Emerging Market Firms Research Articles

Technological knowledge and internationalization: evidence from India

PurposeThe authors combine institutional theory with resource-based theory to explain how emerging market firms (EMFs) manage their technological knowledge capital by venturing into international markets. The authors further explore the contingency effect of international marketing knowledge and competitive intensity in the home country in influencing technological knowledge capital and internationalization relationship.Design/methodology/approachThe study employs multiple linear regression analysis using a dataset consisting of 326 Bombay Stock Exchange-listed A and B category stocks for a six-year period (2010–2016).FindingsThe study finds that with an increase in technological knowledge capital, the internationalization of Indian firms increases. Furthermore, international marketing knowledge and competitive intensity positively moderate this relationship.Research limitations/implicationsThe study finds that with an increase in technological knowledge capital, the internationalization of Indian firms increases. Furthermore, international marketing knowledge and competitive intensity positively moderate this relationship.Practical implicationsThe authors’ findings increase international marketing managers' awareness of how internationalization acts as a knowledge management tool for EMFs under the contingency effect of international marketing knowledge and competitive intensity.Originality/valueThe study provides novel insights into the technological knowledge capital management strategy by EMFs through internationalization and the role of international marketing knowledge and competitive intensity in increasing firms' ability to even better manage technological knowledge capital.

The interactions of corporate sales growth and diversification strategy: Cross-country evidence

This paper highlights the interactions of sales growth with diversification strategies and their joint effects on firm value. Employing firm-level data for 39 countries, we confirm a diversification discount on average for our sample firms, consistent with the evidence in the literature. After considering joint changes in industry-adjusted sales growth and diversification, however, we uncover a significant diversification premium when a decrease in diversification is accompanied with declining sales growth. We also find a lessened diversification discount when an increase in diversification is intertwined with increasing sales growth. In contrast, an increase in diversification in the face of decreasing sales growth leads to a significant diversification discount. We further show that the joint effects on firm value are more pronounced for developed market firms than for emerging market firms. Overall, our results suggest that despite the negative diversification effect on average, a lessened diversification discount and a diversification premium are viable if a firm’s diversification strategy is properly developed in consideration of its business situations such as sales growth.

Rapid FDI of emerging-market firms: foreign participation and leapfrogging in the establishment chain

This research explores the enablers of emerging-market firms (EMFs) leapfrogging in the internationalization process. Although many studies on rapid internationalization focus on exporting activities, we expand the concept to a higher-commitment entry mode: foreign direct investment (FDI). In addition, we investigate the role of an understudied force, foreign multinational enterprises (MNEs) in emerging markets, in enabling rapid internationalization of EMFs. Our hypotheses are tested using 1,612 first-time outward FDI projects from China between 2000 and 2014. The largely supported results suggest that minority foreign ownership and colocation with foreign MNEs allow EMFs to leapfrog certain stages in the establishment chain. Our findings offer alternative explanations, besides the government steward logic, to EMFs’ international expansion and contribute to the understanding, from a policy standpoint, that encouraging foreign-local partnerships is conducive to host-country industrial upgrading.

Capital Round-Tripping: Determinants of Emerging Market Firm Investments into Offshore Financial Centers and Their Ethical Implications

Foreign direct investment (FDI) in offshore financial centers (OFCs) is gaining increased attention in business ethics research. Much of this research tends to focus on OFCs as locations where firms can avoid taxes, considering such behavior as unethical. Yet, there is dearth of studies on capital round-tripping by emerging market firms, which is an integral part of this phenomenon. Such round-tripping involves firms sending capital into OFCs only to invest it back in the home country under the guise of “foreign” investment. Presently there is little discussion of the ethical implications of such round-trip FDI activities. In this paper, we conceptualize round-tripping as institutional arbitrage and look at the determinants and ethical implications of such investments into OFCs. Exploring Russian round-tripping we note that firms tend to invest more funds in OFCs that offer a combination of tax and secrecy, or secrecy and property rights protection arbitrage opportunities. In either case firms exploit the opportunities provided by institutional differences between the OFC and Russia while investing back into Russia. Our results tend to indicate that equating OFC investment to tax avoidance and thus deeming it as unethical behavior is too narrow an explanation in the case of emerging economy round-tripping. This is because such investments are often motivated by the unethical behavior of home country stakeholders and may in fact provide benefits to society.

