Firms In Emerging Economies Research Articles

Performance feedback and outward foreign direct investment by emerging economy firms

Integrating the behavioral theory of the firm (the BTF) and the self-enhancement motive of managers, this paper examines how performance feedback—the discrepancy between actual performance and aspiration levels—affects the international expansion of emerging economy firms (EEFs). Empirical results using panel data on 876 publicly-listed Chinese manufacturing companies over a 7-year period indicate that performance relative to social aspiration (i.e., peer performance) and relative to historical aspiration (i.e., firms’ own past performance) affects EEFs’ levels of subsequent outward foreign direct investment (OFDI). Specifically, performance below social or historical aspiration enhances levels of OFDI, while the effect of performance below social aspiration is stronger than that of underperforming historical results. The results also show that performance above social aspiration enhances levels of OFDI, while performance above historical aspiration decreases levels of OFDI. Moreover, we uncover the importance of considering the joint effect of historical and social performance feedback, as receiving consistent or mixed signals about firm performance may result in risk-taking behaviors that differ from those triggered by just one performance signal on its own. These findings underscore the impact of performance feedback relative to social and historical aspirations on EEFs’ OFDI activities.

Internet Business Practices Across the Globe: Lessons from Emerging Economies

Firms in emerging economies are rapidly becoming formidable competitors to long-established industry leaders from developed economies. In some cases, emerging-economy firms are acquiring developed-economy firms, such as the recent acquisitions of Jaguar by Tata Motors and Gateway by Acer. Aside from anecdotal reports of high-level corporate strategies adopted by certain emerging-economy firms, there is little scholarly evidence concerning the operational details of how emerging-economy firms are becoming competitive with developed-economy firms. A common explanation is labor cost or currency advantages in emerging economies. As emerging-economy firms also compete effectively in developed economies using developed-economy resources, this cannot be the entire explanation. We propose another explanation, based on dissimilar adaptation of the Internet to enable and reinforce business practices related to customer relationships and supply chain integration.This paper draws on original survey data from over 450 firms across 10 countries as well as case examples to illuminate three key ways that Internet business practices differ between developed- and emerging-economy firms. First, compared with developed-economy firms, emerging-economy firms place a relatively higher priority on using the Internet to achieve strong customer relationships via service and support. Second, emerging-economy firms place a relatively higher priority on using the Internet to integrate processes with suppliers than do developed-economy firms. Finally, emerging-economy firms are relatively more driven to adopt Internet business practices to expand existing markets and enter new markets, and accordingly report a relatively greater impact to international sales growth compared with developed-economy firms. Our findings suggest that managers in developed-economy firms would be wise to re-assess and re-evaluate their use of Internet business practices - in particular, in the areas of customer relationships and supply chain integration - to retain competitiveness in the dynamic global economy.

Institutional investors and international investments in emerging economy firms: A behavioral risk perspective

While the extant literature has examined the influence of controlling and non-controlling principals on the internationalization decisions of emerging market firms, heterogeneity among non-controlling principals is largely ignored. The risk characteristics of different groups of owners, shaped by their institutional environments, could contribute to the differences in their preferences for firm internationalization. In this paper, we draw insights from institutional theory and behavioral risk perspective to examine the risk propensities and risk perceptions of various non-controlling principals, such as pressure-resistant (FIIs and mutual funds) and pressure-sensitive (banks, insurance companies and lending institutions) institutional investors. Empirical results from a sample of 2364 unique Indian firms during the 2005–2014 time-period show that, after controlling for firm-level resources and capabilities identified in prior literature, the ownership share of different types of institutional investors is associated with firms’ international investments differently. While pressure-sensitive institutional investors, such as banks and insurance companies, are not supportive of foreign investments by firms, pressure-resistant institutional investors, such as FIIs and mutual funds, are supportive of this strategic decision. Furthermore, our results show that the family ownership in a firm (measured in terms of family shareholding) further lowers the preference of pressure sensitive institutional investors for internationalization, whereas family ownership positively moderates the pressure resistant investors towards internationalization.

