Overcoming institutional distance: Expansion to base-of-the-pyramid markets

Abstract

The paper assesses the international expansion of developed-country multinationals to base-of-the-pyramid markets to launch new-to-the-world product innovations. The case study, of Philips Lighting, uses an international-business framework on the transferability and development of capabilities during international expansion. Institutional distance limits transferability from developed-country markets to base-of-the-pyramid markets; heterogeneity limits transferability across base-of-the-pyramid markets. The case shows that only extant capabilities independent of an institutional context are transferable, thereby forcing the firm to pay more attention to locally building new capabilities for market research and distribution. The transferable capabilities are mainly procedural (such as a customer-centric vision, and experience in high-tech product development); collaboration with local partners eases the development of new capabilities. Firms can improve their base-of-the-pyramid internationalization strategy by assessing the transferability of their capabilities and by adapting their organizational structure to stimulate knowledge sharing when building new capabilities.