Internationalization Process of Firms from Emerging Markets - Literature review Example

RЕVIЕWING АND CRITIQUING АRTIСLЕS Table of Contents Table of Contents 1 OVERVIEW 1 INTERNATIONALIZATION PROCESS 2 Need for Internationalization 2 Future Research 3 Understanding the Global Markets 5 Global Strategy 8 CONCLUSION 8 REFERENCES 10 OVERVIEW This paper considers two seminal articles that explain the internationalization process of firms from emerging markets. The first article is a Journal of International Management by Cuervo-Cazurra (2008) titled ‘Multinationalization of developing country MNEs; the case of Multilatinas’. According to this writer, the article studies the process in which MNEs become multinationals. The article highlights the case of Multilatinas; developing country MNEs. The Paper further presents the process that enables MNEs become a MNEs. The second article is an International Business Journal by Luo and Tung (2007). In this article, Luo and Tung present the Springboard perspective describing the internationalization of Emerging Market Multinational Corporations (EM MNEs). The article has presents the Springboard Concept as a systematic and deliberately designed effort coined in line with the general grand plan that facilitates EM MNEs’ growth. Springboard approach is a long-range strategy designed to establish EM MNEs’ competitive position and making it more firm in the global arena. The paper has also provided the risks and remedies involved in the international Springboarding strategy. Through reviews and critiquing these articles, I will intend to demonstrate whether the articles are either still relevant or not. The paper specifically looks in to the way the research on emerging market multinational enterprises has evolved since these articles were published. Emerging economies has been deeply researched by various researchers in the field of social sciences. According to Wells (2007) research in this field started in the early eighties, since then the research areas have grown from the traditional multinationals to the rise of global business corporations. Researchers have been discussing over existing concepts and theories trying to develop modern theories that will explain the modern trends on how firms internationalize. INTERNATIONALIZATION PROCESS Need for Internationalization The article looks in to the unique traits characterizing MNEs international expansion and the unique factors propelling them towards the goal of internationalization. Cuervo-Cazurra (2008) dwelled on the effects of home market and host countries’ endowment of natural resources and technology while trying to explain MNEs’s selection of investment location. This view has been enhanced further. According to Morck et al. (2008), MNEs move to countries that are less developed and has poor quality of regulatory control because they have a competitive advantage since they are used to operating in environments with hard governance conditions. Researchers tend to find more insights in to an issue in order to establish insufficient contribution to a specific subject area previously overlooked. Companies are motivated to go abroad by various factors; these factors are dynamic and follow a sequential process. According to Johanson and Vahlne, (1977) the factors that motivates firms to go abroad are presented to include diversification, industry evolution, fast expansion of competitors and search for better alternatives such as tariff barriers and favorable regulations. Internationalization theories explain the various processes taking place when companies expand their operations across national borders. The theories developed complement each other hence considered complimentary rather than competing. EM MNEs reduce their firm’s market constraints to acquire strategic resources by exploring international expansion. Luo and Tung (2007) used the Springboarding concept and urge that the need by firms to internationalize is majorly contributed by a pull factor, this factor is the need to seek for sophisticated resources abroad in order to use it offset local market competition. According to them, this can be achieved by linking with well established MNEs which will sell them critical assets hence compensating for their competitive weaknesses. The acquired resources are crucial in the competitive advantage of the EM MNEs’. The resources will make their internationalization expansion effectively and more competitive compared to their rivals abroad and at home. The acquired resources will also reduce the EM MNEs’ vulnerability to institutional and market constraints at home. Cuervo-Cazurra and Gengc (2008) have also come up with a different point of view. According to them, MNEs will attempt to evade less developed institutional environments by expanding to international markets. This is also supported by Yamakawa and Deeds (2008) who view the internationalization of firms as an avenue for more opportunities due to local constraints. This process will involve various risks taking activities, however these risks are considered worthy given that the firms will eventually overcome their late coming disadvantage. Future Research According to Cuervo-Cazurra (2007), the theories on the research area needs to be extended to allow various researcher present new ideas on areas overlooked. They suggest that the existing individual theories may not sufficiently highlight the internationalization activities as well as the competitive positions of EM-MNEs. Deng (2009) concur with this, he argues that there is need to include the home environment need to be considered so that pertinent issues to them are incorporated in the theories. This is supported by Yiu et al. (2007) who argue that continuous economic liberalization impact needs to be included in to into the theorizing. However this concept has been contentious given that some researchers observed that there should be some exemptions. According to Yiu et al. (2007) the previous theories developed still explain most of the concepts in OFDIs and therefore no new extension is needed. However majority of the macro-level studies supports Cuervo-Cazurra’s idea that the existing theory must be extended (Luo et al. 2010; Morck et al. 2008). The business groups (BGs) have a great role to play in both mature and emerging markets. Business groups strive to internationalize, therefore product diversification strategies and managerial resources has been cited as the main drivers of BG internationalization. (Tan and Meyer, 2010). Born