Core Firm Based View on the Mechanism of Constructing an Enterprise Innovation Ecosystem: A Case Study of Haier Group

The fierce competitive status of the business world has urged innovation activities to transform from mechanistic to ecological and organic. An innovation ecosystem consists of multilateral organizations and emerges as a favorable mechanism for value co-creation and sustainable growth. Yet the theorizing of an innovation ecosystem is still at an early stage and in-depth studies from emerging economy leaders are insufficient. This study aims to investigate how an innovation ecosystem is constructed and coordinated from a core-firm based view. An exploratory single case study on the Haier Group is adopted. Through analyzing the multi-bedded units (i.e., six innovation projects/technological breakthroughs), we extract and depict Haier’s innovation ecosystem and the ecological niches within it. We highlight an innovation ecosystem that promotes sustainable development and is based on complementarities in technologies and resources, while at the same time integrates non-technological issues such as strategy, culture, institution, and the market. Regarding ecosystem coordination, value appropriability should be ensured to sustain the innovation ecosystem. Moreover, we argue that the ultimate purpose of innovation ecosystem is not to facilitate the realization of one specific project, but rather to improve the overall success rate of innovations within it. This research complements and extends literature on enterprise innovation ecosystems, and provides implications as to the construction, coordination, and sustainability of innovation ecosystems for emerging economy firms.

Outward FDI and profitability of emerging economy firms: Diversifying from home resource dependence in early stage internationalization

We investigate the effect of conducting FDI on the profitability of emerging economy firms in early stage internationalization. We argue that FDI can be an effective strategy to alleviate liabilities of emergingness, thus generating positive performance outcomes. We hypothesize that, contingent on factors altering motivation and capability of firms to diversify from home resource dependence, emerging economy firms can benefit from conducting FDI, resulting in a greater rate of intangible assets growth and enhanced profitability. Using panel data of Chinese firms prior to the global financial crisis, and through combining matching techniques with difference-in-difference analysis, we find empirical support for our arguments.

Corporate governance and MNE strategies in emerging economies

We explore factors of convergence and divergence in corporate governance of emerging and developed market economies, focussing on the role of firm internationalisation. In particular, foreign investments by emerging economy firms led to upgrade of their governance capabilities. These firms also became advocates for home-country policy reforms that mandated the development of similar capabilities for local firms. We present a broad overview of the literature and propose an approach that considers the evolution of corporate governance, both at the national level and the firm level, with MNEs from both emerging market economies and developed economies as active actors in this process.

Internationalization, related party transactions, and firm ownership structure: Empirical evidence from an emerging market

This study seeks to understand the adverse impact of related party transactions (RPTs) on the internationalization of emerging economy firms. The study further explores how a firm’s ownership structure moderates the relationship between RPT and internationalization. Based on a sample of 367 Indian manufacturing firms, the study finds that RPTs have a negative influence on internationalization. Business group ownership is found to strengthen the negative relationship between RPTs and internationalization, whereas foreign shareholding weakens this relationship.

Exploitative and exploratory innovations in emerging economies: The role of realized absorptive capacity and learning intent

This paper investigates the mediating effect of learning intent in transforming local suppliers’ potential absorptive capacity into realized absorptive capacity and its impact on exploitative and exploratory innovation. Using survey data from 155 auto parts manufacturers in Pakistan, we find that local firms’ realized absorptive capacity enables them to develop both exploitative and exploratory innovations. The findings further suggest that local suppliers’ learning intent mediates the relationship between potential and realized absorptive capacity which in turn lead to both types of innovation. In the context of the emerging economy of Pakistan, local suppliers’ absorptive capacity is found to be critically important in spurring exploitative and exploratory innovation, but learning intent enables realized absorptive capacity and thus in conjunction with realized absorptive capacity supports innovation. Consequently, there would be a strong case for policy intervention to assist emerging economy firms in building their absorptive capacity and strengthening their learning intent as a route for promoting innovation and improving their value added position in the global value chains of multinational enterprises.

