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Emerging market multinationals and their different paths to globalization:
the roles of ownership and firm experience
MSc Business Administration – International Management Track University of Amsterdam
By: Shanice Bargmann Student number: 10872191 Supervisor: Dr. Niccolò Pisani Second reader: Francesca Ciulli
2 Statement of originality
This document is written by Shanice Bargmann who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
3 Table of contents Title page 1 Statement of originality 2 Table of contents 3 Abstract 4 1. Introduction 5 2. Literature review 8 2.1 Emerging markets 8 2.2 BRIC countries 9
2.3 Emerging market multinationals 10
2.4 The internationalization of EM MNEs 14
2.5 The regionalization debate 18
2.6 Research gap 21
3. Theoretical framework 22
3.1 The role of ownership 25
3.2 The role of firm experience 27
4. Methods 29
4.1 Sample and data collection 29
4.2 Measures 30
4.3 Statistical analysis and results 32
5. Discussion 37
5.1 Academic relevance 37
5.2 Managerial implications 38
5.3 Limitations and future research 39
6. Conclusion 41
Acknowledgements 43
References 44
List of figures and tables
Figure 1. Conceptual model 28
Table 1. Descriptive statistics: means, standard deviations and correlations 33
4 Abstract
Extensive research has been conducted on whether multinational enterprises (MNEs) tend to be globally or regionally oriented. Within this field, the role of emerging market
multinationals remains relatively unexplored. This study investigates if emerging market multinationals are even more regionally oriented than advanced market multinationals. The moderating effects of state ownership and firm experience on this relationship are also explored. This study uses a sample of the Global Fortune 500 companies listed in 2014. The findings suggest that there is a positive relationship between emerging market multinationals and regionalization.
Keywords: emerging market multinationals, regionalization debate, state ownership, firm
5 1. Introduction
For the past two decades, emerging market multinationals have received growing interest from researchers due to their rapid growth and increasing contribution to the world’s GDP (Luo & Tung, 2007; Economist, 2007). Emerging market multinational enterprises (EM MNEs) have been defined as “international companies that originated from emerging markets and are engaged in outward FDI, where they exercise effective control and undertake value-adding activities in one or more foreign countries” (Luo & Tung, 2007, p. 482). There are a lot of opportunities for emerging markets, and these markets are expected to grow even more in the next few years. Five of the top six most attractive business locations are also emerging economies (UNCTAD, 2014). Despite the many opportunities, however, EM MNEs also face threats. For instance, EM MNEs often enter markets later than competitors that are based in advanced economies. They are also less experienced with globalization and can be
constrained by their institutional context. This all means that these EM MNEs probably need to internationalize in a different way than MNEs from developed countries.
In fact, EM MNEs often adopt internationalization as a springboard for acquiring strategic resources and seeking opportunities. This springboard approach consists of three
complementary processes. First, EM MNEs must accumulate benefits from inward foreign direct investment (FDI) before they start to take outward FDI. Second, when EM MNEs undertake outward FDI, they often do not follow the internationalization process (Johanson & Vahlne, 1977); they instead follow a leapfrog trajectory in which risky entry modes such as acquisitions and greenfields are made and geographically and culturally distant countries are chosen as host locations. Third, EM MNEs also often use “coopetition,” which is a mixture of competition and cooperation, with other global players from developed countries in order to be strategic player in a global context (Luo & Tung, 2007).
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Although it at a first glance seems that EM MNEs often link themselves to MNEs from developed countries and are therefore globally oriented, Rugman and Verbeke (2004) argue that almost no firm is truly global and that most MNEs are home region oriented. This means more than 50% of the MNEs’ foreign sales are within their home regions. Rugman and Verbeke’s study receives some criticism based on their methodology, but all authors agree that there is increasing regional integration in general (Dunning et al., 2007; Osegawitsch & Sammartino, 2008). These authors argue that regionalization should be further examined, for example FDI data should be split by activities, forms, types and motives (Dunning et al., 2007). This study splits the data by emerging markets versus non-emerging markets.
This study focuses on the difference between EM MNEs and non-EM MNEs and their different paths to regionalization. The emerging economies considered in this paper are the BRIC countries (namely Brazil, Russia, India and China), while the developed countries looked at comprise the triad region (namely North America, Europe and Japan) (Rugman & Verbeke, 2004). By focusing on emerging market MNEs and regionalization, this paper adds insight into two emerging topics in international business research: the
globalization/regionalization debate and the EM MNE theory. This paper also has practical implications, as it gives managers from EM MNEs insights into how their companies are different from MNEs from developed countries and what the strategic implications are.
In addition to the different paths that emerging market MNEs follow to globalization, this paper also takes into account the role of state ownership and firm experience. State ownership can in general encourage or discourage globalization. Because a significant proportion of EM MNEs are state owned, especially Chinese MNEs, it is interesting to take this role into account. It also appears that EM MNEs learn from springboarding and possibly have a different approach to globalization after time. The moderating role of firm experience is therefore also examined within this paper.
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All of these observations lead to the following research question of this paper:
“What is the difference of emerging market MNEs and non-emerging market MNEs in their paths to globalization/regionalization? And what are the roles of ownership and firm
experience?”
In order to answer to this research question, the next chapter first provides a literature review related to emerging market multinationals, their internationalization strategies and the
regionalization debate. This is followed by a theoretical framework that identifies
propositions that are then statistically tested. The paper ends with a conclusion and discussion on the relationship between EM MNEs and regionalization.
8 2. Literature review
Much of our knowledge about the internationalization patterns of multinational enterprises (MNEs) comes from studies of developed country MNEs (Rugman & Verbeke, 2004). It is therefore interesting to analyze MNEs that are headquartered in developing countries. This section provides an overview of emerging markets, multinationals and their strategies within these markets as well as the globalization/regionalization debate.
2.1 Emerging markets
Emerging markets have experienced rapid growth and a remarkable transformation in the past two decades (Luo & Tung, 2007). This growth and transformation have happened primarily because these markets have experienced both a rapid pace of development and government policies that have favored economic liberalization (Wright et al., 2005). Emerging markets have been defined as “low-income, rapid-growth countries using economic liberalization as their primary engine for growth” (Hoskisson et al., 2000, p. 249). Through research, 64 emerging economies were identified, of which 51 were rapidly growing developing countries and 13 were in transition from centrally planned economies (Hoskisson et al., 2000). The growth and transformation of emerging markets is visible in the fact that emerging markets account for more than half of the world’s population, 30% of world’s GDP and 45% of the world’s exports (Economist, 2007). Also, according to the World Investment Report 2014 (UNCTAD, 2014), five of the top six most attractive business locations are emerging economies; China, Russia, Hong Kong, Brazil and Singapore.
