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Cross-border mergers and strategic alliances
Larry D. Qiu Ã
School of Economics and Finance, The University of Hong Kong, Pokfulam Road, Hong Kong

a r t i c l e in fo
Article history: Received 5 February 2008 Accepted 30 December 2009 JEL classification: F12 F23 Keywords: Cross-border strategic alliances Cross-border mergers Export FDI Distribution costs

abstract
This paper develops a model with distribution costs to study firm cooperation in forming strategic alliances and mergers, under different types of foreign market entry modes, that is, export or foreign direct investment (FDI). Under both export and FDI, we find that cross-border alliances (mergers) dominate domestic alliances (mergers); and cross-border alliances and mergers are preferred to independence if and only if distribution cost is high. Under export, cross-border alliances are chosen in equilibrium if distribution cost is high. Under FDI and with high distribution cost, cross-border alliances (mergers) are chosen in equilibrium if plant setup cost is low (high). & 2010 Elsevier B.V. All rights reserved.

1. Introduction In the past two decades we have witnessed the acceleration of globalization. Globalization takes various forms as it penetrates countries. Beyond the traditional forms, namely export and green-field foreign direct investment (FDI), it has become common nowadays for multinationals to use cross-border mergers and acquisitions (M&As) or to form crossborder strategic alliances in order to extend their businesses internationally (OECD, 2001). The value of cross-border M&As grew from USD 153 billion in 1990 to USD 1 trillion in 2000, while the number of new cross-border strategic alliances increased from around 830 in 1989 to 4520 in 1999.1 The Daimler–Chrysler merger, the Ford-Mazda alliance, and