IJoEM 06 2013 0102

International Journal of Emerging Markets
Punching above their weight: The sources of competitive advantage for emerging
market multinationals
Farok J. Contractor
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Farok J. Contractor , (2013),"Punching above their weight", International Journal of Emerging Markets,
Vol. 8 Iss 4 pp. 304 - 328
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IJOEM
8,4
Punching above their weight

The sources of competitive advantage for
emerging market multinationals
304
Farok J. Contractor
Rutgers Business School, Rutgers University, Newark, New Jersey, USA
Abstract
Purpose The purpose of this paper is to comprehensively review the sources of competitive strength
of emerging market multinationals (EMMs). Since most lack firm-specific assets such as internalized
knowledge or globally recognized brands, especially in their early international growth, and emanate
from less-developed nations, the success of EMMs has to be explained by identifying factors in their
home nations and international scope which make these firms internationally competitive.
Design/methodology/approach A comprehensive review of the extant literature and company
cases identified several sources of competitive advantage for emerging market firms. Since conclusive
evidence is still unavailable, many of these factors are proposed as hypotheses for future empirical
research. Where needed, contrary viewpoints are also discussed and cited.
Findings This paper identifies several possible location-specific assets of emerging market
companies including the mindset of top management of EMMs (such as long term orientation, global
or cosmopolitan perspectives, a degree of humility that recognizes the need to catch-up by learning
from foreign allies and customers, tolerance for ambiguity, and frugality) and home country cultural
traits such as emphasis on relationships, family control, and private equity capital. Other sources of
competitiveness may lie in the home country pool of technical talent and cheap labor, the extensive
diasporas of persons of Chinese, Indian and Brazilian origin, and the role of common language as
determinants for the geographical pattern of FDI from emerging nations.
Originality/value This paper serves the dual purpose of providing a comprehensive literature
review of this topic for doctoral or Masters students, and specifying hypotheses (as well as opposing
views) for further investigation.
Keywords Emerging markets, Emerging market multinationals, Foreign direct investment (FDI),
Global capabilities, Global strategy, Competitive advantage
Paper type Conceptual paper
International Journal of Emerging

Markets
Vol. 8 No. 4, 2013
pp. 304-328
q Emerald Group Publishing Limited
1746-8809
DOI 10.1108/IJoEM-06-2013-0102
Introduction
Boxing categorizes contestants into different weight classes because the force of a punch
is typically proportional to the boxers weight. 20 years ago, in 1993, with the exception
of S. Korea, only 18 other companies based in emerging markets appeared on the Fortune
Global 500 list, and almost all of these were lumbering state-supported firms such as
Pemex or Indian Oil in extractive industries with few competitive advantages or
distinctiveness beyond their government conferred oligopoly and size. Their degree of
internationalization was negligible and they survived behind protectionist barriers.
Their international punch was puny compared with their domestic size or weight.
Today emerging market champions are present in a wide range of industry sectors.
Many were born only in the last two or three decades having none of the institutional
advantages enjoyed by their advanced country competitors. Founded only in 1988,
Huaweis sales by 2012 exceeded $32 billion, and with a R&D/sales ratio of 13 percent
it invests over $4 billion annually in research centers in eight nations selling products
and services to 45 of the 50 biggest telecommunications companies, Huaweis

international reach encompasses 140 nations. The Indian software industry provides
classic illustrations of born-global companies (Knight and Cavusgil, 2005) with a tiny
domestic market and exports only around $85 million in 1990, zooming to $69 billion
by 2012 (NASSCOM, 2012). Starting with basic data entry and low-end software
construction, the sector has broadened to include sophisticated systems and
management consultants such as Infosys and Tata Consultancy Services which are
among the biggest and most competitive such providers in the world.
Emerging market companies accounted for over 40 percent of world exports and
around a quarter of outward foreign direct investment (FDI) investment flows
(UNCTAD, 2012b). While the average size per firm may be smaller than the average for
developed nations, the 100 largest TNCs (Transnational Companies) from developing
and transition economies already account for 32 percent of the sales and assets, and
55 percent of employees of all of the 100 largest TNCs worldwide (UNCTAD, 2012b,
calculated from Table 1.8). The Boston Consulting Groups (BCG) annual compilation
of Global Challengers, using a methodology that includes qualitative as well as
quantitative (e.g. growth rates and performance) measures, identifies the most
dynamic and globally competitive emerging market firms with revenues over $1 billion
and overseas sales above 10 percent (Bhattacharya et al., 2013). The list encompasses
a range of sectors from telecommunications (e.g. Huawei), to bio-pharmaceuticals
(e.g. Dr Reddys), to airlines (e.g. Turkish Airlines) and commercial aircraft
(e.g. Embraer), to white goods (e.g. Haier), to automobiles (e.g. Mahindra & Mahindra).
Among this list of Challenger-100 emerging nation firms are diversified groups like
Koc family holdings, as well as natural resource state-owned giants like Petrobras,
Sinopec or Petronas. Even the formerly lumbering extractive industry behemoths,
beholden to imported technology, now compete on an equal footing with other global
giants in their industry in other nations, and participate in international ventures.
What makes these sectorally diverse companies, from a variety of emerging nations,
competitive? What enables them to punch above their weight? After all, emerging
market multinationals (EMMs) suffer from the double disadvantages of ordinary
liabilities of foreignness (LOF) (Eden and Miller, 2004), and also, in addition, the
liabilities of a developing country home base. Despite this, many, if not all, conspicuously
outperform their industry averages. For instance, the BCG Global 100 Challengers, over
the period 2000-2012, exhibited a total shareholder return seven times that of the S&P
500, and around five times as high as their industry counterparts in developed nations
(Bhattacharya et al., 2013, Exhibit 4).
The literature on EMMs has sporadically tried to identify some of the sources of
EMM competitiveness (Khanna and Palepu, 2010; Guillen and Garcia-Canal, 2009).
However, there is no overall consensus (Ramamurti, 2012). This paper will attempt a
comprehensive review of the wellsprings of EMM advantages, including a relatively
neglected area namely the cultural and leadership styles of emerging market
managers that have a role in boosting the performance of their companies.
The paper is organized thus: I begin with a review of the changes in the world
economy between 1990 and 2013 that have facilitated the emergence and growth of
developing nations in general, and their companies as international competitors in
particular despite their LOF. This is followed by generic strategies of EMMs and
their growth patterns. An important focus of this paper is on firm, micro or behavioral
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factors, such as long-term orientation; a degree of humility (what I may describe as

