Experiences of Emerging Economy Firms

Marin Marinov

• Publisher: Palgrave Macmillan
• Year: 2015
• Print ISBN:
  9781137472274
• eBook ISBN:
  9781137472281
• Topic: Business
• Subtopic: Business Strategy
• Index: Business

Experiences of Emerging Economy Firms investigates the different elements of the experiences of emerging economy firms and sheds essential light on a large variety of aspects associated with their functioning in both home and host contexts.

1

The Upsurge of Firms from Emerging Economies

Marin Marinov

Firms from emerging economies have progressively been obtaining more prominent places in the global business arena. Their rising significance is due to the continuing upsurge of their domestic and international activities.

A review of existent publications on emerging economy firms clearly identifies that there is a gap in the knowledge about the experiences of how they develop their domestic and foreign operations, obtain legitimacy, and prosper or survive in their business environments taking into account the fact that they are latecomers to the international marketplace (Mathews, 2006; Sun, 2009). The lack of knowledge of this phenomenon is even more ostensible in the case of less significant and less developed emerging economies, such as the ones in Africa, as well as firms small in size and with limited resource capabilities.

Numerous overwhelming liabilities, such as that concerning foreignness, newness, country of origin, emergingness (Madhok, 2009) and outsidership (Johanson and Vahlne, 2009), are of crucial importance for emerging economy firms. They require further investigation on their internationalization, taking into account the disadvantageous starting positions of internationalization activities. It is essential to devote more attention to the internationalization of firms from emerging economies, in particular the less developed ones, as well as firms small in size and with limited expertise.

The diversity of countries of origin and the variability of firm sizes, capabilities and resources account for various approaches to emerging economy firms’ internationalization. Thus, larger emerging economy firms originating from big emerging economies undertake significant foreign operations via, for example, acquisition of poorly performing firms in advanced economies motivated by technology, brand- and market-seeking drivers, and in numerous cases successfully turn around the acquired firms (Nguyen and Larimo, 2014), whereas the small firms from less advanced emerging economies, as the ones in Africa, often limit their foreign activities to exporting.

When internationalizing in the context of other emerging economies, emerging economy firms are motivated by predominately resource-seeking motives, for example, the internationalization of mostly Chinese firms in African countries, or they may combine the resource-seeking motives with market-seeking ones, as is the case of Chinese, Indian and Russian firms in Latin America.

Katrin Held and Nicola Berg, authors of Chapter 2, claim that emerging economy multinational firms of developed countries are more significantly affected by country-of-origin disadvantages than foreign multinational firms originating from advanced economies. They appear to be faced by the stigma of being from emerging economies, resulting in a higher discrimination against them by host-country stakeholders. Even though emerging economy multinational firms suffer from supplementary country-of-origin disadvantages, extant research fails to fully acknowledge this fact, which is known as “liability of emergingness”. The chapter is based on institutional theory, analyzing institution-related and resource-related antecedents which have an impact on various forms of direct and indirect discrimination by host-country stakeholders. The authors suggest a framework that analyzes the differences between emerging economy multinational firms and multinational firms that originate from advanced economies in terms of the liabilities they have identified while determining the specifics of liability of emergingness.

The authors of Chapter 3, Tiia Vissak and Xiaotian Zhang, point out that studies on nonlinear internationalizing firms are based on a limited number of cases. Thus, it cannot be expected that all other firms would behave similarly. As firms’ strategies tend to differ in dissimilar business contexts, scholars have to take these differences into account. The chapter contributes to the literature on nonlinear internationalization by analyzing the entry, exit and re-entry patterns of Chinese multinational firms. It is based on survey data from 278 Chinese multinational firms and distinguishes between three types of nonlinear internationalizing firms, namely (1) firms that completely exited at least one foreign country without re-entering any foreign country, (2) firms that exited at least one foreign country partially but did not exit any completely and also did not re-enter any foreign country, and (3) firms that re-entered at least one foreign country after complete or partial exit from a foreign country.