Subsidies for Manufacturing Emerging Economy Firms in Export Markets

This paper provides a viewpoint on how manufacturing emerging economy firms (EEF) may achieve superior export performance. We propose that EEF may overcome endowment problems and institutional rest...

International Business in Transitional and Emerging Economies: A Perspective of Latvia, Lithuania and Estonia with India

Baltic countries, namely, Latvia, Lithuania and Estonia, the former Soviet states, are making a mark in the world economy. Like India, Baltic countries are contesting with other emerging economies to gain a share of the global market. Given this context, it is insightful to study how emerging economy firms are faring in transitional economies. The case, based upon secondary data sources, helps to comprehend the nature and extent of two-way international business between Latvia, Lithuania and Estonia with Indian firms and Indian market.

Strategic alignment of technology: Organising for technology upgrading in emerging economy firms

Technology upgrading plays a crucial role in the catching-up process of emerging economy firms (EEFs) that aim to develop technological capabilities and move from imitation to innovation. The literature on emerging economies has mainly focused on how EEFs overcome the lack of technological knowledge at initial stages of catching-up while neglecting organisational issues that arise at later stages. The purpose of this study was to explore organisational activities performed by EEFs that are innovating at advanced stages of catching-up. Two Brazilian firms, namely Petrobras and WEG, were selected to be studied and to provide evidence for the research. The results indicate that both firms have systematically monitored their environments to look for windows of opportunity and have consistently invested in learning mechanisms to overcome shortcomings in knowledge. Furthermore, an activity for aligning strategy and technology was found to be key for optimising the technology upgrading process and for maximising its results.

The impact of R&D sourcing strategies on basic and developmental R&D in emerging economies

PurposeThe purpose of this paper is to investigate the impact of R&D sourcing strategies and their governance modes on basic and developmental R&D. Following the concept of cognitive distance, this research proposes that there are trade-offs between basic and developmental R&D when emerging economy firms engage in different R&D sourcing strategies. R&D sourcing can enable emerging economy firms to access different level of heterogeneity of knowledge inputs depending on the cognitive distance between the firm and its suppliers. Distance in cognition increases when firms obtain knowledge from abroad and independent suppliers in comparison to the acquisition of knowledge from home boundaries and affiliates.Design/methodology/approachTobit maximum likelihood estimation approach is used.FindingsUsing data from Turkish firms, this study finds out that offshore R&D with an outsourcing governance mode affects basic R&D. In contrast, domestic R&D with an insourcing mode influences developmental R&D.Originality/valueThis research extends recent efforts to better understand the determinants of different R&D types by examining offshore and domestic R&D together and by taking into account different governance modes of each R&D sourcing strategy. This study becomes important because it investigates this issue from the perspective of emerging economy firms.

