Emerging market multinational companies’ evolutionary paths to building a competitive advantage from emerging markets to developed countries

One significant emerging phenomenon of global competition is the increasing number of Emerging Market Multinational Companies (EMNCs) that have survived and succeeded in the constraining institutional environments in their home turfs and are now participating in the global marketplace. However, despite the growing literature, our understanding of the factors that influence EMNCs’ competitive advantage is limited. We conduct a historical longitudinal analysis of sixteen companies originating from key emerging markets viz. India and China. Our findings suggest that EMNCs’ evolutionary paths to building competitive advantage from their home market to the developed countries is, on one-hand, based on the EMNCs’ ability to acquire resources and absorb them to build their own advantage. On the other hand, it is also based on EMNCs’ ability to find new market niches and to enhance their innovation capabilities to overcome the liability of emergingness.     

Institutional voids,liability of origin,and presence of women in TMT of emerging market multinationals

This study examines the association between the pervasiveness of institutional voids in emerging markets and the inclusion of women in top management teams (TMTs) by emerging market multinational corporations (EMNCs) as a legitimation strategy. Leveraging institutional theory, we argue that EMNCs increase women presence in TMTs as a legitimation strategy to overcome the challenges of stakeholders' skepticism in foreign markets by disassociating themselves from the image of their home markets. Using a subsidiary level dataset of 1047 EMNCs from 26 emerging countries between 2009 and 2018, we find robust evidence indicating that the pervasiveness of institutional voids at home is positively related to the percentage of women in TMT's EMNCs' foreign units. This effect is particularly stronger for firms operating in countries with high institutional gender parity and low level of corruption.     

Relevant knowledge and recipient ownership: Chinese MNCS’ knowledge transfer in Africa

This paper examines emerging market multinational corporations’ (EMNCs’) knowledge transfer (KT) in emerging markets using case studies of Chinese MNCs (CMNCs) in Africa. CMNCs are found to transfer “relevant knowledge”, existing knowledge reconfigured so that recipients can apply it more effectively with less effort in the new context. Relevance is ensured through recipients exerting ownership of the KT process, influencing what knowledge is transferred and how it is transferred. We summarise EMNCs’ KT process in a “relevant knowledge recipient ownership model”. The model contributes to KT theory by refining and empirically testing a new type of knowledge – relevant knowledge – and a new transfer model – recipient ownership – associated with EMNCs. It leads to a “relevance-based view” in which EMNCs’ competitive advantage in emerging markets is significantly enhanced by knowledge relevance rather than superiority. This contributes to a better understanding of EMNCs’ competitiveness in emerging markets as created from distinct characteristics of their relevant knowledge (applicability, assimilability, affordability) and recipient-driven transfer (selection, scrutiny and synthesis).     

Mapping the impact of home‐ and host‐country institutions on human resource management in emerging market multinational companies: A conceptual framework

While there is a growing literature concerned with multinational companies from emerging markets (EMNCs), it does not contain a robust conception of how institutions shape human resource (HR) practices in such firms. We contribute to filling this gap through developing a framework of how institutions create a range of constraints and opportunities for EMNCs. Specifically, our framework contains three key elements of how MNCs from emerging markets interact with institutions: EMNCs develop approaches that to some extent reflect the perceived strengths and weaknesses of the institutions in the home country (institutional conditioning); the strategies of actors in EMNCs can overcome the weaknesses of the home country by drawing on institutions in other countries (institutional arbitrage); and the actions of EMNCs can reinforce, or create pressures for change in, the institutional context in the countries in which they operate (institutional change/consolidation). By mapping this set of strategies of EMNCs, we contribute to a fuller understanding of the relationship between institutions and HR practices, and we outline how the rise of EMNCs reshapes the global landscape by adding new kinds of firm behavior to capitalist diversity.     

