Multinational Corporations and Emerging Markets

by

Li Dai

• LAST REVIEWED: 31 August 2015
• LAST MODIFIED: 31 August 2015
• DOI: 10.1093/obo/9780199846740-0083

Introduction

The emerging markets refer to a collective of countries undergoing rapid and largely liberalizing transitions in their economic, political, and social realms, often with the effect of a burgeoning middle class and unprecedented opportunities for growth. Management research in the area of emerging markets falls into two broad categories—studies that examine firms internationalizing to these markets and those that look at firms from within these markets. This article serves to highlight works from both traditions. Given the tremendous variation across the emerging markets in both the scope of economic development and pace of political change, it makes little sense to discuss these countries as a group, if it were not for the greater similarities they share with one another than with their developed country counterparts. In contrast to established markets, the emerging markets are characterized by unmatched rates of industry formation and consumerism made possible by precipitous urbanization and increased purchasing power, sizeable informal economies that have largely emerged unscathed from the financial crisis of 2008 afflicting many advanced economies, and greater political strife that is nonetheless stabilizing in many areas of the world. Despite progress on many fronts, however, the emerging markets have yet to emerge from general, albeit varying, states of rampant corruption, civic and media censorship, weak to nonexistent legal and regulatory frameworks, and missing infrastructure and intermediaries in energy and transportation systems, skilled-labor markets, and financial institutions. This article presents research on how multinational enterprises (MNEs) seeking high-growth opportunities tackle these challenges in entering emerging market countries before introducing a group of studies on emerging market multinationals. The lackluster conditions in their environment notwithstanding, multinational companies from emerging economies increasingly wield a growing and nontrivial influence on economic and political dynamics in developed, emerging, and developing countries alike. Governments in developed countries and developed country multinationals (DMNCs) are increasingly facing an array of challenges and opportunities presented by emerging market multinationals (EMNCs) seeking access to their markets and assets. In addition, the outward expansion and domestic activities of these firms exert a significant influence on the competitive and policy landscapes of both their host countries and home countries. Because the emerging markets are of interest to and draw on the work of economists, sociologists, policy analysts, political scientists, and management scholars alike, research on firm strategy and outcomes associated with this context is necessarily infused with perspectives from diverse disciplinary traditions. The field of management has advanced knowledge on multinationals and emerging markets through the study of its institutions, as well as resource and network attributes, despite the paucity of data and methodological provisions.

General Overviews and Introductory Works

Although academic journals are the most common source of new developments and information on doing business in emerging markets, classic books on the topic provide readers with a compelling view of emerging market phenomena and serve as excellent starting points for exploring the topic. In addition, handbooks on management topics related to emerging markets serve as systematic reference resources and academically informed guides to this domain of research. For an overview of business groups, which are especially prevalent in emerging market countries, Colpan, et al. 2010 is a comprehensive resource with contributions from some of the leading scholars in the field examining the adaptive and competitive capabilities of business groups, including sixteen chapters on business groups spanning countries from Asia to Africa and the Middle East to Latin America. In addition, the lack of institutional intermediaries and informal economies that characterize emerging markets render the literature on social capital essential for gaining insights on the source of competitive advantage in these economies. Lin 2002 provides a detailed review of social capital that argues for the value of social connections or informal networks as a function of the resources forthcoming from such ties. Khanna and Palepu 2013 is a practitioner’s guide offering pragmatic checklists of do’s and don’ts for achieving success in what the authors recognize as emerging yet widely varying operating contexts. Prahalad 2006 is another landmark work that draws attention to value-creating strategies for the five billion poor at the “bottom of the pyramid,” or two-thirds of the world’s population, that span the emerging markets and represent enormous potential for global companies.

• Colpan, Asli M., Takashi Hikino, and James R. Lincoln, eds. The Oxford Handbook of Business Groups. New York: Oxford University Press, 2010.

  DOI: 10.1093/oxfordhb/9780199552863.001.0001

  This volume provides a guide to understanding business groups—the large, diversified, often family-controlled organizational structures such as the Japanese zaibatsu, the Korean chaebol, and the Latin America grupos—that have played an instrumental role in the economic growth of emerging market economies.

• Khanna, Tarun, and Krishna Palepu. Winning in Emerging Markets: A Road Map for Strategy and Execution. Boston: Harvard Business Press, 2013.

  A great practical guide for thinking about institutional voids—or lack of important intermediary functions in a market—and what they mean for doing business in emerging market economies.

• Lin, Nan. Social Capital: A Theory of Social Structure and Action. Cambridge, UK: Cambridge University Press, 2002.

  The role of guanxi, or personal relationships based on reciprocity, is recognized and thoroughly developed as the Chinese version of social capital or a form of relational exchange that reflects the basic idea of network capitalism: a system of reciprocity, trust, and interdependencies that can create significant organizational advantages in emerging market contexts.

• Prahalad, C. K. The Fortune at the Bottom of the Pyramid. Upper Saddle River, NJ: Wharton School Publishing, 2006.

  In this case-filled book, Prahalad argues for a focus on value rather than price in emerging markets, predicting a competitive advantage for companies capable of developing radical innovations in technology and business models that will help to alleviate poverty, avert social decay and political chaos, and prevent environmental meltdown.