Foreign Direct Investment Through Acquisitions and Implications for Technological Upgrading: Case Evidence from Tanzania

Abstract

Using a case-study approach, this study examines the role of privatisation on the industrial landscape of Tanzania. We examine the impact of FDI through acquisitions on technology transfer within the acquired firm as well as the development of linkages to other firms based in the host country. Our results suggest that technological upgrading has occurred following FDI, the intensity of which reflects the type of firm-specific assets of parent MNE, as well as the pre-acquisition state of these industrial activities. Improved backward linkages are also evident with local economic agents, but their type and extent -reflecting Tanzania's comparative advantage in the primary sector -confirm that capabilities both within the acquired firms and also in the industrial base of the host country greatly influence the magnitude and intensity of technological upgrading. 'Narrower' technology gaps between the MNE affiliate and the domestic sector are more likely to result in backward linkages and determine the type of technological content of inputs sourced locally rather than within the MNE.

Foreign Direct Investment and its Role in Economic Development: Do We Need a New Agenda?

“…As Portelli and Narula [2004 ] have shown in the case of Tanzania, FDI in activities that match the comparative advantage of the host country provides greater linkages. Wider technology gaps between domestic and foreign-owned activities tend to lead to fewer backward linkages and to lower technological content in the inputs sourced locally.…”

Mergers and Acquisitions in Africa: A Review and an Emerging Research Agenda

“…Akinbuli & Kelilume 2013;Samet 2010). Moreover, as articulated in the study of two M&As in the Tanzanian agro-food manufacturing sector, acquirers suspect that targets lack absorptive capacity (Portelli & Narula 2006), which may deter firms from engaging in M&As within the region for the primary purpose of technology transfer. Motivations also differ for domestic and cross-border deals in Africa.…”

“…In fact, Africa's share of global M&A activity has doubled since 1999 with almost $35 billion in announced deals in 2014 (Portelli & Narula 2006;Thomson Reuters 2014). This upward M&A trajectory on the African continent is expected to continue throughout the decade (Mergermarket 2012;Clifford Chance 2015).…”

Does FDI Cause Development? The Ambiguity of the Evidence and Why it Matters

“…On the other hand, the contrary result -that of crowding-out -where domestic firms are displaced, out-competed or pre-empted by foreign-owned MNEs -is an outcome that countries seek to avoid. However, where there is a mismatch between the technological capabilities of the host location (and those of its firms) and the MNE, FDI may not prove to have limited development effects Marin 2004, Portelli andNarula, 2006). Therefore, even if intra-firm knowledge transfer occurs, there is no guarantee that the domestic economy in which the affiliate is located will benefit as a result.…”