Guest Editors’ Introduction

Nandakumar, MK, Purkayastha, S and Kumar, V 2016, 'Guest Editors’ Introduction' , International Studies of Management & Organization, 46 (1) , pp. 1-7.

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Abstract

The rapid internationalization of firms from emerging economies and the consequent phenomenal rise of the “new multinationals” have led to the emergence of a new research frontier in the international business domain (Child and Rodriguez 2005; Luo and Tung 2007; Guillen and Garcia-Canal 2009; Chang and Rhee 2011; Ramamurti 2012). While researchers have debated the need for new theories to explain this phenomenon (Mathews 2006; Narula 2012), there is an increasing realization that traditional internationalization theories are constrained in fully deciphering the uniqueness of the internationalization process of firms from emerging economies (Gaur and Kumar 2010; Cuervo-Cazurra 2012). The classical incremental theory of internationalization (Johanson and Vahlne 1977, 1990) considers international expansion as an incremental process of committing resources gradually and moving into relatively distant locations only after gaining requisite experience in proximate markets. Inherent in such an incremental internationalization approach is the substantial risk of failure if firms, such as those from emerging economies, jump or leapfrog certain stages and enter into institutionally and culturally distant markets early in their internationalization process. It is amply clear, however, that these emerging economy firms continue to occupy more dominant positions in the global economy than ever before. Similarly, Dunning’s (1988; 2001) eclectic paradigm implies that the success of firms in international markets depends largely on exploitation of ownership advantages. Such ownership advantages derive typically from firm-specific resources. However, a few emerging economy firms possessed the traditional firm-specific resources that served as the source of ownership advantages for the developed economy firms. Despite the lack of a traditional ownership advantage, they have internationalized their operations in an accelerated manner (Mathews 2006; Luo and Tung 2007). The conventional wisdom surrounding the internationalization process has not been quite effective in explaining the internationalization process of firms from emerging economies because such firms have not only continued to achieve substantial growth through internationalization but, in many cases, have taken away market shares from multinationals headquartered in developed counties. The 2012 Fortune Global 500 list features 112 emerging economy companies, an increase of about six times since 2000. Similarly, 398 companies from rapidly developing countries have been featured in the 2010 list of Forbes Global 2000 companies (Verma et al. 2011). The acquisition of IBM’s personal computer division in 2005 by Chinese computer maker Lenovo for US$ 1.75 billion to create the world’s third-largest PC maker (Associated Press 2005); the acquisition of Novelis for US$ 6.0 billion by Hindalco, an Indian company owned by the Aditya Birla group, to emerge as the world’s largest manufacturer of rolled aluminum products and the fifth-largest integrated aluminum maker in the world; and the 2008 acquisition of the iconic Jaguar and Land Rover by Tata Motors for US$ 2.3 billion (Reuters 2008)are just three examples of rapid internationalization carried out by some emerging economy firms (The Economist 2008). The rapid internationalization of emerging economy firms is intriguing because these firms are beset by many disadvantages that hinder their international expansion (Khanna and Palepu 2006; Aulakh 2007; Guillen and Garcia-Canal 2009). Issues that commonly arise relate to the nature of competitive advantage, which firms from emerging economies leverage on, the origin of such competitive advantage and their sustainability, the impact of such strategies on developed multinationals, and, finally, the implications on mainstream international business theories in terms of their accuracy to explain this new phenomenon. A variety of theories have been advanced in the literature to explain these questions. The competitive advantage for a vast majority of emerging economy firms is rooted in their institutional environments at home (Dunning and Lundan 2008). Arguably, the experience of operating in harsh home environments gives emerging economy firms a competitive edge in international markets, particularly when operating in the least developed countries (Cuervo-Cazurra and Genc 2008). A small minority of emerging economy firms have developed their own specific ownership advantages, often rooted in the unique needs of their home environments, which they exploit in their internationalization (Ramamurti 2012). Owing to the constraints in developing in-house capabilities and to fulfill their objectives of becoming global players, many emerging economy firms have built skills in searching for such capabilities externally and acquiring them in order to catch-up with their counterparts in developed economies (Luo and Tung 2007). This strategy of resource-acquisition by emerging economy firms, especially in developed economies, has become an integral part of the internationalization process and has given rise to the asset-augmentation motive (Makino, Lau, and Yeh 2002), springboard perspective (Luo and Tung 2007), and the linkage-leverage-learning (LLL) theory (Mathews 2006) of internationalization. Furthermore, a somewhat unique organizational form called “business groups” is a key characteristic of most emerging economies. While business groups are present in developed economies, their presence in emerging economies is ubiquitous (Khanna and Palepu 1997). Firms affiliated with business groups derive network advantages and, thus, are able to access resources residing with other group affiliates, including those that enable them to internationalize more aggressively (Gaur, Kumar, and Singh 2014). Although there is, at best, only mixed evidence of business groups as a source of competitive advantage in the internationalization of emerging economy firms (Chittoor et al. 2009; Gaur and Kumar 2009; Lamin 2014), it is a key organizational feature that differentiates emerging economy firms from the developed ones. Khanna and Rivkin (2001, 47) define business groups as “firms which though legally independent, are bound together by a constellation of formal and informal ties and are accustomed to taking coordinated actions.” This unique organizational form has a major impact in shaping emerging economy markets as well as the strategies of affiliated firms. For example, in 1996, 40 percent of Korea’s total industrial output was made by the top 30 business groups (Chang and Hong 2000). In 2000, business groups in China contributed almost 60 percent of the nation’s industrial output (Yiu et al. 2005), whereas Taiwan’s top 100 business groups contributed 45 percent of the country’s industrial output (Chu 2004). In India, in 2000, business groups controlled approximately 75 percent of the total industrial output in the private sector (Purkayastha, Manolova, and Edelman 2012). Given the widespread nature of these business groups in emerging economies, investigating their role in the formulation of international strategy has become one of the most pertinent research topics in the field of international business.

Item Type: Article
Schools: Schools > Salford Business School
Journal or Publication Title: International Studies of Management & Organization
Publisher: Taylor & Francis
ISSN: 0020-8825
Depositing User: WM Taylor
Date Deposited: 08 Nov 2016 15:23
Last Modified: 08 Nov 2016 15:23
URI: http://usir.salford.ac.uk/id/eprint/40695

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