This paper will briefly analyze Hydros acquisition of Vale in Brazil by using relevant theory. First, the OLI-paradigm will show why they chose a FDI, then we will focus on the type of strategy they follow, and lastly, why they chose an acquisition.

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This paper will briefly analyze Hydro’s acquisition of Vale in Brazil by using relevant theory. First, the OLI-paradigm will show why they chose a FDI, then we will focus on the type of strategy they follow, and lastly, why they chose an acquisition.

Hydro’s acquisition of Vale was a strategic move in order to gain access to primary resources. The acquisition gave Hydro access to alumina and bauxite from the world’s second-largest mining company. The deal had a mutual outcome; Hydro received majority shares in Vale’s bauxite extraction, alumina refining, and aluminum production, as well as a workforce of 3600 employees, whilst Vale received a cash payment of 6 billion and a 22% ownership stake in Hydro (Hydro website).

The eclectic OLI-framework by John Dunning (1977) provides a framework for understanding MNE’s decisions on FDI’s. The decision on extracting and producing bauxite and alumina abroad implies that Hydro had ownership, locational and internalization advantages by acquiring Vale in Brazil. The ability to achieve lower costs by using transferable assets without reducing their effectiveness, like technological know-how, leads to firm-specific advantages. Location-advantages, such as low-cost factors in Brazil, are essential, whilst internalization advantages implies a cost-benefit analysis of different entry-methods by trading off savings in transactions, hold-up and monitoring costs of a wholly-owned subsidiary, compared to other methods. Thus Hydro found acquisition most appropriate when pursuing a vertical FDI, a resource-seeking investment (Reinert et. al 2009).

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Hydro pursues a global strategy, with a high level of globalization and focus on national markets with economies of scale (Harzing 2002:212). Ghemawat (2007) highlights the importance of managing large differences that arises when pursuing a global strategy. By using the proposed AAA-triangle, a firm has three different approaches to a global strategy: aggregation, adaption and arbitrage. The Hydro-vale acquisition can be characterized by both aggregation and arbitrage. By aggregation, a firm is seeking to achieve economies of scale by creating global or regional operations (Ghemawat 2007:3). In this case, Hydro acquired Vale in order to gain access to primary ...

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