Unpacking Institutional Distance: Addressing Human Capital Development and Emerging‐Market Firms’ Ownership Strategy in an Advanced Economy

As latecomers to global business competition, emerging‐market multinational companies (EMNCs) utilize cross‐border mergers and acquisitions (M&As) to quickly acquire strategic assets, resulting in an improved competitive position. Advanced markets with well‐established firms and well‐developed market‐supporting institutions become particularly important destinations for EMNCs’ foreign operations. Institutional distance, which represents conflicting legitimacy requirements between the host and home institutional environments, is expected to be negatively associated with the foreign acquirer's ownership position. The current study examines a sample of EMNCs’ cross‐border M&As in the United States between 2005 and 2011 and reveals the unique nature of EMNCs’ ownership strategies. Taking both formal and informal institutions into consideration, our findings suggest that EMNCs originating in countries with lower levels of human capital development may have more urgency in seeking ownership control in advanced markets and are less influenced by the negative association of institutional distance in their ownership strategy. © 2016 Wiley Periodicals, Inc.     

Liabilities of origin and its influence on firm's corporate social performance? A study of emerging market multinational corporations

This study draws upon the institutional-based view to examine how home country institutional voids affect the corporate social performance (CSP) of emerging market multinational corporations (EMNCs). We propose that home country institutional voids of EMNCs are positively related to CSP. We also argue that EMNCs' internationalization and visibility will further augment the above relationships. We tested our hypotheses using a sample of 89 EMNCs from 10 countries from 2009 to 2018 and found support for our arguments. Our findings show that EMNCs use CSP to overcome the liabilities of origin due to their home-country institutional voids. Internationalization and visibility increase the challenges of origin liabilities and EMNCs respond by enhancing their CSP. Our research adds to the existing knowledge base on institutional voids within the realm of international business.     

The moderating effect of technology and marketing know-how in the regional-global diversification link: Evidence from emerging market multinationals

In this study, we link regional diversification to global diversification of emerging market multinationals (EMNCs) and explore the importance of firm-specific technology and marketing know-how in that process. We develop our hypotheses and test them using a sample of 625 Chinese manufacturing multinationals across multiple industries. The results reveal that regional diversification predicts global diversification, and that firm-specific technology and marketing know-how both increase the likelihood of a firm’s moving from regional to global operations. Technology know-how was found to be more influential than marketing know-how.     

Emerging economies and institutional quality: Assessing the differential effects of institutional distances on ownership strategy

The current study contributes to the institution-based view of internationalization that is contingent upon the home country development. We examine the differential effects of formal and informal institutions on emerging market multinational corporations’ (EMNCs) ownership strategies. Facing a large informal institutional distance that represents diverse cultural beliefs, EMNCs opt for a low ownership position that alleviates legitimacy threat, whereas a large formal institutional distance leads EMNCs to establish dominant ownership control. EMNC home market conditions, including market size and regulatory institutional quality, further explain the differential effects of institutional distances.     

Emerging market multinational corporations' cross-border mergers and acquisitions and political distance: Does corporate political activity matter?

Due to rising anti-globalization sentiment, emerging market multinational corporations (EMNCs) face additional challenges in conducting cross-border mergers and acquisitions, particularly in the developed markets. Built on institutional theory, we specifically examine how political distance, representing host–home country differences in various attributes in the political environment, influences the speed of approval for EMNC acquisition in the United States. The findings suggest that a larger political distance between the United States and EMNCs home country reflects challenges for EMNCs to gain legitimacy in the United States, resulting in the longer time required for acquisition approval. The EMNCs' corporate political activity moderated this relationship in that more corporate political activity improves the legitimacy perception of EMNCs among political actors, decreasing the time required for acquisition approval.     

Acquisitions by emerging market multinationals: Implications for firm performance

This study develops and tests a framework about the resource- and context-specificity of prior experience in acquisitions. Although extant research has explained why multinational companies from emerging countries (EMNCs) acquire companies in developed countries, we have an incomplete and inconsistent understanding of the consequences of such acquisitions for the performance of target firms. First, we show that despite the concerns raised by politicians and the general public in developed countries, the acquisitions made by EMNCs often enhance the performance of target firms. Second, we examine whether the role of EMNCs' idiosyncratic resources (such as access to new markets and cheap production facilities) and investment experience in enhancing the performance of target firms differs across acquisition contexts. We demonstrate that not all types of resources and investment experience are equally beneficial and, in fact, some types of experience even have a negative effect on the performance of target firms. By contrast, other types of experience that EMNCs accumulate from prior investment enhance the performance of target firms by facilitating resource redeployment and the exploitation of complementarities.     