As mentioned above, emerging economies are scattered all over the world. These economies can be distinguished into two groups: developing countries (which are found in regions such as Africa, Asia, Latin America and the Middle East) and transition economies (such as China and countries of the former Soviet Union) (Hoskisson et al., 2000). This paper focuses on
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both groups. In both types of economies, the size of economic benefits and the pace of
political change have not been the same over time. This is due to the fact that macroeconomic stability has been difficult to achieve. Some economies have had more difficulty achieving stability due to their specific institutional context. For example, these economies frequently have bad infrastructure and underdeveloped capital markets (Khanna & Palepu, 2000). Bad infrastructure is often found in these countries because the development of market institutions has been slow and difficult. In addition, economic and political shocks have increased
uncertainty and risk for both domestic firms and foreign investors. All of this means that the institutional context has deterred inward FDI. The primary pitfall seems to be the lack of well-defined property rights that assure exclusivity, transferability and quality. The lack of a strong legal framework has also had some consequences such as bribery, corruption and
opportunism. These consequences have a particularly strong influence on the ability to enforce property rights, although it could be the case that legislation has indeed been enacted. Institutional capacity building will therefore be the key for attracting inward FDI (Hoskisson et al., 2000).
2.2 BRIC countries
This paper focuses on MNEs from emerging markets that have experienced drastically structural transformation, namely Brazil, Russia, India and China. The BRIC countries contribute 25% of the world’s GDP (IMF, 2010) and have large populations in comparison to other countries. By focusing on these four countries, we assume that we are using a good representation of emerging market economies in general.
Hoskisson et al. (2013) focus in their study on the different roles of infrastructure and factor market development on the one hand and institutional development on the other hand. Infrastructure and factor market development concerns the basis for production activities
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within a specific country, while institutional development concerns the development of market-supporting political, legal and economic institutions. Based on these two dimensions, three different emerging economies are identified: traditional emerging economies, mid-range emerging economies and new developed economies. Since this paper focuses on the BRIC countries, we focus on the mid-range emerging economies. These economies have either low institutional development and high infrastructure and factor development or high institutional development and low infrastructure and factor development.
As many firms from BRIC countries have been pursuing outward FDI, they have become a new breed of multinationals. These emerging economies are heterogeneous in national-level political, economic, socio-cultural and institutional conditions. These economies also face different capabilities and therefore strategies (Luo et al., 2011), which are explained further on.
While the BRIC countries are not homogeneous, they face the same constraints, have similar limited experiences and have common motivations for engaging in international business. For example, a constraint is that BRIC countries have large populations but low levels of private consumption. Furthermore, external effects appear to be more important in shaping an EM MNE’s behavior and strategic choices than they would be for MNEs in developed countries (Makino et al., 2004). To explain the constraints and motivation for engaging in international business, we first discuss EM MNEs in general and then their internationalization. We take different perspectives into account, but the leading perspectives within the discussion of EM MNEs are the resource-based and institutional views.
2.3 Emerging market multinationals
Emerging market MNEs have been defined as “international companies that originated from emerging markets and are engaged in outward FDI, where they exercise effective control and
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undertake value-adding activities in one or more foreign countries” (Luo & Tung, 2007, p. 482). This paper accepts this definition but also includes emerging market-based import and export companies, as doing so provides a bigger sample to study.
As emerging markets comprise a diverse population of countries, generalizations should only be made with caution. Nevertheless, a variety of features do set emerging economy firms apart from developed economy firms (Gammeltoft et al., 2010). These features can be discussed from different perspectives. The most common perspectives used in this paper are the resource-based theory and the institutional theory. The resource-based theory focuses on the influence of a firm’s resources and capabilities in order to explain why firms differ and to explain how they achieve and sustain a competitive advantage (Barney et al., 2001). Since the end of the 1990s, firms from emerging economies have had a growing presence in the global scene. This growing presence is due to the fact that during this same time period, public policy instruments have been increasingly geared toward providing incentives for local firms to actively compete and internationalize in foreign markets (Aulakh et al., 2000). Firms from emerging economies use these instruments as resources to expand beyond their home
countries and seem successful in doing so. Furthermore, because emerging economy MNEs find themselves in continuously changing market conditions, they need to develop a strategic flexibility that helps them to take advantage of existing and new strategic opportunities (Uhlenbruck et al., 2003). They often find new opportunities by linking themselves to other companies. Start-ups in emerging economies gain value-adding resources through network connections and relationships (Peng, 2001). In addition, EM MNEs often use acquisitions and enter developed countries to seek knowledge (Frost et al., 2002). Therefore, EM MNEs find their resources in different ways than MNEs from developed countries. While EM MNEs often know cheap labor advantages internally, they seek most of their resources (including knowledge and technology) externally.
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On the contrary, firms from emerging economies can experience resource scarcities and obsolescence because resources that were valuable under a former regime become less valuable with new market-oriented institutions (Wright et al., 2005). To explain this further, EM MNEs tend to be more horizontally and vertically integrated and provide things internally that would be procured through more established and well-functioning markets in developed countries (Gammeltoft et al., 2010). Conglomerates and networks have therefore developed in these economies in a way that they are able to deal with underdeveloped market institutions and can capture scarcer managerial, technological and physical resources. A central challenge from the resource-based perspective is how the EM MNE understands the barriers to the acquisition of necessary resources and capabilities and how they can overcome these barriers (Wright et al., 2005). This lack of resources and capabilities means that EM MNEs are not as experienced with internationalization as MNEs from developed countries. This often also leads to EM MNEs experiencing latecomer disadvantages, since MNEs from developed countries with the right resources and capabilities are already present in the countries to which EM MNEs internationalize (Luo & Tung, 2007).
Another great perspective used in the literature of emerging market MNEs is the institutional theory. This theory is concerned with the role that the political, social and economic systems that surround firms play in shaping the firms’ behavior (North, 1990). At the end of the 1990s, firms from emerging economies experienced more challenges because of the impact of the speed and nature of institutional change (Hoskisson et al., 2000). Central and local
government started to play both a large and active role in emerging economies; as a result, the institutional context of MNEs from emerging markets is nowadays often comprised of
protected domestic markets, government policies that favor import over export, a preference for non-market approaches to economic growth, and tariff barriers (Banalieva & Sarathy, 2010). This makes firms want to escape the bureaucratic restrictions at home and thus to
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begin internationalizing (Peng et al., 2008). However, the role of the government is not only a restrictor; it also creates opportunities for firms from an emerging economy. Government support also provides firms from emerging economies with privileged access to certain inputs, preferential financing and subsidies (Gammeltoft et al., 2010). As firms from emerging
economies are often state owned or controlled, they can operate differently from commercial firms. Governments can specifically target and encourage the internationalization of national firms in order to strengthen international competitiveness. Next to the government, social systems also play a big role for EM MNEs. Emerging market MNEs are often more reliant on social networks with ethnic, linguistic or cultural affinities than MNEs from developed countries (Dunning & Narula, 2004), which implies that an EM MNE has a network with countries that are similar to its own in terms of culture, language and other factors. By having these networks, EM MNEs work closely with other emerging economies. In sum, as EM MNEs often have limited experience with internationalization, they tend to operate in more closed networks and under more personalized governance and control systems (Gammeltoft et al., 2010).
