w
e

jo
in
tly

cr
ea
te
d
in

so
ut
h

A
fr
ic
a,
ac
qu

ir
ed

ta
rg
et

to
sp
ri
ng

bo
ar
d
to

ot
he
r

A
fr
ic
an

m
ar
ke
ts

G
ai
ne
d

kn
ow

le
dg

e
th
at

th
e
B
B
B
E
E
di
d

no
t
im

pa
ct

th
e

bu
si
ne
ss

ne
ga
tiv

el
y

B
ui
lt
tr
us
t
in

lo
ca
l

pa
rt
ne
rs

w
ho

ca
n

ta
ke

ca
re

of
th
e

lo
ca
lb

us
in
es
s

Le
ar
ni
ng

ab
ou
t
th
e

“b
ro
ad
-b
as
ed

bl
ac
k

ec
on
om

ic
em

po
w
er
m
en
t”

(B
B
B
E
E
)

2
A
T
R
IA

E
st
on
ia

E
st
on
ia
A
S
V
A
LG

A
Li
ha
tö
ös
tu
s
(7
6–
10
0%

)
N
o
re
la
tio

ns
hi
p

w
ith

th
e
ta
rg
et

fir
m

or
ex
po
rt
in
g

to
E
st
on
ia

be
fo
re

pa
rt
ia
l

ac
qu

is
iti
on

Jo
in
tly

ex
pl
oi
te
d
th
e

m
ea
t
ch
ai
n
of

th
e

co
m
pa
ny

,a
cq
ui
re
d
tw

o
ne
w

un
its

in
E
st
on
ia

an
d
in
tr
od
uc
ed

pr
od
uc
tio

n
ef
fic
ie
nc
y

an
d
ex
pa
nd

ed
in

ne
ig
hb

or
in
g
B
al
tic

m
ar
ke
t

G
ai
ne
d
m
or
e

kn
ow

le
dg

e
ab
ou
t

E
st
on
ia

es
pe
ci
al
ly

th
e

bu
si
ne
ss

ne
tw

or
ks

be
tw

ee
n
th
e

sl
au
gh

te
rh
ou
se

an
d
m
ea
t

pr
od
uc
tio

n

B
ui
lt
re
la
tio

ns
hi
ps

w
ith

st
ak
eh
ol
de
rs

in
th
e
m
ea
t
va
lu
e

ch
ai
n
in

E
st
on
ia
,

an
d
al
so

ga
in
ed

le
gi
tim

ac
y

Le
ar
ne
d
fr
om

th
e

m
an
ag
em

en
t
ab
ou
t

op
er
at
io
ns

of
sl
au
gh

te
rh
ou
se
s,
m
ea
t

cu
tt
in
g
op
er
at
io
ns
,a
nd

pr
oc
es
se
d
m
ea
t

pr
od
uc
tio

n

3
K
O
N
E

B
ul
ga
ri
a

A
le
x
E
A

Li
ft
s
O
O
D

(K
B
G
)(
60
–
10
0%

)
D
is
tr
ib
ut
or

of
ca
se

co
m
pa
ny

be
fo
re

pa
rt
ia
l

ac
qu

is
iti
on

an
d

no
su
bs
id
ia
ry

op
er
at
io
ns

Jo
in
tly

gr
ew

th
e

co
m
pa
ny

an
d
m
ad
e
it

m
or
e
pr
of
ita

bl
e

A
cq
ui
re
d

kn
ow

le
dg

e
ab
ou
t

do
in
g
bu

si
ne
ss

in
B
ul
ga
ri
a

A
ft
er

pa
rt
ia
l

ac
qu

is
iti
on
,

st
ar
te
d
to

in
tr
od
uc
e
th
e

“K
O
N
E
W
ay
”
of

w
or
ki
ng

an
d
se
nd

th
ei
r
pe
op
le
to

bu
ild

tr
us
t
in

to
p

m
an
ag
em

en
t

Le
ar
ne
d
an
d
de
ve
lo
pe
d

a
pr
ef
er
en
ce

fo
r

ac
qu

ir
in
g
di
st
ri
bu

to
rs

vi
a
st
ag
ed

ac
qu

is
iti
on
s

(c
on

tin
ue
d
)

