Emerging Market Companies Research Articles

How Can Experience Influence Cross-Border M&A Performance?

For years, international deals between developed countries dominated the deal market because governments of many emerging countries had long imposed restrictions and barriers to inward and outward capital flows, limits on capacity extension, stringent licensing requirements to enter new businesses, et cetera, which inhibited the rise of deals between developed and emerging economies as a result of poor or absent growth avenues. In addition, until recently, technological innovation, transportation, and communication that advanced at astonishing rates only in the last decades did not allow easy, fast, and cheap combination, integration, and communication between business firms located in geographically and culturally distant countries. The few deals involving developed and emerging economies were also initiated almost exclusively by developedmarket buyers that acquired either minority or majority stakes in emerging-market targets. There has recently been a steady transition in a number of emerging economies as local governments tried to liberalize their closed economies. This has not only spurred both deals originated by developed-market acquirers, largely through joint ventures and minority stake purchases, but also deals of developed-market firms by emerging-market companies. Liberalizations help firms to go abroad but are not sufficient to overcome cultural differences. Numerous studies on cross-border deals show evidence of a negative implication of cultural distance (Bjorkman et al., 2007; Cartwright & Schoenberg, 2006; Schweiger & Goulet, 2000; Teerikangas & Very, 2006). Cultural distance, cultural incompatibility, cultural misfit are viewed as a potential obstacle to exploiting synergistic benefits in post-merger integration process (Barkema et al., 1996). On the other side, other studies show that cultural distance provides new routines and repertoires that can increase their performance in new markets (Chakrabarti et al. 2009; Morosini, et al. 1998). Can cross-border deal experience moderate the cultural distance? We consider the possibility that crossborder deal experience can affect the success of the deal and the subsequent benefit from culturally differences. By relying on event study methodology, we analyzed the stock market reaction of a sample of Italian firms in response to announcements of MA particularly, experience and cultural distance.

From servant to master: Power repositioning of emerging-market companies in global value chains

In this article, I analyze how emerging-market firms upgrade their capabilities. Complementing the upgrading-through-technological capabilities view, I propose a power-repositioning argument, whereby local firms improve their power position through taking more control of the chain as part of the upgrading process. In particular, I argue that international expansion toward downstream activities enhances the power position of emerging-market supplier firms in globally integrated buyer-driven industries. This process enables local firms to break away from low-value-added positions within the value chain and exert more power within the governance structure of global value chains.

CAPITAL STRUCTURE OF BRAZIL, RUSSIA, INDIA AND CHINA BY ECONOMIC CRISIS

ABSTRACT Purpose: Verify the effects of the subprime mortgage crisis on firms with different debt levels. Originality/gap/relevance/implications: The study contributes to the literature by examining the financial capital structure of emerging market companies in a context of crisis, in addition to using a robust econometric tool - the quantile regression. Key methodological aspects: In this work, the quantile regression was used as an analysis tool, and this technique allowed to observe the impacts of the crisis not only in the average level of indebtedness of companies, but also in its extreme values. Therefore, this work is characterized as descriptive, and the analyzed relations are quantitative. Firms were analyzed in Brazil, Russia, India and China. Summary of key results: The results indicate financing strategies, according to the theories of Pecking Order and Trade-off as regards to the level of debt. Key considerations/conclusions: The survey concluded that firms have different financing strategies even in the same country. Thus, the financial performance of firms would be influenced by economic conditions in the country, as well as the existing debt level in each company.

A Bricolage Perspective on Technological Innovation in Emerging Markets

Product innovation strategies of emerging market companies are increasingly challenging conventional wisdom. Drawing on a qualitative case study of Mahindra Reva, the only electric vehicle producer in India, this paper explores how a bricolage strategy enabled a resource-constrained emerging market firm to deliver affordable, innovative, and high-tech products with minimal capital investments. The findings of this study illustrate how multiple forms of bricolage can be implemented and managed at organizational and interorganizational levels. They show how different bricolage activities relate to different stages of the new product development process, and further, highlight the complementarities between bricolage and engineering activities. This paper argues that bricolage, which is typically regarded as a behavioral trait or skill that allows entrepreneurs and innovators to operate in challenging environments, can also be a carefully planned and executed strategy conducive to innovation. Thus, it suggests that a cost-effective bricolage strategy can underpin emerging market companies' development of discontinuity-creating and market disrupting technology products.