Although EM MNEs often do experience the same constraints and opportunities based on resources and institutions, the MNEs within emerging economies can be distinguished in several ways (Luo & Tung, 2007). A first distinction can be made based on the context in which the EM MNE operates (Wright et al., 2005), which include developed economy MNEs entering emerging economies, domestic firms operating in emerging economies, MNEs from emerging economies entering other emerging economies and MNEs from emerging
economies entering developed economies. This paper focus on MNEs from emerging
economies that are entering other emerging as well as developed economies, to try to explain whether MNEs from emerging economies (as home countries) tend to be more or less global vis-à-vis MNEs that are not based in emerging economies.
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Another important distinction made in this paper is based on the institutional environment. First, EM MNEs are often state owned for political, economic and historical reasons, although the extent of this ownership varies across emerging countries. Second, the level of
international diversification, or also the extent of geographical coverage, varies across emerging MNEs. Using these two characteristics, EM MNEs can be categorized into the following four different groups: niche entrepreneurs, world-stage aspirants, transnational agents and commissioned specialists (Luo & Tung, 2007). First, niche entrepreneurs and world-stage aspirants are non-state owned MNEs whose international diversification is respectively narrow and broad; they do not receive government funding. Transnational agents and commissioned specialists are state-owned MNEs whose international diversification is respectively broad and narrow. They focus on foreign markets, where they fulfill
governmental initiatives. This typology, which takes the nature of ownership into account, can help to address the different strengths, weaknesses, behaviors and rationales of EM MNEs. For example, while transnational agents and commissioned specialists have greater
governmental support, they are also are more likely to face constraints because of their institutional context. Investment strategies, risk-taking behavior, subsidiary governance and parent-subsidiary relations may therefore vary between state-owned and non-state owned MNEs (Luo & Tung, 2007).
2.4 The internationalization of EM MNEs
As described above, emerging economies originate from an institutional context that can be either favorable or unfavorable for generating firm-specific ownership advantages, depending on the way in which MNEs, governments and managers deal with situations involving other emerging and developed economies (Wright et al., 2005). The advantages an EM MNE creates (such as brands, customer/government relationships and low operating costs) cannot easily be transferred to more distant countries. Consequently, there are not many monopolistic
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advantages for EM MMEs in foreign markets. Their competitive advantage overseas is often based on price competition rather than technology or a brand, which will not lead to a
sustainable advantage (Cuervo-Cazurra & Genc, 2008). The strategy followed will thus distinguish successful EM MNEs from unsuccessful ones. Nevertheless, EM MNEs have surprised observers by how rapidly they are internationalizing and with the aggressive methods they are using in the early stages of their outward internationalization.
In the 1990s, it was found that EM MNEs were following the Uppsala process (Aulakh et al., 2000). These EM MNEs first used export strategies in countries with increased market knowledge and later used different entry modes in more distant countries. Firms that have more firm- and group-level international experience are affiliated with a business group, have more technological and marketing resources and operate in service industries are more likely to shift from export to FDI in this case (Gaur et al., 2014).
In contrast, a few years later EM MNEs seemed to using internationalization as a springboard for acquiring strategic resources and reducing institutional and market constraints at home (Luo & Tung, 2007). This is in contrast with the eclectic paradigm in which MNEs search for location-specific advantages by leveraging their unique capabilities (Dunning, 2001). The Dunning typology is also based on firms from developed economies instead of developing economies. Emerging market MNEs have different strategic motivations and thus follow different internationalization processes from those of developed economies. Moghaddam et al. (2014) argue that EM MNEs have high knowledge seeking motives, as these firms often seek marketing knowledge. Building on the motives identified by Dunning (2001),
Moghaddam et al. (2014) add different motives that are highly applicable to EM MNEs, such as end-customer market seeking (which refers to the pursuit of a guaranteed order for the acquirer’s products/services). This motive is high for EM MNEs, as is the global value
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consolidation-seeking motive (which relates to the pursuit of global brand recognition through consolidating costs advantages on a global scale).
The springboarding approach views international expansion of an EM MNE as a platform for acquiring strategic resources while overcoming domestic institutional and market constraints (Deng, 2012). Emerging market MNEs often undertake strategies or activities that are associated with international springboarding and have cumulative benefits from inward investment before starting to undertake outward FDI. Emerging market MNEs have benefited from inward internationalization at home by cooperating with global players who have
transferred technological and organizational activities, which has made it easier for EM MNEs to undertake outward internationalization at a later stage (Luo & Tung, 2007).
Springboarding enables EM MNEs to overcome their latecomer disadvantage via aggressively buying or acquiring assets from mature MNEs. This springboard approach is successful when the EM MNEs are encouraged by their home governments, when global players from
developed countries are willing to sell or share their strategic resources, and when the world economy and global production are more integrated. This also means that springboarding can be accompanied by more risks and challenges when home governments are poor; when global experience, managerial competence and professional expertise are low; and when
technological and innovation capabilities are weak (Luo & Tung, 2007). The assets that the EM MNE buys from the mature MNEs are often associated with technology or brands (Deng, 2012). To get access to these resources, EM MNEs often have engage actively in mergers and acquisitions (UNCTAD, 2014). These mergers and acquisitions give EM MNEs access to strategic tools and enable them to attain external know-how to supplement their internal resources. Emerging market MNEs have made a series of high-profile acquisitions in
developed economies since the economic crisis of 2008. According to UNCTAD (2014), EM MNEs undertook almost 30 percent of the takeover deals between developed and developing
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countries (Deng, 2012). While EM MNEs actively engage in acquisitions, they do acquire less ownership than MNEs from developed countries, especially in high-tech industries. One reason for this is that EM MNEs suffer from an increased level of exogenous uncertainty and are more likely to pursue less commitment in order to remain more flexible (De Beule et al., 2014).