Big data and emerging market firms’ innovation in an open economy: The diversification strategy perspective

Big data development encourages emerging market firms (EMFs) to diversify strategies and increase competitive advantages by acquiring resources embedded in different markets and industries. This study draws on the composition-based view (CBV) and empirically examines how EMFs integrate resources through international and business diversification to improve innovation performance in open economies. Based on the data collected from Chinese listed companies, our findings show that international diversification and related business diversification positively improve firms’ innovation performance, whereas overall business diversification negatively impacts firms' innovation. International and business diversification substitute for each other to affect firms’ innovation outcomes. Further research found that these results are more significant in a higher big data development environment. Moreover, we examine the moderating role of organizational slack in the relationship between diversification strategies and firms’ innovation performance. This study contributes to the EMF innovation literature by highlighting the effects of diversification strategy from a CBV perspective. Firms creatively use and combine open resources to promote innovation in open economies. This study also contributes to diversification research in big data environments, arguing that EMFs that lack strong capabilities may suffer lower innovation performance if they concurrently apply international and business diversification at a high level.

When does informal finance help exports of emerging market firms? A contingent perspective

PurposeThe purpose of this study is to examine whether the usage of informal finance helps exports of emerging market firms.Design/methodology/approachThe study analyzes a large dataset of observations on emerging market firms. To address the issue of a non-random sample and correct for self-selection in the regression analyzes, this paper uses the two-stage Heckman procedure. In the first stage, this study uses a sample of 74,148 firms from 135 countries over an 11-year time period (2006 to 2016). In the second stage, which includes only firms involved in exports, the analyses are based on 13,608 observations on firms from 135 countries over the same time period.FindingsThe study finds that the usage of informal finance helps exports of emerging market firms. Furthermore, the interactive effect between informal finance and home country affluence also influences exports.Research limitations/implicationsThe analyses do not account for destination market characteristics such as size and growth.Practical implicationsThe study suggests that emerging market firms should not shy away from using informal finance which can often be more convenient, and sometimes cheaper, than formal finance. Informal finance’s timeliness might be particularly useful for pursuing strategies such as exporting.Originality/valueStudies in international business implicitly assume that finance is available for pursuing strategies such as exports or foreign direct investment. However, formal finance is scarce in emerging markets. By drawing a linkage between informal finance and exports in emerging markets, the study adds to the international business literature. The study also examines joint and interactive effects of home country characteristics and deployment of informal finance on exporting.

Imitation, Performance Feedback, and the Outward Foreign Direct Investments of Emerging Market Firms

This study proposes that emerging market firms (EMFs) tend to imitate the outward foreign direct investment (OFDI) decision made by their interlocked partners and high-status firms in the same industry. We further posit that interlocked partners and high-status firms have differential values in gaining legitimacy and providing key information for EMFs. Moreover, when EMFs’ performance exceeds the aspiration level, they will be more likely to imitate high-status firms and less likely to imitate interlocked partners as high-status firms can provide information on high-valuable OFDI and high level of legitimacy or reputation despite the associated challenges. We validated these hypotheses by using panel data for a sample of Chinese listed firms during 2001–2017.