the view from below as opposed to the partial blindness of assumed strategic
superiority); post-merger acquisition skills; traits such as culturally-rooted negotiating
skills; an ability to persistently seek paths which circumvent bureaucratic obstacles; a
frugality that translates into not only lower corporate headquarters overheads, but
also a more rigorous and cautious analysis of expenditures in foreign subsidiaries; the
home country pool of scientists and engineers and diaspora of expatriate managers;
and in a few cases a common language factors that provide a competitive advantage
to the EMM.
What propelled the internationalization of EMMs after 1990?
Classic international business theory arguments for why companies internationalize do
not seem to uniformly apply to EMMs (Ramamurti, 2012). For much of economic history
until the early 1990s, the cross-border expansion of firms was predicated either on
comparative advantage (of a country which impelled international trade) or accumulated,
internalized, firm-specific assets (FSAs) within the firm (that impelled FDI) (Dunning,
1988). It was the strong that extended their home-base prowess across borders to the
weak. However, many EMMs do not necessarily possess FSAs in the early stage of their
international growth (Rugman and Verbeke, 2003). Nor in their early stage growth do
they possess many of the configurational benefits of multinationality enumerated in
Contractor (2012b) who identified how companies can gain an advantage by the sheer
fact of having a multinational scope, even if they do not necessarily have accumulated
FSAs initially. Moreover, the traditional paths of international expansion seen in
advanced country based MNEs in terms of incremental growth first into culturally
similar or neighboring nations, and only then farther afield (Vahlne and
Wiedersheim-Paul, 1973) do not seem to apply to EMMs. What changed in the 1990s?
In 1990, this author did a semester sabbatical with UNCTADs think tank on FDI, the
United Nations Centre on Transnational Corporations (UNCTC), and conducted a study
which scrutinized the legislation and regulations passed by nations around the world
controlling FDI inflows. The changes in national regulations, each year, were classified
and then labeled (akin to a dummy variable) as to whether the change in a countrys policy
amounted to investment liberalization, promotion and facilitation, or whether the change
by the nation introduced new restrictions or regulations on inward FDI (UNCTC, 1991).
It quickly became clear that as far back as the mid-1970s, long before the collapse of
socialist or protectionist ideologies, that the number of liberalizing changes around the
world (and particularly in inward-looking or protectionist emerging nations) far
outnumbered instances where new restrictions on FDI were introduced first by factors
of four to one in the 1990s and rising to ten to one by the turn of the millennium
(UNCTAD, 2012a). Restrictions on international business, whether on FDI flows or trade
were being rapidly dismantled in favor of promotion and attraction. Annual growth of
FDI and trade which were already growing faster than domestic economies, accelerated
as doors and windows were opening around the world to international firms and
products.
According to traditional theory and the fears of some pundits, the almost universal
worldwide adoption of an open-door policy and the lifting of (FDI and trade)
protections could further set back emerging nation firms. In the direst scenarios,
emerging nation domestic companies were supposed to be swamped by developed
country MNEs with their superior internalized FSAs such as technology, skills and
access to rich capital markets. And emerging nations were supposed to suffer
immiserizing growth as low-end commodity exporters[1] (Bhagwati, 1958).
On the contrary, the same expansion of global FDI and trade also strengthened local
firms who learned quickly about world-class standards, methods and technology, and
learned how to compete. The open-door policies increased the absorptive capacity of
many local firms, which later became globally competitive EMMs. Meyer (2004) reviews
the beneficial impact of inward FDI on recipient nations general competitiveness. Local
firms learn by imitation. Foreign MNEs train local employees, engineers and alliance
partners who take their learning over to other local firms. Spillovers of technology also
occur as an industry cluster of local suppliers develops. Labor skills and management
competence improve, and the industry as a whole gets connected to its global peers,
global industry associations and standards. The absorptive capacity and competitiveness
of emerging nations came to further fruition by the 1990s with a substantial increase in
the numbers and quality of their engineers and technical graduates (Lynn and Salzman,
2006; Arora and Gambardella, 2004).
Two information technology (IT) related developments starting in the 1990s further
reinforced EMM competitiveness, giving EMMs unprecedented access to advanced
nation technology. First, the penetration of IT-enabled methods began to spur an
unprecedented codification of corporate knowledge. Technology and management
processes that were tacit and resident only in the minds of senior engineers and staff,
were rendered explicit and written down in manuals, software, expert systems and
protocols (Steinmueller, 2000; Contractor and Ra, 2002). Admittedly, the prime
motivation was to improve the codifying firms own productivity in their home base in
advanced nations. But being codified, the information could then be more easily
discoverable, intelligible and absorbable by alliance partners, licensees, supply chain
members and foreign subsidiary employees. Second, the spread of the internet and
industry platforms, by the late 1990s, saw an unprecedented expansion of outsourcing,
offshoring and outsourcing (Contractor et al., 2010), as well as international licensing
which was the fastest growing mode of international business between 1982 and 2011[2].
This spread of technology to constellations of licensees and partners in an
internet-aware world makes EMMs more cognizant of opportunities, facilitates the
transfer of knowledge, and is manifest in:
.
the finer slicing of the value chain; and
.
the consequent global disaggregation of pieces or slices of these value chains
over a larger set of collaborators worldwide (Mudambi and Swift, 2011).
Many, if not all, of the collaborators of the global value chain can then learn and
improve their own competitiveness.
We can identify two additional changes in emerging market economies that increased
the competitiveness of their companies. With growth rates consistently higher than
developed nations, many of the larger ones such as the BRICS[3] nations, Mexico or
Turkey achieved sufficiently large domestic market size that conferred a scale advantage
on their firms they previously did not enjoy. Ramamurti (2012) speculates as to whether
this, in itself, may be considered a weak ownership advantage. Finally, the enormous
growth of capital markets worldwide and particularly in emerging nations meant that
EMMs were, for the first time, able to raise capital on an equal footing with their
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developed nation counterparts (ACCA, 2012) an access which is a significant

explanation for the spurt of FDI acquisitions done by EMM companies ranging from
CEMEX to Tata Steel.
EMMs strategy types
Some insightful classifications of the generic strategies of EMMs already exist
(Ramamurti and Singh, 2009; Williamson and Yin, 2013). My objective in this section of
the paper is to identify the sources of competitive strength for each.
1. Global competitors
These are firms that have achieved a research, production and global marketing scale
that rivals the leading companies in their business. Classic examples include Samsung,
Huawei or CEMEX. Global scale can provide production cost and supply chain savings,
depending on the sector. Achieving a global scope, as such, confers competitive
advantages. The very diversity and multiplicity of country locations in which a
multinational is embedded provides access to new ideas, and the ability to arbitrage
differences in input costs and prices (Meyer et al., 2011). This was one of the factors in
CEMEXs success. International scope enabled CEMEX to arbitrage price differences for
cement across nations, and raise needed financing from sources like Spain for foreign
acquisitions.
Contractor (2012b) advances an innovation or R&D budget example:
If Firm A has spent $20 million on R&D and the product is sold to 50,000 customers, the
technology burden per unit sold is $400. For a competing Firm B, with the same R&D budget
and 150,000 customers worldwide, the technology overhead is only $133 per unit. It can
undercut Firm A and enjoy vastly greater profits.
More importantly, Firm B enjoys and can expend a much larger R&D budget for the
next generation of technology than Firm A. For this simple economic truth there are no
diminishing returns to scale[4] and illustrates how Samsung has been able to catch up
with its more established rival Apple in mobile telephony and computers.
2. Outsource producers aspiring to climb the smiling curve
Producing on a large-scale for other foreign brands has been a traditional path towards
internationalization for several companies. However, it has not proven easy to build the
EMMs own brand name. It took the Korean conglomerates such as LG or Samsung
decades of steady advertising to achieve global recognition. Galanz Enterprise Group
Co. of Guangdong is the world biggest producer of microwave ovens in 2013, but lacks
any brand or company name recognition amongst the bulk of their foreign customers.
ZTE (Shenzhen) is one of the leading manufacturers of mobile handsets that nobody
has heard of in Europe or North America.
Many of these outsource manufacturers have established brand names in their
home markets and aspire to break out of the constraints of being stuck with the
low-profit production/assembly middle of the value chain, to reach the higher profit
elements of the beginning (innovation) and end (brand value) portions of the value
chain the smiling curve strategy popularized by Stan Shih[5] and elaborated on in
Mudambi (2008).
However, it is difficult to simultaneously climb both ends of the smiling curve. Acer
has global brand recognition but is weak or undistinguished at the R&D end of the
value chain. GoodBaby, by contrast, is strong in incremental innovation (5,174 minor

