Rivalry between emerging-market MNEs and developed-country MNEs: Capability holes and the race to the future

The rise of emerging-market MNEs (EMNEs) often is characterized as a process by which they catch up with the superior resources and capabilities of incumbent, developed-country MNEs (DMNEs). We argue that this characterization needs to be rethought as the requirements for competitive success in global markets are changing. Emerging markets are becoming more important, the value-for-money segment in developed countries is expanding, global retailers are gaining leverage, and the flexibility to deal with economic and political volatility is becoming a key organizational capability. Typically, EMNEs are stronger in these areas than DMNEs. This leads us to frame the competition between EMNEs and DMNEs as a race to the future in which each type of firm has capability holes that it needs to fill in order to thrive in the global economy of the future. We then discuss the strategies that EMNEs and DMNEs have been using to plug their respective capability holes. We hope future studies can apply this framework to analyze rivalry between EMNEs and DMNE in specific industries.     

Emerging market multinationals and internalisation theory

There is ongoing debate about the applicability of internalisation theory to Emerging Market Multinationals (EMNEs). Internalisation theory normally describes multinationals exploiting superior knowledge directly abroad rather than licensing its use to foreign firms. We argue that EMNEs can be explained readily in terms of internalisation theory. This involves internalisation in the opposite direction: knowledge is internalised by EMNEs which then exploit it utilising home-country cost advantages. However, this is normally achieved by means that avoid the licensing of key technologies from leading firms. This clarifies the theoretical basis of EMNE strategic asset seeking investment. Market-seeking investments are also linked to technology-seeking investments through fixed costs. A model formalises the arguments, establishing conditions leading to different types of equilibria when an advanced-economy firm competes with an emerging-economy firm. The range of factors that it incorporates means that it is also compatible with other theories of the EMNE.     

Emerging market multinationals’ firm-specific advantages,institutional distance,and foreign acquisition location choice

How do emerging market multinational enterprises’ (EMNEs’) firm-specific advantages (FSAs) drive their foreign acquisition location choice? We theorize EMNE FSAs as important contingencies influencing the effect of institutional distance (ID) on EMNE foreign acquisition location choice. As a baseline main effect, we expect ID to positively influence EMNE location choice, as well-developed institutionally distant host-country environments are attractive to EMNEs. This effect is reduced by EMNE FSAs shaped by home-country conditions, such as success in navigating institutional voids and superior human resource management, which are more competitive in institutionally closer countries. Conversely, this effect is heightened by EMNE FSAs shaped by investment choices for knowledge and for international venturing. Based on analyses of 278 EMNE acquisitions by EMNEs from nine emerging markets, our findings largely support our hypotheses. Our study extends research on EMNE FSAs, which often have been compared only with those of developed-country multinational enterprises.     

Is the cure worse than the disease? The effect of emerging market MNEs on host country corruption

In recent years, there has been an exponential increase in the amount of foreign investment by emerging market multinational enterprises (EMNEs). While it has been debated whether EMNEs strengthen or weaken the institutions in host countries they invest in, the literature has paid limited attention to how EMNE investment impacts corruption in other emerging markets, one of the most significant destinations of EMNEs. Following Hoskisson et al. (2013), we categorize two types of emerging markets as targets of EMNE investment, a) low-income emerging markets and b) middle-income emerging markets, based on their institutional and market development. Building on the theory of firm-specific advantages (FSAs) and the institutional advantage (IA) of EMNEs, we reason that EMNEs enter foreign markets in accordance to where their skills and competencies can be effectively utilized, and this impacts corruption in the host country. We make two key arguments: (1) EMNEs predominantly use their IA in low-income emerging markets, which in the long term increases corruption in the host market, and (2) EMNEs predominantly use their FSAs to gain competitive advantage in middle-income emerging markets, which decreases corruption in the host market. Empirical analysis of Chinese outward FDI from the 2008-2018 period supports our hypotheses. Our research contributes to both the literature on EMNEs and corruption.     

Do MNEs from developed and emerging economies differ in their location choice of FDI? A 36-year review

This study examines the extent to which MNEs from developed (DMNEs) and emerging (EMNEs) economies differ in Location behaviour. Studies on MNE location choices have failed to capture the changing FDI landscape and leave the inconsistent findings unexplained. We address this gap by systematically reviewing the extant literature on location choices of DMNEs and EMNEs over the past 36 years – from the introduction of the OLI model to 2016. Key themes emerging from the review reflect a comprehensive picture, capturing the impact of multiple factors affecting location choices of DMNEs and EMNEs. Future research is challenged by: a. adopting an integrated approach examining three levels – individual (managerial), firm (ownership structure, type of FDI, internationalisation stages, and the different nature of ownership advantage), and context of location decisions (home, host, sub-national, regional, supranational, and networking); b. refining or developing theories to capture the dynamic picture of MNE internationalisation.     