Next to acquiring strategic assets, springboarding also involves leapfrogging. Emerging market MNEs often do not follow an evolutionary path in selecting entry modes and project locations (Luo & Tung, 2007). This is due to the fact that an EM MNE has to overcome a late mover position, the strong presence of global rivals, quick changes in technological and product development and institutional constraints. These MNEs follow a leapfrog trajectory, this implies they are radical in their choice of location. For example, besides entering
emerging economies, EM MNEs also enter developed economies in which they also make extensive use of acquisitions (Gammeltoft et al., 2010). This means that EM MNEs do not follow an incremental step-by-step approach, although they still find organizational learning and global experience very important (Johanson & Vahlne, 1977). Emerging market MNEs learn through rapid overseas expansion because they are driven by the search for resources and other assets available in the global market, rather than exploiting the existing resources they have developed at home (Deng, 2012). Springboarding is different from only
leapfrogging, as the latter is just concerned with overcoming the latecomer disadvantage. As springboarding involves seeking more strategic gains, it links an MNE’s international expansion with its home base.
Finally, next to a strategic platform and leapfrogging, springboarding offers EM MNEs not only competition but also cooperation with global players in both home and host countries. This last feature of springboarding also relates to another perspective on EM MNE strategies. Mathews (2006) proposes a “linkage, leverage, learning” framework, in which he notes that
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EM MNEs themselves partner with foreign firms. After doing so, the EM MNEs start to leverage this partnership for global competitiveness, which allows them to continuously learn how to internationalize more quickly.
2.5 The regionalization debate
The debate about whether firms are truly global or not started at the beginning of 2000. Scholars noticed that if markets were completely isolated or completely integrated, there was no room for an international business (IB) strategy to be distinctive from a single-country strategy (Ghemawat, 2003). This means an IB strategy takes place in a unique environment; markets are less integrated because of the cross-border context and key activities and
resources are often bound to the specifics of the location. The levels of cross-border integration are very far from complete. There are barriers to market integration, but these barriers are not high enough to insulate countries completely from each other. Ghemawat (2003) therefore introduces the concept of semi-globalization, in which neither the barriers nor the links among markets in different countries can be neglected.
Rugman and Verbeke (2004) build on Ghemawat’s contribution by stating that most firm do not globalize but instead regionalize. Regions are defined as areas that have similar customer needs, living standards, cultures and levels of economic development (Berry, 2006). Firms regionalize because their strategies are regional and responsive to local customers, rather than global and uniform (Rugman & Hodgett, 2001; Bartlett & Goshal, 1999). Most MNEs are in their words “home region oriented,” which means that more than 50% of their sales are within their home region. A firm with 20-50% of its sales in at least two parts of the triad region is called “bi-regional,” while a “host region-oriented” firm has over 50% of its sales in a triad region other than its own. Finally, global firms are defined as having sales of 20% or more in each region. Rugman and Verbeke (2004) found 320 home region-oriented, 25 bi-regional, 11
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host-region oriented and 9 global companies out of 500 companies in total. This implies that the majority of MNEs are home region oriented. Government regulations and cultural
differences divide the world into the triad blocks of North America, the European Union and Japan, within which MNEs compete for regional market share (Rugman & Hodgetts, 2001). Because most of their sales are within their home region, MNEs seem to face lower liability of foreignness and therefore lower costs of doing business abroad. Multinational enterprises try to leverage and optimize their investments across the region, while simultaneously controlling risk and enhancing the benefits and returns across the countries within the region (Arregle et al., 2013). This means that these MNEs will eventually build regionally bound firm specific advantages (FSAs) within this region. Rugman (2005) also argues that there is no additional scale, scope or differentiation advantage to be gained by going global.
Furthermore, it will be difficult for MNEs to transfer their FSAs outside their regions, which means they thus seem to experience high inter-regional liability of foreignness. If most firms are not truly global, then what are the implications for their strategy and structure? And can MNEs that emphasize global strategies that are in fact home region oriented hurt their performance by pursuing these strategies? Rugman and Verbeke (2004) argue that home region-orientation is driven by strong home country effects, which are often clear in the triad of North America, Europe and Japan given that these triad regions have strong multilateral and regional institutions that establish greater economic integration within the triad.
A regional focus has lower costs than diversification across regions. Regional diversification has a positive and linear effect on firm performance up to a medium level; after this point, however, the positive effect diminishes and eventually becomes negative. This means there are two stages in the effect of regional diversification (Qian et al., 2008). On the other hand, Delios and Beamish (2005) argue that global strategies produce higher performance than regional strategies. These contradicting outcomes led Oh and Contractor (2014) to conduct a
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test by breaking their sample into regions; the results showed that home-region expansion increases firm performance while foreign-region expansion lowers it. This is in line with why most firms are using a regionally focused strategy, as most FSAs are home region-bound and cannot interact easily with country specific advantages (CSAs) in foreign regions.
Rugman and Verbeke (2004) encouraged the debate about regionalization and were criticized for not using the right methodology (Dunning et al., 2007; Osegowitsch & Sammartino, 2008). Rugman and Verbeke (2004) use sales data by region and micro data at the firm level. Dunning et al. (2007) therefore chose to complement the regionalization study with macro data. Dunning et al. (2007) also took into account the changes in the geography of FDI between 1990 and 2003 and introduced the concept of revealed investment comparative advantage of countries and regions. Overall, both Rugman and Verbeke (2004) and Dunning et al. (2007) found the same results. In the paper of Dunning et al. (2007), regional
concentration reflects that of the GDP and trade intensity of a country instead of a distinctive strategy. Dunning et al. (2007) also argued that this increasing regional integration
necessitates new research, which could be done by splitting FDI data by activities, forms, types and motives. Differences can also be made in the geography of FDI, for example comparing developed with developing countries.
Next to the macro versus micro data issue, longitudinal studies also show different results (Osegowitsch & Sammartino, 2008). These studies reveal that a significant share of firms attain a bi-regional or global status and that large firms increasingly extend their sales beyond their home region. In response to the critiques leveled against them, Rugman and Verbeke (2007; 2008) argue there would be problems with artificial cultural clusters and regional data adjustment. They also argue that a very few global MNEs exist. In sum, scholarly reflection on regional versus global MNE strategy requires substantive extensions of extant IB theory.
21 2.6 Research gap
Now that the literature pertaining to both the internationalization of EM MNE and the regionalization debate have been discussed, the following summary can be made. The internationalization theory of EM MNEs knows two different views. First, some argue that EM MNEs use the Uppsala model in their path to internationalization. Second, others argue that EM MNEs use the springboarding perspective, which posits that EM MNEs most likely search for strategic assets and therefore use leapfrogging. Although the research nowadays focuses more on the springboarding perspective, there does not seem to be consensus. Next to the internationalization of EM MNEs, the regionalization debate has been discussed. As the term implies, there is still an ongoing debate as to whether MNEs tend to regionalize or globalize. This study combines both EM MNEs and regionalization to complement the study of the internationalization of EM MNEs as well as the regionalization debate with data from EM MNEs. In the next chapter, this study starts by extending and explaining the research gap. The study next comes up with hypotheses based on the literature and identifies possible variables that moderate the relationship between EM MNEs and regionalization.