patents as of 2012) but its brand is unknown outside China. Started in 1983 by
Mr Zhenghuan Song, a Chinese school principal and later engineer in charge of his
township enterprise, GoodBaby became the largest seller of baby strollers in China. By
1999 it was the largest supplier of strollers and infant equipment to North America,
supplying brands such as Safety 1st, Cosco and Silver Cross through outlets such as
Target, Walmart and ToysRUs. Their four innovation centers in Boston, Utrecht, Tokyo
and Hong Kong besides mainland China are intended for continuous incremental
innovation tweaking strollers and car seat designs to suit local regulations, vehicle
sizes and cultural preferences across the many nations they sell in. Haier (white goods
and appliances) is one manufacturer that has gained some international brand
recognition as well as some internalized research capabilities and may be on its way to
emulating the Korean example of climbing both ends of the smiling curve.
3. Global knowledge and process consultants
Companies such as Infosys base their competitive strength not merely on efficient or
low-cost value added in their home countries, but also their ability to interface with and
understand the complex organizational needs of their clients. They occupy a business
space at the intersection of IT, management consulting, industrial engineering and
productivity studies. Founded in 1981 by seven Indian software engineers, the company
soon went beyond basic software writing to encompass the organization-wide efficiency
needs of client companies in the USA, Europe and Japan. In the words of Govindarajan
and Trimble (2011) they blend the science of software with the art of consulting.
Companies like Infosys and Tata Consultancy Services provide classic examples of
learning by experience, recruiting the cream of first Indian and then worldwide talent.
In the case of these Indian EMMs, there are three sources of competitiveness, ethnic ties
or the diaspora of overseas Indians (Zaheer et al., 2008), strategic acquisitions
(Buckley et al., 2012) as well as considerable investment in research.
4. (Home base) capability augmentation
Since 2000, FDI through foreign acquisitions by EMMs has been an important
strategy. For the year 2011, UNCTAD (2012b) reports that $117 billion in FDI capital
was used by developing and transitional economies to purchase foreign company
assets. The strategic intent in many cases where the target company is in a
developed nation is to gain the acquisition targets knowledge, brands and other
proprietary assets for use back home and in other nations served by the EMM.
This is part of a general trend towards competence-creating subsidiary mandates
(Cantwell and Mudambi, 2005). In this new view of the MNE, competence no longer
resides mainly at headquarters but is dispersed across the MNE affiliates network
(Asmussen et al., 2009). Verbeke (2009) describes recombination capability or the
ability to synergistically assemble knowledge from several national affiliates as the
highest level of FSA of the MNE.
CEMEX is a classic example of tapping into and leveraging foreign knowledge.
Lessard and Lucea (2009) indicate that some 70 percent of CEMEXs technology and
business methods were learnt from acquisitions. For example, from their acquisition of
Spanish companies they learned the efficient use of petroleum coke as the main fuel,
and the majority of CEMEXs plants worldwide then switched over to that technique.
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Other examples include Indian pharmaceutical companies making acquisitions in

Europe (such as Dr Reddys acquisition of the molecular business of DowPharma),
Tata Steels acquisition in 2006 of European Corus Steel, Geelys acquisition of Volvo,
and Tata Consultancy Services takeover of TeknoSoft in Switzerland to gain a specific
IT capability. Oliveira et al. (2013) describe the strategic takeover of a German
company, Kaco, by Sabo which is a Brazilian auto component supplier. Kaco had
significant patents and proprietary technology in automobile sealants and sealing
systems, and has research links with German universities which Sabo wished to tap
into. This acquisition led to the Brazilian companys status as a supplier being
augmented, not only in the Brazilian auto industry but also in Europe.
Auxiliary benefits from EMM acquisitions of developed nation firms include
suddenly achieving globally competitive scale (e.g. Tata Steel is now amongst the five
biggest steel producers; Hindalcos taking over Novelis made it the biggest aluminum
rolling firm in the world) and acquiring a global brand (Bonaglia et al., 2007)
(e.g. Lenovo obtaining IBMs Think Pad brand, and Arcelik getting the well-known
Grundig brand from the bankrupt European consumer electronics firm).
Contrarian views. But we also see Contrarian views held by scholars like Karnani
(2012) who argue that some foreign acquisitions by EMMs are wasteful, do not
improve profitability and have loaded these EMMs with very high debt/equity ratios.
Relatively uncritical and lavish credit was extended to them by banks (especially if the
bank was allied, or was in the same business group), by government institutions, and
by conglomerate sister firms who were dazzled by the early international growth of
EMMs in the 1995-2007 period. Six years after the Corus acquisition, Tata Steel with
minimal fanfare, quietly recorded a write-off of $1.6 billion (The Economist, 2013).
Karnani and others assert that, on average, cross-border expansions of EMMs through
acquisitions do not create value, but destroy shareholder value in more than half of the
transactions analyzed.
5. Replication in other emerging markets
A competitive strength of EMMs is their familiarity with the pitfalls and advantages of
doing business in an emerging nation context, which they can then replicate in other
emerging markets. Brazilian, Chinese and Indian EMM investment has occurred in other
less-developed nations in Africa, Vietnam or the Philippines, in the early stages of their
internationalization. Duysters et al.s (2009) description of the international growth of
Haier relates how its early strategy was based on joint ventures (JVs) in the Philippines,
Dubai, Iran, Algeria, Jordan, Pakistan and Bangladesh, before they tackled FDI in the
USA. CEMEXs early growth was also in other emerging nations. This is an accepted
strategy for the initial forays outside of the home nation (Khanna and Palepu, 2006).
6. Natural resource seekers
More than other emerging nations, it is China that has embarked on resource security
investments by its state-owned companies in Africa. Led by organizations like
China National Petroleum Corporation and China National Offshore Oil Company,
more than 1,000 such Chinese investments exist on the African continent (Alden and
Davies, 2006; Athreye and Kapur, 2009). Such extractive sector projects are sometimes
accompanied by infrastructure construction projects built by large cohorts of imported
Chinese labor.
The above six strategies used by EMMs are by no means unique to developing
countries, or unprecedented. However, compared with MNEs from advance nations,
EMMs are more likely to be born-global; expand early to a more heterogeneous set of
countries; are more likely to depend on conglomerate or ethnic group, family and state
support; more likely to rely on acquisitions in order to rapidly gain needed capabilities;
and exhibit a higher propensity to form alliance relationships.
This overall pattern of international expansion by EMMs is in striking contrast to
the market-seeking or home FSA exploiting strategies that have historically been
practiced by advanced nation multinationals. Very few EMMs operate from a
position of global strength or from an assumption of dominance. Rather it is the
stance of a canny boxer facing a heavier opponent, an attitude that requires being
astute about how to overcome weakness, a dose of humility, and a view from
below behavioral and cultural traits that may have helped EMMs to punch above
their weight in international competition. In the next sections I propose hypotheses
that link the performance or success of EMMs with the behavioral attributes of their
leaders and managers, as well as contextual or structural factors that may promote
their international success.
Behavioral and cultural traits of EMM leadership
As it is, academia provides few generalizable conclusions or recommendations about
the link between leadership attributes, culture and firm performance. Moreover,
emerging markets themselves exhibit a diversity of traits, levels of economic
development and administrative heritages. With few general conclusions this far,
management of emerging market firms therefore is a relatively unexplored and fertile
field for research (Kiss et al., 2012). The discussion below, about how the background of
EMM managers influences their internationalization, is necessarily couched as a set of
propositions or hypotheses.
Drawing on the work of North (1991) about the meaning of institutions as a mental
construct, Dhanaraj and Khanna (2011) include customs, traditions, habits and other
culturally-rooted behavior as part of the institutional framework of a society that in turn
shapes corporate behavior and success. I connect this with the literature on leadership or
top management characteristics. Gibson and Birkinshaw (2004) show that
ambidexterity skills or predisposition, in middle and senior managers, is strongly
correlated with business unit success. Luo and Rui (2009) extend this to emerging
country managers. Ambidexterity is not a concept amenable to uni-dimensional
definition or measurement. It incorporates several behavioral traits such as alertness to
opportunity, cooperation and network building, inter-temporal tradeoff judgment skills,
multitasking, greater tolerance of ambiguity, a willingness to be adaptable and flexible,
and finally a dose of compassion and humanity. If one rubric can be used to describe
these behavioral or cultural attributes, it may be called the view from below a view of
business competition that does not assume strategic superiority but recognizes that
humility, flexibility, nimbleness and a clear-eyed willingness to seize opportunities when
presented, enable the EMM to punch above its weight.
I present below a set of propositions as a fertile research agenda (but with
the obvious caution that variation in both home and host nations needs to be
controlled for):
P1.
Patience and long-term orientation correlate with EMM success.
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Hofstede et al. (2010) added a fifth cultural dimension to Hofstedes (1984) study
that was originally labeled Confucian Dynamism but later renamed Long-term
Orientation. Noland (2003) linked long-term orientation to religious roots such as
Hinduism and Buddhism and proposed a positive correlation with business success.
Li et al. (2001) show that cultural traits, including long term orientation, influence
investment preferences and performance of JVs in China. However, systematic
assessment of this variable across emerging markets as a group is lacking:
P2.
Greater tolerance or acceptance of ambiguity correlate with EMM success.
In an environment of weak laws or poor government, greater tolerance of ambiguity can be

