Cross-border Acquisitions and Host Country Determinants: Evidence from Indian Pharmaceutical Companies

This study seeks to examine the locational determinants of outward foreign direct investment (OFDI) of Indian pharmaceutical companies (IPCs); best known for their technological leapfrogging and widely acclaimed as one of the most successful representations of emerging market multinationals. Research on the specific ownership advantages of Indian multi-national enterprises (MNEs) and their internationalization strategies is catching up and there still exists a knowledge gap concerning the choice of investment destination and motivations behind their acquisitions. This study tries to address this gap by attempting to build a locational choice model which best explains the spatial distribution of Indian pharmaceutical acquisitions. Based on theoretical insights, 13 important variables measuring the host country characteristics such as economic, political, institutional and cultural environment of 33 countries for the period 2000–2012 have been considered. Panel regression has been employed to empirically analyze the host country-specific determinants. Our results highlight the importance of strategic assets of the host countries as the key determinants for the Indian pharmaceutical firms who appear to be targeting the developed countries through the inorganic route to overcome their inadequate product development capabilities. The presence of a conducive economic environment, a common language and openness of the host countries also seem to impact the choice of location. Interestingly, geographical distance, group affiliations and institutional variable corruption had no impact on the locational choice of the host country. The findings of the study may be extended to other studies on the internationalization strategies of firms arising from other emerging economies.