Global phenomenon is also another research area that has been highlighted comprehensively in the article. The field has grown over the last years in to a major field of internationalization studies. The article has further provided an insight into the causes of success and failures of EM MNEs’ abroad; these factors according to Luo and Tung (2007) include weaker product innovation and process innovation in comparison with sophisticated market and well established MNEs. This concept is supported by the Porter’s Diamond. Porter (1990), clarified why firms succeed while other fail in the international market by providing an analysis tool: The Porter’s Diamond. This tool provides a good framework for competitive advantage analysis. According to Porter (1990) competitive advantage is realized by effectively combinationing national circumstances with company strategies. EM-MNEs’ has ownership structure and ownership concentration. Family and foreign ownership has been highlighted by Liu et al. (2010) being some of the factors influencing EM-MNEs’ strategic orientations thus contributing to the internationalization failure or success. Internationalization success has been found to be influenced by other factors not recognized in this article. Liu et al. (2008) has been identified Entrepreneurial motivation as one of the major factor and important resource outbalancing low levels of education, managerial knowledge, pre-internationalization experience and technological knowledge. According to Wells (1983), the name Multinationals Enterprises (MNEs) came as a result of emerging economies which were previously referred to as third-world multinationals. Mathews (2002) on the other hand refers MNEs as latecomer firms. According to Luo and Rui (2009) the same MNEs is referred to as Emerging Market Multinational Enterprises (EM MNEs). Understanding the Global Markets Understanding the global markets is crucial before any internationalization process starts. Internationalization process involves risks and a lot of uncertainties, therefore effective internationalization calls for prudent strategies that put uncertainties and risk mitigation into consideration. The firm management needs to take time in understanding the new markets in order to prepare good entry and market strategies. The entry modes and strategies have further been developed. Hill (2007) highlighted that there are advantages and disadvantages of the entry modes that a firm can choose during the internationalization process. According to Deng (2009), micro-level institutional focus is on normative, coercive and mimetic pressures which affects the way that EM-MNEs seek legitimacy in host countries. This determines the entry modes strategies. Demirbag et al. (2009) pointed out that those institutional factors like linguistic distance, political constraints and host country knowledge infrastructure are pertinent while highlighting the equity composition between wholly owned subsidiaries and joint ventures. Here much emphasis is not placed on cultural distance. International business has four types of participants; these are distribution channel intermediaries, focal firms, governments and facilitators. Focal firms have a great role in IB; it acts as the initiator of an IB transaction. Distribution channel intermediary on the other hand are specialists firms whose roles are to provide distribution, marketing services and logistics in the international value chain. Grosse and Thomas (2007) analyzed the developed extensive distribution channels that involve major pool of resources that actually enabled the firms to move abroad successfully. According to them, there are strengths that propel MNEs to move abroad, these includes MNEs’ high-quality products, distribution channels control, low-cost production, and good relationships with government. Cuervo-Cazurra (2008) pointed out that the internationalization process models have been refined to include some more improvements in the international market. He suggested that the models needs further extension in order for it to clearly explain the process of internationalization of emerging economies because their internationalization advantages differ from those of developed economies. Cuervo-Cazurra (2008) presented two main models that highlight the multinationalization process; these models are Incremental Internationalization Model and the Eclectic Paradigm of international production. The incremental internationalization introduced the Uppsala model. The article uses this model of incremental internationalization to presents the reasons why Multilatinas delay to become MNEs. The article indicates that there is need for a sophisticated benefit of FDI establishment. Liu et al. (2008) has so far suggested that Uppsala model can be enhanced further to includes the element of bounded entrepreneurship. Most of the researchers present their concepts and theories in a superficial way, with no clear and appropriate recognition of previous works done. Here there is no clear understanding on how the paper fits in. Goldstein (2007) also has presented the concept of Foreign Direct Investment (FDI) whereby according to him, investing in a foreign country capitalizes on technology and capital investment to ensure maximum production. According to him therefore FDI is a mechanism by emerging multinationals to improve foreign market. Here a firm invests directly in a foreign country hence becoming a multinational enterprise (MNE). Similarly, Rui and Yip (2008) hatched the idea of Outward Foreign Direct Investments (OFDI) which according to them is a strategic approach for MNEs for assets acquisition. Foreign direct investment (FDI) therefore refers to the transfer or acquisition of assets from another country. International market entry strategies have been highlighted in these articles comprehensively. Cuervo-Cazurra (2007) suggested the use of particular sequences of entry modes for the internationalization process. However, Demirbag et al. (2009) examined the choice between wholly owned subsidiaries (WOS) entry mode and joint ventures (JVs) entry mode. They also suggested the equity versus non-equity ownership entry mode. Positioning is a process where an actor develops a discrete standpoint within the network. The control of positioning process is defined by various actors within the network. This being a cumulative process, positioning is therefore developed, established, defended and maintained. Born global is the fastest growing segment of exporters in