The Environmental Innovation Capability of Emerging Market Firms: FDI and Institutional Logics

Despite the critical impacts of environmental innovation capabilities and foreign direct investment (FDI) on emerging market firms (EMFs), extant literature is largely silent on how EMFs enhance their environmental innovation capabilities via inward and outward FDI. In this study, we posit that EMFs develop their environmental innovation capabilities by learning from both inward and outward FDI diversity, and the learning-from-diversity effect varies among EMFs dominated by different institutional logics. These theoretical arguments are supported by data collected in 275 publicly listed Chinese firms between 2009 and 2018. This study, therefore, makes important contributions to organizational learning literature and environmental research in emerging markets.

Emerging market firm’s persistence with failed innovations

We explore the conditions under which firms persist with failed innovations. While prior literature suggested firm’s persistence with failure may vary by their experience with novel vs incremental innovations, we argue the institutional experience of the innovating firm can explain their persistence via their ability to interpret failure events. Firms from advanced economies may react to failure by persisting with innovations after setback, whereas firms from emerging markets may react to failure by abandoning failed innovations. Additionally, emerging market firms may transform negative feedback from one type of innovation into developments for another (i.e., switch the type of innovations they undertake). We test hypotheses using FDA-approved drugs (1998-2019). Our analysis provides insights on learning from failure and innovation efforts in an international business context, and their consequences.

Innovative search post performance shortfall: the effects of institutional imprinting

Integrating insights from the organizational imprinting theory with the problemistic search literature, we inquire how historical environments of firms affect the adaptive process of innovative search by firms from emerging economies during periods of performance shortfall. Utilizing the context of institutional transitions in the emerging economy of India, we surmise that imprints inscribed by the inhibitory and protectionist policy environment in the pre-liberalization period deter firms from focusing on innovation and precludes the development of innovation routines, which impedes innovative search by firms facing performance shortfall in the post-liberalization era. Additionally, we postulate that firms' strategic choices and exogenous conditions of active and passive technological exposure, respectively, attenuate the effects of imprints stamped by the pre-liberalization institutional epoch on the relationship between performance shortfall and innovative search. We test and find considerable support for our predictions on a large dataset of 9088 firm-year observations belonging to the Indian manufacturing industry during 1995 – 2010. Our findings unravel the salience of historical institutional environments in explaining the innovative search behavior of emerging market firms facing performance shortfall.

How to gain from international R&D alliances? A mutual dependence logic

In an asymmetric international R&D alliance, a central research question is: how and when emerging market firms (EMFs) can acquire knowledge and foster their domestic innovation? To address this key question, we build on resource dependence theory (RDT) and particularly its core construct of mutual dependence (MD), and develop an MD model of R&D alliances (MD model or logic). Following the MD logic, we contend that MD is positively related to both mature and emerging technology knowledge acquisition of EMFs, which in turn enhances EMFs in their domestic innovation capability. In addition, we contend that organizational similarity and informal competition moderates the positive relationship between mutual dependence and knowledge acquisition and the relationship between emerging technology knowledge acquisition and radical product innovation of EMFs, respectively. Based on a detailed dataset of 225 Chinese firms, we verify our MD model, contributing to the literature of R&D alliances and innovation in distinct ways. Most importantly, our proposed MD model may stimulate future scholars to more carefully consider the role of knowledge acquisition underlying the motivations and actions of EMFs in the dyadic relationship.

Entrepreneurial orientation and green management in an emerging economy: The moderating effects of social legitimacy and ownership type

By combining major tenets developed in the entrepreneurial orientation literature and institutional theory, we investigate the relationship between entrepreneurial orientation and green management in the context of emerging markets and the moderating effects of social legitimacy and ownership type. Using survey data from 239 firms in China, we find that entrepreneurial orientation is positively associated with emerging market firms' green management. This positive relationship is strengthened by social legitimacy and is stronger for state-owned enterprises than for non-state-owned enterprises. Furthermore, our empirical results partly support the idea that the configuration of high entrepreneurial orientation, high social legitimacy and state ownership is more effective in facilitating emerging market firms' green management than other configurations. This study explores a new perspective (i.e., the integration of an entrepreneurial approach and institutional theory) to explain why firms make differentiated green decisions in emerging markets. Additionally, the three-way configuration effects provide a more complete picture and thereby facilitate a deeper understanding of emerging market firms’ entrepreneurial spirit with regard to environmental issues.

