Successes and Challenges of Emerging Economy Multinationals

Marin Marinov, S. Marinova

• Publisher: Palgrave Macmillan
• Year: 2013
• Print ISBN: 9781349474936, 9781137369406
• eBook ISBN: 9781137369413
• Topic: Business
• Subtopic: International Business
• Index: Business

Successes and Challenges of Emerging Economy Multinationals investigates a broad variety of cases presenting clear evidence of fast successful internationalization of emerging economy multinationals. This in-depth analysis leads to the indication of numerous novel directions for further theoretical expansion and new empirical research.

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Emerging Economy Multinationals: Successes and Challenges

Marin Alexandrov Marinov and Svetla Trifonova Marinova

Introduction

The presence of multinational firms is now a widespread phenomenon due to the processes involved in the initial internationalization and later globalization of their business operations and market servicing. The rise of multinationals from emerging economies has been continuously redefining the scene of international business. Historically, multinational firms originating from the developed part of the world have had entrenched, dominant and, in most cases, fully controlling positions in global business activities and market operations. Recent political and economic changes have resulted in a crisis in the world system (Wallerstein, 2004), and consequently the dominance of the economies and firms of the developed world has been undermined. Within a short time span, new firms – unknown latecomers to the global marketplace – have earned well-established positions in the world markets (Mathews, 2002; Child and Rodrigues, 2005), competing successfully with the dominant global players (Marinov and Marinova, 2012), even displacing them from their leading positions. Being resilient, fast learning and quick in adapting to change, the emerging economy multinationals (EEMs) have so far coped successfully when confronted by incumbent players due to the competitive advantages they have developed (Williamson et al., 2013) and the hardships faced by the incumbents due to the global economic slump (Marinov and Marinova, 2013).

Multinational firms appeared hundreds of years ago. Initially they were mostly commercial companies, having assets in more than one country and engaging in international trade. Only at the end of the 19th century did the first manufacturing multinational firms begin to appear. The economic interpretation of the development of multinational firms offered a multiplicity of notions, theories, frameworks and methodologies that became dominant over time (Collinson and Morgan, 2009). The extant doctrines explaining the internationalization of firms are challenged by the newness of the internationalization processes of firms from emerging economies that concerns the time dimensions of internationalization, the specifics of the contexts where internationalization takes place, the particularities of the environmental descriptors impacting internationalization among numerous other issues.

Emerging economy multinationals

Multinationals from emerging economies have recently started to attract significant attention of researchers worldwide. Numerous publications have appeared on this topic; nevertheless many areas still need further investigation and most theoretical explanations of the internationalization of EEMs need revisiting. Moreover, EEMs continue to set a plethora of new challenges to the extant mainstream theoretical foundation of international business. Latest research on EEMs has not only provided new interpretations of the reasons for their successes in conquering the global marketplace but has also posed many unanswered questions.

It can be argued that EEMs are very different from their established counterparts originating from the developed world. The key difference relating to the EEMs’ accelerated global expansion is the successful internationalization processes they engage in. Mathews (2006) suggests that the differences are perhaps due to the struggle EEMs put up in aiming to narrow the difference between their market grasp and the invincible presence of advanced economy multinationals. A group of undesirable characteristics of the EEMs incorporates many of their liabilities. These include, but are not limited to, liability of foreignness, combined with the negative perceptions of home countries (country-of-origin effect), a set of competitive disadvantages EEMs have to compensate for (Marinova, Child and Marinov, 2011) and being latecomers engaged in a quest for assets and capabilities that multinationals from advanced economies possess (Mathews, 2006; Aulakh, 2007). It should be pointed out that EEMs find it difficult to exploit their home-developed specific advantages, especially those that are country specific, when investing overseas because of their relative immobility. Nevertheless, EEMs seem better prepared than the multinationals from developed economies to operate successfully in environments characterized by uncertainties, weak institutions and political volatility because in a way they resemble their home-country environment (Cuervo-Cazurra and Genc, 2008).

In the process of internationalization EEMs have to improve and further develop their capabilities to be able to compete successfully in the global marketplace. This requirement becomes more pronounced when these firms penetrate the markets of advanced economies. In the process of their internationalization, EEMs are distinctly inclined to apply alliance formation as a mode of market entry, particularly mergers and acquisitions (M&As). This secures them external rather than internal growth at the very early stages of their internationalization and thus assists them in speeding up the upgrading of their competencies (Bonaglia, Goldstein and Mathews, 2007; Marinov and Marinova, 2013). Recent papers (see, e.g., Cuervo-Cazurra, 2012; Ramamurti, 2012, Alexandrou et al., 2013) provide evidence that foreign direct investment by EEMs aiming at acquisition of strategic assets takes the form of foreign takeovers of technologically innovative enterprises that have difficulty in performing successfully. Nonetheless, considering the global economic slump, it can be argued that developing a competitive advantage based on cost/price could be more sustainable and bring market success rather than the application of the notion of brand embeddedness in the advanced economies, especially what concerns mass consumer markets.