The effect of home country characteristics on the internationalization of EMNEs: The moderating role of knowledge stock

This paper examines the effect of home country characteristics on the internationalization of emerging market multinational enterprises (EMNEs). Drawing on the institution-based view (IBV), we argue that institutional, political, and social characteristics will positively relate to the internationalization of EMNEs. Further, drawing on the knowledge-based view (KBV), we also argue that a firm’s knowledge stock (KS) will positively moderate the aforementioned relationship. Our research setting involves the incorporation of primary data collected from Iranian multinational enterprises (MNEs) operating in the food and beverage industry. The results provide support for the hypotheses that home country characteristics positively impact the international growth of EMNEs but this does not lead to their further expansion. Also, supported was the hypothesis that EMNEs' knowledge stock positively moderates the relationship between home country characteristics and their international growth. These findings not only contribute to the current knowledge about the drivers of EMNE’s internationalization but also stress upon the idiosyncratic role of home country institutions and the impact of knowledge-specific capabilities on the internationalization of EMNEs, their international growth, and expansion.     

EMNEs venturing into advanced economies: Findings from comparative cases of two Indian MNEs

Indian firms are challenged by the latecomer disadvantages faced by emerging‐market multinational enterprises (EMNEs) in general. These challenges notwithstanding, Indian firms are doing cross‐border acquisitions (CBAs) in developed regions. Analyzing firm‐level secondary data of two Indian MNEs—namely, Motherson Sumi Systems Limited and Rain Industries Limited—that show significant developed region–based revenues and assets, we link extant and emerging theoretical perspectives on EMNEs’ internationalization with the observed firm motives and behaviors of our case firms. We propose a framework of multiple contextual settings to understand the context‐driven internationalization of the case firms. Finally, our article offers a set of propositions emphasizing firm‐level entrepreneurial orientation and international orientation, when EMNEs internationalize via CBAs in developed regions. © 2017 Wiley Periodicals, Inc.     

Exploring reverse knowledge transfer and asset augmentation strategy by developed country MNEs: Case study evidence from the Indian pharmaceutical industry

Using an in-depth qualitative longitudinal case study approach, we examine strategic asset and knowledge augmentation strategies of an advanced economy multinational enterprise (MNE). Our study is unique as it is contextualized in the knowledge-intensive pharmaceutical industry within the changing institutional landscape in India. And, in contrast to previous studies, it focuses on RKT from a newly acquired subsidiary where the protocol for knowledge transfer and relationship between MNE headquarters (HQ) and subsidiary does not exist. We contribute to the evolving literature on reverse knowledge transfer (RKT) which assumes that MNEs extract knowledge from their existing subsidiaries to strengthen their competitive advantages. We also reveal that MNEs design an architecture, that is reflected in the mechanism, governance structure, and timing, for efficient transfer and effective absorption of the knowledge and assets acquired. We introduce a novel concept of ‘reverse asset augmentation’ (RAA) to capture the MNE’s behavior of strategic asset seeking from emerging economies. RAA is parallel to and entwined with RKT conceptualization as knowledge is embedded within certain physical assets, other assets, such as brand name/image, may not embody knowledge. Thematic and processual analysis of interview data, collected in three phases, suggests that RAA complements RKT and that both concepts together capture the unconventional strategies of advanced economy MNEs acquiring emerging economy MNEs in search of strategic assets and knowledge.     

Heterogeneity in OFDI by EMNEs: Drivers and trends of Chinese and Indian firms

Previous research has identified a distinction between the internationalization of emerging market multinational enterprises (EMNEs) and their advanced-economy counterparts. However, the question as to whether EMNEs conduct outward foreign direct investment (OFDI) in a uniform manner remains under-studied. Prior studies have grouped together all emerging markets but have ignored the essential heterogeneity of EMNEs that leads to their diverse OFDI patterns and behaviours. In this study, we illustrate the drivers and related phenomena of heterogeneity by exploring differences and similarities between Chinese and Indian MNEs’ OFDI activities, namely, investment destinations (i.e., advanced vs. emerging economies), the level of political relationships with host countries, industry sectors supported by institutional patronage, and the primary motivations of investment projects. We suggest that the heterogeneity in OFDI is the result of the institutional environment and the strategic priorities of the industry sector.     