an asset if it leads to seizing opportunities that a more rules-driven manager would ignore.
Cuervo-Cazurra and Genc (2008) suggest that EMMs can develop capabilities in operating
in poor regulatory contexts that MNEs from advanced nations do not handle well, or are
averse to giving the EMM a relative advantage. They cite the World Banks (2005),
Global Development Finance Report, to give the example of South Africas MTN which
displaced Vodaphones near monopoly in Uganda because of greater willingness to take
risks and understand another African companys business environment. According
to Hoskisson et al. (2000), tolerating the notion that contracts may not be enforceable
in emerging nations can be a competitive advantage to an EMM manager who is willing
to accept the uncertainty as opposed to a manager from advanced nations that may
shirk from making an investment without the greater assurance of enforceable contracts.
However, empirical verification is needed as to whether this advantage is also
applicable when EMMs operate in developed nations:
P3.
A relationship-based home culture confers an advantage on the EMM.
A cultural milieu that is rich in relationships encourages firm learning and

membership in networks (Buckley et al., 2007; Mathews, 2006). Social networks can act
as a replacement for institutional voids (Ahlstrom et al., 2007). Peng (2012) relates how
the Chinese term guanxi is a valued and integral part of Chinese culture. Networking
between Chinese firms is routine in search for learning new technological ideas, and
gaining market insights. Indian and Brazilian culture may also be described as more
relationship-intensive compared with Europe or the USA.
But how does greater social capital and relationship intensity translate into greater
EMM success in other nations, outside the firms home base? One can hypothesize two
ways this occurs. First, the richness of home nation interactions and networks may
create a mentality that is hungry for knowledge through avenues and links with
companies in foreign locations as well. Peng (2012, p. 100) states that [. . .] many
emerging MNEs openly profess that they go abroad to learn. Second, EMMs are
street smart from operating in countries where the social network substitutes for
institutions. Hungary may be classified as an advanced nation and member of the
European Union. Even in that setting, Dhanaraj et al. (2004) indicate how alliances and
JVs provide an avenue for learning and capability building:
P4.
EMMs exhibit a greater propensity to learn from alliance/supply

chain/outsourcing partners.
First, let us start with a word of caution. While the literature on EMMs abounds with
examples of alliances as an important means of EMMs international growth,
comprehensive data are lacking that would show an across the board greater
propensity to form alliances and cooperative relationships, compared to advanced
nation MNEs. Second, we know that alliances are formed for a multiplicity of reasons
ranging from simple sharing of project risk, to dividing up markets, to learning
(Contractor and Lorange, 1988). But we lack evidence to prove the specific research
question in P4 that EMMs have a greater propensity to learn from partners other
than the obvious fact that companies from emerging nations have a generally greater
need for technology acquisition.
Anecdotal evidence is widespread, however. For example, Bonaglia et al. (2007)
describe how a Mexican company, Mabe, leveraged learning from a JV with General
Electric for refrigerators that enabled it to not only expand in Mexico but have operations
as a preferred supplier in the USA. Today, Embraer of Brazil is not only a dominant
manufacturer in the under-100 passenger region jet, but has its own design and R&D
capabilities. But in its early days, in the 1990s, Embraer relied on several alliance partners
ranging from Kawasaki of Japan and Latecoe`re of France, to develop its aircraft. Partners
were also useful to share commercial risks (Oliveira et al., 2013). Similarly, learning
technology as a licensee of Liebherr of Germany in 1984, Haier of China is today one of the
largest producers of refrigeration equipment. It is on its way to becoming a global brand.
Of course, the strategic value of international alliances goes beyond learning from
partners. Alliances also act as a means of learning about foreign markets, segments,
channels, influencers, cultural cues or pitfalls, foreign regulatory requirements, as well
as business behavior and etiquette. The Indian Bollywood company, Reliance
Entertainments alliance and investment in Steven Spielbergs DreamWorks is based
on the increasing globalization of audiences, the pooling of production facilities and
directoral talent between Hollywood and Bollywood, learning from each other about
cultural hot buttons and opportunities, sharing each others distribution channels,
and simple risk-sharing of the high up-front costs of producing movies.
The race does not always belong to the strong. It may be won by the firm that can
better learn from its partner and then is willing to exhibit dynamic capabilities in
reconfiguring its resources with flexibility and humility (Zahra et al., 2006):
P5.
EMM top management exhibits greater humility or a servant-leadership style