Who cooks the books in China, and does it pay? Evidence from private, high‐technology firms

Research summary: We document the extent of fraudulent reporting among 467 private Chinese technology companies. Comparing the financial statements concurrently submitted to two different state agencies, we demonstrate a systematic gap in reported profit figures in the two sets of books. We find: (1) more than half the sampled companies report incentive‐compatible, materially discrepant profit numbers to the two agencies; (2) politically connected companies are approximately 18 percent more likely to commit fraud and those with venture capital backing are 19 percent more likely to do so; and (3) it pays to cheat. We estimate that companies who “cook” their books have considerably higher odds of receiving an innovation grant. Especially given its prevalence, we conclude that fraud can be a source of performance differential for emerging market companies.Managerial summary: We document that more than half of a sample of 467 private, Chinese technology companies engage in fraudulent financial reporting. By comparing the financial statements companies concurrently submitted to two different state agencies, we demonstrate a systematic gap in reported profit figures in the two sets of books. Relative to the companies without these attributes, we find that politically connected companies are approximately 18 percent more likely to commit fraud and those with venture capital backing are 19 percent more likely to do so. Furthermore, we show that it pays to cheat. We estimate that companies who “cook” their books have considerably higher odds of receiving a government‐sponsored innovation grant. Therefore, fraud can be a source of performance differential for emerging market companies. Copyright © 2015 John Wiley & Sons, Ltd.

Knowledge and innovation in emerging market multinationals: The expansion paradox

This article examines the innovation and knowledge strategies that allow emerging-market companies to become major international players. By adopting a qualitative approach, this study identifies a significant paradox between the desire of some leading Chinese car companies to expand internationally and the current relationship of such companies with leading global car companies, which significantly inhibits Chinese international expansion. This study unpacks that paradox using innovation theory and the resource-based view, and develops a matrix of strategic options that can assist emerging market multinational companies to expand internationally.

Intermediaries in Internet Offerings: The Future is Here

Despite an overwhelming demand for the internet sale of stock by small businesses, the United States lags behind the rest of the developed world in authorizing such a market. The losers are the small and emerging market companies that cannot otherwise afford the high costs of raising equity capital in the public trading markets. The paper is a short history of the reluctance of the Securities and Exchange Commission to approve a workable system of public internet offerings. There is a snap shot of the current internet offering market and a projection of where we will eventually have to go. The article recommends that the current polyglot of historical exemptions, many of which are eighty years old, be scrapped in favor of a new comprehensive package of internet rules.

Моделирование суверенной премии за риск на развивающихся рынках капитала

Дмитрий Вячеславовчич Тимофеев - Национальный Исследовательский Университет "Высшая Школа Экономики". Электронная почта: DTimofeev@hse.ru
 Акции на развивающихся рынках капитала обычно стоят дешевле, чем аналоги с развитых рынков. Для учета этого обстоятельства в моделях дисконтированных денежных потоков (далее по тексту ДДП) практики традиционно используют специальную (ad-hoc) надбавку в ставке дисконтирования – суверенную (или страновую) премию. Предлагаемые в литературе варианты расчета данной премии не имеют надлежащего теоретического обоснования. Другой, менее распространенный метод учета рисков развивающейся страны, предполагает использование сценарного подхода. Однако и его трудно реализовать из-за проблемы калибровки параметров. Налицо проблема учета риска бизнеса развивающихся стран.Предлагается отказаться от идеи суверенной премии. Для оценки компании из развивающейся страны предлагается следующий порядок. 1) Рассчитывается теоретическая стоимость в модели ДДП, как если бы бизнес принадлежал к развитой стране. 2) Применяется дисконт, учитывающий риск развивающегося рынка. Дисконт получается в ходе анализа разниц мультипликаторов рынка акций страны по сравнению с развитыми аналогами. В результате этого проблема учета риска страны перестает быть «черной коробкой» (black box) и превращается в верифицируемую процедуру.В работе критически анализируется практика расчета ставок дисконтирования и связанная с ней теория. Дается теоретический анализ развивающихся стран с точки зрения новой институциональной экономики, осмысляющей природу страновых рисков. В настоящей работе показано, что важнейшим источником риска развивающейся страны являются неустойчивость права собственности, создающей асимметрию в ожидаемой стоимости бизнеса. Это связано с логикой действий власти стран естественного порядка, контролирующих ренту и не позволяющих возвышению невластных элит. Еще одно объяснение предполагает невозможность странам с экстрактивными политическими институтами преодолеть ловушку среднего дохода. Созидательное разрушение приводит к проигрышу элит-инкумбентов и нарождению новых экономических элит, заявляющих свои политические права. Чтобы подставить под контроль политический процесс, нарушаются права собственности, что определяет обсуждаемую в данной работе асимметрию стоимости. Другое следствие этого – остановка процесса развития и меньший ожидаемый рост от акции развивающейся страны по сравнению с аналогичной развитой

English

This study seeks to identify the main strategies adopted by an emerging market company in its internationalization process in Latin America and Europe. The company studied was Natura Cosmeticos. To this end, a survey was conducted on the theoretical framework that discusses the internationalization theory from the behavioral perspective, the motivations for organizations to go international and the internationalization strategies. An exploratory qualitative research was conducted based on the case study method. To collect the data, we conducted interviews with a company’s executive and an intense documentary analysis, which allowed the identification of the main internationalization strategies adopted by Natura in Latin America and Europe.   Key words: Internationalization, strategy, Natura, emerging market company.