Table III.
Meta-matrix:
determinants of
equity changes
in acquisitions

278

BJM
14,2



Ca
se

Co
m
pa
ny

H
os
t

co
un

tr
y

T
ar
ge
t
na
m
e
an
d

eq
ui
ty

st
ak
e

N
et
w
or
k
po
si
tio

n
be
fo
re

pa
rt
ia
l

ac
qu

is
iti
on

K
no
w
le
dg

e
op
po
rt
un

iti
es

H
os
t
co
un

tr
y

kn
ow

le
dg

e

T
ru
st
-b
ui
ld
in
g

an
d
re
la
tio

ns
hi
p

co
m
m
itm

en
t

Le
ar
ni
ng

4
K
em

ir
a/

T
ik
ku

ri
la

R
us
si
a

O
O
O
T
ik
ku

ri
la

Po
w
de
r
Co

at
in
gs

(7
0–
10
0%

)

N
o
re
la
tio

ns
hi
p

w
ith

th
e
ta
rg
et

fir
m

bu
t
ha
d

su
bs
id
ia
ry

in
R
us
si
a
be
fo
re

pa
rt
ia
l

ac
qu

is
iti
on

Jo
in
tly

ex
pl
oi
tin

g
th
e

ex
pe
ct
ed

st
ro
ng

gr
ow

th
in

R
us
si
an

po
w
de
r
co
at
in
gs

m
ar
ke
t
an
d
lo
w
er

pr
od
uc
tio

n
co
st
s
in

R
us
si
a
by

ex
pa
nd

in
g

pr
od
uc
tio

n

B
ui
lt
tr
us
t
in

lo
ca
l

pa
rt
ne
rs

w
ho

to
ok

ca
re

of
th
e
lo
ca
l

bu
si
ne
ss

Po
w
de
r
co
at
in
g

bu
si
ne
ss

w
as

en
tir
el
y

ne
w

bu
si
ne
ss

se
gm

en
t

fo
r
us
.T

he
ac
qu

is
iti
on

en
ab
le
d
ou
r
R
an
dD

to
ad
va
nc
e
ou
r
ex
pe
rt
is
e

by
le
ar
ni
ng

ab
ou
t
ba
se

pa
in
ts

us
in
g
th
e
ta
rg
et

co
m
pa
ny

pr
od
uc
ts

5
CO

M
PO

N
E
N
T
A

T
ur
ke
y

D
ök
ta
s
(5
5–
88
–
93
.6
%
)
N
o
re
la
tio

ns
hi
p

w
ith

th
e
ta
rg
et

an
d
no

su
bs
id
ia
ry

be
fo
re

pa
rt
ia
l

ac
qu

is
iti
on

Jo
in
te
xp

lo
ita

tio
n
of

th
e

lo
w
-c
os
t
pr
od
uc
tio

n
op
po
rt
un

ity
in

T
ur
ke
y.

Ca
rr
ie
d
ou
t
jo
in
t

R
an
dD

pr
oj
ec
ts

an
d

sh
ar
ed

ri
sk
s
in

T
ur
ke
y

G
ai
n
m
ar
ke
t

kn
ow

le
dg

e
ab
ou
t

T
ur
ki
sh

m
ar
ke
t

as
a
ne
w

pr
od
uc
tio

n
op
po
rt
un

ity
as

w
el
la

s
re
gu

la
tio

ns
an
d

go
ve
rn
m
en
t
la
w
s

B
ui
lt
tr
us
t
in

lo
ca
l

pa
rt
ne
rs

w
ho

to
ok

ca
re

of
th
e
lo
ca
l

bu
si
ne
ss

an
d

tr
an
sf
er
re
d
so
m
e

pr
od
uc
tio

n
to

T
ur
ke
y

Le
ar
ne
d
ab
ou
t
do
in
g

bu
si
ne
ss

in
T
ur
ke
y

6
FA

ZE
R

D
en
m
ar
k

W
ip

Pe
rs
on
al
er
es
ta
ur
an
te
r

A
/S

(5
9–
10
0%

)

