Transnational competition refers to competition between companies or organisations that operate across national borders. In the context of business and economics, it involves companies engaging in economic activities and competing with each other on a global scale rather than being confined to a single country. This type of competition has become more prevalent with the increasing globalisation of the economy.
In transnational competition, companies face challenges and opportunities on a global level, including dealing with different market conditions, regulatory environments, cultural factors, and diverse consumer preferences. Multinational corporations often engage in transnational competition as they operate in multiple countries and strive to gain a competitive advantage in each market.
Technological advancements, trade liberalisation, and improved transportation and communication have facilitated transnational competition, allowing companies to expand their reach and compete with rivals from various parts of the world. This competition has significant implications for industries, economies, and the global marketplace.
For example, a typical Porshe model has pieces and components from more than 80 countries. The same goes for most of the things we use daily. So, countries are fighting against each other for bringing in the production of pieces or components of a product, which will be assembled elsewhere and stamped as e.g. German or American.
Here at MAWW, we have witnessed firsthand how globalisation is reshaping the landscape of transnational competition and driving a surge in cross-border mergers and acquisitions (M&A). The increasing interconnectedness of the global economy has opened up new opportunities for companies to optimise their supply chains, access new markets, and acquire critical technologies. This dynamic environment compels businesses to look beyond their domestic borders in search of more effective providers, innovative partners, and strategic investments.
In today’s highly competitive market, the pressure to remain ahead of the curve is relentless. Companies are no longer competing within their own borders; they are vying for dominance on a global scale. This shift necessitates a strategic approach to growth, often through M&A, to achieve the necessary scale, scope, and synergy. By acquiring an equity stake in overseas companies, businesses can gain direct control over production processes, secure vital know-how, and enhance their competitive edge.
Consider the case of Tata Motors’ acquisition of Jaguar Land Rover in 2008. This $2.3 billion deal allowed Tata Motors to expand its footprint into the luxury car market, acquire advanced automotive technology, and leverage the strong brand presence of Jaguar and Land Rover in Western markets. This strategic move exemplifies how cross-border M&A can serve as a catalyst for growth and innovation.
According to a report by PwC, cross-border M&A activity accounted for approximately 40% of total global M&A deal value in 2022, highlighting the significance of these transactions in the modern business environment. The same report notes that the technology, media, and telecommunications (TMT) sectors have been particularly active, with companies seeking to acquire cutting-edge technologies and digital capabilities. For instance, in 2020, NVIDIA’s $40 billion acquisition of ARM Holdings, a UK-based semiconductor firm, underscored the strategic importance of securing technological assets to maintain a competitive edge in the rapidly evolving tech industry. These examples are not mid-cap related but represent how geo-economic factors drive the business flow in specific directions.
Cross-border M&A offers a pathway to immediate expansion into new regions, allowing companies to quickly establish a foothold in unfamiliar territories. This is particularly advantageous in industries where speed to market is crucial. Moreover, acquiring local firms provides invaluable insights into regional consumer preferences, regulatory landscapes, and business practices, facilitating smoother integration and operation.The role of technology cannot be overstated in this context. The digital revolution has not only accelerated globalisation but also transformed the M&A process itself. Advanced data analytics, AI, and machine learning are now integral to identifying potential targets, conducting due diligence, and executing transactions with greater precision and efficiency.
Furthermore, the rise of emerging markets has amplified the appeal of cross-border M&A. For example, emerging markets accounted for 29% of global M&A activity in 2021. Countries in Asia, Latin America, and Africa present vast untapped potential, attracting investment from companies seeking to diversify their portfolios and mitigate risks associated with over-reliance on developed markets. These regions offer a blend of growth opportunities, lower production costs, and a burgeoning middle class eager for new products and services.
For example, the acquisition of Brazil’s Havaianas sandal brand by the American investment firm J&F Investments highlights how cross-border M&A can capitalize on regional strengths and consumer demand. The deal enabled J&F Investments to leverage Havaianas’ strong brand recognition and expand its market presence globally.
However, navigating the complexities of cross-border M&A requires expertise and a nuanced understanding of both local and global dynamics. Regulatory challenges, cultural differences, and political risks must be meticulously managed to ensure successful integration and value creation.
In conclusion, the interplay between globalization and M&A is a driving force behind the evolution of transnational competition. As companies strive to stay competitive, cross-border M&A will continue to be a critical strategy for achieving growth, innovation, and sustainability in an increasingly interconnected world. Our role as advisors is to guide businesses through this intricate process, helping them to harness the full potential of global opportunities and thrive in the dynamic landscape of international business.