Emerging Market Firms Research Articles

Investment Motives in Africa: What Does the Meta-Analytic Review Tell?

AbstractOver the past two decades, Africa has witnessed a dramatic increase in foreign direct investment (FDI) despite a lack of significant changes in infrastructure and the host country’s policies. What are the motives to invest in Africa? How do these investment motives differ for firms from developed and emerging markets? Several studies empirically tested these questions, however, provided inconclusive results. By taking 735 estimates extracted from 51 studies and applying advanced meta-analysis techniques, this study examines the motives of FDI in Africa. We found that compared to market-seeking motive, the effect size of resource seeking and efficiency seeking is larger (smaller) on FDI attractiveness in Africa. In terms of effect size, the impact of asset-seeking motive on FDI is statistically comparable to that of market-seeking motive. Contrary to general perceptions, the impact of natural resources on FDI attractiveness in Africa is not different from market seeking for developed countries’ firms. Our results show that compared to GDP per capita, the effect size of accessing minerals and oil reserves on FDI attractiveness in Africa is positive and significant for global and emerging market firms. Our research shows that there is more likelihood of type I and type II publication selection bias in this research field.

Multicultural leaders from emerging markets: transforming international acquisitions and corporate social responsibility

PurposeThe purpose of this paper is to explore the influence and advantages of leadership multiculturalism on global strategy development through cross-border mergers and acquisitions (CBA) and corporate social responsibility (CSR) from emerging market multinational companies (EMNCs) expanding into emerged markets. The key contribution of asymmetric multiculturalism is a novel finding based on inductive research. We fill a gap by further linking business leader characteristics and corporate strategic actions and examining how multicultural business leaders from emerging markets can be highly effective at CBA and CSR.Design/methodology/approachThe paper draws on in-depth interviews, observations and documentary evidence analyzed with iterative coding, construct definition and thematic development to understand how leadership multiculturalism affects CBA and CSR in an EMNC over time.FindingsThe new construct of leadership asymmetric multiculturalism describes strategic advantages accruing to leaders from developing markets who are culturally fluent in both emerging and emerged market milieus. The construct contributes to emergent research on the rise of multicultural leaders and their strategic advantages and delineates a pathway toward identifying advantages of emerging over emerged market business leaders.Research limitations/implicationsThe research addresses specific CBA and CSR strategies within one emerging market region and EMNC. Future research should further articulate and validate the key construct of asymmetric multiculturalism, further examine its sources, draw more explicit comparisons with data from emerged market leaders, and explore the applicability of these findings to strategic actions and advantages in both emerging and emerged markets.Practical implicationsEmerging market corporate leaders should identify and develop pertinent aspects of their own asymmetric multiculturalism in enacting CBA and CSR strategy with respect to EMNCs and firms from developed markets. Emerged market leaders should become more aware of and cultivate their own multiculturalism.Social implicationsAsymmetric multiculturalism can be accompanied by heightened awareness of global citizenship — including codes of ethics, environmental challenges, community outreach and fair labor practices — which, in tandem with CBA, can strengthen emerging market firms’ performance and reinforce their global stature and reputation.Originality/valueAsymmetric multiculturalism is a new explanatory construct in the sociological, economic and management disciplines. Emerging markets corporate leaders utilize their multicultural competence to accelerate global CBA and CSR activity and advance strategic opportunities for their firms. The identification of advantages deriving from emerging market leadership capabilities is an unusual finding given the more typical emphasis on the privileges of emerged market leaders and firms.

Speed of internationalization and firm performance: the moderating role of potential slack and knowledge assets