which results in improved performance.
A small but growing literature on the role of humility in corporate leadership (Owens
and Hekman, 2012; de Waal and Sivro, 2012) shows preliminary results that such
leadership styles are beneficial to organizational performance. Here we are not
referring to an outward show of meekness, versus a strong facade as seen in high
power-distance cultures (Hofstede et al., 2010). Rather, I refer to a recognition on the
part of the EMM manager that value may be gained from an open-minded approach
that assumes a strategic view from below a recognition of the need to learn and
play catch-up (Peng, 2012).
An example of clearheaded willingness to cater to and adapt products for different
customer types explains the unlikely international success of GoodBaby. Started in the
small town of Lujia in Jiangsu Province by a former school teacher Mr Zheng-Huang
Song had a tinkerers approach and invented the push and rock stroller for the
Chinese market. He later inculcating to his top management the need to study and
understand each customers preferences. Willingness to learn foreign customer habits,
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and cater to every cultural nuance, the company launches over 400 new products and
models every year[6] and is known to its purchasers in Europe and the USA as a firm
eager to please. (Their US designs for baby strollers are large and have cup holders.
Designs for Scandinavia stress elegance, while designs for the Japanese market are
lean and fold into compact storage shapes).
The founder and CEO of CEMEX, Mr Lorenzo Zambrano promulgates a management
philosophy to his leadership team, dubbed The CEMEX Way, which emphasizes
shedding any hubris or not invented here (NIH) syndrome. Instead, with any new
venture or acquisition, they look for ways to transfer best practices, or arbitrage cheaper
inputs across global operations. Frugal and lean production methods learned in
emerging nations (including Mexico) were transferred to Spain, resulting in annual
savings of $120 million, just as the Spanish operation taught the use of petroleum coke as
fuel (which resulted in substantial savings in worldwide operations). Spanish sources of
financing were much cheaper than interest rates available to CEMEX anywhere else
(Lessard and Lucea, 2009). Altogether, CEMEX appears to have enjoyed billions in
savings and benefits from this management philosophy or approach.
In international operations, cross-border learning and arbitrage opportunities
frequently exist. However, it takes a clearheaded, humble and frugal top-management
style to use this advantage of multinationality to its fullest extent:
P6.
A frugal mindset is an ownership advantage for EMM firms.
A multi-billionaire who until recently drove himself in a five year old Lincoln automobile
and has lived for decades in a house he purchased for $31,500 in a middle-class section
of Omaha, Warren Buffet is a logical admirer of, and large investor in, BYD, a Chinese
electric car and lithium-ion battery producer. Williamson and Yin (2013) describe how
BYD is arguably the worlds leader in reducing the cost of lithium-ion battery production
from $40 to $12 by innovating a new production process that uses cheaper materials
and can be performed at room temperature. This substantial saving has resulted in
lithium-ion batteries gradually replacing nickel-cadmium batteries worldwide, not only
in vehicles, but in a range of applications from tools to appliances.
Like Warren Buffet who began his career delivering newspapers, EMM managers
remember their roots. A frugal mindset inculcated through the company, can be an
ownership or FSA for EMMs. It is manifested in three areas:
(1) Frugal process or engineering innovation like CEMEXs or BYDs organized
search for production process savings.
(2) Frugal design innovation that responds to customer needs in emerging
nations by creatively lean and inexpensive yet thoroughly functional
designs. GEs electrocardiogram machine that can perform a test on a patient
for $1 (Immelt et al., 2009) or the Tata Nano car for $2,500 are two among many
such examples of minimalist designs. But more importantly, these platforms
can then be scaled up the income ladder to work in advanced and affluent
markets. GEs research center in India (incidentally one of GEs largest R&D
operations in the world) is developing concepts that will reduce health care
costs in the USA and Europe. Mango, a mobile communication software startup
in Bangalore partnered with the American firm Qualcomm which then bought
over the software rights for use in other nations. Grameen Banks microfinance
models are adapted and used for crowd-funding in the USA. GE [. . .] expects
20% to 25% of [. . .] X-ray products to be developed in China during the next

three to five years (will be) for sale around the world (emphasis added) (Burkitt,
2011). Somewhat gauchely labeled reverse innovation by Govindarajan and
Trimble (2012), a corporate mindset that continuously searches for cost
reduction and efficiencies, actually can be traced back to Japanese firms in the
1960s and 1970s (who adopted statistical process methods from W. Edwards
Deming), or even further back to early twentieth century pioneers such as Frank
Gilbreth, Frederick Taylor and Henry Ford, whose relentless drive for cost
reduction resulted in the era of mass-production that we live in.
(3) Frugal overheads in both service and manufacturing operations can lead to a
considerable competitive advantage (World Bank, 2005). Garanti Bank in
Turkey is cited by Khanna and Palepu (2010) as having one of the lowest cost
structures in the world. In a most unlikely tale of an American founding a large
Chinese auto component company in 1994, Perkowski (2008) attributes his
success, in part, to adopting Chinese methods. For example, executives, when
traveling, stay two to a room in three-star hotels. This was only one of several
examples of frugality. In a talk Jack Perkowski gave to the authors MBA class
in Beijing, he indicated that relentless questioning of all significant costs are a
necessary ingredient in Chinese companies international business success[7].
Competitiveness does not always depend on a rich resource base, but in dynamic
capabilities that can work with and reconfigure limited resources to greater advantage
(Zahra et al., 2006):
P7.
A global mindset is an ownership advantage for some EMM firms.
Levy et al. (2007) describe a global mindset as the awareness by top managers of a
company, of cultural and national diversity, and the ability to identify best foreign
practices, and incorporate these into their companys operation, leading to superior
performance. A cosmopolitan world view also promotes human resource policies
conducive to inducting talent from other nations. It also leads to better functioning of
multi-cultural or dispersed teamwork. An excellent example is Lorenzo Zambrano of
CEMEX who came from a cosmopolitan Mexican family and was educated in the USA.
However, a positive relationship between a global mindset and firm performance
remains an unresolved question for further research. For one thing, there is
considerable variation in the degree of international exposure across emerging nations.
Second, what empirical support there exists for this positive hypothesis is conditioned
by mediating variables such as the foreign assignment experience of managers, the
degree of cross-border supply chain fragmentation of the firm and industry
dynamism (Bouquet et al., 2008). This study also found the relationship between
global mindset and performance to be curvilinear. Tan and Meyer (2010) are agnostic
about the value of diversified business groups but offer the idea that the international
work experience of group managers can have a positive effect on the success of new
international ventures undertaken by one of the groups companies. Clearly, more
research is needed before generalizations can be made for all EMMs.
Thus, far we have offered seven hypotheses or propositions on the competitive
advantages that may accrue to EMMs because of the behavioral or cultural
proclivities of their top management teams. In addition, at the national level, we can
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identify structural, economic or societal characteristics that can constitute a