Information technology, knowledge management and human resource management

PurposeDrawing on dynamic capability view, this study aims to offer a conceptual framework to clarify the nature of the effects of firm’s information technology (IT) capability, knowledge management (KM) capability and human resource management (HRM) capability on organizational business performance. IT is the driver that changes all aspects of doing business in the digital era, while both knowledge and human resources (HR) are being increasingly regarded as key levers of competitive advantage in today’s global, dynamic and complex business environment.Design/methodology/approachThe survey methodology was used to collect data. To clarify the relationships between IT capability, KM capability and organizational business performance, the qualitative literature review has been conducted. This review has revealed the three structural models presenting possible interactions between observed constructs. Confirmatory factor analysis has been used for the evaluation of proposed measurement models while structural equation modeling has been used for structural models’ assessments and hypotheses testing.FindingsIT capability enhances HRM capability which enhances KM capability. As a result, KM capability together with IT capability enhances organizational business performance. In addition, there is an interaction effect of KM capability and HRM capability on business performance.Research limitations/implicationsFirst, the sample is based on the emerging economy firms. Second, the use of a self-rating performance measure may be a limitation of the study. Third, the data are not completely normally distributed. Fourth, specificities of different industries were not the subject of analysis in this paper. This should be considered in the interpretation and understanding of the results.Practical implicationsFrom managerial point of view, the paper indicates what managers can do to master their dynamic capabilities, especially those relevant to the business in the digital era. Firms are urged to develop and improve their capabilities to face dynamic environment and intense competition, as well as business globalization. However, to improve certain capability, firms should develop others as well because of their interconnectedness.Originality/valueThe main academic contribution of this study is reflected through the development of the integrative model which is aimed at identifying the interrelationships among IT, KM, HRM and business performance. The results indicate the importance of observing interconnections between the firms’ various capabilities to verify the premise of the dynamic capability view. This paper identified relationships between most prominent firm’s resources for the digital era: knowledge, HR and IT. The results show causes and effects of relationships between capabilities related to these resources.

Acquiring global footprints: Internationalization strategy of Chinese multinational enterprises and human resource implications

The expansion of the Chinese firms' global footprints in recent years reveals their growingly evident strategic intent and emerging capability, and calls for the need to (re)examine how emerging multinational enterprises' (EMNEs) internationalization strategies could be conceptualized with implications for human resource management (HRM). However, there remains insufficient research on cross-border merger and acquisition activities by emerging economy firms in general and by Chinese firms more specifically. This review paper fills part of this research gap by examining the acquisition intent and post-acquisition strategy of Chinese MNEs (CMNEs). Specifically it examines the post-acquisition challenges they are likely to encounter, and the implications for organizational and HRM capability building. We identify a set of research avenues for future investigation that may shed further light on how institutional and cultural factors at various levels and CMNEs' strategy impact various aspects of HRM practices.

Competing to be innovative: Foreign competition and imitative innovation of emerging economy firms

We examine the effect of increased competitive pressures within and outside the home market on the innovation of local firms. We argue that the relationship between exposure to foreign competition in domestic and international markets and firm innovation is better captured by imitative innovation than by radical innovation. We hypothesize that exposure to foreign competition inside and outside the home country is positively associated with local firms’ imitative innovation. Further, we argue that this relationship is contingent on institutional factors, including the role of the government, the legal system, and natural resource endowment. Using a dataset of 949 firm-year observations in the Middle East and North Africa (MENA) region, we find empirical support for the positive impact of competitive pressure on imitative innovation.

Factors impacting firm failure and technological development: A study of three emerging-economy firms

Several studies examine the successful globalization and technological development of emerging-economy firms. However, few discuss why some other emerging-economy firms do not develop sufficient technological capabilities, and thus, fail in domestics and global markets. Consequently, the understanding of emerging-economy firm diversity is limited. By analyzing the failure of three firms in two major industries in Turkey, this study identifies a complex set of factors contributing to this outcome. These factors include political risk, macroeconomic regime, national technology policies, and industry dynamics, as well as firm-related factors such as ownership, strategic intent, and the approach to, and current stage of, technology capability development. The results indicate that some of these factors support firm success in the short term but discourage learning and technological capability building, and thus, cause firm failures in the long term. Thus, the study illustrates the importance of studying emerging-economy firms from an extended contextual and temporal perspective.

Effects of subnational regional corruption on growth strategies in emerging economies: Evidence from Russian domestic and international M&A activity