PurposeThe speed of internationalization is an important research topic in the process of internationalization. This paper aims to answer two questions: first, what is the relationship between the speed of internationalization of Chinese multinational firms and their performance? Second, how do potential slack and knowledge assets of firms affect this relationship?Design/methodology/approachThe authors choose Chinese A-share listed manufacturing firms from 2009–2018 as the research sample and use the fixed-effect regression model to test the proposed hypotheses.FindingsFirstly, there is an inverted U-shaped relationship between the speed of internationalization and firm performance (SI-P). Secondly, the potential slack and knowledge assets of firms moderate the inverted U-shaped relationship. Firms with a higher level of potential slack or knowledge assets have a flatter inverted U-shaped relationship between SI-P.Originality/valueFirst, the authors develop and extend Penrose’s theory of firm growth to the research topic of speed of internationalization. Second, this paper incorporates the time dimension into the research on the internationalization process and locates the research context in emerging market firms (EMFs). This is a step forward in clarifying the complex relationship of SI-P. Third, the authors show that the SI-P relationship of EMFs is inverted U-shaped and integrate previous studies, which argue that rapid internationalization positively or negatively affects firm performance. Fourth, starting from inside the firm, the authors provide more contextual factors for better understanding and analysis of the SI-P relationship.

Unpacking the drivers of emerging market firms’ international joint venture formation: The interplay between technological innovation strategies and home- and host-institutional pressures

We explore how the different innovation strategies influence the propensity of emerging market firms with state ownership (FSOs) to form international joint ventures (IJVs). We argue that the different types of innovation strategies employed by emerging market FSOs affect the likelihood that they form IJVs differently. We propose that FSOs pursuing an explorative innovation strategy are more likely to engage in IJVs, whereas those that employ an exploitative innovation strategy are less likely to form IJVs. Additionally, using the institution-based lens, we further propose that the contributions of the different innovation strategies of FSOs to form IJVs are shaped positively by the different levels of home- and host-country institutional pressures. Using 364 Chinese FSOs, we test our hypotheses and find strong support for our arguments. Our study contributes to the literature by offering an important theoretical bridge between the exploration–exploitation framework and the institution-based perspective in the context of emerging market FSOs.

The Role of Top Management Team in Oversea Location Choice: Evidence from Chinese Firms’ Investments in European Industrial Clusters

ABSTRACT This article investigates the role of firm’s top management team (TMT) in its location strategy in oversea investment decision. From the perspective of the upper-echelon theory and knowledge-based view, we study how knowledge-related characteristics of TMTs, such as education background, foreign experience and R&D experience affect the firm’s oversea location choice to invest in an industrial cluster. Using data of OFDI cases from Chinese firms to European sub-national regions from 2006 to 2016, we find that: (1) TMT’s education background has a positive effect on firm’s OFDI decision in industrial clusters; (2) TMT’s foreign experience has a positive effect on firm’s OFDI decision in industrial clusters; (3) TMT’s R&D background increases the firm’s likelihood to invest in industrial clusters. Our findings provide implications related to the effects of TMT characteristics on emerging market firms’ oversea investment activities.

Global value chains and the environmental sustainability of emerging market firms: A systematic review of literature and research agenda

The globalization of production has brought significant growth and connectivity opportunities to firms and workers in emerging markets. However, research on the interplay between global value chains (GVCs) and emerging market firms’ environmental sustainability remains fragmented. A coherent picture of the dispersed body of knowledge on the environmental implications of global production vis-à-vis emerging market firms is lacking. This paper integrates research on GVCs and emerging market firms’ environmental sustainability through a systematic literature review. Findings reveal important descriptive and thematic characteristics of the current body of knowledge. They point to the increasingly important yet dual and multilayered role of GVCs in environmental sustainability of emerging market firms. They also highlight the importance of emerging market firms’ strategies, capabilities, and collaborative GVC relationships to enable the effective implementation of environmental practices in emerging markets and support the environmental sustainability of GVCs. The review highlights a lack of theorization in analyzing this topic and develops an appropriate research agenda.

Barriers to innovation and innovation performance: the mediating role of external knowledge search in emerging economies