The internationalization of Nigerian firms: Motivations and location patterns

Despite the increased number of studies of the internationalization of emerging‐market multinationals (EMNCs), Latin American and Asian firms have dominated the focus of such studies, while the study of the internationalization process of sub‐Saharan African firms in the international business literature is quite limited. Therefore, this article examines the motivations and location patterns of the internationalization process of four Nigerian firms through a multiple case study approach. The findings show that the internationalization of the Nigerian firms is a recent phenomenon, but the foreign investment pattern reflects a pan‐African investment strategy. However, the findings also reveal that the firm‐specific advantages that had been accumulated in the domestic market, coupled with home‐country factors and regional‐/host‐market factors, were key determinants of the motivations and location patterns in the internationalization process of Nigerian firms.     

Cuba,the centrally planned cigar,and its rivals

Cuba has a long‐standing reputation for producing premium cigars. Despite the inefficiencies of central planning, Cuba continues to command a dominant global market share in this product outside the United States, whose trade embargo forbids Cuban imports. Cuba's main rivals in premium cigars include the Dominican Republic, Nicaragua and Honduras, which dominate the US market but have a smaller presence elsewhere. All premium cigar exporters face important global demographic and policy changes that will alter the competitive landscape. Public anti‐smoking measures have diminished cigar demand in Europe and other industrialised areas, reinforcing a market growth shift towards emerging markets, especially China. Cuba's strengths in branding, reputation and third‐world ties give it an advantage in developing the high end of these new markets. However, the rigidities of Cuba's economic system make it difficult to increase or adjust premium cigar output and exports in response to new market opportunities. Cost‐efficient competition from its Caribbean rivals allows them to respond to consumer preferences for new cigar blends and lower‐priced brands. The paper concludes by assessing the need for economic reforms and foreign investment in Cuban cigar production that will be necessary for it to maintain or improve its export performance.     

Emerging market sovereign bond spreads and shifts in global market sentiment

The paper studies how the relationship between emerging market sovereign bond spreads, economic fundamentals and global financial market conditions differs across three regimes of global market sentiment. Following the identification of periods characterized by low, medium and high volatility in financial markets, we analyze the behavior of spreads from three different angles. First, we demonstrate that the cross-country correlation of spreads increases in high-volatility regimes, implying that countries cannot fully decouple from developments in other emerging markets during periods of distress. Second, using the interactions of several domestic and global variables with the probabilities of each regime prevailing in a given period as the explanatory variables of spreads, the fixed effects panel estimation shows that while country-specific fundamentals are important determinants of spreads in each regime, the importance of global financial conditions increases in high-volatility periods. Third, we show that countries can benefit from stronger fundamentals in the form of lower exposure of their sovereign spreads to unfavorable regime shifts in global market sentiment.     

How emerging market governments promote outward FDI: Experience from China

Large scale outward foreign direct investment (OFDI) by emerging market enterprises has become common in today's business world. Nested within the political economy perspective, this article elucidates why and how emerging market governments enthusiastically stimulate OFDI. Drawing upon our detailed analysis of the Chinese context, we developed the logic that OFDI promotion policies set by emerging market governments are economically imperative and institutionally complementary to offsetting competitive disadvantages of emerging market enterprises in global competition. This study presents the governmental institutions that impact Chinese OFDI, discusses evolutionary changes of OFDI policies, and describes current policies and measures that stimulate Chinese companies to expand into the global market. This article concludes with theoretical and managerial discussions wherein we call for convergence between two seemingly paradoxical views – institutional escapism and governmental promotion – presently used as an institutional logic explicating international expansion of emerging market enterprises.     

