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PART I
Cross-Border Mergers, Acquisitions, and Corporate Restructuring
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CHAPTER 1
Internationalization of Economies
Among all factors affecting businesses, internationalization or globalization of the economies has been found having the most profound impact on private business management since the World War II. Of course, cross-border mergers and acquisitions (M&As) is an essential component of the internationalization or integration of diverse economic systems. Accordingly, it is pivotally important to have a clear understanding of the internationalization of the economies. We elaborate this critical concept, in this introductory chapter, by examining the constituent parts of the internationalization process.
Internationalization of Product and Service Markets
It is common to use the sum of exportsand importsof goods and services as a percentage of the gross domestic product (GDP) of a country as a measure of the openness of the economy. Using this indicator of the openness of the economy is common even though capital flows across the borders, as well as global currency transactions, are considered the other leading indicator of globalization. According to this index, a rapid rise in international trade has occurred around the globe since World War II. Nevertheless, as Table 1.1 shows, the size of the two-way trade as a percentage of the GDP of the world and groups of the countries has remained relatively stable during 2005 to 2015. We present values of the exports plus imports of goods and services as percentages of GDPs by types of economies since 2005 in Table 1.1.
As can be seen from Table 1.1, the overall degree of openness for all economies shows a little over 1 percent increase during 2005 to 2015. During the same time, the two-way trade, as a fraction of the GDP of the developing countries, has decreased by almost 9 percent. The value of exports plus imports as a percentage of the GDP of the transition economies has declined by 5 percent. Finally, the ratio for the developed economies has experienced a 4 percent growth.
Table 1.1 Openness of the economies: Exports plus imports as a percentage of the GDP 2005 to 2015
| Year | World | Developing economies | Transition economies | Developed economies |
| 2005 | 26.98 | 38.86 | 38.07 | 22.88 |
| 2006 | 28.78 | 39.67 | 36.93 | 24.50 |
| 2007 | 29.69 | 38.92 | 34.08 | 25.93 |
| 2008 | 31.06 | 39.53 | 35.71 | 27.20 |
| 2009 | 26.23 | 32.50 | 31.77 | 23.20 |
| 2010 | 28.56 | 34.19 | 33.12 | 25.43 |
| 2011 | 30.51 | 35.67 | 33.40 | 27.43 |
| 2012 | 30.29 | 35.15 | 32.34 | 27.24 |
| 2013 | 30.40 | 34.15 | 30.98 | 27.97 |
| 2014 | 30.24 | 33.10 | 32.01 | 28.27 |
| 2015 | 28.39 | 30.13 | 32.81 | 27.03 |
Note: The authors calculated the percentages.
Source: UNCTAD Stat (2017).
To gain a better overall view of the global international trade, we present Figure 1.1, which shows the index of the value of exports calculated by the chain method.1 The index shows that after rising to 121.7 in 2004, the value of trade dropped precipitously during the global financial crisis (The Great Recession) of 2007 to 2009 to 77.4 points in 2009, and again increasing to near its peak in 2011. The index shows the value of the exports in 2016 was 96.6, which is a little less than its value of 98.9 in 1981. These figures imply that despite an extensive fluctuation, the value of the global exports in 2015 remains roughly at the same 1981 level.
The world trade-in services has increased rapidly over the last several decades. The commercial services data indicate that between 2000 and 2016, the value of all commercial service exports increased from $1,491 billion to $4,807.69 billion, an increase of 222.4 percent. Furthermore, the value of imported commercial services worldwide rose from $1,463.8 billion to $4,694.09 billion during the same period (World Trade Organization 2013).2
Figure 1.1 Value index of exports
Source: World Trade Organization (2017).
Internationalization of Financial Markets
An important contributing factor to the rapid internationalization process over the last three decades is the removal of restrictions on capital flows across the national borders of many countries. With the removal of the restrictions on capital flows, the sum of the value of equity markets’ capitalization, corporate and public bonds, and loans globally has increased from 0.5 trillion dollars in 1980 to 11.9 trillion in 2007. Since then, however, the financial flows have plummeted to half of its peak value or 5.2 trillion dollars in 2014 (McKinsey Global Institute 2016).
International Transfers of Technology
International transfer of technology has increased through cross-border licensing agreements, cross-border M&As, joint ventures, foreign direct investment in wholly foreign-owned enterprises, and joint research and development (R&D) activities of multinational enterprises.
Internationalization of National Enterprises
An important aspect of internationalization of national enterprises, which began in the late 19th century and accelerated in the 20th century, is global operations of what Alfred Chandler, Jr. (1984) called integrated industrial enterprises. The first step in the development of integrated international enterprises was the formation of an administrative organization. Chandler best described the pattern of development of these industrial enterprises and creation of the administrative organization:
It was essential first to recruit a team to supervise the process of production, then to build a national and very often international sales network, and finally to set up a corporate office of middle and top managers to integrate and coordinate the two. Only then did the enterprise become multinational. Investment in production abroad followed, almost never preceded, the building of an overseas marketing network. (Chandler Jr. 1984, 491–492)
Multinational enterprises can fall into one of the two categories: multidomestic and global. The multidomestic enterprises operate on stand-alone, country-centered management strategy. The enterprise is present in many countries, but competes on a country-by-count...