Using survey data from companies located in the Wuxi (Taihu) international science park in China, we aim to analyze to what extent science park residents experience barriers to innovation and to what extent opening up the innovation process allows them to overcome constraints and increase innovation performance. Findings indicate that surveyed firms that mostly undertake incremental innovation perceive many constraints and that the depth of external knowledge search—that is, the intensity of the relationship with external sources of knowledge—significantly influences innovation performance, mediating the relationships between innovation barriers and innovation performance. Our results allow us to explain how open innovation practices can be used to mitigate existing barriers, and therefore permeate the knowledge filter, and to theorize on the importance of institutional factors for open innovation theory in emerging economies.Plain English summary It is quality not quantity that matters! The intensity of relationships with external knowledge sources helps to mitigate innovation constraints, facilitate the flow of knowledge, and enhance innovation performance in emerging market firms. We surveyed high-tech SMEs located in the Wuxi (Taihu) international science park in China to find out to what extent external firm barriers to innovation have an impact on the innovation performance of science park residents, and how open innovation strategies affect this relationship. There are three key implications: First, for research, institutional factors need to be considered when studying open innovation, particularly in an emerging country context. Results emphasize the importance of deeper external knowledge sources as one mechanism to mitigate institutional barriers. Second, for management, we show human resource constraints are an important barrier for SMEs and managers should stimulate learning through reward systems and training that increase absorptive and innovative capacity ability. Third, for policy, we show that local officials responsible for the management of science parks in China should put more effort into providing financial support by creating specialized venture capital and a better knowledge of risk analysis from the financial system.

Corporate governance, life cycle, and payout precommitment: An emerging market study

AbstractWe analyze the role of firm‐level corporate governance in determining the precommitment payout policy of emerging market firms and investigate whether there is a precommitment life‐cycle effect. Unlike previous studies of U.S. firms, we find evidence of precommitment only among relatively well‐governed firms, which combine good governance with large dividend payouts to shareholders and large debt‐related repayments to creditors. We also document a strong precommitment life‐cycle effect. Firms in the growth and mature stages of their life cycle tend to use both debt and dividends to precommit to investors, with an increasing proportion of dividends in total payout measures. Our results are robust to an array of control variables, alternate payout proxies, market setting, and firm‐level corporate governance, and it addresses potential endogeneity concerns in the sample.

In Search of Distress Risk in Emerging Markets

Although the non-financial corporate sector accounts for the lion’s share of the post-Global Financial Crisis surge in emerging-market leverage, there is little systematic research on factors that impact corporate distress risk in emerging markets. Existing bankruptcy risk models developed using US data have low predictive power when applied to emerging market firms. We suggest that these models do not account for emerging market vulnerabilities to global shocks such as advanced economy monetary policy changes, US dollar movements, or shifts in global liquidity and risk-aversion. A novel multi-country dataset of corporate defaults allows us to quantify the importance of global shocks on emerging market corporate distress. Using a set of accounting, market, and macroeconomic variables, we develop a model of distress risk specific to emerging markets with comparable forecasting power to that of existing models based on US data. We also explore the asset pricing implications of our model by testing whether equity returns accurately reflect default risk. We find that global factors like US interest rates and credit risk contribute more predictive power for corporate default risk than domestic macroeconomic variables, especially for those firms whose stock returns are most sensitive to global financial conditions.

The Effects of Market Orientation and Proactive Orientation on the Export Performance of South African SMEs

The purpose of this study is to examine the relationships between market orientation, proactive orientation, market capability and innovation as they relate to the export performance of South African SMEs. Utilizing the Stimulus-Organism-Response model and extant literature, a theoretical framework is proposed. A sample of 259 South African SMEs involved in exporting were collected. The study hypotheses are analyzed using PLS-SEM; moreover, mediation tests are also included. The results suggest that market orientation and proactive orientation are significant elements that could lead to the improved export performance of South African SMEs. The current study expects to provide practical managerial implications and marketing knowledge for organizations hoping to better comprehend the South African marketplace. The findings of this study can be further applied to better understand emerging markets. Ultimately market orientation and proactive orientation are valuable strategic orientations that emerging market firms can use to leverage their limited resources as they aim to improve export performance.

State ownership of Chinese firms and their outward foreign direct investment: Political and economic contingencies

The extant literature offers inconsistent predictions and conflicting evidence regarding the relationship between state ownership and the internationalization of emerging market firms (EMFs). Drawing on institutional theory, we examine the moderating roles of political and economic institutions at the subnational and national levels in the link between state ownership and EMFs’ outward foreign direct investment (OFDI). Based on a sample of 1421 OFDI projects involving 286 Chinese listed firms in 115 host countries between 2003 and 2016, we find that state ownership can scale up OFDI when Chinese firms are headquartered in subnational regions with high institutional development or low economic development, or when political relationships between home and host countries are amicable or market growth in a host country is slow; otherwise, state ownership hinders OFDI. These findings offer new insights into the relationship between state ownership and the internationalization of EMFs.