N
o
re
la
tio

ns
hi
p

w
ith

th
e
ta
rg
et

fir
m

bu
t
ha
d

su
bs
id
ia
ry

w
ith

in
co
nf
ec
tio

ne
ry

bu
si
ne
ss

si
nc
e’

19
80
s.
be
fo
re

pa
rt
ia
l

ac
qu

is
iti
on

Jo
in
tly

de
ve
lo
pe
d
th
e

op
po
rt
un

iti
es

in
th
e

m
ar
ke
t
an
d
ke
pt

th
e

ex
is
tin

g
en
d
cu
st
om

er
s

T
o
ga
in

cu
st
om

er
kn

ow
le
dg

e
an
d

re
ta
in

cu
st
om

er
s

as
w
el
la

s
se
cu
re

to
p
m
an
ag
em

en
t

to
ke
ep

bu
si
ne
ss

pr
of
ita

bi
lit
y

B
ui
lt
tr
us
t
in

lo
ca
l

pa
rt
ne
rs

w
ho

ca
n

ta
ke

ca
re

of
th
e

lo
ca
lb

us
in
es
s

Le
ar
ne
d
ab
ou
t
ca
te
ri
ng

bu
si
ne
ss

in
D
en
m
ar
k

Table III.

279

Finnish
multinationals

in foreign
markets



data, there were two cases of political risk decrease in the target host country and four
cases of political risk increase in the target host country during the year of equity change.
Moreover, there was a clear decrease in GDP growth rate for all the countries during the
years of equity changes. However, total parent firm sales, and FDI experience were all
higher during the years of equity changes. Although, there was a clear indication that
cases 2 and 5 acquisitions were done in response to price competition due to the
integration of the European market and entrance of emerging market multinationals,
respectively, the other cases were driven primarily by market expansion (cases 1 and 3)
and business segment expansion (cases 4 and 6). The secondary data points to the
importance of sales growth and increased FDI experience prior to equity changes. Both
total sales and profitability increased after the acquisition in all cases. More so, an increase
in FDI experience occurred in all cases as we see its importance for example, in case 2,
where the manager informed us about how the experiences from two new acquisitions in
the same host country triggered the importance of increasing their equity stake in order to
reap synergies.

In summary, while the secondary data can give an overview, it does not address
the issue-specific reasons leading to the equity changes in partially acquired subsidiaries.
Table III shows the equity changes from the case acquisitions and the summary
descriptions of the findings related to these changes from the primary data.

4.1 Findings and propositions
Target-specific experience. Two cases (cases 1 and 3) had target-specific experience
when they made partial acquisitions while four cases (cases 2, 4, 5 and 6) did not have
target-specific experience prior to the partial acquisition. The acquired firm in case 1 had
been a local agent of the acquirer since the 1990s and in 2007 became a distributor before
partial acquisition in the same year. The acquired firm in case 3 was a distributor of the
acquirer before partial acquisition. In both cases, the parent firm had none of its own
subsidiary operations in the markets before the partial acquisitions. Clearly, target-specific
experience had been gained prior to the partial acquisitions and lack of host country
knowledge was the main reason for their preference for partial acquisitions at the time of
market entry. Target-specific experience was expressed as “We knew the target, but we
opted for partial acquisition because we did not know how the BBBEE legislations will
affect how business is done in South Africa” (case 1). For case 3:

When they are core distributor, we get some operative financial information. We know the partner
and we know exactly how many units they have sold and based on our visits we know what kind of
operational quality they have. Thus, we have the information before starting to discuss about
possible acquisition. (case company C)

Cases 2, 4, 5 and 6 did not have target-specific experience before the acquisition. In addition,
Cases 2 and 5 did not have any subsidiary operations in the host country before the partial
acquisition. These firms expressed the importance of target-specific experience via partial
acquisition to gain knowledge about the partner and the true value of the partner’s assets
before making full acquisitions. For example, case 6 expressed that:

Often in negotiations the seller and buyer have a different opinion on the valuation. Staged
acquisition is a good way to bridge the valuation differences. We compromise that we make some
down payment, and the sellers keep minority. During this time, we get to know the actual worth of
the business and then based on the performance in 2 or 3 years, we acquire the rest at
predetermined amount. (case company F)

Even with exporting operations before the acquisition (e.g. case 2), a partial equity stake was
still preferred during initial market entry. “We acquired in stages so that we can get more

280

BJM
14,2



information about the partner and as soon as more information becomes available, we
increase our equity to 100 percent.”

