Double Trouble: Containing Public Disapproval Arising from Stigmatised Labels

Why Do Companies Engaging in Overseas Acquisitions Face Public Disapproval?

Companies are increasingly choosing to expand globally through mergers and acquisitions, but it might not always turn out well for some. When companies first enter a new market or country, they may face backlash from the host nation. Hence, these firms struggle to gain a foothold in the market.

As many multinational corporations (MNCs) such as Huawei and Gazprom have gradually faced stigmatisation in host nations, researchers were motivated to study how the interplay of stigmatised categories might trigger public disapproval and stigma response strategies. Therefore, Prof Lai Si Tsui-Auch (Nanyang Technological University) teamed up with Prof Dongdong Huang (Nankai University), Prof Jun Jie Yang (Xiamen University Malaysia) and Mr Si Zheng Koh (Monetary Authority of Singapore) to write the paper, ‘Double Trouble: Containing Public Disapproval Arising from an Interplay of Stigmatised Categories’.

“An MNC that faces high levels of public disapproval becomes less able to establish stable alliances and could even trigger regulatory threats. Thus, containing public disapproval is crucial for an organisation’s survival and success.”, remarked Prof Lai Si.

Stigmatised Categories: Political Ties vs Market Entry

The paper analyses how stigmatisation stems from two categories: (1) political ties to the home country’s government and (2) market entry into strategic industries in host nations. Political ties with a home country’s government might be seen as a discrediting trait, especially in host countries where governments do not dominate the economies. Additionally, market entry into a strategic industry can cause disputes with stakeholders in a host nation, as they fear that a prominent industry will fall into foreign hands. Therefore, both categories can result in suspicion, public scrutiny, and even boycotts of these acquiring companies.

The team conducted a comparative study of acquisitions made by four firms from China (from 2008 to 2016) in the United States (US) and Australia. Notably, their research shows that firms face different levels of disapproval amid differing interplays of the stigmatised categories and that each firm adopts a distinctive response strategy (Figure 1). 

Figure 1. Illustration of acquisitions across four firms from China

Public Disapproval and Stigma Response Strategies

One of the four firms, Yanzhou Coal Mining Co. Ltd. (YCM), was strongly associated with both stigmatised categories when it acquired Felix Resources in Australia. As the firm was perceived to belong to a group of state-owned enterprises, the acquisition caused negative sentiment among Australian stakeholders and politicians. In response to public disapproval and regulatory rejection, YCM attempted to accommodate local expectations by making substantive changes. For instance, the firm promised that at least two of the acquired entity’s board directors would be Australian residents, including the CEO and CFO. It also attempted to destigmatise itself by emphasising its positive contributions that fully value Felix for its shareholders and deliver significant employment and economic benefits for Australia.

Next, Dalian Wanda (Wanda) had a weak link to the market entry category but a strong link to the political ties category due to its early founder and investors’ connections with its home country’s government. Wanda’s acquisition of Legendary Entertainment in the US caused public criticism and scrutiny as members of the US Congress feared that Wanda might censor topics and exert propaganda controls on American media. As a result, Wanda’s founder attempted to normalise the stigma by admitting that the President’s family is a shareholder and acknowledging that the home-country government controls China’s economy. Nonetheless, he pledged to avoid politics and focus on the firm’s interests. Furthermore, Wanda claimed that it would not dictate the films shown in US theatres, and any content change would be due to US studios’ courtship of the growing Chinese movie market. The firm also tried to destigmatise by investing billions in the US and employing over 20,000 people.

On the other hand, BGI Group was strongly associated with the market entry category but weakly associated with the political ties category when it acquired the US firm Complete Genomics in the human genome sequencing industry. The acquisition triggered its key competitor, Illumina and several scientists, who feared it would threaten American competitiveness in DNA sequencing and national security. In response, BGI confronted Illumina, which happened to be the firm’s former supplier, about why it had never previously considered doing business with BGI as sensitive, hence accusing its competitor of hypocrisy and intentions to lessen the competition. Notably, BGI defended itself by making it public in a regulatory filing with the target firm and claimed that the employees owned it.

“Based on our study, we find that a firm’s organisational identity as a highly politically connected entity is more instrumental in triggering negative social evaluation than a firm’s market entry into a strategic industry in a host nation. Hence, we infer that who you are matters more than what you do.”, said Prof Lai Si when asked about the significance of the stigmatised categories.

Finally, the privately owned enterprise Luye Medical Group’s (Luye) acquisition of Australia’s Healthe Care had a weak association with both stigmatised categories. Luye’s attempted market entry was perceived as understandable, as it lacked adequate policy support and infrastructure in China. Despite concerns over cybersecurity and medical records theft, the local community welcomed the acquisition as the firm promised to improve Healthe Care’s finances and reputation. Therefore, it showed that the acquisition would lead to a win-win relationship for both firms, thus eliminating negative evaluations.

Implications for MNCs

The research holds several practical implications for politically connected MNCs that have entered foreign markets through mergers and acquisitions.

Firstly, strategic leaders must anticipate that their companies may face stigma in host nations and eventually regulatory disapproval or threats to their social licence to operate even after approval of the investments. Thus, they should confront the stigmatised categories that their firms are associated with. Secondly, managers should focus on and devote their resources to addressing the network ties category over the market entry category, recognising that the former has a more significant effect on social evaluation. Thirdly, the adoption of stigma response strategies is situational, depending on the level of public disapproval of the company.

“A state-owned multinational facing high public disapproval might need to accommodate local expectations by reducing its stake over an acquired firm and distance itself from its home country government to avoid stigma spillover. Essentially, leaders are expected to fulfil their professional responsibility to address concerns in host nation when enacting stigma responses as a way of gaining acceptance for their firm.”, said Prof Lai Si on the implications of her research.

Note: This research paper was published by the Journal of Management Studies (Wiley) in December 2022.

Dr. Lai Si Tsui-Auch is an Associate Professor at Nanyang Business School, Nanyang Technological University (NTU) of Singapore. Prior to joining NTU, she worked as a research scientist at the Technological University of Berlin and Wissenschaft Zentrum Berlin für Sozialforchung (WZB), Germany. She has served as a member of the Editorial Board of Organization Studies (UK/Europe), Management International Review, and The Qualitative Report (USA).

This research paper is a joint work with Prof Dongdong Huang (Nankai University), Prof Jun Jie Yang (Xiamen University Malaysia) and Mr Si Zheng Koh (Monetary Authority of Singapore).