The nature and determinants of comovement between developed,emerging and frontier equity markets: Europe versus Asia‐Pacific

International investors are increasingly attracted towards emerging and frontier markets because of their potential to enhance diversification benefits of a global portfolio. This calls for a rigorous analysis of the nature and determinants of stock market comovement between developed, emerging, and frontier markets in Europe and Asia‐Pacific regions. The findings suggest that unlike their Asia‐Pacific counterparts, European developed, emerging, and frontier stock markets display a higher degree of comovement. Although Asia‐Pacific frontier markets provide good diversification opportunities, investors must be cautioned against their weak financial system. The volatility of returns, gross domestic product growth rate, and the 2008 global financial crisis (GFC) are the key determinants of stock market comovement in Europe. The mechanisms by which comovement in the Asia‐Pacific region is strengthened differ across markets. Comparative analysis of comovement and its determinants across different classes of equity markets and geographies is expected to provide valuable perspectives to global investors, portfolio managers, and policymakers.     

Dismantling institutional complexity behind international competitiveness of emerging market firms

The paper examines the perceived role of emerging market institutions in the creation of firm‐specific advantages of local small‐ and medium‐sized enterprises (SMEs) supporting international expansion and competitiveness. Our objective is to deepen conceptual understanding of the complex link between emerging market institutional factors and an ability of emerging market SMEs to compete internationally. Our empirical evidence from Russian software SMEs operating in global niche markets reveals that managers perceive institutional influence on their firms' ability to compete internationally in a number of direct and indirect means. We find that, in addition to the well acknowledged negative impact of institutions, there are supportive and triggering forces that incentivize SMEs' international expansion and development of competitive advantages. We contribute to the literature by elaborating about the complexity of institutional influence on international competitiveness of emerging market SMEs. This research offers insights for managers about the prospects of international expansion of SMEs from emerging markets.     

From local to global innovation: The role of subsidiaries’ external relational embeddedness in an emerging market

This study examines factors that influence the development and transformation of local innovations into global innovations from an emerging market subsidiary. We argue that subsidiaries’ relational embeddedness with the external local network is essential for the development of local innovations. Turning local innovations into global ones is the result of the level of innovativeness evoked by the subsidiary located in an emerging market. However, the transformation of local into global innovations is more likely to happen in the case of subsidiaries having previous reverse knowledge transfers in functional areas. Reverse knowledge transfers indicate internal embeddedness, which is essential for local innovation to be transformed into global innovation. We draw on survey evidence from 131 foreign subsidiaries operating in Brazil. Using a Structural Equation Modeling technique, our results support our hypotheses and show that subsidiaries’ relational embeddedness with the external local network is positively associated with local innovation, which is transformed into global innovation, especially when innovation is developed in the subsidiary´s functional areas with previous reverse knowledge transfers. We draw implications for the field of subsidiary management research, specifically to understand the role of local innovation from foreign subsidiaries in emerging markets.     

Supply Chains,Global Financial Shocks and Firm Behaviour towards Liquidity Needs

Driven by the increasingly important role of supply chains in global production, this paper studies empirical association between global credit‐market shocks and firm behaviour towards liquidity needs across countries and industries. Focusing on the adjustment of working‐capital financing, we find two pieces of supporting evidence from international firm‐level panel data covering the period 2002:I–2012:IV. First, for industries where specific investment in the input supplier–customer relationship is large, firms are more exposed to credit‐market shocks. We find that measures of global credit‐market shocks are negatively associated with trade receivables, trade payables and inventories, conditional on the level of contract intensity in the industries where firms operate. Second, firms in emerging markets are more vulnerable to credit‐market shocks than are firms in developed countries. We are also able to verify the economic significance of sales growth, operating cash flows, cash stock and firm size in the overall adjustment. Our findings highlight the importance of balance‐sheet contagion along supply chains during the 2007–09 global financial crisis.     

Risk and ex ante cost of equity estimates of emerging market firms

We examine the empirical relationship between estimates of ex ante cost of equity and risk for a sample of individual emerging market equities for the period 1990–2000. The ex ante cost of equity estimates are obtained using the residual income valuation model. As in studies that use mean realized returns on emerging market indexes, a measure of total risk (return volatility) is the most significant risk factor in explaining ex ante expected return estimates. For emerging market equities with substantial investability to global investors, global beta adds some explanatory power.