Case 5 expressed that through partial acquisition, “We gain enough information and
experience about the target, then basically we can form the final view either to exit by
selling it or acquire the remaining stake from the other party.”

Thus far, partial acquisition provides a platform for gaining more knowledge about the
target firm and understanding the true value of the partners. The results imply that a
positive experience of a partner should lead to an increasing equity stake while a negative
experience from a partner should lead to a decreasing equity stake. Consequently, we
propose the following proposition:

P1. The acquisition of target-specific experience is a determinant of equity changes in
partially acquired foreign subsidiaries.

Trust-building and relationship commitments. Relationship commitment was expressed via
two perspectives. First, there were cases where the acquiring firm had a non-equity business
relationship (e.g. agent, distributor) with the target firm before the initial acquisition, but
made a partial acquisition and increased their equity afterward (cases 1 and 3). Second, there
were cases where the primary relationship started from partial acquisition, and then they
increased their commitments to higher equity stake or full acquisitions (cases 2, 4, 5 and 6).

Clearly these cases exhibit a pattern of relationship commitment where the state
variable is either an existing relationship in the form of distributorship arrangement
(case 3), local agent (case 1) or a partial equity (cases 2, 4, 5 and 6) of at least 55 percent.
For case 5, they acquired partially and transferred some production to Turkey to take
advantage of the low-cost production. When they gained more knowledge of the host
country and acquired the target, they decided to make the next commitment decisions by
acquiring more equity and moving more production to the Turkish factory because of
increased manufacturing costs in Finland.

Several interviewed managers expressed the need for building trust as precursor of the
next commitment decision or relationship commitment. “We wanted to have some local
partners, whom we could trust and who can take care of the local business” (case 6). Based
on the foregoing, we propose the following proposition:

P2. Trust-building and relationship commitment are determinants of equity changes in
partially acquired foreign subsidiaries.

Knowledge opportunities. The interview data points to several kinds of opportunities that
were jointly created. For example, from the six cases, cases 1, 2, 3, 5 and 6 did not have
knowledge of the host country when they acquired the target firm. They started with partial
equity of at least 19 percent and increased their equity to at least 93.6 percent later on. The
acquisition managers cited the lack of host country knowledge (market and institutional)
when they initially entered the market. These acquisitions were made in South Africa,
Estonia, Bulgaria, Turkey and Denmark.

Case company B described their acquisition in Estonia (case 2) as a stepwise approach
toward majority stake. Before the acquisition, the case company had been exporting meat to
Estonia. However, the exporting operation was not adequate to gain greater familiarity of the
local competitors deep knowledge of the market, and legitimacy. In addition, the case
company’s market growth motives had compelled them to look for meat processing
companies in Estonia in order to expand their processing capacity and achieve market
growth. The acquired target had a market share of 15–20 percent in Estonia. The choice of
staged acquisition was only “sort of a time issue to make down payment and get more
knowledge about the host market conditions.” Furthermore, the manager for case 2 informed
us that they made two additional acquisitions in the same country in 2008 and integration of

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their operations in Estonia was needed to reap synergistic benefits. Integration of the earlier
partially acquired unit with the recent acquisition required increasing their ownership stake.
As a result, they acquired the remaining equity of the partially acquired unit.