home-base locational advantage for the EMM.
Home-based locational advantages of EMMs
Can a home base in an emerging country, in itself, confer a competitive advantage to its
companies? A considerable literature labeled LOF exists about the initial barriers to
any companys international expansion, because of institutional distance between the
nations in terms of different regulations, discrimination against foreign firms, cultural
norms, and patterns (Zaheer, 1995; Eden and Miller, 2004). The institutional and cultural
distance between an emerging nation home base and a foreign market can be even
greater than traditional patterns of FDI flows which mainly saw FDI from one advanced
economy to another. Add to that the fact that institutions are less-developed in emerging
nations, so that their firms face an environment of institutional voids (Khanna and
Palepu, 2006). Hence successful ventures by EMMs abroad and particularly EMM
expansion into advanced nations would seem to be fraught with obstacles.
But can the same relatively underdeveloped home country environment actually be
an advantage to the EMM in many cases? This and similar research questions are
explored below.
Can an underdeveloped institutional home environment be an advantage?
The hypothesis put forward by Khanna and Palepu (2010), Guillen and Garcia-Canal
(2009) and others is that coming from a background of constrained resources, poor
enforcement of legal rights, underdeveloped financial and resource markets,
unpredictable regulations, and capricious bureaucrats, teaches the EMM manager
how to be pliable, shrewd and persistent in overcoming obstacles. It inculcates an
attitude of being unwilling to take no for an answer. A propensity to search for
alternate paths and creative solutions around problems, according to this hypothesis,
pays off when the EMM operates in richer, more institutionally developed nations
and it also helps the EMM to outperform other multinational competitors in
less-developed nations. Cuervo-Cazurra and Genc (2008) found empirical evidence that,
in least-developed nations, EMMs were more prevalent in the lists of the largest foreign
firms, especially if the least-developed nation ranked low in regulatory effectiveness
and high in corruption. More research needs to be done to investigate this hypothesis at
both the macro-economic and organizational psychology level. (I could find no study
that systematically compares, across a large set of nations, innate psychological or
cultural traits related to persistence in the face of obstacles).
Does the greater incidence of family control or private equity ownership in EMMs confer
an advantage?
Carlock and Wards (2010) comprehensive analysis of the characteristics of family
businesses suggest several advantages over professionally run organizations. These
include patient capital or a longer term strategy, quicker financial decisions and seizing
of opportunities (Serrasqueiro et al., 2012), and an extended social network that can
provide both ideas and capital (Ahlstrom et al., 2007; Luo, 2003). Of course, closely held
companies also suffer from disadvantages compared to those that are publicly listed.
EMMs appear to have a higher than average incidence of closely held companies. If so,
in an international setting do the advantages of private equity and family control
outweigh the disadvantages and result in superior performance? Certainly there exist
several examples of family controlled EMMs that are very successful such as the Koc
family group of companies based in Turkey or the Tata Group[8] from India that are
successful multinationals.
Does the greater incidence of diversified conglomerate structure in EMMs confer an
advantage?
Two conclusions are broadly accepted as received wisdom. First, that product
diversification in a developed economy setting is not necessarily optimal. Second, that
many EMMs nevertheless are product diversified groups (Khanna and Yafeh, 2007).
The hypothesis is that in emerging nations, characterized by poorly developed
institutional settings, the benefits of group affiliation outweigh their disadvantages.
Benefits include pooling of ideas, talent and capital across group firms (thereby
garnering for the group faster and superior human and financial capital); the value of
the groups brand or reputation in both consumer and equity markets (Fombrun, 2005);
and more arguably, that some conglomerates like GE or CEMEX that have grown
mainly through acquisitions, develop an internal expertise in identifying acquisition
targets and managing post-merger integration. That is to say, acquisition targeting
and management skills is an internalized ownership advantage that gives them
superior international growth. For example, in CEMEX, under the leadership of
Lorenzo Zambrano, with multiple acquisitions, the group codified their acquisitions
expertise by writing a manual or creating an acquisition template.
We cannot, however, ignore the counter view, espoused by Karnani (2012) who
studied Indian MNEs foreign acquisitions and found that they destroyed shareholder
value, especially after the onset of the global recession. For instance, Suzlon was in
considerable financial distress in 2011-2012, having become over-leveraged. In 2013
Tata Steel wiped $1.6 billion off the books of their Corus Steel acquisition, having paid,
in retrospect, far too a high a price for the acquisition (The Economist, 2013). What the
field needs is a deep look at the sources of EMMs acquisitions expertise, if any, and
how and whether that translates into an ownership or firm-specific advantage.
The home country pool of scientists and engineers (and cheap labor)
While no econometric measurement exists quantifying the benefit of relatively
low-salary technical and scientific talent accruing to EMMs, this cheaper input is
undoubtedly a competitive advantage especially in recent decades as the capabilities
of technologists in emerging nations has begun to rival those of their peers in advanced
nations. We have the dirty secret of IBM employing more persons in India[9] than in
the USA (many of them skilled workers). American companies like GE and Dow
Chemical similarly are shifting some of their R&D to China. Kumar et al. (2013) report
that the Chinese operations patent intensity[10] is higher than in other Dow Chemical
operations. BYD, Suzlon, Reliance, and Infosys have appeared on several lists of the
most innovative companies (Kumar et al., 2013).
The home country pool of scientists and engineers constitutes a competitive
advantage for EMMs in three ways. First, good and sometimes world-class talent can
be hired for considerable savings over their OECD counterparts. Many emerging
nation engineers have been educated in advanced nations universities. Internet
communications, the worldwide spread of technical journals, the explosion in
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international conference travel, and the sheer fact that companies are codifying and
sharing their knowledge (Steinmueller, 2000; Contractor and Ra, 2002) mean that
emerging nation scientists can keep abreast of their fields while working for EMMs at
lower salaries. Second, EMMs increasingly participate in, and learn from, their role as
global supply chain partners. The fine-slicing of global value chains, including the
slicing and offshoring of even R&D functions, means that EMMs can learn and
eventually leverage their own capabilities and extend them to other portions of the
value chain that are more profitable (Contractor et al., 2010). For example, by 2015
approximately half of all clinical trials of incipient drugs (a portion of pharmaceutical
R&D) will be performed in developing and transitional economies. Third, contract
research (not just for duplicate research for tests like clinical trials but for new
product development) is a fast growth area for EMMs. High-end software development
in services is already well known in firms like IBM (India), Tata Consultancy Service or
Infosys. The computer animation capabilities in India are one driver for alliances
between Bollywood, Hollywood and firms like Reliance Entertainment. Now, even in
manufacturing we are beginning to see R&D projects specifically commissioned to
develop new products for advanced nation markets, as in Suzlon (for wind turbines
installed in Europe or the USA), GoodBaby and the Dow Chemicals Company.
Finally, we cannot neglect the considerable advantage to EMMs not only from
talented and low-cost scientists and engineers, but also from cheap labor (Aulakh et al.,
2000). While this is undoubtedly a factor explaining the international success of
companies like Haier, Galanz or export-intensive garment producers in Bangladesh,
the strategic value of cheap labor in the home country does not universally apply. First
of all, this factor applies best in labor-intensive production. The fact is that not all
production has a high labor content in overall costs. Second, as the smiling curve
argument suggests (Mudambi, 2008), other portions of the value chain if occupied by
the EMM yield much higher profitability, so that even with costly labor at home a firm
can be globally competitive overall. Excellent examples of this are companies like
Samsung or Hyundai that produce at a relatively high labor cost in Korea, but more than
offset that higher cost because of the value of their global brand and R&D. Third,
automation can substitute for labor. Contractor (2012a) compares productivity measures
across several nations. Despite very high manufacturing wages (e.g. $34 an hour for the
American worker, versus an average of $1.60 in China), some manufacturing jobs have
been returning to the USA for reasons Contractor (2012a) details. After all, despite
average manufacturing wages of $34 in the USA and $47 in Germany, these two nations
rank just behind China as top exporters of goods because of high labor productivity.
By contrast, India despite wage rates about the same as Chinas exports less than
one-fifth the volume of China. Manufacturing competitiveness is not merely a matter of
hourly wages, but is also substantially affected by company investments in automated
equipment, and labor productivity.
How a diaspora of emerging nation managers and ethnic ties can constitute a
competitive advantage?
Several of the large emerging nations enjoy the advantage of having large diasporas.
The Indian diaspora is estimated to be between 20.7 to 22 million worldwide, with
around 4 million in North America and over 2 million in Europe (The Economist, 2011;
Wikipedia[11]). The Chinese diaspora is estimated at about 40 million in all, but this is
considered almost certainly a considerable underestimate ( Jacques, 2008).