Research SummaryThis article contributes to an improved understanding of the effects of subnational regional corruption on the external growth strategies of emerging economy firms. We examine the acquisition activity of firms in their home regions, in other parts of the country, and internationally. We consider four mechanisms through which a corrupt regional home context can affect firms’ acquisition behaviors: (a) corrosive deal deterrence, (b) deal facilitation, (c) corruption escape into less corrupt contexts, and (d) enhanced corruption ability to acquire in similarly corrupt environments. Based on an analysis of the acquisition activity of 2,981 Russian firms established in 40 regions in Russia from 2001 to 2008, we find evidence for the existence of both deal facilitating and escaping effects of home region corruption.Managerial SummaryCorruption indicators regularly reveal that emerging countries are more corrupt than developed countries. While prior academic research has associated corruption with predominantly negative effects on business activity, an increasing number of globally successful companies have emerged from such corrupt environments. We advocate a more nuanced view of the effects of corruption on the growth strategies of emerging economy firms. We show that home region corruption can have multiple effects on a firm's geographic expansion. Specifically, we find that corruption in the home region helps regional firms expand their business through acquisitions when it is pervasive and nonarbitrary. At the same time, however, when expanding geographically, firms, on average, seem to prefer to diversify their assets in other regions or countries that are less corrupt.

Accumulating technological capabilities through R&D projects: studies on the Brazilian defence industry

Emerging economy firms (EEFs) have striven to accumulate technological capabilities and promote indigenous innovation for technology upgrading and catching-up. By assuming that R&D projects affect firm capabilities, this study investigated how EEFs can accumulate technological capabilities through R&D activities. A technological-capability framework was proposed with the dimensions of organisational structure, innovation processes, practice, resources and entrepreneurial leadership. The framework guided an exploratory case study of three R&D projects in the Brazilian defence industry: the thrust vector control (TVC), software-defined radio (SDR) and radar projects. The TVC project utilised existing firm capabilities, whereas the SDR and radar projects needed to develop their capabilities from scratch. Different paths were adopted to accumulate technological capabilities and deliver the projects' outcomes. It was found that a balance between the dimensions may positively impact the rate at which technology capabilities are accumulated. Theoretical contributions and practical implications for EEFs are also discussed.

How firms borrow in international bond markets

PurposeThis paper aims to investigate how firms from emerging economies choose among different international bond markets: global, US144A and Eurobond markets. The authors explore if the ranking in regulatory stringency –global bonds have the most stringent regulations and Eurobonds have the most lenient regulations – leads to a segmentation of borrowers.Design/methodology/approachThe authors use a novel data set from emerging economy firms, treating them as consolidated entities. The authors also obtain descriptive evidence and perform univariate non-parametric analyses, conditional and multinomial logit analyses to study firms’ marginal debt choice decisions.FindingsThe authors show that firms with poorer credit quality, less ability to absorb flotation costs and more informational asymmetries issue debt in US144A and Eurobond markets. On the contrary, firms issuing global bonds – subject to full Securities and Exchange Commission requirements – are financially sounder and larger. This exercise also shows that following the global crisis, firms from emerging economies are more likely to tap less regulated debt markets.Originality/valueThis is, to the authors’ knowledge, the first study that examines if the ranking in stringency of regulation – global bonds have the most stringent regulations and Eurobonds have the most lenient regulations – is consistent with an ordinal choice by firms. The authors also explore if this ranking is monotonic in all determinants or there are firm-specific features which make firms unlikely to borrow in a given market. Finally, the authors analyze if there are any changes in the debt-choice behavior of firms after the global financial crisis.

The impacts of independent director and CEO duality on performance in the Chinese post‐institutional‐transition era

AbstractThis paper investigates the influence of corporate governance on the performance of modern Chinese firms. Prior studies were inconclusive about the relationship between corporate governance and firm performance. Little research investigates the performance implications of board structure in the post‐institutional‐transition era in China. Based on agency and resource dependence theories, this paper examines the impacts of board composition and leadership structure on the performance of Chinese manufacturing firms that went public on the Shanghai and Shenzhen Stock Exchanges in 2010. The findings show that separating the posts of CEO and chair promotes better performance. However, appointing a larger proportion of outside independent directors to the board insignificantly affects performance. This research provides partial support for agency theory and extended insights into corporate governance in emerging economy firms. Copyright © 2017 ASAC. Published by John Wiley & Sons, Ltd.