Does cross‐border acquisition reduce earnings management of emerging market acquirers? Evidence from India

AbstractCross‐border acquisitions by emerging market firms have been increasing at an accelerated pace. The present study examines the impact of cross‐border acquisition on the earnings manipulation of emerging market firms by analyzing the cross‐border deals from India during the period 2000–2015. Using two proxies for earnings management, we find that cross‐border acquisition reduces the incentive to manipulate earnings by way of accruals, but not via real economic transactions. Further, cross‐sectional tests reveal that the incentive to reduce accrual earnings manipulation is more pronounced when the acquisition is made in countries with a strong corporate governance structure. Additional analysis indicates that acquisition results in increased earnings response coefficient for the acquirer firms relative to the control firms. Our finding is robust even after controlling for cross‐listing and endogeneity associated with cross‐border acquisition decision. The results have implications for the literature on the spillover of financial reporting practices across countries due to cross‐border business activities, especially in the context of emerging markets, which are known for their weak investor protection and underdeveloped institutional environment.

Pro-market institutions and outward FDI of emerging market firms: An institutional arbitrage logic

We offer new theory and evidence regarding the effects of pro-market institutions on outward foreign direct investment (FDI) of emerging market firms (EMFs). Drawing on the logic of institutional arbitrage, we integrate the escapism and exploitation mechanisms of EMF internationalization into a unified theoretical context. We propose an inverted U-shaped relationship between host market-supporting institutions (MSI) and the investment scale of an EMF’s FDI project in the country, showing an escape-driven upward slope for low-to-medium MSI levels and an exploitation-driven downward slope for medium-to-high MSI levels. We supplement this main argument with two boundary conditions: the alleviating effect of home market liberalization (HML) and the strengthening effect of home government subsidies (HGS), demonstrating the coexistence and variation of pro- and anti- market institutions in an emerging market. Using information on 1,450 FDI projects conducted by 288 Chinese listed firms in 116 host countries, we obtain supportive evidence for the predicted relationships between the three institutional forces. This study enriches the literatures on institutional arbitrage and pro-market institutions with evidence from EMFs.

Coevolution of home country support and internationalization of emerging market firms

This study explores the role of diverse home country support for the internationalization of emerging market firms through a coevolutionary approach. A coevolutionary approach can improve our understanding of the complexities of comprehensive institutional transition in emerging market economies which allows firms to adapt and leverage institutional support for internationalization. Based on institutional theory and the strategic choice perspective, we present a coevolutionary model of mutualism and competition among businesses, government officials and industry players through multidirectional interactions. Our research offers an alternative and nuanced explanation of selective and relevant home country support, the role of independence of firms, support criteria and reinforcement of governance for internationalization of emerging market firms. This study contributes to the literature of home country support for internationalization through an enrichment of the institutional framework and strategic choice with a political perspective.

Role of Corporate Governance and Lifecycle in Determining Payout Precommitment in an Emerging Economy

We analyze the role of firm-level corporate governance in determining the precommitment payout policy of emerging market firms and investigate if there is a precommitment lifecycle effect. Unlike previous studies for the U.S. firms, we only find evidence of precommitment among relatively well-governed firms, who combine good governance with large dividend payouts to shareholders and large debt-related repayments to creditors. We also document a strong precommitment lifecycle effect. Firms in the growth and mature stages of their lifecycle tend to use both debt and dividends to precommit to investors, with an increasing proportion of dividends in total payout measures. Our results are robust to an array of control variables, alternate payout proxies and market setting, firm-level corporate governance and addresses any potential endogeneity concerns in the sample.