most of the markets. Researchers are now focusing on the domestic geographical diffusion of BGs as a vital precursor of OFDI. International business (IB) will therefore facilitate more domestic dimension (Tan and Meyer, 2011). Advancement in technology on modern world and reduction of barriers to trade have enabled for the development of an integrated global economy. This rapid development has given firms an easy avenue for internationalization. High technology sectors have reported born global firms; this is also seen in more developed countries. Cuervo-Gazurra (2007) Emerging economy internationalization process has a very important stage which is the shift foreign direct investment (FDI) from exports. Most of the writers however, have drawn certain implications. Manolova et al. (2010) points out that EM-MNEs just like the developed countries rely on their networks. Luo and Rui (2009) also have presented the ambidexterity perspective where they argue that MNEs are pursuing two objectives simultaneously for fulfillment; the pursued objectives are majorly contrasting or even conflicting objectives. According to them this is why they termed MNEs as ambidextrous organizations. High level of industry internationalization will eventually help firms understands the more available internationalization opportunities. The effect will be a triggering effect to the focal firms reducing internationalization time. There has been a great debate on the structural reforms, the structural reforms have enticed firms to improve productivity and expand to foreign countries hence becoming multinationals and enhancing investments. These structural reforms have enormous benefits. (Cuervo-Cazurra, 2007) Researchers tend to find more insights in to an issue in order to establish insufficient contribution to a specific subject area previously overlooked. The article looks at the possibility that Multilatinas as an organization was induced to become MNEs due to structural reforms. According to this author, inducing an organization to undergo structural reforms leads to their competitive upgrade hence enabling them overcome the difficulties of setting up FDI and becoming MNEs. These articles have clarified that resources and specific capabilities like belonging to a family conglomerate, network or domestic, foreign partnerships and an experienced management is what is required to internationalize emerging market firms and improve their foreign market performance. Global Strategy Dunning and Lundan (2008) have identified a specifically new type of ownership advantage. This according to them is to enable firms manage relationships outside their boundaries in home market and institutional environments. The article further looks in to the peculiar strategies undertaken by EM MNEs as it pursue internationalization expansion. This also includes the internal and external factors contributing to their facilitation to achieve the goal of internationalization expansion. Global strategy has been defined as organizations’ strategy to globalization as defined in business terms is an organization's premeditated guide to globalization. The author also pointed out that Multilatinas has four alternatives strategies to follow while choosing the location of setting up the FDI, the selection is therefore arrived at by balancing between the challenges faced establishing the FDI and the benefits of internationalization. Strategy is very important in internationalization process if the organization is to achieve its global goals, hence this cannot be avoided. Organization that fail to plan prior to internationalization miserably. Strategic decisions concerning internationalization involve the time to internationalize, which market to enter and how to internationalize. This therefore gives an organization the answer to the method used for market entry. The organization can choose For example one can choose export, franchise or joint venture, etc (Masum, & Fernandez, 2008). CONCLUSION In conclusion, Internationalization is a process where organizations steadily increase their international participation. This is a way of diversifying risks. Although the process involves various risks, these risks are considered worthy given that the firms will eventually benefit. Several theories have highlighted this process of international progression of organizations. These theories give us an insight in to this phenomenon. Various researchers have also come up with various theories to highlight the firms’ internationalization process in a new manner. These researches have greatly contributed to a broader understanding of the phenomenon and areas of new study perspective. Researchers tend to find more insights in to an issue in order to establish insufficient contribution to a specific subject area previously overlooked. This paper has looked in to two seminal articles that explain the internationalization process of firms from emerging markets. The first article is a Journal of International Management by Cuervo-Cazurra (2008) and the second article is an International Business Journal by Luo and Tung (2007). There are several issues that the articles have presented and are still relevant in the current era of research. This was evident given the support given by other writers who came after them. Cuervo-Cazurra has presented an article that is well researched. The article is highly impactful because of its ability to specify its concepts, ideas and findings. The concepts are potentially useful past the narrow research sphere of the meticulous study. The second article has clearly presented the Springboard perspective describing the internationalization of Emerging Market Multinational Corporations (EM MNEs). Luo and Tung (2007) have thoroughly reflected on the position of their work in the existing literature in order to shade more insights in to the issues previously overlooked and further provide point of reference for future researchers. This is an indication that literature and interest on this are of study has rapidly evolved and the researchers have extensively provided the necessary content. It is evident that the work of these two writers is still very useful and can be used for reference in this area of study. REFERENCES Besanko et al. (2013). Economics of Strategy 6th edition, Wiley. Brauer, M. (2006). What have we acquired and what should we acquire in divesture research? A review and research agenda. Journal of Management, 32(6), 751-785. 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