| Summary: | As the world’s largest emerging market as well as one of the most promising markets, China has attracted increasing attention from foreign companies and has become the largest host destination of foreign direct investment among developing countries. The Chinese cosmetics and beauty industry can be a relatively new but fast-developing sector in recent years. In fact, China has become the fastest growing global beauty and personal care market in Asia and there has been an industry trend of large multinationals buying up domestic Chinese cosmetics brands. The objectives of this paper are then to investigate how foreign firms make the choice of FDI modes of cross-border M&As instead of the greenfield investments in the cosmetics and beauty industry in China and to find out the motives of conducting such M&A activities
The theoretical perspective used in this study is mainly based on the eclectic theory for internationalisation decisions and other relevant theories of M&A motives such as the synergy theory, market power theory, valuation theory and empire-building theory. Also, the study draws on knowledge of the specific characteristics of the greenfield investments and cross-border M&As to justify the FDI decision of multinationals in China. A qualitative approach is adopted in this dissertation. Specifically, the multiple-case study is utilized to address the research questions. Two multinational cosmetics corporations, L'Oreal and Johnson & Johnson, are selected as the main research objects.
The case study analysis sheds light on how the specific ownership advantages of L'Oreal and J&J shape the FDI choice of cross-border M&As rather than greenfield investments in China and the associated motives. The mutual dependence between the firms’ ownership advantages, their entry mode choices, motives and the location-tied characteristics of the Chinese cosmetics market was also highlighted. It is founded that the surge of M&As in the cosmetics and beauty industry in China is largely stimulated by the shortcut to acquire established brand equity, distribution channels, production plants, to achieve product line extension, quicker market presence, economics of scale, and to preempt rivals. Also, in the specific context of China, the policy adjustments of foreign direct investment by the Chinese government can be another contributing factor.
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