Running out of steam on emerging markets? The limits of MNE firm-specific advantages in China

Abstract

PurposeThe purpose of this paper is to explore the extent to which the firm-specific advantages (FSAs) which underlie international expansion have proved resilient for European multinational enterprises (MNEs) operating in a key emerging market – China.Design/methodology/approachThe authors adopt a qualitative, case study approach, using interview data to explore the companies’ FSAs on market entry, how they evolved over time and the strategies adopted to defend them. They undertook 15 in-depth interviews with decision makers in six companies addressing their experience since market entry. To control for sector-level effects, the authors focus on companies in the environmental protection sector.FindingsThe authors found examples of significant erosion of the FSAs among the case study companies, which undermined their position on the host market and their long-term competitiveness. The key sources of erosion were limitations in market access, exclusion from local networks and the emergence and upgrading of local competitors, often firms with whom the MNEs had collaborated in the past.Research limitations/implicationsThe relatively small number of cases (six) limits the generalisability of the findings by the authors. However, the authors are convinced that, given that the case companies are generally large and have long experience in China, the conclusions made are well grounded. In addition, there was the high level of coherence in the reported experiences of the interviewees, providing further support for the findings.Practical implicationsThe experience of these case study companies highlights that MNEs have difficulty retaining their unique FSAs when faced with rapidly evolving local competition in a key emerging market. Key strategies mobilised included focussing on a sub-sector of the market and localising both the company and their supply chains. The difficulties experiencing by these case study companies in retaining their FSAs underline the need for MNEs in emerging markets to avoid complacency and constantly innovate, but they also raise questions about their capacity to extend their international reach in the long term.Originality/valueVery few studies have explored the FSAs of firms and how they evolve over time using a case study-based qualitative approach, especially in emerging markets.