22 3. Theoretical framework
As discussed before, firms appear to be rather regional than global. The regionalization debate has highly focused on the triad regions of North America, the European Union and Japan (Rugman & Verbeke, 2004). Further research should focus on the different demographics of multinationals that engage in regionalization (Dunning et al., 2007). What is interesting to notice in the regionalization theory is that sales to regions such as Latin America, the Middle East or Africa were not counted in the Rugman & Verbeke study (2004). Furthermore, MNEs from emerging economies seem not to be taken into account at all in their study. These EM MNEs have different demographics than MNEs from more developed countries (Dunning et al., 2007). Since almost all regionalization theory focuses on the triad, theory about EM MNEs that regionalize is underdeveloped. This constitutes a gap, even though EM MNEs have been making high-profile acquisitions and are expected to grow even further in the coming years.
This study investigates whether these EM MNEs are even more likely to be home region oriented. Two important views stand out from the literature related to the EM MNE’s internationalization. First, literature related to the internationalization strategy of EM MNEs nowadays focuses on the springboarding perspective (Luo & Tung, 2007). This
springboarding perspective recognizes three different processes that EM MNEs undertake. The first process is that firms from emerging economies link to and acquire firms from outside their region in order to acquire strategic assets and in this way learn from these firms. Emerging market MNEs generally focus on acquiring advantages externally and use
participation in global value chains to overcome uncertainty about the quality of knowledge. Inward internationalization allows local companies to accumulate management skills and develop capabilities and learning experiences (Young et al., 1996). Through this inward internationalization, EM MNEs gain international experience and an understanding of
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international markets. These inward partnerships often involve MNEs from developed countries transferring modern practices to their countries and strengthening both their international competitiveness and outward expansion activities (Guthrie, 2005). Developed country MNEs can serve as role models, offer opportunities to learn about international operations and transfer technology to local partners. This explains why emerging economies have been able to quickly increase their outward FDI and leads to the second process of the springboard perspective. Emerging market MNEs are argued to undertake leapfrog
trajectories, in which they do not follow the incremental process, but instead internationalize in more distant countries. They need to accelerate their pace of internationalization in order to catch up with their incumbents, seeing as they are often latecomers. They also often embark on a strategy in which they pursue customers in many foreign markets simultaneously. Large EM MNEs use high-risk and high-control entry modes such as acquisitions and greenfield investments due to their advantages of innovation, differentiation and brand image. Many EM MNEs also tend to be radical in their choice of location. Many world-stage aspirants and transnational agents seem not to shy away from psychic distance. In fact, these MNEs first venture into developed economies such as Europe and North America. However, niche entrepreneurs prefer locations with strong ethnic networks (Luo & Tung, 2007). Finally, EM MNEs are argued to compete and cope with foreign firms. Emerging market MNEs have transformed their global rivals into alliance partners and developed win-win situations, seeing as they have access to each other’s markets and create advantages that are sometimes
complementary (Luo & Tung, 2007). At first glance it thus appears that EM MNEs are more globally oriented than home region oriented.
Nonetheless, later research states otherwise. For example, Collinson and Rugman (2007) argue that while in the literature it has been assumed that the path to success for Asian firms is globally oriented, most of these firms still operate on an intra-regional basis. Of the 115 Asian
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firms in the top 500 (2005), only three were truly global while 105 were home region oriented. Sethi (2009) also tried to examine the relationship between EM MNEs and
regionalization. It was odd that 84.2% of the 380 MNEs from the world’s top 500 for which intra-regional sales data was available had over 50% of their sales in the home region of either North America, the European Union or Asia. Sethi (2009) therefore investigated whether EM MNEs were also more home region oriented. In this study he primarily used the top 500 and mergers and acquisitions from BRIC countries to measure the relationship. The study
provided evidence about the predominantly regional and bi-regional focus of EM MNEs from the BRIC countries; only India was not totally home region oriented. Due to the lack of transparency, further empirical research is needed to help validate this conclusion and to bring these countries within the ambit of the regionalization debate.
Rugman and Li (2007) examine whether Chinese firms will succeed globally or regionally. They argue that Chinese MNEs are building scale economies based on China’s country-specific advantages of cheap labor and natural resources and as a result are knowledge seekers when they go abroad. As Chinese MNEs go abroad, however, their primary geographic focus is within the Asia Pacific region. Furthermore, Rugman and Li (2007) also argue that Chinese firms are highly unlikely to become bi-regionally or globally oriented within the next twenty years. This has strong implications for both government policy and firm strategy. Since the 1990s, government policies have encouraged Chinese firms to become global firms; however, such policies may be ineffective and misleading. Chinese MNEs should pay more attention to regional business opportunities. In terms of strategy, it is highly unlikely that Chinese MNEs will go abroad in the next 10 years on the basis of FSAs, as China lacks firms with FSAs in knowledge and system integration. Firms will most likely only go abroad based on their CSAs in cheap labor.
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In addition, Rugman and Verbeke (2004) argue that home region orientation is driven by strong home country effects. When exploring the existing literature this current paper found that these economies have strong institutions such as the government and social systems. Emerging market MNEs are more reliant on social networks that are similar to their own culture and language (Dunning & Narula, 2004). This means that these home country effects will strongly apply to emerging economies.
Although research seems to be contradictory (Luo & Tung, 2007; Rugman & Verbeke, 2004), when the current study examines the regional sales of EM MNEs it is expected that these EM MNEs will be even more home region oriented than MNEs from advanced countries. We assume this because EM MNEs do not have the resources to build globally transferable FSAs and because EM MNEs experience strong home country effects due to their institutional environments. In fact, MNEs from advanced countries often create these transferable FSAs before expanding internationally. Such MNEs also have more open networks and are less dependent on their own culture and language, which means they face weaker home country effects. Hence:
Hypothesis 1. Emerging market multinationals are more likely to be home region oriented.
The effect on performance also tends to be higher when an EM MNE focuses on its home region. For example, internationalization within the Greater China region had the greatest benefits compared to internationalization within or outside Asia (Chen & Tan, 2012). This is in line with Arregle et al. (2013), who argue that a regional orientation enhances performance.
3.1 The role of ownership
Emerging markets such as Brazil, Russia, India and China comprise numerous family- and state-owned enterprises, in contrast to developed economies, where private-owned companies are better represented (Fortune, 2014). In emerging economies, the managers of state-owned
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enterprises are often directly appointed by the state after serving as government officials (Liang et al., 2014). Their companies go global following the guidance and capital control by the home state. Managers of state-owned enterprises are therefore not only supported by increasing performance, but also by fulfilling the state’s political and social objectives (Cuervo-Cazurra & Dau, 2009). This means that the degree of globalization of state-owned enterprises is affected by different government mechanisms and the underlying institutional context.