The Brazilian diaspora is said to be 1.5-2 million strong of which as many as
450,000 reside in the USA[12]. The salient fact about diasporas is that in terms of
tertiary education, income, technical skills, wealth, global consciousness and network
connectivity, diaspora members are vastly superior to the averages in their countries of
origin (and in the case of persons of Asian origin in North America and Europe, also
above their adopted nations averages). Hence diasporas can be a highly valuable
resource for EMMs.
There are surprisingly few definitive empirical studies that specify the types of
advantages diasporas contribute to multinationals based in their countries of origin,
let alone any quantification of the benefits. A few scattered studies show that diasporas
facilitate trade between their adopted and origin nations (Tung and Chung, 2010) or
that the patterns of outward FDI from China (between 1984 and 2001) reflected the
geography of Chinese diasporas (Buckley et al., 2007).
Exactly how do diasporas constitute an advantage for the EMM? We can suggest
four mechanisms as hypotheses:
(1) Diasporas acting as bridging or network agents that enable the EMM to
connect with overseas knowledge clusters and tap into technical spillovers in
those clusters. Lorenzen and Mudambi (2012) describe how Bangalore
(by which they mean the Indian IT sector as a whole) and Bollywood (a term for
the Indian film industry based in Bombay) make heavy use of ethnic ties with
persons of Indian origin in North America, to tap into knowledge and
investment opportunities in Silicon Valley and Hollywood. There is anecdotal
evidence of similar benefits accruing to Chinese multinationals by connecting
with ethnic Chinese in Singapore and North America.
(2) Diasporas providing talented employees to EMMs in their home countries as
well as to staff foreign subsidiaries. Oettl and Agrawal (2008) use patent
citations to trace the trace the transfer of knowledge by innovators and diaspora
employees across companies, as well as their spillover externalities.
(3) Diasporas as sources and conduits for investment capital. Leblang (2010)
shows that [. . .] even after (statistically) controlling for a multitude of factors,
diaspora networks have both a substantively significant effect and a
statistically significant effect on cross-border investment.
(4) Diasporas as markets. Ethnic marketing, as such, is unlikely to be of
significant size because of the dispersal of the diasporas over several nations.
However, ethnic concentrations in advanced nations can provide an initial
entree and insights into an advanced nation market for some EMMs and an
opportunity to test foreign markets at relatively low risk through initial
exporting targeted at a limited audience (Wang et al., 2013).
Does home state support constitute a competitive advantage for EMMs?
We should note, at the outset, that state support for EMMs is widespread in China and
Russia, but does not significantly influence firms from other emerging nations. In fact,
the role of government in fostering Indian EMMs has been viewed as somewhere
between neutral and malign.
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That firms in China are state-supported and are guided by state dominated
institutions, and that they exhibit conformist and isomorphic behavior, hardly needed
empirical verification, but was demonstrated by Cui and Jiang (2012) who tracked the
investment behavior of 132 FDI entries made by Chinese firms during 2000-2006. A far
more critical review of the depth and extent of Chinese government support is found in
Haley and Haley (2013), who allege massive subsidies, active support for technology
acquisitions, and protectionism.
In general, in several emerging countries, state support may be manifested in diverse
ways. Obviously, state financing means that the investment risk is not borne by private
shareholders or groups. Additionally, special incentives are sometimes offered for
outbound FDI projects, in the form of lower interest loans, or tax reduction (Luo et al.,
2010; Duysters et al., 2009). Various ministries can front the costs of foreign market
research, identify acquisition targets and negotiate FDI facilitating investment treaties
and double-tax avoidance treaties. In rare cases, heads of state have been known to lobby
their counterparts in the foreign nation, to allow the entry of a particular investment on
favorable terms. The knowledge that a firm is related/owned by a state (as opposed to
privately-owned), ipso facto, reduces political risk in the foreign location, for example in
Chinese investments in Africa (Alden and Davies, 2006). (The hypothesis is that a host
government will be less likely to pressure a foreign firm if it is state owned because of
fears of diplomatic repercussions or retaliation.)
State support can be even more important, in the long run, when government policies
serve as an incubator of incipient multinationals. Embraer, today a highly successful
Brazilian commercial aircraft manufacturer, began as a state-owned enterprise (SOE).
In 2008, in a barely disguised move to muscle into the commercial aircraft global
oligopoly, China created Commercial Aircraft Corporation of China (COMAC) with the
stated strategic objective of rivaling Boeing and Airbus (Kumar et al., 2013). Aided by the
huge domestic aviation market (Itself dominated by government-aided airlines who
would buy aircraft from COMAC[13]), aided by government financing, and aided by
inward FDI policies that mandate that foreign firms must ally with local partners and
share technology, COMAC is on its way by 2015 to delivering its C919 aircraft
(a 168 passenger jet which will compete with the Boeing 737 and Airbus A320), to six
Chinese airlines and Ryan Air. The Chinese automobile sector is another example of
deliberate policies, mandating JVs and technology transfer, which have positioned
Chinese auto companies like Shanghai Automotive Industry Corporation (SAIC) or Geely
to become global players. Similar examples abound in the natural resources sector across
many emerging countries.
The competitive advantage of a common language or English skills
A number of studies in international business and economic geography have used a
common language as a dummy variable. A common language was found to explain
cross-border shareholding patterns (Grinblatt and Keloharju, 2001); knowledge
diffusion (using patent citations as a measure in MacGarvie, 2005); trade patterns
(Fratianni, 2007); and determinants of FDI flows between countries (Globerman and
Shapiro, 2002 or di Giovanni, 2005). However, a common language has not been the
main focus of a study explaining FDI flows.
A common language can be a proxy for cultural similarity or low cultural distance
and sometimes works better as an explanatory variable than the multi-dimensional
cultural distance construct (whose use as an explanatory variable has come under
serious criticism by authors like (Shenkar, 2012).
The importance of language in facilitating international business FDI is more direct and
self-evident (than more subtle psychological factors such as power-distance or
masculinity (Hofstede et al., 2010)). We see as examples Chinese investments in Mandarin
and Wu-speaking nations. We see it in Brazilian investments in Angola (Oliveira et al., 2013)
and by cases such as CEMEXs acquiring two Spanish companies which was an
important step on the companys path towards full internationalization. At first blush,
Indian EMMs may appear to be different. But they too have tended to follow their countrys
unofficial but common language of business namely English with substantial
investments in the USA, the UK and Canada. FDI related to outsourcing of service functions
in particular is driven in part by a common language skills as witnessed by service work
offshored from North America and the UK to the Philippines and India (Doh et al., 2009).
Conclusion
Like a boxer facing a heavier opponent, emerging nation multinationals (EMMs) have
had to learn how to punch above their weight in order to compete with advanced
nation firms with larger resources, richer home economies, a longer history of
internationalization, and knowledge, capital and brand reputation accumulated over
many decades. By contrast, EMMs are much younger (many did not exist 25 years
ago), more nimble, shrewd, and aggressive in M&A. They suffer not only from the LOF
(Eden and Miller, 2004; Zaheer, 1995) that all internationally expanding firms face, but