Navigating the digital revolution and crisis times: humanitarian and innovation-inspired leadership through the pandemic

PurposeThis article examines the leadership vision, values and vigilance of an emerging markets logistics firm in managing customer and humanitarian concerns and critical supply chains during the COVID-19 pandemic. The study explores how an emerging markets firm has contributed to global supply chain mobility and vaccine distribution in the pandemic – keeping cargo moving – drawing on vision, values and vigilance, including attention to the innovation momentum of the firm.Design/methodology/approachThe article concentrates on an exemplar firm, leader and management team to illustrate challenges of helmsmanship during the pandemic for an emerging markets firm, Agility, that operates worldwide in numerous developed and developing economy markets. The article develops a case study analyzing how Agility has met the simultaneous challenges for innovation and transformation in the digital revolution and navigation through the crisis times of the global pandemic. The analysis derives from direct management communications, corporate documents and media sources.FindingsThe vision, values and vigilance of the leadership, with emphasis on digital innovations and disruptions, digital supply chains, humanitarian partnerships, focusing both globally and on emerging markets, and nurturing smaller as well as larger businesses, have enabled the firm to thrive. Given the importance of global supply chains during COVID-19, Agility is a pivotal example of partnering with governments and pharmaceutical companies worldwide in delivering the new array of vaccines, as well as personal protective equipment and other medical supplies, in the battle against the pandemic. Agility in addition illustrates the strategic value of partnering with other logistics firms in humanitarian collaborations as well as in business strategy transactions.Research limitations/implicationsThe article contributes to the emergent research stream on leadership, innovation and internationalization in the Arabian Gulf Cooperation Council and Middle East North Africa (GCC/MENA) region and more generally on the strengths and proficiencies of emerging market firms and leaders. Future research could examine additional firms, industries or regions of the world during the pandemic or other crisis contexts. Further data sources and analyses can be used in validating and extending the findings.Practical implicationsDigital supply chains, humanitarian partnerships and an emphasis on digital communications, storage and transportation innovations can benefit firms from all regions of the world during the global pandemic and other crises, as well as in normal operations.Social implicationsEmerging markets represent the majority of global population and economic growth, as well as of pandemic cases and mortality risk, signifying the importance of leadership, collaboration and innovation around issues such as vaccine delivery into emerging markets regions of the world.Originality/valueThe article takes a revelatory case perspective in the pandemic crisis context from a unique foundation of immersive field research and data access in the GCC/MENA) region.

Board’s human capital resource and internationalization of emerging market firms: Toward an integrated agency–resource dependence perspective

To improve our understanding of the strategic role of the board in emerging market firms (EMFs), we investigate the role of the board’s human capital resource in a firm’s internationalization. Integrating the monitoring role (to reduce agency costs) and the resource provisioning role (to augment strategic resource base) of the board, we propose that the board’s aggregate education and professional experience influence the degree of international expansion of EMFs. Further, the board’s knowledge heterogeneity and skill heterogeneity play a contingent role from a resource orchestration perspective. Based on a dataset of 906 firm-years drawn from 201 Indian firms (2008–2012), we find support for the proposed hypotheses that the board’s aggregate education and professional experience have a U-shaped effect on international expansion, and that this relationship flips to an inverted U-shaped relationship at higher levels of knowledge and skill heterogeneity, respectively, within the board.