According to case company C, the main motive for the staged acquisition (case 3) was
risk sharing when entering a new and unknown market and to gain market knowledge:

If you go to an unknown market or such market area where you have no access, basically it carries
a big risk and you may want to share the risk for example with the local firm and then make a
contract that after 3 or 5 years there are some option arrangements in which you can buy the
remaining equity out from the acquisition. (case company C)

Case company F expressed the reason for the staged acquisition (case 6) with the
following statement:

Our reasons for staged acquisition was that we were entering a new business segment that was
owned by our competitors and we did not have market knowledge and we wanted to keep the
existing management for continuous success of the company. In this type of business, customer
retention matters a lot that is also why retaining local managers is of importance to the business.
Prior to this acquisition we had no contract catering business in Denmark but had other
subsidiaries within confectionery business since the 1980s. The target firm was owned mainly by
the heirs of the founder and a small fraction by the management. We acquired first 59% from the
heirs at fixed price (with customary representation and warranties). When we acquired market
knowledge, we used call options to acquire the remaining stake after three years from the
remaining owners. (case company F)

From the interview data, deficiency of host country market knowledge propelled the MNEs
to utilize staged acquisition en route to full acquisition when entering these markets.
The staged acquisition gave the parent firms time to acquire market knowledge and host
country knowledge during a specified period. These firms increased their equity stake and
made their final down payment after they had gained sufficient knowledge.

For case 3, even though they had target-specific experience before the acquisition, the
interviewing manager reiterated that:

The partial acquisition was aimed to gain a foothold in the market, and to wait and gain knowledge
of how the market will develop or when portions of the market will swings to global players. When
this is the case, it is more significant from our company point of view to increase our equity stake to
full acquisitions. (case company C)

Similarly, for case 1, it involved an acquisition in the South African market. Though they
had target-specific experience, the deficiency of host country knowledge in terms of their
inability to predict or interpret policies like the impact of the “Broad-Based Black Economic
Empowerment” (BBBEE) legislation led to their decision for staged acquisition. The staged
acquisition enabled them to study, learn and gain more knowledge of the legislation before
making the remaining down payment.

Thus far, it is evident that these firms utilized partial acquisition to learn about the target
market and kick-start the relationship with the target firm, which in turn formed part of the
firm’s network position. Through this partial acquisition, the acquiring MNEs gained
experience about the target firms (target-firm experience), and developed knowledge about
the host country which provided a platform (state variable) that led to the next commitment
decision, i.e. increasing equity stake (change variable).

Furthermore, opportunity development was expressed in terms of jointly growing the
company and increasing profitability, exploitation of partner’s local permits, exploitation of
partner’s access to local customers, external opportunities and opportunity for low-cost
production. For example, case 3 expressed these in the form of “If you join me to grow the
company and make it more profitable, I will give you more money, I will keep you more

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motivated throughout the business.” Case 6 involved an acquisition in the catering business.
According to the interviewed manager, customer retention is essential for the success of the
business. Acquiring the business does not automatically translate into securing the end
customers. “We needed to retain the previous management to continue to work for the
company so we can jointly develop the opportunities in the market and keep the existing
end customers of the company.”

Turkey opened up an entirely new business opportunity as a low-cost production
country but was seen as risky in case 5:

We did not have an existing partner in the host country or existing business operations there.
We entered the Turkish market to look for a partner with whom we could exploit the new business
opportunities as well as gain from the local partner in terms of permits that are needed, and access
to local customers. (case company E)

The acquisition was a means to respond to price competition or reduce the risks arising
from price competition by transferring production and products to Turkey.

Overall, the data show that jointly and successfully exploiting opportunities during
partial acquisition increases the likelihood that the acquiring firms will complete the down
payment and acquire the remaining stake in the acquired firm. Notably, these firms were
increasingly learning and exploiting the business opportunity in the existence of trust.
However, if there is no opportunity development, the acquiring firm may decide to terminate
the partial acquisition and exit from the market. Based on the preceding, we propose that:

P3. The discovery, creation and exploitation of knowledge opportunities is a
determinant of equity changes in partially acquired foreign subsidiaries.

