Mittelstand-off: Implications for target firms of Sino-German Mittelstand acquisitions

Abstract: Sino-German Mittelstand acquisitions of recent years have received significant attention from the German public, politics, and media. In addition to a perceived imbalance between Germany and China regarding the treatment of foreign acquisitions, the key concern is that these acquisitions could diminish Germany's competitiveness by resulting in layoffs, relocation of production facilities to China, and knowledge transfer. However, the implications for target firms have not been researched before in this specific context of light-touch integrations and only scarcely for other kinds of acquisitions. This study aims to identify and analyze the implications for target firms of Sino-German Mittelstand acquisitions and thereby both shed light on this phenomenon and contribute to the scarce literature on post-acquisition implications for acquired companies. For that purpose, we conducted an exploratory, qualitative study using an inductive research approach. We used three data sources: Interviews with 13 managers and three experts on the topic were conducted and several consulting reports were utilized. The collected responses were analyzed using a grounded theory approach. This study reveals three themes that are constructed by seven concrete implications for Mittelstand target firms. (1) Workforce implications: Decision-making power remains with the German top management and there have been little to no layoffs among either top management or employees. (2) Operations implications: Due to cultural differences and language barriers, firms have experienced efficiency losses. Besides, operations are affected by changes in the reporting system. (3) Resource implications: Some target firms experience new revenue generating opportunities, yet the target firms are mostly restricted in their access to capital. Further, the German brand as a corporate resource is untarnished by acquisitions. This study's substantive theory contributes to the nascent literature stream on the implications for target firms of recent Sino-German Mittelstand acquisitions and could form the basis of formal theory about implications for target firms of acquisitions made by emerging market multinational companies and firms in general.