Who Cooks the Books in China, and Does it Pay?

We document the extent of fraudulent reporting among 467 private Chinese technology companies. Comparing the financial statements of companies that concurrently apply for government-funded innovation grants and that file financial statements with a second state agency, we demonstrate a systematic gap in reported profit figures in the two sets of books. We find: (i) over half the companies report materially different profit numbers to the two agencies; (ii) companies founded by individuals with political connections and those that have received investments from venture capital firms are much more likely to commit fraud, and (iii) it pays to cheat; net of ties to the government, we estimate that companies which “cook” their books have considerably higher odds of being awarded an innovation grant. Especially given the prevalence of fraud, we conclude that the prognostic factors for the propensity to commit fraud can be a source of performance differential for emerging market companies.

International Strategies by Emerging Market Companies: A Dynamic Capabilities Perspective

This paper focuses on the importance of dynamic capabilities in shaping the nature of international strategies of emerging market multinational corporations (EMNCs). We argue that dynamic capabilit...

“Punching above their weight”

Purpose – The purpose of this paper is to comprehensively review the sources of competitive strength of emerging market multinationals (EMMs). Since most lack firm-specific assets such as internalized knowledge or globally recognized brands, especially in their early international growth, and emanate from less-developed nations, the success of EMMs has to be explained by identifying factors in their home nations and international scope which make these firms internationally competitive. Design/methodology/approach – A comprehensive review of the extant literature and company cases identified several sources of competitive advantage for emerging market firms. Since conclusive evidence is still unavailable, many of these factors are proposed as hypotheses for future empirical research. Where needed, contrary viewpoints are also discussed and cited. Findings – This paper identifies several possible location-specific assets of emerging market companies including the mindset of top management of EMMs (such as long term orientation, global or cosmopolitan perspectives, a degree of humility that recognizes the need to catch-up by learning from foreign allies and customers, tolerance for ambiguity, and frugality) and home country cultural traits such as emphasis on relationships, family control, and private equity capital. Other sources of competitiveness may lie in the home country pool of technical talent and cheap labor, the extensive diasporas of persons of Chinese, Indian and Brazilian origin, and the role of common language as determinants for the geographical pattern of FDI from emerging nations. Originality/value – This paper serves the dual purpose of providing a comprehensive literature review of this topic for doctoral or Masters students, and specifying hypotheses (as well as opposing views) for further investigation.

Lessons learned from Brazilian multinationals’ internationalization strategies

Internationalization of emerging market multinationals is a recent phenomenon gaining importance in the global economy. This foreign expansion of a new breed of companies has challenged established theories and practices in the field of international business (Cuervo-Cazurra, 2007). This article addresses the issue of whether or not there is something to learn from these emerging market companies and their foreign expansion. Focusing on the international trajectories of four Brazilian multinationals (i.e., Odebrecht, Embraer, Stefanini, and Marcopolo), this study analyzes their strategies and managerial processes during and after the recent economic crisis with regards to internationalization. Our qualitative fieldwork suggests that the trajectories of these Brazilian multinationals are quite unstructured and evolve as a reaction to the opportunities they face in international markets. It seems all four companies in our sample shared a strong entrepreneurial spirit and a high motivation to expand their international operations despite the crisis and the obstacles they faced. Our findings and suggestions in terms of lessons learned should provide valuable implications for multinational managers from other emerging markets by providing a better understanding of how Brazilian multinationals expand internationally, deal with economic crisis, and manage relationships with local and foreign institutions.

Defending Turf: Marketing Strategies for Emerging Market Companies

In the marketplace of the global village, multinational-owned megabrands have rapidly become ubiquitous. The crumbling of the iron curtain, the institution of economic reforms in China and the liberalization of economies from India to Brazil have opened up large markets to multinational corporations (MNCs). As trade barriers have disintegrated, MNCs have rushed in, seeking sales growth and respite from their intensely competitive and saturated home markets. As a result, erstwhile protected markets have experienced an abrupt deluge of international brands. For the choice-starved consumers in these emerging markets, this a welcome change from the meager choice and low quality products to which they had grown accustomed. However, for local brands in these newly liberalized markets, the influx of foreign players spells a different reality. For many emerging market companies (EMCs), the experience is a first taste of international competition. To them, the large-scale entry of international firms is a major threat. At best, it results in erosion of local firms’ market shares, and at worst it could spell their demise. Even if local firms do survive, the transition may allow powerful and well-endowed multinationals to wrest control of the rules of the market.

