21.1 C HAPTER 21. MERGERS AND ACQUISITIONS OF ENGINEERING COMPANIES : I MPLICATIONS FOR I NNOVATION (DRAFT VERSION FOR DISCUSSION ; TO BE COMPLETED BY J ULY 2000) By: Pedro Oliveira 1,2 , Aleda V. Roth 1 and Manuel V. Heitor 2 1. The Kenan -Flagler Business School The University of North Carolina at Chapel Hill CB 3490, McColl Building Chapel Hill, NC 27599 USA 2. Center for Innovation, Technology and Policy Research, IN+ Instituto Superior Tecnico, Technical University of Lisbon, PT 21.1 Introduction and research questions More companies than ever before are turning to M&As 1 as a way to fuel growth, and the pace of M&A is not expected to abate any time soon. For many companies M&As represent the fastest possible route to growth. Some acquiring companies seek to grow quickly by flowing more of the same products through a new sales channel. For other companies, formally aligning oneself with another company makes it possible to enter new markets unavailable before, such as many U.S.- and European-based automobile manufacturers have done in China and other Asian countries heretofore closed to foreign car makers. For some other companies M&As represent an opportunity to achieve economies of scale and pare operating costs, or to increase their capabilities, innovative capability and jump- start growth. M&As facilitate the acquisition and transfer of new knowledge, technologies or systems that are critical for competitive advantage. Many technology leaders routinely snap up smaller companies solely for the promise a new invention may have for the future. The critical nature of time-to-market makes the purchase of companies whose technology is coveted more attractive than actually developing the technology in-house. In fact, the main driver of M&As is the need to acquire complementary intangible assets such as technology, knowledge, human resources, brand names, etc (Kang and Johansson 2000). This papers reviews recent trends in Mergers and Acquisitions (M&As), in particular cross-border M&As (i.e. those taking place between firms of different national origins), which grew six-fold in 1991-98, and account for more than 85% of foreign direct investment. In this context the following research questions are discussed: • What motivates the accelerated pace of M&As activity? • How far are M&As dependent of country specific structural effects? • To what extent can M&As be influenced by policy frameworks? • What are the implications for late industrialized and developing countries? • What is the impact of M&As for the economic development of small and open economies, such as Portugal? Following this introduction, section 0 discusses the economic impact of M&As. In sub-section we overview the existing theoretical and empirical literature on the causes of M&As. Sub-section 2.2 presents a discussion of M&As 1 A M&A occurs when an operating enterprise acquires control over the whole or a part of the business of another enterprise (Kang and Johansson 2000).