Governments in developed countries (e.g. Britain and Japan) started privatizing SOEs in the early 1980s. by the late 1980s, it had become apparent that a privatization revolution would sweep the world (Young, 1987). While the bulk of privatizations during the past decade occurred in developed countries, in recent years the emphasis has shifted to developing countries (The Economist, 1993). In these countries, capital markets can hardly absorb the large amounts of privatized equity, and governments are offering to sell SOEs to western multinationals as strategic owners (The Economist, 1993. Ramamurti, 1992). In addition, these countries look to western multinational enterprises for managerial and technical know-how. This trend creates possibilities for growth and entry into countries whose economies are currently expanding faster than most developed economies. While privatization in the 1980s created opportunities for portfolio investments, the 1990s also promise the control of privatized firms through mergers and acquisitions (Freudenberg and Bird, 1991. Nankani, 1990. Ramamurti, 1992). For these reasons, privatization is considered here to be an international management concern.
Empirical research and theory on direct investment into former SOEs, unfortunately, is scant. Economists generally agree that reducing government ownership of companies improves the macro-performance of an economy, and they also expect that a competitive environment and market discipline should increase the efficiency of the privatized firm (Donahue, 1989. Hutchinson, 1991. Ramamurti, 1992. Vickers and Yarrow, 1988). Empirical research on this latter point, however, has yielded conflicting results (Cook and Kirkpatrick, 1988. Hutchinson, 1991. Parker and Hartley, 1991). Strategic management research considering the performance of the SOE after it is acquired by a private firm is missing entirely. No mergers and acquisitions work has yet considered the purchase of SOEs, nor have researchers examined the conceptual relationship between traditional mergers and the acquisition of an enterprise from the government.
On the one hand, the public/private shift inherent in privatization might imply that acquisition processes work differently for privately and publicly owned firms. The strategy, structure, and culture of the public organization can be expected to differ significantly from those of private firms because of the often special missions of SOEs and distinct environments in which they may be operating (Aharoni, 1986). Since post-acquisition integration processes are determined by the historic conditions of the merging firms (Nahavandi and Malekzadeh, 1988. Shrivastava, 1986), these differences may crucially influence the success of a merger between a private firm and a newly privatized SOE. The pre-acquisition conditions of the target also influence performance (Datta et al., 1992), and thus the distinctive contingencies of the SOE can be expected to affect post-acquisition performance as well. Furthermore, the objectives of a government selling an SOE are as much political — that is, catering to specific stakeholder groups, for instance, current employees of the SOE — as economic, a fact that should significantly affect the negotiations and may also determine the post-privatization performance of the former SOE. . .