Most Chinese MNEs are state-owned firms (Fortune, 2014). State-owned or state-controlled enterprises follow the strategic needs of their home country. When firms from emerging economies are state owned or controlled, they often operate differently from commercial firms. Investment strategies, risk-taking behavior, subsidiary governance and
parent-subsidiary relations may vary between state-owned and non-state owned MNEs (Luo & Tung, 2007). Governments can specifically target and encourage national firms to internationalize in order to strengthen international competitiveness. Non-state owned firms tend to be more risk averse and less likely to invest in highly distant countries than state-owned firms.
(Gammeltoft et al., 2010). The investment strategies of state-owned firms will also differ from those of private companies, due to their institutional environment. This often means that state-owned MNEs invest more in natural resource sectors and are indifferent to the political and economic conditions in host countries (Amighini et al., 2013).
However, state-owned MNEs in protected industries are poor candidates for
internationalization, as they have been slow to engage in the realities of market-driven efficiency. When they go abroad, their domestic monopoly protection serves them poorly. Firms that face strong domestic competition, have little government protection and those that emphasize R&D, managerial capabilities and brand names are better candidates for
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competition and their lack of experience. The current study thus expects state ownership positively moderates the relationship in H1:
Hypothesis 2. State ownership positively moderates the relationship hypothesized in H1.
3.2 The role of firm experience
Emerging economy MNEs often seek knowledge and technology. They do not have FSAs of their own and instead mostly rely on CSAs such as cheap labor. However, by using the springboarding perspective (Luo & Tung, 2007), firms from developing countries start to acquire strategic assets from developed MNEs (such as technology and brands). After a while, these assets are incorporated into and shared within the firm from the emerging economy. This means that the more and the longer a firm gains strategic assets, the more this firm will be capable of overcoming obstacles to internationalization.
A prerequisite for international success is domestic efficiency. For example, only the best Chinese firms will succeed when they are going abroad. In recent years, Western MNEs have greatly improved the efficiency of the Chinese economy. The Western MNEs have done this by establishing clusters and business networks with links to Chinese businesses, which is something that takes time to do. The process has subsequently led to many small- to medium-sized Chinese firms now being affiliated with foreign multinationals and having a more global focus (Rugman & Li, 2007).
Emerging market MNEs have the capacity to envision a global market for their products well before they achieve the scale needed. At a later stage they therefore have a geocentric mindset rather than ethnocentric mindset (Bartlett & Ghoshal, 2000), which will give them a better chance of eventually succeeding internationally.
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In addition, firms that have more firm- and group-level international experience, are affiliated with a business group, have more technological and marketing resources and operate in service industries are more likely to shift from export to FDI (Gaur et al., 2014). Frynas et al. (2006) further argue that firms with more international experience are more likely to enter new foreign markets. The current study expects that EM MNEs that have more firm experience negatively moderate the relationship in H1. So:
Hypothesis 3. Firm experience negatively moderates the relationship hypothesized in H1.
These hypotheses are summarized in the following conceptual model:
29 4. Methods
4.1 Sample and data collection
This chapter discusses the methodology of this study. It outlines how the research objectives are intended to be achieved and justifies the methods that are used to do so. It is important for researchers to be aware of the philosophy of their methodological choices, because this has a significant impact on what they think they are doing (Gill & Johnson, 2010).
This study uses a cross-sectional design to explore the different paths of emerging market multinationals to either globalization or regionalization and whether state ownership and firm experience have a moderating role on this relationship. The sample used in this study is based on the Global Fortune 500 companies as listed in 2014. These companies, which all produce and/or distribute products and/or services across national borders (Rugman & Verbeke, 2004), represent the global companies that reported the greatest revenues in 2013 (meaning all
available data is based on the 2013 fiscal year). Using the 500 most revenue-generating international companies should constitute a good sample of MNEs overall. These 500 companies are situated in 37 countries that are scattered all over the world. Most of them are headquartered in the United States (128), China (95), Japan (57) and France (31). Besides having diverse geographical locations, the companies are also from very different industries.
A limitation of this design is that it consists of only secondary data that is collected for another purpose. However, the Global Fortune 500 list is hopefully of good quality due to public scrutiny (Saunders et al., 2007). Nevertheless, the secondary data is complemented with primary data from the available 2013 annual reports and the data available in Bureau van Dijk’s Orbis database. The Orbis database provides firm-level data that is very suitable to use in a study as it is one of the most comprehensive and inter-temporal databases of detailed information about public and private companies all over the world (De Jong & Van Houten,
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2014). Many different types of data are collected through these primary databases. Some general data about the company is collected first, such as its major sector, year founded and number of employees. More financial data is collected next, such as net income, gearing and return on assets (ROA). Finally, and for this study most importantly, the total turnover and its geographical distribution is investigated. With this geographical distribution the study can analyze whether some companies have more sales in specific regions. In the end, the use of this sample gives great insights into multinationals from emerging and developed markets and whether these firms regionalize or internationalize more.
4.2 Measures
After data collection, this study undertakes a quantitative analysis of the data in order to determine any patterns or influences. The specific variables used in the analysis are as follows:
Dependent variable
The dependent variable of this study is the regionalization or the regional orientation of the MNE. The regional versus global sales from the database is used as dependent variable in this study. Because much regional and global sales data is missing from the database, we included the sales per region numbers to complement the regional and global sales numbers. The regional sales are divided by the total sales of the MNE to get a percentage of the total sales that are regional.
It is important to note that in this study, only the MNEs from the top 500 that have reported their regional sales in either their annual report or through the Orbis database are taken into account. Companies that did not report their regional sales are excluded, since they will not be useful in the determination of either a regional or global focus. Of the 500 companies, 236 reported their regional sales and thus will be included in the sample for this study.
31 Independent variable
The independent variable in this study is the EM MNEs versus non EM MNEs. This study views an MNE as an emerging market multinational if its home country is either Brazil, Russia, India or China (i.e. a BRIC country) (Hoskisson et al., 2013). A dummy variable has therefore been created, with a value of one when an MNE has its home country based in Brazil, Russia, India or China and zero when stated otherwise. The Global Fortune 500 (Fortune, 2004) includes a total of 118 companies that are located in one of the BRIC countries, including 95 Chinese companies, 8 Russian companies, 8 Indian companies and 7 Brazilian companies. As expected, the majority are Chinese companies. It is important that the companies selected in this study have reported their regional sales. It is very interesting to note that of the 118 companies that are located in the BRIC countries, only 21 companies reported their regional sales (namely ; 2 Brazilian, 1 Russian and 1 Indian and 17 Chinese companies).
