A firm that has developed a reputation for superior products in the domestic market may find acceptance from the foreign consumers as well. Hence, such firms foray into other countries to exploit the favorable market conditions of that country.
Government policies, regulations, tariffs and quotas play a great role in the merger and acquisition activity in a country and more significantly in cross-border deals. The exports of a country are particularly very vulnerable to the tariffs and quotas mainly implemented by the government with an intention to protect the domestic industry. The presence of such restrictions encourages international mergers, especially when the market which is protected is large. Restrictions on exports in a country can result in increased direct investment in countries to where the goods were supposed to be exported. Occasionally, the environment and other government regulations increase the cost and also the time required to build facilities abroad. This may lead to acquisitions of companies with already existing facilities.
Changes in the government policy can make acquisitions in various countries more or less attractive. For example, the deregulation policies followed by the Government of India have encouraged many foreign companies to acquire Indian firms in the recent years.