Learning. Learning was an important concept the acquiring managers referred to during the
interviews. For example, case company C (case 3) stated that with over 20 years of
international acquisition experience, they learned and developed a preference for acquiring
their distributors mostly via staged acquisitions:

Over the years, we have learned that staged acquisitions are more successful from our company
point of view. We usually acquire our distributors, and during the distributorship arrangements,
we get some operative financial information. Thus, we have the information before starting to
discuss a possible acquisition. Over the years, we have learned that staged acquisition is better
because we get to keep the owner to work for us for a period to know the market and the country
and once we have been able to gain this knowledge and develop the operations, we acquire the firm
fully and make it a frontline. (case company C)

The interviewed manager in case company A (case 1) expressed how they implemented
stage acquisition to learn more about the impact of the broad-based black economic
empowerment (BBBEE) legislation in South Africa:

We did not know how far the broad-based black economic empowerment (BBBEE) legislation will
go and how it will affect our business and productivity. It was a risk avoidance strategy for us. We
took 19% equity at the start and a staged acquisition so that we can learn more about the
legislation. If the (BBBEE) had an impact on our business, it would then be easy to divest the 19%.
However, it did not, and we acquired the remaining stake after two years. (case company A)

Thus far, when organizations enter foreign markets via acquisition they not only learn
about the business, market, local laws and institutions, but also add the lessons from the
acquired company to the organization’s stockpile of knowledge about the acquisition
process which is then utilized for future acquisitions. Based on the foregoing, we propose the
following proposition:

P4. The outcome of learning from partial acquisition is a determinant of equity changes
in foreign acquisitions.

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Based on the findings and propositions of this study, we have developed a conceptual
model of the determinants of equity changes in partially acquired subsidiaries using
constructs from the Uppsala model, as shown in Figure 3. Our findings and propositions
suggest that when an acquirer meets the set expectations (i.e. “positive experiences”)
from its partially acquired target (such as provision of market information, socio/political
environment, market knowledge, mutual and shared objectives) there is the likelihood of
increasing equity commitments. On the contrary, there could be decreasing equity
commitments or divestments in the event of a negative experience with a partially
acquired target. Furthermore, our figure shows that positive trust-building and
relationship commitment are determinants of equity changes in a partially acquired
subsidiary. This can be captured via evolving business relationships that the parent firm
has had with the target firm from the period of non-equity relationships (e.g.
distributorship, agents etc.) to equity relationships, or from lower equity commitments to
higher equity commitments.

Figure 3 also shows that the ability of the parent firm and acquired target to jointly
create and exploit knowledge opportunities is a determinant of increasing equity
commitments. Knowledge opportunities involve finding and generating knowledge as well
as applying knowledge to develop new opportunities. Finally, the outcome of learning from
the partially acquired target about their business and host country institutions, determines
the direction of equity changes. Learning is achieved through path dependence and
wait-and-see strategies. In summary, Figure 3 provides the determinants based on the four
sub-concepts of the Uppsala model.

Trust-building and relationship commitments
Evolving business relationships:
• Non-equity commitments to equity commitments
• Lower equity commitments to higher equity
  comments
• Achieved trust in local management/owners

Target-specific knowledge
• Acquire more knowledge about the partner’s
  business and partner characteristics

Knowledge opportunities
• Exploitation of partner’s local permits
• Exploitation of partners access to local
  customers
• External opportunities (e.g., market
  consolidation)
• Opportunity for low-cost production
• Jointly growing the company and increasing
  profitability
• Host country knowledge (gain in-depth more
  knowledge about the host market, customers
  and institutions)

Learning

• Organizational learning via path dependence
• Wait and see
• Learning about the business and host country 
  institutions

Increasing Equity Changes
in a Partially-Acquired

Subsidiary

+

+

+

+

Figure 3.
Conceptual model of
determinants of equity
changes in partially
acquired subsidiaries

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4.2 Theoretical and managerial implications
This study makes several contributions to theory and research in post-market entry
strategies in the context of international acquisitions. First, this study extends the
application of the Uppsala model ( Johanson and Vahlne, 1997, 2009; Vahlne and Johanson,
2017) to international acquisitions. This is one of the first study to apply the Uppsala model
empirically to analyze international acquisitions. In contrast to the critics of the Uppsala
model who state that it cannot be used to study acquisitions because they see acquisition as
a one-time decision (Andersen, 1993; Oviatt and McDougall, 2005), our study shows that by
viewing acquisition as a continuum of increasing and decreasing equity stake, it is possible
to analyze it through the state and change variables in the Uppsala model. The Uppsala
model explicitly shows how commitment decisions increase or decrease as a result of the
acquisition of knowledge, trust and commitment of both the acquiring MNE and target firm.
Thus, partial acquisition and staged acquisition can serve as foothold where parent firms
can apply wait-and-see-strategy and both partners can learn about each other and build
trust (Clarke and Liesch, 2017).

