Chinese foreign acquisitions aimed for strategic asset-creation and innovation upgrading: The case of Geely and Volvo Cars

The acquisition and integration of Western companies into Chinese business groups, the impact of host country region innovation dynamics, and the consequences for Chinese firms' innovation capabilities represent a void in the existing literature. This study applies an in-depth longitudinal case study of a cross-border M&A and links the strategic asset-augmentation literature and location theories to address the influence of target firm characteristics on the acquiring firm's innovation capabilities. Results show how the acquisition decision is influenced by post-acquisition accessibility to, and leverage of, firm-level capabilities, macro-level conditions, and the ability to draw advantages from host country regional innovation dynamics to leverage global innovation capabilities. The study extends the asset-augmentation literature to include the notion of strategic asset-creation as a motive for M&A and demonstrates the dynamics of strategic asset-creation in the automotive industry. This study makes three contributions. First, it provides a definition of strategic asset-creation in the automotive industry; Second, it provides a more comprehensive explanation of the importance of spatial dynamics in regional attractiveness in strategic asset-creation processes of emerging market MNCs (EMNCs); Third, it demonstrates how EMNCs harness, absorb, and create new strategic assets. •Study of a Chinese auto-maker's foreign M&A and its new innovation development.•Links spatial dynamics to the strategic asset-creation of emerging market MNCs.•Innovation capabilities and asset-creation augmented by the FDI location.•M&A can lead to a mutual development of new innovation capabilities.•Emerging market MNCs can overcome relative disadvantages via foreign acquisitions.