In Chapter 4, Chang Liu, Zijie Li, Yi Li and Yuting Liang investigate the post-entry ownership decisions made by multinational firms when they enter emerging economies. Based on institutional perspectives, the authors propose a framework for decision-making by multinational firms concerning post-entry ownership and discuss determinants of the decisions. They argue that local government’s influence on foreign firms is positively related to the conversion of international joint ventures (IJVs) to wholly owned subsidiaries. This relationship is moderated by the contribution of local parents to legitimacy and cultural distance between home and host countries. The authors test their hypotheses using a sample of 977 Sino-foreign IJVs over a three-year period (2006–2008) using Cox hazard models. Most of their hypotheses were supported by empirical results.

In Chapter 5, Connie Zheng reviews the extent to which China has developed its international business activities in Africa in recent years. The economic, social and political implications from a macro-perspective are presented, discussed and analyzed. Several international managerial challenges for Chinese multinational firms operating in Africa are outlined. The emphasis is on the impact that Chinese multinational firms have on the way business is conducted in the African continent and how effectively they manage the workforce; this study is carried out by applying a new approach of cross-cultural management which blends the concepts of Confucianism and Ubuntu.

The key objective of Chapter 6 by Roli Nigam and Zhan Su is to focus on the cultural adaptation of Indian multinationals in the developed context of North America. A general review of the literature shows that although multinationals from emerging economies are climbing up the global ladder rapidly, there is still a serious lack of studies on the subject, especially empirical studies. The chapter contributes to filling in the gap by considering existing literature through a case study of three Indian multinational firms and their six subsidiaries. The results indicate that Indian multinational firms make use of a mixed strategy to attain successful cultural adaptation. The chapter discusses the analyzed phenomenon and advances the understanding of the deployment of adaptation strategies by multinationals from emerging countries in general and India in particular.

In Chapter 7, Mário Henrique Ogasavara and Gilmar Masiero deal with the internationalization of Brazilian multinational firms as it has received considerable attention to date. Their study attempts to review recent research on the internationalization of Brazilian multinational firms based on an extensive analysis of 174 recent articles published in international and Brazilian academic journals, books and conference proceedings. It seeks to provide a typology of the leading researchers and their school affiliations and a characterization of the predominately theoretical and methodological approaches employed in these studies, as well as to undertake a citation analysis to identify the most-cited scholars, research topics and outputs. The citation analysis of a total of 6,025 references reveals that there is a higher quantity of citations referring to foreign-origin articles published in international journals and translated books. The authors conclude the chapter by providing a set of recommendations to advance the research on the internationalization of Brazilian multinational firms.

Cristina Lelis Leal Calegario, Nádia Campos Pereira Bruhm and Juciara Nunes de Alcântara, authors of Chapter 8, have the main purpose of their study defined as an assessment of the effects of foreign multinational firms on the innovative capacity of small and micro-enterprises in the same industry and as the verification of the determinants of the absorptive capacity that causes spillover effects to originate from large foreign multinational firms. The initial population was composed of 270 small and micro-enterprises, and the research sample was collected from approximately 12 percent of the population. The results indicate that the larger the engagement of small and micro-enterprises with multinational corporations, the higher the probability of innovation. The results showed that the presence of multinational firms had either positive or no spillover effects on small and micro-enterprises located in the State of Minas Gerais, Brazil, where the study was conducted. The results are useful for academics and policymakers, especially concerning the decision-making processes of state and municipal officials regarding the licensing of foreign investment entry and approval of their location.