do so to a greater degree. This is because EMMs have only recently internationalized,
and because EMMs operating in advanced nation markets face a larger institutional
and cultural distance, than in the traditional patterns of FDI flows when a
multinational from one developed nation invested in another developed country.
The objective of this paper was to comprehensively review the field and identify the
sources of global competitiveness for EMMs. Many of the factors in this paper are
proposed as hypotheses because empirical evidence is scantly. This also makes for a
promising future research agenda. EMMs appear to fall into six strategy archetypes, ones
that are near a global competitiveness scale; outsource producers or mass assemblers
seeking to climb one or both ends of the smiling curve (Mudambi, 2008); global
knowledge and process consultants; EMMs replicating their home country experience in
other emerging nations; and natural resource seekers.
The paper next ventured in relatively unexplored territory the link between
the behavioral traits of top management and cultural setting of EMM companies, and
firm performance or success. As a set of seven hypothesis it was proposed that the
competitive success of EMMs is dependent on its leaderships:
(1) long term orientation;
(2) tolerance of ambiguity;
(3) humility or servant-leadership style;
(4) global mindset;
(5) frugal mindset, as well as;
(6) a relationships-oriented home culture that results in; and
(7) a greater propensity to learn from cooperative relationships and alliances.
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For the most part, we only have anecdotal and case evidence for these propositions, but
they provide a fruitful line of further research.
Besides the fact that the home nations of many EMMs are relationship-rich cultures,
what other characteristics of the home base may constitute an advantage? Does the
greater incidence of private equity or family control, and product conglomerate
structure provide strength? (In each case, contrary views and caveats are indicated.)
The advantages of a home nation pool of lower cost scientists, engineers and labor, as
well as the sizeable Chinese, Indian and Brazilian diasporas are explored. Opinion is far
more equivocal about the importance of state support in explaining EMM success
(except in the case of China). Finally, the paper examines the role of a common
language in the international growth of EMMs.
In the broadest sense the issue this review tackles is this: since most EMMs are
initially weak in, or lack significant internalized, ownership, or FSAs in the
beginning of their internationalization path, we have to look to two other sources for
their performance or competitive strengths. Accordingly, this analysis disaggregates
and identifies each of the strands of:
(1) the home country location advantages of EMMs; and
(2) advantages of a multinational scope that make up for their relative lack of FSAs.
Notes
1. Later, Prof. Jagdish Bhagwati became apostate to his own views and is today a champion of
FDI and free markets.
2. At an annual rate of 11.75 percent compared with 9.46 percent annual growth for FDI
worldwide and 7.86 percent for international trade (estimates by the author, are in nominal
US dollars, from various sources including UNCTAD and WTO).
3. BRICS is an acronym for Brazil, Russia, India, China and South Africa (ONeill, 2001).
4. R&D budget size is not always a guarantee of success. We find a counter example in the
pharmaceutical industry where the giants, despite enormous budgets, have shown a poor
rate of innovation. Consequently, the sector as a whole is veering towards alliances with
more nimble bio-tech startups which seem to do better in the discovery and molecular
analysis phases of pharmaceutical R&D than their Big-Pharma partners.
5. Former CEO of Acer.
6. www.gbinternational.com.hk/rd.php
7. Conspicuous displays of wealth, in a high power-distance culture, interact uneasily with
Confucian values. The same executive that rides to work in a luxury automobile will then
demand frugality and cost-consciousness from employees.
8. The Tata companies are actually almost all publicly listed, and the last family scion, Ratan
Tata stepped down as Chairman in 2012, handing control over to an outsider. However, the
structure of the conglomerate is such that two holding companies (Tata Sons and Tata
Industries) wield effective control over each group company through two mechanisms: (i) the
holding companies have minority shareholding but control the biggest single bloc of shares,
the rest being widely dispersed over the public and financial institutions, and (ii) respect for
tradition whereby succession is passed from each chairman to his choice as successor. So far,
the ties of finance, ethnicity and tradition have held the group together.
9. Since this is politically sensitive, after 2009 IBM has stopped disclosing the size of its Indian
subsidiaries employment.
10. Comparisons of patents across nations are to be viewed with caution, however, since
scientists from different nations have a different predilection to file patents. (In China this is
a matter of great national pride and several of the patents filed there are of doubtful
commercial value.) Moreover, each nations Patent Office rules still vary significantly.
Nevertheless, there is little doubt about the innovation potential of Chinese scientists, their
relatively low cost, and their better grasp of the feedback loop from market or consumer
preferences to R&D.
11. http://en.wikipedia.org/wiki/Non-resident_Indian_and_person_of_Indian_origin
12. Wikipedia, http://en.wikipedia.org/wiki/Brazilian_diaspora
13. Boeing and Airbus wish they were so lucky as to have a guaranteed-in-advance market base.
However, we should not forget that Boeing itself is state-supported (through its defense
business) and Airbus is a consortium supported by European Governments. Both Boeing
and Airbus enjoy, albeit to a lesser degree, the advantages of government support discussed
in this section of the paper.
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Corresponding author
Farok J. Contractor can be contacted at: farok@andromeda.rutgers.edu
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Punching above their weight

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International Journal of Emerging

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and services to 45 of the 50 biggest telecommunications companies, Huaweis

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factors, such as long-term orientation; a degree of humility (what I may describe as

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developed nation counterparts (ACCA, 2012) an access which is a significant

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value chain. GoodBaby, by contrast, is strong in incremental innovation (5,174 minor

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Other examples include Indian pharmaceutical companies making acquisitions in

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Patience and long-term orientation correlate with EMM success.

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Greater tolerance or acceptance of ambiguity correlate with EMM success.

In an environment of weak laws or poor government, greater tolerance of ambiguity can be

A relationship-based home culture confers an advantage on the EMM.

A cultural milieu that is rich in relationships encourages firm learning and

EMMs exhibit a greater propensity to learn from alliance/supply

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EMM top management exhibits greater humility or a servant-leadership style

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A frugal mindset is an ownership advantage for EMM firms.

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20% to 25% of [. . .] X-ray products to be developed in China during the next

A global mindset is an ownership advantage for some EMM firms.

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identify structural, economic or societal characteristics that can constitute a

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considered almost certainly a considerable underestimate ( Jacques, 2008).

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Zaheer, S. (1995), Overcoming the liability of foreignness, Academy of Management Journal,

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