Five internationalization strategies of multinationals from emerging markets

mapa estilizadoCEMEX, Natura, TOTVS, Vale, Artecola, Tenaris, Bunge, Tata Consulting Services, Lukoil and Lenovo. These large companies, from emerging countries such as Mexico, Brazil, Argentina, Brazil, India, Russia and China, teach us two things. First, that multinationals are not exclusivity of countries in advanced stages of industrialization. Second, that the theories of internationalization trajectories, developed from traditional multinationals, need to be improved (see some theories here) because these theories cannot explain the international trajectory of emerging markets multinationals (EMM). Thus, the area of International Business began to attract the attention of scholars such as Afonso Fleury (interview here), Lourdes Casanova (interview here), Ravi Ramamurti and Mauro Guillén.

Just like any multinational that seeks foreign markets, the EMMs face a disadvantage already mentioned in previous text (link here), the liability of foreigness. Additionally, multinationals from emerging countries suffer from limited access to technology and lack of infrastructure in their original markets. However, as highlighted by Ramamurti, the EMMs have some advantages when compared to their competitors in most industrialized countries: the CSAs (country-specific advantage) and FSAs (firm-specific advantage).  For example, companies from countries rich in natural reserves have easy access to these resources; in countries with large population firms benefit from the huge size of their markets and the availability of low-cost labor, whether qualified or not. On the other hand, EMMs that are used to customize sophisticated products to their national markets will likely be able to do this “defeaturing” to other markets in emerging countries. Each company or country owns idiosyncratic characteristics that lead to idiosyncratic advantages.

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Another interesting contribution from Ramamurti was the description of generic internationalization strategies used by emerging market companies. In his book “Emerging Multinationals in Emerging Markets” (Cambridge University Press, 2009), the author describes five strategies employed by emerging multinationals are presented in Table 1.

Generic Strategy CSA FSA Trajectory of internationalization Examples
Vertical integrator of natural resources Vast natural reserves Privileged access to reserves Forward and backward vertical integration Vale and Petrobras (Brazil), Lukoil, Gazprom (Russia)
Local Optimizer Low-income consumers Optimization of imported products Focus on other emerging markets Marcopolo (Brazil), Tata Motors (India)
Low-cost Partner Low-cost labor (qualified or not) Operational efficiency; project management Focus on developed markets Infosys and TCS (India), and WEG Sabó (Brazil)
Global Consolidator Large fast-growing domestic markets Excellence in design and production Focus on global markets, mergers and acquisitions of less efficient competitors Tata Steel (India), CEMEX (Mexico), Lenovo (China)
Global First-mover Low cost of design, engineering and production, along with fast-growing markets. Companies situated close to the technological frontiers Focus on global markets Embraer (Brazil), Huawei (China), Teva (Israel)

Table 1 – generic strategies used by EMM

However, an important question is: How multinational froms emerging countries are compared with those from industrialized regions? What are the major differences between them?

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Mauro Guillén (“The American Model of the Multinational Firm and the “New” Multinationals From Emerging Economies”, Academy of Management Perspectives, 2009) compared the two types of global companies according to various categories such as the speed of internationalization, competitive advantages, political capacity, growth trend, entry mode and organizational adaptability. Table 2 shows the comparions between the two types of multinationals.

Dimension Multinationals from emerging countries Multinationals from industrialized countries
Speed ​​of internationalization Accelerated Gradual
Competitive Advantages Weak: search and improvement of resources Strong : existing resources already in place
Political capability Strong: companies used to unstable political environments Weak: companies used to stable political environments
Growth trajectory Dual: simultaneous entry into emerging and mature markets Simple: the less to more distant countries (in terms of psychic distance)
Entry mode External growth thru  alliances and joint ventures Internal growth thru 100% controlled subsidiaries
Organizational adaptability High, due to international exposure Low, due to organizational structures and cultures

Table 2 – Comparison between multinationals from emerging and industrialized countries

In conclusion, the perception is that multinational companies from emerging countries have many differences from its North American, European and Japanese counterparts. Additionally, the new global companies threaten more the traditional ones, which in turn must conform to the need to confront a new competitive reality. If on one hand the multinationals from emerging countries do not possess as much technology,  patents or plants as the traditional multinationals, on the other hand EMM have both flexibility and knowledge about emerging markets. One thinh is certain: Globalization has increased competition between companies, regardless the maturity level of their home markets.

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