This study brings a process and behavioral approach to the study of acquisitions which
has previously been mainly done using cross-sectional and quantitative methods together
with economic theories with neoclassical assumptions (see Johanson and Vahlne, 1990 for a
summary of the behavioral and economic internationalization models). Figure 4 shows the
process of changes in equity stake in acquisitions.

This is a major contribution to the research on acquisitions. We open a new area of
research that will enable researchers to delve into the processes and managerial interactions
that occur during the process from partial acquisitions to full acquisitions or divestment.
With increasing globalization and expansion of acquisitions to very different market
contexts like Africa and Asia, these interactions and behavioral factors are likely to become
more complex. Studying these factors will therefore improve our theories as well as
managerial implications.

This study develops constructs to explain changes in equity stake in acquisitions.
We showed that through learning and positive target-specific experience, firms do change
their equity stake in partially acquired subsidiaries. We have also shown that trust-building
and relationship commitment as well as the opportunity that develops and is jointly
exploited during the relationship are determinants of equity changes in partially acquired
subsidiaries. Additionally, we have provided specific determinants of equity changes in
acquisition (Figure 3) and constructs of the four main concepts of the Uppsala model
(Figure 4). These constructs, e.g., “non-equity commitments to equity commitments,”

Knowledge opportunities
• Exploitation of partner’s local permits
• Exploitation of partners access to local
  customers
• External opportunities (e.g., market
  consolidation)
• Opportunity for low-cost production
• Jointly growing the company and increasing
  profitability
• Host country knowledge (gain in-depth
  more knowledge about the host market,
  customers and institutions)

• Partial Acquisition
• Full Acquisition
• Increasing Equity
• Decreasing Equity

State Variables Change Variables

Learning
• Organizational learning via path
  dependence
• Wait and see
• Learning about the business and host
  country institutions
Trust-building and relationship
commitments
• Evolving business relationships
• Achieved trust in local management/owners

Target-specific knowledge
• Acquire more knowledge about the partner’s
  business and partner characteristics

Figure 4.
Process of equity

changes in
acquisitions

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“lower equity commitments to higher equity commitments” (Figure 3), specify the main
concepts and allow researchers to study them specifically and deepen our knowledge.
They can be used for acquisition studies as well as other entry mode studies.

Our study contributes to studies on post-entry strategies of multinationals in foreign
markets (see e.g. Benito et al., 2009; Puck et al., 2009; Ogasavara and Masiero, 2012) by
extending the context to international acquisitions. We have shown that the decisions of
firms at post-market entry are partly dependent on their knowledge and relationship
liabilities at the time of market entry. Such liabilities are summarized as outsidership,
foreignness ( Johanson and Vahlne, 2009), “information deprivation liabilities” ( Johanson
and Vahlne, 1977) and deficiency in host country knowledge (Oguji and Owusu, 2017)
leading to entry via partial acquisitions (Duarte and García-Canal, 2004; Oguji and Owusu,
2017). Consequently, their ability to overcome these liabilities through acquisition of
knowledge ( Johanson and Vahlne, 2009), target-specific experience (Oguji and Owusu, 2017)
and learning and capabilities (Wei and Clegg, 2015), determines their post-market entry
commitment decisions.