In the internationalization process of EEMs, so far the most attention has been devoted to multinationals from China (see, e.g., Voss, 2011; Alon, Fetscherin and Gugler, 2012), as they engage in substantial, successful, robust and contemporary internationalization processes. Even so, it should be noted that the successful internationalization of Brazilian (Fleury and Fleury, 2011), Russian (Panibratov, 2012) and Indian (Nayak, 2011) multinational firms has also been recognized. While the sources of competitiveness have been somewhat common for the multinationals from Brazil, Russia, India and China, many contextual specifics have accounted for substantial variations in their implementation. Taking the context of Brazil, Fleury and Fleury (2011) reveal the competences Brazilian multinationals possess that secure them success in the internationalization. They have divided the Brazilian multinational firms into groups that secure international market entry and international expansion. Signifying nine organizational competences, the authors arrange them in accordance with their significance for the Brazilian market, foreign market entry and expansion. It should be noted that the competences rank differently for a multinational firm of each of the three types of activity. In his book on Russian multinationals, Panibratov (2012) points out that there are numerous factors facilitating the international activities of Russian firms. Notable among these factors, depending on the industry sector, are the internationalization strategy of the firm, a broad range of activities from exporting via partnership formation to a wide range of acquisitions and greenfield investments, decisive government interference and brand power. Basing his book on asymmetries of a micro nature (in competences, information access, knowledge and networks) and macro nature (in political power and resources), Nayak (2011) conducts a comprehensive analysis of the dynamics of the explosive international growth of Indian multinational firms.

The institutional setting of the host country has a strong impact on the inflow of foreign direct investment (Bevan, Meyer and Estrin, 2004). It also defines foreign investors’ mode of entry and has a strong impact on their approach towards the organization of the overseas entity (Brouthers, 2002). Recent research relate to the means by which home country institutions, mostly the central government, enable the outward flow of foreign direct investment originating from emerging economies (Luo, Xue and Han, 2010; Marinova, Child and Marinov, 2012), as well as on the manner in which EEMs harmonize their long-term plans with the policy goals of the government to guarantee state backing in the process of outward foreign direct investment (OFDI) as stated by Ramasamy, Yeung and Laforet (2012)! In numerous emerging economies, the state is a crucial player with a decisive leading role in the economy as a whole, and in the firms in particular, making them more concurrent with the government’s priorities. State support similarly secures EEMs honoured access to assured inputs, privileged funding, huge financial backing and other numerous types of assistance (Peng, Wang and Jiang, 2008). In order to save insufficient technological, management, material and other resources, large EEMs possess a superior tendency to be part of differentiated business groups (Khanna and Yafeh, 2007). Moreover, the internationalizing state-owned and state-run EEMs function in the same way as, rather than having a different reasoning than, traditional multinational firms originating from the developed world.

The key motive of governments in their facilitation of the internationalization of EEMs is to enhance their country’s and firms’ international competitiveness. Besides, attempts to escape unfavourable conditions at home sometimes drive EEMs towards foreign expansion (Panibratov, 2012). Moreover, there is a new twist to research on host-country institutions as they apparently discriminate between different types of foreign investors both by country-of-origin and by ownership type. Due to this, numerous Chinese and Russian large state-owned firms put additional efforts to accomplish legitimacy in contexts where they are regarded as strongly deviating from the overriding ideological doctrine (Panibratov, 2012; Peng, 2012).

Main reasons for the success of EEMs

A brief overview of the reasons for the successful international expansion of EEMs brings attention to a number of issues. As noted earlier, EEMs engage in substantially faster international expansion than their counterparts originating from advanced economies. This enables them to quickly establish themselves in the global marketplace. Being fast learners in the international business arena and compensating swiftly for the disadvantages embedded in the country and firm level, EEMs have managed to cope really well in spite of the unfavourable conditions they face. In the leapfrogging stages, as identified in the sequential internationalization concept, EEMs readily engage in a dual expansion path comprising simultaneous entry into developed and emerging economies, each of which requires differentiated approaches for planning and implementation. In doing so EEMs emphasize on the external growth option mostly via acquisition of poorly performing developed-economy firms and taking over firms in other emerging economies. The greenfield investment option, securing organic growth, has been considered as the second best by EEMs. Their agility and organizational adaptability have been significant and on the rise.

Considering their novel approaches to internationalization, it can be argued that EEMs pose serious challenges to the extant internationalization theory. In addition to the liability of foreignness, EEMs have another liability referred to as the liability of ‘emergingness’, which can relate to deficiencies of an institutional or management nature, among others. This fact forces them to overcome their numerous liabilities by turning them into advantages.

Overview of the book

In Chapter 2 Miguel Matos Torres and Francisco Figueira de Lemos address the alignment of public policies and the needs of internationalizing firms. If appropriately implemented, this alignment may well have a crucial influence on the international competitiveness of these firms in defining the economic riches of their home countries. This area of investigation has been somewhat neglected, with just a few publications dealing with such issues. Analysing the top-down and bottom-up approaches, the authors claim that their application brings about the realization of diverse systems. The chapter offers a framework enabling the comprehension of the alignment between policies and needs of firms by pointing out the dissimilarities between top-down and bottom-up approaches. On the basis of data analysis, opportunities are identified for the generalization of the findings. The authors claim that if the public incentives and their outcomes tend to cause misalignments, they may well be indications for the need to query the ground rules of policy-making. The chapter sets the tone for a debate on the applicability of bottom-up approaches to policy-making, concentrating on the impacts of pro-internationalization policies on outward investments by EEMs.