Impact of international entry choices on the nature and type of innovation: Evidence from emerging economy firms from the Indian bio-pharmaceutical industry

As emerging economy multinational enterprises (EMNEs) enter foreign countries in search of new markets, seeking to expand their knowledge bases, research on the type and nature of innovation activity is needed to address the impact of EMNEs’ choices related to international expansion. Building on prior literature on entry mode and location choices, as well as on organizational learning, we argue that how and where an EMNE expands internationally will impact the nature of its innovation. We carry out empirical analysis on a sample of 167 Indian bio-pharmaceutical firms for the period from 1997–2017. Our findings suggest that greenfield ventures foster innovation in core technologies, while cross-border mergers and acquisitions (M&As) foster innovation in non-core technologies. In addition, locating subsidiaries in high income countries encourages product innovations, while locating in low income countries encourages process innovations. Our findings contribute to the growing literature on differences in learning outcomes of EMNE internationalization.     

Following their predecessors’ journey? A review of EMNE studies and avenues for interdisciplinary inquiry

In this review article we take stock of international business (IB) research on emerging economy multinational enterprises (EMNEs) over the past three decades. Our review covers 690 articles published in 64 high-impact peer-reviewed journals between 1990 and 2021 (inclusive). We first present bibliometric findings on some key patterns of this vast body of scholarly work. We then conduct content analysis to critically assess this literature and provide a multilevel synthesis of the existing knowledge base. To do so we propose a theoretical framework that highlights three dimensions – micro-foundations, organizational characteristics, and institutional environment – by which the distinction between EMNEs and their predecessors, namely multinational enterprises (MNEs) from advanced economies, is investigated. At each level, we seek to understand EMNEs’ convergence with and divergence from their predecessors in terms of their motives, strategies/approaches, and outcomes of internationalization. Through this process we identify opportunities to move EMNE research forward through interdisciplinary inquiry, and we propose several avenues for future research.     

Emerging Market Multinationals: Coopetition for Global Growth

Since the dramatic geopolitical shift toward liberalization in the last century, emerging‐market multinational enterprises (EMNEs) have become major players in global markets and continue to account for an increasing share of global foreign direct investment (FDI) flows. Given this trend, the questions of how and why EMNEs pursue FDI deserve greater attention. This article builds on recent work that uses resource dependence theory (RDT) to explain EMNE internationalization strategies. We propose that EMNEs, while often resource deficient relative to their developed‐market competitors and, therefore, more dependent on others in the external environment, are uniquely positioned to overcome these deficiencies over time through simultaneous cooperation and competition—coopetition—with their global rivals and host‐ and home‐country governments. These propositions contribute to the EMNE internationalization literature by more fully incorporating RDT into current theories of internationalization, highlighting the importance of managing dependencies over time to maximize global growth. © 2015 Wiley Periodicals, Inc.     

The complementarity effect of exporting,importing and R&D on the productivity of Ukrainian MNEs

After two decades of research on Emerging Market Multinational Enterprises (EMNE), the debate still concerns the antecedents and strategies of their foreign expansion. However, much less has been said on the effects of international participation on their productivity. Building on insights from the Resource-Based View of the firm and agency theory, we develop hypotheses on the presence of complementarities among export, import and R&D and their impact on productivity. Our empirical analyses on a panel of 23,000 time-year observations of Ukrainian MNEs over the period 2000–2006, confirm that: (i) EMNEs benefit from complementarities stemming from the assimilation and integration of knowledge from international external sources (import and export) with internal knowledge (own R&D investment); (ii) the effect is more pronounced for private-owned enterprises (POEs) rather than state-owned enterprises (SOEs), and (iii) especially when they trade with partners in/from advanced markets.     

Organizational slack as an enabler of internationalization: The case of large Brazilian firms

In this paper, we address an empirical puzzle. We note that a deliberate and serious drive to internationalize has occurred rather late in the evolution of large Brazilian firms. Meanwhile, and despite their late internationalization, these Brazilian firms expanded rapidly and intently. Despite the rich literature on Emerging Market Multinational Enterprises (EMNEs), there is still much contention on what drives rapid EMNE internationalization, particularly for the less explored firms from Latin America. Using an inductive case study of five leading Brazilian MNEs, we bring new insights on this neglected question. We unveil that the existence of organizational slack (of operational, managerial, and financial nature) can indeed facilitate rapid internationalization, particularly when triggered by unique home country conditions (e.g., regulation; rising cost of doing business at home; exhaustion of profitable growth opportunities in the domestic market).     

The evolution of strategic asset-seeking acquisitions by emerging market multinationals

We study the extent to which emerging market multinational enterprises (EMNEs) engage in strategic asset-seeking acquisitions in advanced countries in relation to the strength of their home- and host-country national innovation system (NIS). We suggest that early acquisitions by EMNEs were used to compensate for the EMNEs relatively weak home NIS, and targeted weaker host NIS to limit the cognitive gap EMNEs would need to address. Instead, more recent acquisitions by EMNEs are supported by a stronger home NIS, and target firms in stronger host NIS. We also propose that acquisitions by high-tech (versus non-high-tech) EMNEs need a stronger home NIS due to the technological complexity of the industry, and are limited when the complexity of a stronger host NIS adds to the industry context. We find support for most of our arguments on 179 acquisitions in the Triad by Brazilian, Russian, Indian and Chinese multinationals.     

