Business mergers have gone global in recent years, and by 1999 cross-border mergers and acquisitions (M&As) had become the largest component of foreign direct investment flows worldwide.
Cross-border M&As were valued at 92% of total FDI in 1999, compared with less than 60% in 1995. Such mergers grew rapidly in the 1990s, from US$153 billion in 1990 to almost US$1 trillion in 2000, and played an important role in the globalisation and restructuring of industry, with an increasing tendency towards very large-scale deals.
One reason for the rise in cross-border M&A activity is that firms are buying and selling assets and operations in other countries, rather than investing in building new plants in these markets. The advantage of buying in rather than building is that it allows firms quick entry into a market by establishing an immediate critical mass of production facilities and intangible assets in a particular industry.
A number of factors have helped drive this acceleration in global activity, including liberalisation of trade and capital movement, rapid technological change and advance in information technology. Privatisation and regulatory reform in service and utility sectors such as finance, telecommunications and electricity have also played an important role.
• New Patterns of Industrial Globalisation: Cross-border Mergers and Acquisitions and Strategic Alliances, OECD, 2001.
©OECD Observer No 228, September 2001