Moderating variable
This paper investigates two possible moderating variables. The first moderating variable is state ownership. According to the dataset, firms can be state, family or privately owned. This study only investigates the relation of state ownership, as many MNEs (particularly Chinese) are state owned and it is therefore necessary to determine whether this leads to different conclusions (Fortune, 2014). It is interesting to note that out of the 95 Chinese companies, only 17 reported their regional sales (or sales at all). A majority of the Chinese state-owned firms did not have any annual report available.
A second moderating variable is firm experience. Firm experience in this study is determined by the date of incorporation, meaning the year in which the firm started operating in general. The age of the firm is calculated by extracting the date from the fiscal year 2013. This paper
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assumes that firms that exist longer have more experience, whether good or bad, and distinguish themselves from firms that have just started up.
Control variables
This study also includes different control variables. The first commonly used control variable is firm size. Larger firms are typically more capable of being present in multiple countries. The firm size is calculated by the logarithm of the total number of employees in order to account for the skewness of the data. A second control variable is industry. An industry can have different reasons for internationalizing and can behave differently from other industries. The industry is captured with a categorical variable that has two categories, namely primary sector (i.e. natural resources) and secondary sector (i.e. production and manufacturing). These sectors are also defined as two dummy variables that equal one if a firm belongs to that sector and zero if it does not.
A third control variable is firm performance. Firms that perform well often have resources to expand internationally and therefore probably to more distant countries. Firm performance is calculated through the ROA.
4.3 Statistical analysis and results
Descriptive statistics related to the dependent, independent and all control variables are
presented in table 1. We compute reliability by putting regionalization (i.e. regional sales/total sales), emerging market multinationals, state ownership, firm experience (i.e. age), firm size, primary sector, secondary sector and ROA in a correlation analysis. The variables are tested for multicollinearity by assessing the correlations between all of the predictor variables. If one of the correlations were to have a value above 0.7, a problematic construct would be present (Pallant, 2011). As all correlations in this study are under 0.7, no variables correlate highly and are problematic.
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The companies listed in the Global Fortune 500 that have reported their international sales seem to on average have 131,834 employees and be 62 years old. Most of the companies find themselves in the third (not specified) tertiary sector. The 236 companies have an average performance of 5.3% (ROA), which is fairly good.
From looking at the frequencies and descriptive statistics, it can be noted that of the 236 companies included in this sample, the majority use regionalization instead of globalization, since the mean of regional sales to total sales is 0.605 (> 0.50). Furthermore, the descriptive statistics also define that there are not that many BRIC countries in this sample: only 21, or 8.9%. Of the total 236 companies, only 27 appear to be state owned.
Table 1. Descriptive statistics: means, standard deviations and correlations
Variables M SD 1 2 3 4 5 6 7 8
1. Regionalization (Regional sales/Total sales) 0.605 0.264 1
2. Emerging market multinationals 0.089 0.285 0.169** 1
3. State ownership 0.116 0.321 0.237** 0.416** 1
4. Firm experience (age) 61.778 51.572 -0.104 0.189** -0.031 1
5. Firm size 11.319 1.059 -0.089 -0.073 -0.146* 0.138* 1 6. Primary sector 0.064 0.244 0.047 0.102 0.233** -0.069 -0.069 1 7. Secondary sector 0.347 0.477 -0.281** -0.071 -0.098 0.062 0.162* -0.190** 1 8. ROA % 5.306 6.068 -0.162* -0.097 -0.111 -0.057 0.064 0.13 -0.045 1 ** p < 0.01, * p < 0.05
To test the hypotheses, a hierarchical regression analysis is used to determine the relationships with the explanatory variables. The dependent variable (i.e. regionalization/globalization) has continuous values and this study assumes a linear relationship between the dependent and the explanatory variables. This means that the most suitable model is the Ordinary Least Squares model. To test the moderators that possibly influence the relationship between the
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analysis is performed in two models. A first model introduces the control variables to determine their effects on the dependent variable. In the second model, the independent variable was added to observe the additional explanatory power. In the third model, the state ownership variable is added to the independent variable and control variables. The interaction effect is also calculated. Finally, in the fourth model, the firm experience is added to the independent variable and control variables. The interaction effect is also calculated in this model. The outcomes can be found in table 2.
In these outcomes, there are three important values that determine if there is a relationship between variables. First of all, the significance indicates whether results are reliable and whether can therefore support the hypotheses or not. Next, the beta-standardized coefficient is responsible for the change that occurs in the dependent variable according to the explanatory variables. The sign for the beta describes the direction in which the change occurs. Finally, the R² measures the goodness-of-fit of the model and thus the degree of how close data is to the fitted regression line.
In the second model, it can be seen that introducing the independent variable of EM MNEs better explains the data than with only control variables, since the R² improves from 0.094 to 0.114. If we look at the significance of the independent variable, we also see that the
independent variable is significant (p=0.04) with a beta of 0.146. The beta has a positive sign, which means that the EM MNEs are positively related with regionalization. Therefore
hypothesis 1 is accepted, and EM MNEs are more likely to be home region oriented.
The second hypothesis is tested in the third model. When introducing the possible moderator of state ownership and its interaction effect, it is found that state ownership is neither
significant as a variable nor as an interaction effect. Hypothesis 2 is therefore not supported. The same holds for hypothesis 3, which introduces the firm experience variable and its
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interaction effect. For this variable, no significant results can be found either and it is therefore not supported.
For the control variables, a relationship between the secondary sector (b=-0.244; p=0.001), ROA% (b=-0.166; p=0.02) and the regional orientation of an MNE can be found. These results suggest that firms from the secondary sector and a high ROA have a negative relationship with regionalization and thus will be more likely to globalize.
36 Table 2. Regression results
Dependent variable: Regional sales/total sales Model 1 Model 2: H1 Model 3: H2 Model 4: H3
Control variables Beta Sig. Beta Sig. Beta Sig. Beta Sig.
Firm size -0.004 0.959 -0.005 0.94 0.001 0.944 -0.014 0.845
Primary sector 0.074 0.305 0.052 0.466 0.034 0.291 0.058 0.424 Secondary sector -0.244 0.001 -0.233 0.001 -0.232 0.001 -0.22 0.003
ROA % -0.166 0.02 -0.147 0.039 -0.133 0.024 -0.157 0.03
Independent variable
Emerging market multinationals 0.146 0.04 0.54 0.074 0.209 0.069
Moderator variables
State ownership 0.82 0.397
Firm experience (age) -0.028 0.704
Interaction terms
Emerging market MNES x state ownership 0.052 0.683
Emerging market MNEs x firm experience -0.114 0.314
Constant 0.677 0.001 0.665 0.001 0.64 0.002 0.689 0.001
N of observations 192 192 191 191
R2 0.094 0.114 0.115 0.113
Adjusted R2 0.075 0.091 0.081 0.079
37 5. Discussion
Rugman and Verbeke (2004) state that almost no firm is truly global. They argue that firms from the triad region (namely North America, Europe and Japan) are rather home region oriented. This study investigates whether firms from emerging markets are more regional oriented than firms from advanced markets. More specifically, the main results of this research show that an emerging market multinational is positively related to regionalization and thus is more likely to be regional oriented than a non-emerging market multinational. This research also rejects state ownership as a moderating effect. State ownership does not
influence the relationship between emerging market multinationals and regionalization. The same hold true for firm experience: firm experience does not influence the relationship between emerging market multinationals and regionalization.