In Chapter 9, Brian Li, Maya Kumar and Mary Ann Von Glinow compare the application of the Uppsala Internationalization Model and the Eclectic Paradigm to the internationalization activities of a firm originating from an emerging economy. These theories were developed using data from firms originating in developed countries. The chapter examines the applicability of the models to the internationalization of firms from less industrially developed countries, such as Hong Kong, as it was in the 1990s. Emerging economy firms in the 1990s lacked resources, management talent and experience. These firms were faced with different resource constraints than the firms that were used to develop the two classic theories of firm globalization noted above. The case study of Chapter 9 analyzes the situation of a Hong Kong electronics firm, Gold Peak Electronics Limited (GPE), globalizing from the late 1980s till 2013. While the Eclectic Paradigm and Uppsala Internationalization Model can help in understanding GPE’s globalization, the authors uncovered numerous issues not addressed by these theories. Based on the study findings, this chapter proposes a revised model for foreign market entry and development by emerging economy firms.

In Chapter 10, Deusdedit Rwehumbiza, Md. Noor Un Nabi and Utz Dornberger point out that contrary to numerous existing studies which have documented bottlenecks to international operations of firms originating from Africa, their research investigated key drivers of African firms’ endeavors. A surveyed sample of 105 clothing manufacturing enterprises from Tanzania and Kenya was used to analyze the influence of institutional support on firms’ specific capabilities toward international market diversification in terms of export intensity and geographic diversity. While the results for Kenya indicate a strong link between institutional support and firms’ specific capabilities toward geographic diversity of foreign markets, such a link is highly indistinct in the case of Tanzania. In the case of Kenya, the research findings underpin the applicability of the institution-based view and Dunning’s eclectic theory. In the cases of both countries, geographic diversity of clothing manufacturers is not significantly influenced by institutional support. At the macro-level, research findings challenge the case countries to enhance institutional and regulatory frameworks in favor of all economic sectors having growth potential for overseas markets.

References

Johanson, J. and Vahlne, J.-E. (2009). The Uppsala internationalization process model revisited: From liability of foreignness to liability of outsidership. Journal of International Business Studies, 40: 1411–1431.

Madhok, A. (2009). Overcoming the liability of emergingness through internationalization by acquisition: Learning and competitive catch-up by emerging multinationals. Unpublished Working Paper. York University.

Mathews, J. A. (2006). Dragon multinationals: New players in 21st century globalization. Asia Pacific Journal of Management, 23: 5–27.

Nguyen, H. L. and Larimo, J. (2014). Entry motives, psychic effects and post-acquisition strategies of emerging economy multinationals in developed countries. In M. A. Marinov and S. T. Marinova (eds.), Successes and Challenges of Emerging Economy Multinationals. Basingstoke: Palgrave Macmillan.

Sun, S. L. (2009). Internationalization strategy of MNEs from emerging economies: The case of Huawei. Multinational Business Review, 17(2): 129–155.

2

Liability of Emergingness of Emerging Market Multinationals in Developed Markets: A Conceptual Approach

Katrin Held and Nicola Berg

Introduction

In foreign markets, multinational enterprises (MNEs) need to manage in host countries applying the given rules of the game (North, 1990). While some foreign companies successfully manage a new institutional environment, others are not able to gain legitimacy and have difficulties in overcoming their liability of foreignness (LOF). LOF can arise from different sources, such as geographic distance between home and host countries, the foreign company’s unfamiliarity with the host-country specifics or unfavorable treatments of host-country nationals (Hymer, 1976; Zaheer, 1995). It weakens a company’s competitive advantage in foreign markets and consequently needs to be mitigated (Luo and Mezias, 2002; Luo, Shenkar and Nyaw, 2002; Suchman, 1995).