Chapter 3 by Huu Le Nguyen and Jorma Larimo investigates the entry motives, psychological effects and post-acquisition strategies of EEMs in developed countries. Their research deals with the quandary that extant theories, grounded in the studies of multinational firms originating from the developed world, would be sufficient to explain the internationalization of EEMs. The chapter analyses the acquisitions and post-acquisition developments in the following case studies: Volvo (Sweden) by Geely (China), Inco (Canada) by Vale (Brazil), JLR (UK) by Tata Motors (India), Oregon Steel (US) by Ervaz (Russia), Swift (US) by JBS (Brazil) and Algoma Steel (Canada) by Essar (India). The case-study analysis presents clear evidence that all EEMs have been successful in turning the badly performing taken-over firms around to become efficient, effective and profitable. The aggregate outcome of this study is the development of a comprehensive framework facilitating the understanding of the relationships between the acquisition motives of EEMs, the role of the psychological effects, and the post-acquisition control and turnaround strategies in the taken-over firms. Thus, the acquisition deals and the post-acquisition developments realized by EEMs present evidence that they cannot be explained by extant internationalization theories, which affirm that multinationals with insufficient international experience will not perform major takeovers. An explanation of these phenomena is yet to be provided.

The post-acquisition case-study analysis presents evidence that the acquiring EEMs keenly grasp the challenge related to knowledge transfer from the acquired firms, engaging in managerial and cultural alterations that enable them to turn around successfully the acquired entities and enrich their international competitiveness in expanding via external growth.

Taking Huawei as a case study in Chapter 4, Ying Zhang critically analyses the catching-up by Chinese multinational firms that use network strategies. This chapter presents an ambitious research as studies on firms catching up are rare, and the relevant theory is extremely limited. Based on networks, social capital, corporate entrepreneurship and numerous other notions, the study makes a comprehensive contribution to the catching-up by Chinese firms, with the example of Huawei. Based on an extensive analysis of theories, notions and approaches, the chapter offers a conceptual framework for catching-up. On the basis of longitudinal observations, three stages of the catching-up of Huawei have been identified. This study reveals that networking is an integrative approach that supports catching-up firms by increasing social capital, recognizing and addressing resource gaps, and creating new growth opportunities. Additionally, it has examined the role of the network as a predictor, as well as the consequences for the firm from the catching-up process. It also reveals the fact that diverse interfirm relations with consulting firms, universities, technological firms and telecommunication operators provide catching-up firms with an enlarged network composition. Moreover, information diversity can be capitalized on by establishing strong network ties that provide relational and cognitive basis for a common understanding among various actors of the network. It has been evidenced that to achieve technical advancement, the intrafirm network has to co-work with the interfirm network. This chapter makes numerous contributions on the catching-up of firms from emerging economies. They relate to theorizing and framework provision. The chapter’s longitudinal case-study analysis has revisited and shed additional light on the controversial issue of the role of government versus markets in the catching-up processes by presenting evidence that the Chinese government’s advancement of a national innovation system has helped firms to acquire social capital through cooperation-based networks. This study also shows that network closure is a precondition for structural holes in the network. The chapter deals with the open innovation paradigm by providing new evidence from the perspective of EEMs.

In Chapter 5 Laura Rienda, Enrique Claver and Diego Quer conduct a comprehensive analysis of the OFDI from India, with a special focus on the Tata Group, one of the most prominent Indian conglomerates with extensive foreign operations, taking into account data for the period 2000–2010. Using a broad range of theoretical and empirical sources, the authors develop hypotheses relating to the choice of mode of entry of Indian firms depending on the cultural and geographic distances between India and the host countries, foreign market attractiveness and host-country political risks. The findings confirm that the choice of market entry did depend on cultural and geographic distances. It has been found that host market attractiveness, evaluated using GDP growth rates, has been negatively associated with ...

Table of contents

• Cover
• Title Page
• Copyright
• Contents
• List of Tables and Figures
• Notes on Editors
• Notes on Contributors
• 1. Emerging Economy Multwinationals: Successes and Challenges
• 2. Alignment of Top-Down Pro-Internationalization Policies of Outward Foreign Direct Investment
• 3. Entry Motives, Psychic Effects and Post-Acquisition Strategies of Emerging Economy Multinationals in Developed Countries
• 4. Catching-Up by Chinese Multinational Firms Using Network Strategies
• 5. Outward Foreign Direct Investment from India: Tata Group in the Period 2000–2010
• 6. Foreign Expansion of Russian Firms Based on Natural Resources and Technology
• 7. Early Rapidly Internationalizing Small Firms from South Africa
• 8. Internationalization of Polish Firms via Foreign Direct Investment: A Multiple-Case-Study Approach
• 9. The Rise of Emerging Economy Multinationals: Policy Responses of European Investment Promotion Agencies
• 10. What the Future Holds
• Index