The academic relevance, managerial implications, limitations and suggestions for future research of this research are discussed in the following sections.
5.1 Academic relevance
This study contributes to existing literature related to both the globalization/regionalization debate and the emerging market multinationals theory by linking these two concepts and examining their relationship.
First, the globalization/regionalization debate has been discussed in the international business literature for a while now (Rugman & Verbeke, 2004; Dunning et al., 2007, Osegowitsch & Sammartino, 2008). The initial statement that only a few firms are truly global has received different critiques. Dunning et al. (2007) argue that there is in fact increasing regional
integration but that the FDI data needs to be split by activities, forms, types and motives. They also argue that differences can be made in the geography of FDI. This is exactly what the current study is doing by making a distinction between emerging market multinationals so
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firms from the four countries of Brazil, Russia, India and China, and non-emerging market multinationals.
Osegowitsch and Sammartino (2008) argue that the regionalization theory should be refined with longitudinal studies. Although this study has a cross-sectional design, it is adapted with data from the 2013 fiscal year. This means that the data is almost 15 years more recent than the data used by Rugman and Verbeke (2004), which was from 2000-2001. As the same conclusions can still be found, however, this study can be seen as adding to longitudinal effect of regionalization.
Second, emerging market multinationals theory has been much studied in recent years (Hoskisson et al., 2000; Luo & Tung, 2007; Gammeltoft et al., 2010). The high interest in emerging market multinationals is due to the fact that these MNEs are becoming much more important in global markets and transforming into a new breed of multinationals. No
consensus seems to have been achieved yet in relation to the strategy of emerging market multinationals. Some argue that EM MNEs use an incremental step-by-step approach, while others argue that they undertake a leapfrog trajectory (Luo & Tung, 2007). This study shows that EM MNEs are often more home region oriented than global companies, which means that EM MNEs do not follow a leapfrog trajectory.
5.2 Managerial implications
This study conveys important managerial implications as well. Now that it is clear that emerging market multinationals are more home region oriented than global, there are important implications for the strategic approach used by the managers of these MNEs. To structure a strategy a manager should be aware of the MNE’s current focus in order for that strategy to work. For example, there are many Chinese state-owned or state-controlled firms that are encouraged or discouraged by their local government to globalize. The managers of
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these firms follow these orders even though the MNE’s current focus could be different. For example, a state-owned MNE that is encouraged to globalize and has a home region
orientation could begin to perform badly, since this MNE does not have the right resources to globalize (only the supportive institutional environment). As this will lead to market failures, MNEs from emerging markets should know where their focus lies when making strategic decisions. If a firm is home region oriented but wants to do business on a global level, a strategic plan to achieve this new position should be made. Of course, a firm can also decide to further exploit its home region focus and adapt its strategy to this fact.
5.3 Limitations and future research
The limitations of this research should be acknowledged. This study used the BRIC countries as an indicator of emerging markets. Of the 118 EM MNEs listed in the Fortune Global 500, only 23 reported their regional sales. This provides a small sample for conducting a good analysis. In addition, there has to be an underlying reason why so many EM MNEs have no annual reports available. Further research could dig into the lack of regional sales numbers and annual reports, and try to find the data with different tools than those used in this paper.
Since many of the 118 EM MNEs from the Fortune Global 500 were Chinese firms, Russian, Indian and Brazilian firms are not that involved in this study. India is also not included in the six different regions of the dataset (namely North America, Europe, Asia, Central and Latin America, Oceania and Other regions). Future research should also study more MNEs from these other three countries and include India and its surroundings as a seventh region.
Neither moderating role seems to be significant in this study. First, state ownership does not seem to have an influence on the relationship between the EM MNE and regionalization. For future research it would be interesting to also explore the role of family-owned MNEs. Second, one can argue that firm experience is only calculated by the number of years a firm
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has existed. Firm experience can also be calculated by different methods, such as the time the firm has been international or how many investments (namely acquisitions, greenfields and so forth) a firm has made beyond its home country’s borders. Perhaps using one of these other calculations would lead to firm experience having a significant influence.
41 6. Conclusion
This study focused on whether multinationals from emerging markets tend to be more
regional than multinationals from advanced markets. First both the theory of emerging market multinationals and the regionalization debate were explained. Rugman and Verbeke (2004) argue that almost no firm is truly global, but is instead home region oriented. Their study focuses on MNEs from the triad region. The current study expands their research by examining multinationals from developing countries as well. Different views concerning strategy can also be found in the literature about EM MNEs. Luo and Tung (2007) argue that these firms do globalize to acquire strategic resources, while Rugman and Li (2007) posit that these firms stay within their home region. The current study confirms the latter, namely that emerging market multinationals are more likely to be home region oriented.
To examine this relationship, a dataset was constructed in this study using the Fortune Global 500. This list includes the top 500 revenue-generating MNEs of 2014. The data gathered for this dataset was retrieved from Orbis and annual reports for the 2013 fiscal year.
The hypotheses were tested using a multiple regression analysis and it was shown that emerging market multinationals add significant explanatory power to the control variables (i.e. firm size, industry and performance), which indicates that emerging market
multinationals affect regionalization. More specifically, it was found that emerging market multinationals are positively related with regionalization. Firms from emerging economies thus tend to be more home region oriented than non-emerging market multinationals. No significant relationships were found for the state ownership and firm experience moderators. This implies that the positive relationship between emerging market multinationals and regionalization is not affected by either state ownership or firm experience.
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This study has both academic and managerial implications. It confirms the statement of Rugman and Verbeke (2004) by determining that EM MNEs also tend to be more home region oriented than global. The springboarding perspective of EM MNEs should therefore be handled carefully, since it seems that EM MNEs do not follow a leapfrog trajectory (Luo & Tung, 2007). In practice, this study has implication for managers in terms of raising their awareness of their firm’s possibly home region orientation and the related need to align strategies to this focus.
43 Acknowledgements
I would sincerely like to thank my supervisor Dr. Niccolò Pisani. His feedback, comments and suggestions were highly valuable and pushed me in the right direction. Furthermore, his structure helped me to learn from different phases of the thesis process and helped me to finish the thesis on time.