The role of springboarding in economic catch-up: A theoretical perspective

This paper offers a taxonomic examination of the springboard perspective, outlining three upgrading paths pursued by emerging market firms – path following, path creating and path compressing. The choice of the upgrading path is determined primarily by home-country conditions including market size and growth, innovative capability, government intervention, and market and institutional imperfections. We find that “springboarding” is a strategy most likely to be adopted by path-compressing firms and least likely to be observed among path-creating firms.

Success in completing cross‐border acquisitions by emerging market firms: What matters?

AbstractWhile cross‐border acquisitions (CBAs) by emerging market firms (EMFs) have grown rapidly in recent years, many have failed to bring the acquisitions to completion. Compared with acquisitions initiated by acquirers from developed economies, little is known about the possible determinants of completion or abandonment of CBAs conducted by EMFs. This paper investigates what contributes to the successful completion of CBAs by EMFs. Based on data of 637 announced CBAs by Chinese firms during 2000–17, we find that investing firms’ self‐learning experience from previous acquisitions can significantly increase the completion rate of subsequent related CBAs, while their industrial spillover experience helps raise the completion rate of unrelated CBAs. Our findings also show that the value of acquisition experience is significant only when the target firm is domiciled in countries with comparable level of institutional quality. Our results provide new insights into the complexity of the global M&A market and lessons for EMFs intending to conduct CBAs in the future.

Strategic Network Orchestration in Emerging Markets: China's Catch‐up in the High‐Speed Train Industry

AbstractTransitioning from catch‐up in production to catch‐up in innovation capabilities is essential to emerging market firms (EMFs) achieving internationalization and a competitive advantage. While some EMFs are now positioned among the world's most advanced firms, many struggle to become independent innovators. Thus, understanding how EMFs can develop internal absorptive capacity and progress towards catching up in innovation capabilities remains important. Our study seizes this research opportunity and develops a network‐based explanation of catch‐up, which complements existing technological and organizational explanations. Specifically, we address the question of ‘How does the orchestration of collaborative networks enable EMFs to catch up in production and innovation capabilities?’ by describing an important yet under‐researched process of strategic network orchestration and showcasing the dynamic interdependencies between network orchestration and organizational learning. Our study provides a detailed account of Chinese high‐speed train (HST) development from 1990 to 2020 and opens the possibility for future research on network orchestration in emerging market contexts. This provides EMF managers with a set of actionable network orchestration mechanisms that can be used when designing and purposefully managing their strategic nets of domestic and foreign partners.

Export learning advantages through supplying multinational enterprises in emerging markets: a conceptual model

Previous research and available international trade data indicate that supplying multinational enterprises (MNEs) forms an important avenue for emerging markets increased involvement in export markets especially those previously dominated by MNEs. However, little is known at firm level how these forms of inter-firm transactions translate into export learning advantages for emerging market firms (EMFs) that are new to international business. Building on the relational embeddedness framework, RBV and dynamic capability framework, this paper presents a conceptual model of export learning advantages of EMFs supplying MNEs. It is argued that the duration of the supplying relationship in these inter-firm exchanges as well as the level multiplexity of these ties would more likely facilitate than inhibit export learning advantages for the less internationally experienced EMFs when they possess differentiation competences as opposed to low-cost competences. Similarly, high levels of absorptive capacity are observed as critical for the less internationally experienced EMFs supplying MNEs to effectively identify, capture and sustain export opportunities beyond the initial supplying requirements of the focal MNE customer(s).

Examining the influence of managerial ownership on M&A transactions by acquirers from the emerging markets

Emerging market firms have served mainly as targets rather than acquirers in mergers and acquisitions (M&As) transactions. However, this trend appears to be changing because some firms from the emerging markets are becoming more active in M&A deals as acquirers. Several factors except managerial ownership are highlighted in the literature as the driving forces of M&As by acquirers from the emerging markets. Therefore, this study investigates whether managerial ownership motivates these acquirers to undertake acquisitions, and influences them to pursue smaller-sized targets in their deals. Using the probit regression methodology and data of 160 listed acquirers from ten emerging markets sourced from the Bloomberg terminal from 2004 to 2013, the study reveals that managerial ownership of acquirers from the emerging markets does not influence them to undertake M&As and also become interested in smaller targets. However, the acquirers' debt levels are more likely to influence their M&A execution decisions.