Focused and ambidextrous catch-up strategies of emerging economy multinationals

Many emerging economy multinationals (EMNEs) conduct asset-seeking foreign direct investment as a strategy to catch up to global market leaders. This catch-up strategy can be implemented in a focused (purely exploratory) or ambidextrous (simultaneously exploratory and exploitative) manner. This study examines the influence of industry environment on EMNEs’ adoption of these catch-up strategies. Integrating an industry-based view with an upper-echelon perspective, we argue that industry munificence promotes a focused catch-up strategy but hinders the ambidextrous alternative. These opposing effects are further magnified by the functional diversity of EMNEs’ managerial teams because functionally diversified teams are more likely to allocate attention to external cues in the industrial environment, as opposed to forming a unified strategic orientation internally. Using a panel of EMNEs from China over the period of 2005–2010, we find strong support for our main effects of industry munificence on both catch-up strategies and the moderating effect of managerial team’s functional diversity towards ambidextrous catch-up strategy.     

Strategic ambidexterity and its performance implications for emerging economies multinationals

Emerging market multinational enterprises (EMNEs) are attracting significant scholarly attention in the international business and general management domain. The extant research has provided important insights into the EMNEs’ internationalization processes and whether the existing theories adequately explain their outward investment motives. This special issue aims to provide a platform suited to extend the current understanding of the rapid rise of EMNEs and examine the vital role played by strategic ambidexterity and its performance implications for the EMNEs. The current research on EMNEs has failed to adequately leverage strategic ambidexterity and link it with the post-entry performance of EMNEs. We argue that the strategic ambidexterity perspective offers valuable opportunities to understand the post-entry performance of EMNEs as they expand into developed and developing markets. The article also highlights important areas for future research by taking into account the current COVID-19 pandemic crisis.     

Outward foreign direct investment and domestic innovation performance: Evidence from China

Recent years have witnessed substantial outward foreign direct investment (OFDI) from many emerging economies. Should the governments of these economies encourage OFDI in order to promote domestic innovation? Much OFDI by emerging economy multinational enterprises (EMNEs) has been undertaken to acquire strategic assets overseas, but do these acquisitions bring innovation benefits at home? The empirical analysis presented in this paper considers the effects of OFDI on regional innovation performance, using a panel of Chinese provinces, and finds that OFDI has a very significant impact on domestic innovation. Furthermore, we also identify three contingent factors – absorptive capacity, foreign presence, and the competition intensity of the local market – that moderate the impact of OFDI on innovation performance.     

A resource dependence perspective of EMNE FDI strategy

Using Resource Dependence Theory as a lens, we explore current explanations of how and why Emerging Market Multinationals (EMNEs) seek to compete internationally through Foreign Direct Investment. We find that all three dominant explanations and much of the ongoing literature either explicitly or implicitly highlight the importance of a firm's ability to acquire and maintain resources to its own survival and ability to compete as latecomers on a global stage. Through our conceptual model we show that whether EMNEs seek to exploit existing resources, seek to augment their resource base, or pursue a combination of both it is reflected by their generic internationalization strategy. This generic strategy is also reflective of the firm's strategic focus, as well as predictive of its entry mode and resulting resource dependence. Taking this perspective informs the current literature by clarifying how an internationalization strategy alters EMNE dependence on the external environment for critical resources.     

MNE performance during a crisis: An evolutionary perspective on the role of dynamic managerial capabilities and industry context

As the likelihood of worldwide crises increases due to globalization and the resulting economic contagion, understanding why some multinational enterprises (MNEs) prevail in such environments becomes ever more critical. Drawing from the concept of dynamic managerial capabilities, we posit that MNE in-crisis performance is associated with the pre-crisis development of asset management capabilities, or the capacity of managers to orchestrate assets so as to extract more value from the firm’s resource pool. Specifically, we argue that because dynamic managerial capabilities evolve as a response to a firm’s task environment, MNEs that operate in dynamic industries develop stronger asset management capabilities. However, we also posit that whether these capabilities contribute to in-crisis performance is contingent upon the munificence of the industry environment in which the capability evolves. Asset management capabilities that evolve in munificent environments would encompass a wider spectrum of routine-altering activities, and thus increase the ability of the MNE to react to more revolutionary events, such as global economic crises. Conversely, asset management capabilities that evolve in resource-scarce environments will result in more strategic lock-in due to firms' constrained ability to experiment with novel resource configurations, resulting in poorer in-crisis performance. We test our hypotheses using a sample of 854 MNEs in the context of the global financial crisis of 2008, and find support for our hypotheses. We discuss implications for the dynamic capabilities view and MNE resilience.