Although the concept of LOF is well established in international business literature (Hennart, Roehl and Zeng, 2002; Mezias, 2002; Newburry, Gardberg and Belkin, 2006), it mainly concentrates on the internationalization of companies from developed markets (Brannen, 2004; Goodall and Roberts, 2003). Despite its relevance, the concept of LOF is scarcely investigated in the context of emerging market multinationals (EMNEs) and their internationalization in developed markets (Denk, Kaufmann and Roesch, 2012). This is disadvantageous since EMNEs have started expanding extensively in the context of developed economies and correspondingly have been receiving growing attention in the field of international management (Sauvant, Maschek and McAllister, 2009). Developed markets are attractive locations for EMNEs and offer stable environments, protective legal systems and established infrastructures. With a successful market entry, EMNEs have the chance to ensure a stable foothold for future profits and may become less dependent on the institutional voids in their home country (Rui and Yip, 2008). At the same time, EMNEs have to face crucial obstacles in developed markets. They not only have to compete with well-established local companies but also have to contest with foreign developed market multinationals (DMNEs). These DMNEs seem to be in advantageous positions in other developed economies vis-à-vis EMNEs due to similar institutional environments as in their home countries, sophisticated firm capabilities and sophisticated international experience. Comparatively, EMNEs are latecomers in the global marketplace, usually have closer ties with their home-country government and primarily enter developed markets to gain managerial and technological capabilities that their foreign DMNE counterparts already possess (Child and Rodrigues, 2005; Goldstein, 2009; Miller, Thomas, Eden and Hitt, 2009). It is questionable whether EMNEs and foreign DMNEs are perceived equally by host-country stakeholders. In particular, EMNEs seem to be more affected by country-of-origin disadvantages than their foreign DMNE counterparts (Barnard, 2010; Chang, Mellahi and Wilkinson, 2009). It can be argued that Western stakeholders associate EMNEs negatively with home-country characteristics, such as a poorer home-country economy, underdeveloped infrastructure and inadequate legal rights (Chang et al., 2009). Following this argumentation, Madhok and Keyhani (2012) define firm disadvantages resulting from its home country as “liability of emergingness”. They state that EMNEs face additional disadvantages abroad simply because they are from emerging markets (Madhok and Keyhani, 2012). In other words, EMNEs do not only suffer from the “stigma of being foreign” (Hymer, 1976: 35) but also face the stigma of being from emerging markets. The liability of emergingness describes EMNEs’ higher risks of being stereotyped and discriminated against by host-country stakeholders relative to foreign DMNEs. Thus, it is crucial to understand to what extent stakeholders, such as prospective applicants, consumers, suppliers and the host-country government, might take differentiated stances when dealing with EMNEs and DMNEs based on country-of-origin associations.

Despite the agreement that EMNEs suffer from a liability of emergingess in developed markets, current research fails to categorize and measure these competitive disadvantages of EMNEs when compared to DMNEs (Barnard, 2010; Chang et al., 2009; Madhok and Keyhani, 2012). As the liability of emergingness is not clearly defined, it cannot be considered in the internationalization strategies and decision-making of EMNEs. Consequently, this chapter seeks to contribute to the determination of the liability of emergingness by identifying potential differences of host-country stakeholders’ perception of EMNEs and DMNEs via the application of institutional theory and subsequently develop eight propositions that consider the impact of different institutional- and resource-related antecedents on various forms of direct and indirect discrimination.

The chapter attempts to contribute to LOF literature...

Table of contents

• Cover
• Title Page
• Copyright
• Contents
• List of Figures and Tables
• Notes on Contributors
• 1. The Upsurge of Firms from Emerging Economies
• 2. Liability of Emergingness of Emerging Market Multinationals in Developed Markets: A Conceptual Approach
• 3. Chinese Multinationals’ Entry, Exit and Re-Entry Patterns: Survey Evidence
• 4. Institutional Environment and Multinational Enterprises’ Post-Entry Choice: An Institutional Perspective
• 5. Transferring “Yellow River Capitalism” to Africa and Its Implications
• 6. Indian Multinationals in Developed Countries: A Case Study on Cultural Strategies
• 7. Reviewing Research of Internationalization of Brazilian Multinational Enterprises: An Analysis of the Period 2001–2012
• 8. Multinational Corporations and Spillover Effects: A Study of the Effects of Foreign MNCs on the Innovative Capacity of Small- and Medium-Sized Enterprises in Minas Gerais, Brazil
• 9. Learning from the Globalization of an Emerging Economy Firm: Are Current Internationalization Theories Relevant?
• 10. Institutions and Diversification of International Markets: A Study of Clothing Manufacturers from Tanzania and Kenya
• Index