Emerging Market Companies Ascending the Value Curve: Rationale, Motivation & Strategies

Based on synthesis of ideas from international business and strategy, and drawing on the experiences of (1) Japanese, Korean and Taiwanese firms and (2) Indian software and pharmaccutical companies, we present a framework to understand the issues related to emerging market companies ascending the value curve in international markets. In this framework, the proponsity of EMCs to ascend the value curve is dependent on their motivation and willingness to do so, their capabilities and the availability of suitable product-market opportunities. Implications are drawn for action by emerging market companies, and for further research in this area.

The Triple Bottom Line Effect on Emerging Market Companies: A Test of Corporate Social Responsibility and Firm Value Relationship

Over the last twenty years, after corporations have historically focused their reporting systems on the provision of financial information needed by managers and shareholders to assess risks and calculate returns, the global awareness of the need to assess the full spectrum of corporate value has grown dramatically. The triple bottom line or total returns on capital—economic, social, or environmental—are now tracked with increasing regularity. Prior research has revealed that a significant pressure of economic changes, an increase in interest in corporate social responsibility (CSR) in recent years, and an acknowledgement of it as an important research topic has brought a bigger and wider effort to build a comprehensive framework. Little empirical research on the effect of corporate social responsibility together with profitability on firm value is done in Southeast Asian countries. This study extends the literature that has been done mostly in western societies by proposing a further linkage between social responsibility, profitability, and firm value, which is rarely investigated in non-western societies. The study analyzed 35 Indonesian manufacturing firms that are listed in Indonesian Stock Exchange (IDX) and report their CSR as the supplement in the annual report. Statistic methods used for testing the hypothesis are T-test and multivariate regression model. The empirical results reveal that CSR has significantly influenced the firm value of Indonesian manufacturing companies. However, one striking finding in this study is the insignificant influence of two measures of profitability, i.e. ROA and ROE, over firm value of those companies have good CSR. These results explicitly show how firms in emerging countries are going to be more concerned with social sustainability and long-run profitability.

Discussion of “Reporting intangible assets: Voluntary disclosure practices of top emerging market companies"

Discussion of “Reporting intangible assets: Voluntary disclosure practices of top emerging market companies"

Reporting intangible assets: Voluntary disclosure practices of top emerging market companies

This study is the first to empirically examine the applicability of the Value Chain Scoreboard™ proposed by Lev (2001) as an alternative disclosure framework for intangible assets (IA). The context of the research is the top 200 emerging market companies, which are the focus of increasing international attention. We empirically examine the extent of IA disclosures and find that emerging market companies do actively engage in voluntary disclosure practices to disseminate mainly quantitative IA information to their global stakeholders. Corporate-specific factors such as the adoption of IFRS/U.S. GAAP, industry type, and price-to-book ratio are key influences significantly associated with the level of IA voluntary disclosure. In addition, country-specific factors, including risks associated with economic policies and legal systems, are found to be significantly associated with the level of IA disclosure.

Reply to the discussion of “Reporting intangible assets: Voluntary disclosure practices of top emerging market companies”

Reply to the discussion of “Reporting intangible assets: Voluntary disclosure practices of top emerging market companies”

The ‘Governance Gap’, or missing links in transnational chains of accountability for extractive industry investment

This article seeks to address the urgent need for emerging-market economies to more firmly tackle the corporate social responsibility (CSR) of their overseas enterprises in Africa. Focusing on Africa's mining sector, it analyses complementarities among: international guidelines for multinational enterprises (Section 2); domestic management norms from countries of origin (Section 3); and African countries’ legal frameworks for CSR (Section 4). Three emerging-market countries are investigated (China, India and South Africa), while Canada – a ‘traditional’ investor long engaged in mining in Africa – is used as a ‘benchmark’ for assessing whether the CSR characteristics of emerging-market companies differ from those of more ‘experienced’ investors. The article has two aims. First, to build toward a framework that could help emerging-market investors engage in mutual learning and systemize their CSR approaches in accordance with African host government requirements. And secondly, to shed light on the chains of accountability stretching from governing bodies in countries of origin, to company operations in Africa. This analysis reveals a clear ‘governance gap’ between CSR constraints imposed on companies operating within their countries of origin, and the more lenient standards to which companies investing overseas are held. Section 5 and the Conclusion investigate mechanisms for bridging this ‘gap’.