Developed market partner’s relative control and the termination likelihood of an international joint venture in an emerging market

An increasing number of multinational firms from the developed markets (DMs) are seeking rapid expansion into emerging markets (EMs), such as India and China, through international joint ventures with EM firms (E-IJVs). However, nearly half of these joint ventures get terminated unexpectedly within five years of their formation. As E-IJV terminations cause disruptions to the strategy and performance of the partner firms, it is critical to understand factors leading to the termination. Building on the organizational learning perspective, we investigate the impact of DM partner’s relative control on the likelihood of E-IJV termination using a novel dataset of E-IJVs in India between 2001 and 2012. Our findings suggest that higher relative control by DM partner firms increases the likelihood of E-IJV termination. Further, we find that scope of the partnership negatively moderates this relationship, implying that the likelihood of E-IJV termination with a dominant DM partner decreases when the scope is high. We discuss the theoretical contributions and managerial implications of these results.

The financial conservatism of firms in emerging economies

Using a large sample of emerging market firms over the period 1980–2015, we document a high prevalence and persistence of financial conservatism. Specifically, 31% of the African firms have ultra-low leverage (less than 5%), with 42% and 11% having non-positive net-debt (total debt less cash) and no debt (zero-levered), respectively. In further analyses, we find that macroeconomic conditions have a muted effect on financial conservatism. Our results suggest that financial conservatism in emerging markets is due to two main factors; (1) credit constraints, and (2) the desire to attain or enhance financial flexibility. The former calls for pro-market policies that improve access to external finance. At the same time, the latter, which results in the accumulation of cash reserves at the expense of current investments, is a strategic choice aimed at preserving or enhancing financial flexibility. Our results are robust to using alternative sub-sampling, model specifications, definitions of variables and estimation techniques.

Determinants of Price Multiples for Technology Firms in Developed and Emerging Markets: Variable Selection Using Shrinkage Algorithm

Globally, technology firms are characterized by high level of innovation, rapid obsolescence of technologies, high investment risk and unpredictability of future cash flows. All these make conventional discounted cash flow valuation methods inadequate for valuation of technology firms. This study aims to develop sector regression models for relative valuation of technology firms by evaluating firm-level determinants of price multiples. Results suggest that price to book is the most appropriate multiple for valuing developed market technological firms, whereas price to sales is the most apt multiple for emerging market firms. Variable selection by least absolute shrinkage and selection operator (lasso) validates that growth rate, research intensity and cash holding influence value of price multiples for both developed market and emerging market firms. Similarly, smaller firms tend to generate higher value of the multiples under both categories. Firms’ ESG practices is an important determinant of price multiples for developed market firms, however, it does not influence the multiples’ value for emerging market firms.

Business and Human Rights: A Configurational View of the Antecedents of Human Rights Infringements by Emerging Market Firms

This study investigates the antecedents of human rights infringements (HRIs) by emerging market firms (EFs). We used fuzzy set qualitative comparative analysis (fsQCA) to examine HRIs in 245 firms based in eight emerging markets, between 2003 and 2012. Our findings disclose three equifinal configurations of high levels of HRIs, all involving EFs that have expanded to a high number of foreign markets: (i) large, old, low performing state-owned enterprises (SOEs) operating in high quality institutions’ home and host markets, (ii) small, young, over-performing EFs operating in low quality institutions’ home and host markets, and finally (iii) large, old, high performing SOEs, operating in low quality institutions’ home and host markets. We contribute to the literature by examining a novel dataset on HRIs by EFs, and by building a configurational explanation of HRIs that bridges the arguments of the institutional theory and strain theory literatures on corporate wrongdoing.

Bilateral investment treaties and foreign direct investment: Evidence from emerging market firms

Bilateral investment treaties (BITs) help developing countries attract foreign direct investment (FDI) from developed countries. However, whether BITs matter for emerging market firms’ (EMFs) FDI is unclear. This paper investigates how BITs affect EMFs’ FDI locations using conditional logit models with firm-level panel data from 2003 to 2015. The results show that BITs can help host countries attract FDI from emerging market countries. BITs work alongside good institutions to increase the attractiveness of FDI, irrespective of a host country being developed or not.

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.