Our results provide managers of partially acquiring companies knowledge of the
importance of a strategy for trust-building, and opportunity development in order to learn
more about the partner, the business networks and the business environment which
enables them to make informed decisions about increasing or decreasing their equity. The
relationship and networking approach of the framework is a different approach to business
strategy that a large amount of research has shown to be essential for business in most
non-western markets ( Jansson et al., 2007). Therefore, this study gives managers a new tool
for their internationalization process. Furthermore, while host country institutional
environment may increase the importance of partial acquisition and target-specific
experience (relationship-specific knowledge) at the time of market entry (Oguji and Owusu,
2017), our framework offers managers a tool for actualizing their intended strategies later,
after learning and developing the capabilities needed to change their equity stake. Finally,
managers should not see acquisition as a one-time event but rather “a series of
interconnected ‘decision situations’ that represents continual ‘adjustments to changing
conditions of the firm and its environment’ ” ( Johanson and Vahlne, 1977, p. 26). Managers
should view acquisition as a process that requires setting up necessary tools, structures and
networks for learning, recognizing and jointly creating opportunities with the partially
acquired targets. By acquiring partially at market entry, managers can apply a wait-and-see
strategy (Clarke and Liesch, 2017) and thus, are better prepared to minimize uncertainty of
outsidership and foreignness ( Johanson and Vahlne, 2009) and “information deprivation
liabilities” ( Johanson and Vahlne, 1977; Wei and Clegg, 2015), and also identify new market
opportunities ( Johanson and Vahlne, 2009).

5. Conclusion
The goal of this study was to understand the determinants of equity changes in acquired
foreign subsidiaries. We developed a conceptual model integrating acquisition literature
with the Uppsala internationalization model which we used to operationalize the study
and provide themes for analyzing data from qualitative studies of six cases from six Finnish
multinational companies. The data were from both primary and secondary sources.
We analyzed the data using systematic within-case and cross-case analysis through data
reduction and coding processes based on the themes from our conceptual framework.
Our results have enabled us to make four propositions that extend the knowledge of the
determinants of equity changes in partial acquisitions. We have also provided constructs to
operationalize the four concepts from the Uppsala model.

Our results show that learning, network position (target-specific experience),
trust-building, relationship commitment and opportunity development lead to changes

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in equity in acquired foreign subsidiaries. However, our findings are limited in various
ways. First, by focusing our study on acquisitions, we have omitted the detailed chain and
continuum of events and relationships before an acquisition was made. To our defense,
we do not claim that learning and relationship commitment begin from partial
acquisitions, rather that partial equity stake provides stronger network ties through
which the parent firm gets to know the target more for further opportunity recognition
and exploitation, which in turn leads to increasing equity stake and thus strengthens the
network position. Second, while the number of cases and our sampling procedures enable
us to analytically generalize our results, they are limited by the fact that all the companies
are from Finland. Third, our methodology does not allow us to statistically ascertain the
degree to which these variables lead to equity changes. Consequently, in order to
statistically ascertain the degree of these constructs, future researchers should utilize
quantitative methodology on larger samples of specific industries to test and validate our
propositions in different industries. Fourth, this study only accounts for the acquiring
firm’s perspective of the determinants of equity changes. Studies have suggested the
importance of the target firm perspective in IB scholarship (Meglio and Risberg, 2010).
As a result, we call for future studies to integrate target firm perspectives to gain a
coprehensive view of the determinants of equity changes in acquired foreign subsidiaries.
Fifth, our conceptual model allows us to focus on the behavioral approach and, thus, the
firm as the unit of analysis. However, it has been shown that there are other surrounding
processes, i.e. market or network internationalization, industry internationalization
( Johanson and Vahlne, 1990, p. 22), or external institutional environment (e.g. Peng, 2002)
that may be focused on by future researchers. Sixth, Santangelo and Meyer (2011) have
shown that the processes of learning, opportunity creation and trust-building are
moderated by institutional influences. Consequently, we call for future research to
integrate the Uppsala model and institutional-based view of IB to uncover the degree to
which institutional environments moderate the process of learning, opportunity creation
and trust-building in the context of equity changes in partially acquired subsidiaries.
Finally, four out of the six cases were the first FDIs/acquisitions of the case companies in
the target countries. There is an opportunity for future studies to explore if the results of
this study are applicable to equity changes in subsequent partial acquisitions of new
targets in the same host country.

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Corresponding author
Nnamdi Oguji can be contacted at: nnamdi.oguji@gmail.com

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	Determinants of equity changes in partial acquisitions of Finnish multinationals in foreign markets