2000 words assignment excluding reference
WEEK 2: COMPARING EMNCS AND AMNCS
Emerging Market MNCs: Internationalisation and HRM (CMSE11380)
Dr. Keyan Lai Office: 2.13
Email: keyan.lai@ed.ac.uk
The case of Gazprom Energy
The case of Huawei
Speed: accelerated
Competitive advantages: weak
Political capabilities
Expansion path: simultaneous entry into both
Entry modes: external growth, e.g. M&As
Adaptability: high
Last lecture recap
How are EMNCs different from AMNCs?
– A theoretical understanding: OLI framework
What are the implications for HRM?
Today’s agenda
EMNCs are new species that can only be understood with new theoretical concepts (e.g. Matthews, 2002; 2006)
Existing theoretical models such as the OLI model are adequate to explain EMNCs (e.g.Narula 2006)
Existing theories provide partly satisfying explanations to some of the puzzles about EMNCs, and efforts need to made to extend and modify them (e.g. Ramamurti 2012)
Further reading: Cuervo-Cazurra, A. (2012). Extending theory by analyzing developing country multinational companies: Solving the Goldilocks debate. Global Strategy Journal, 2(3), 153-167.
Competing viewpoints
Also known as eclectic paradigm; developed by John Dunning (1977, 1981, 1988)
‘the dominant analytical framework for examining the determinants of MNE activity’ (Dunning, 2001, p. 187)
Mainly answer the question: Why do firms go abroad to invest and become MNCs?
Successful MNCs arise because they develop competitive advantages at home (O-advantages), which can be transferred to specific countries (L-advantages) through foreign direct investment (I-advantages).
Ownership advantages (O-advantages)
Locational advantage (L-advantages)
Internalization advantages (I-advantages)
OLI framework
Resources/capabilities of the firm that are transferable across borders, and enable the firm to attain competitive advantages abroad.
Tangible resources: proprietary technology, capital resources, human resources
Intangible recourses/capabilities: brand, organizational culture, knowledge
Developed at home; necessary for FDI to offset the costs/risks of going abroad
1. Ownership advantage
| Contents | Outcomes |
| Asset-based ownership advantages e.g. product innovations, production management, organizational and marketing systems, innovatory capacity, accumulated experience in marketing & finance, ability to reduce costs, capital, relational asset | Efficiency, Market power |
| Advantages of common governance e.g. advantages of scale and scope of multi plants, superior coordination between business units in different locations | Organizational effectiveness |
| Advantages of soft power e.g. codes of conduct, norms, and corporate culture; incentive systems and appraisal; leadership & management of diversity. ( “institutional advantage” in Lundan, 2010) | Legitimacy and trust |
Typology of ownership advantage
Considering various types of resources/capabilities (which lead to ownership advantage)
What are those that EMNCs most likely to possess?
What are those that EMNCs unlikely to possess?
Quick discussion
Ramamurti (2012: 42) suggests that these non-traditional firm specific advantages include
‘their deep understanding of customer needs in emerging markets, the ability to function in difficult business environments, their ability to make products and services at ultra-low costs, their ability to develop “good enough” products with the right feature-price mix for local customers, and so on’
EMNCs have different ownership advantages, which are equally valuable for their internationalization
Ownership advantage of EMNCs
Relational assets: the ability to engage in beneficial relations both within the firm and with other firms and agents (Dunning 2002; Erdener & Shapiro, 2005)
allow firms to access resources controlled by others, and to govern their joint use
The ‘political embeddedness’ (Kilduff & Brass, 2010) of EMNCs in general; close ties with the state and politicians
‘International champions’ for new state-supported ‘Multilatinas’ in Latin America (Henart, Sheng, & Carrera, 2017)
Russian Gazprom seen as the ‘powerful arm of Russia in foreign affairs and foreign conflicts’ ( Panibratov, 2012, p.63)
Relational assets & EMNCs
Case study:
Ownership advantage or disadvantage?
( Please read the case material)
The development of human resources within the company failed to keep with the rapid global expansion (which is accelerated by state sponsorship)
Reliance on expatriates, but shortage of qualified international managers
Shortage of local talents due to 1) insufficient time and investment in training local employees; 2) the under-developed working process
Teleman’s challenges
“Teleman is developing at light speed, and we are too busy
to have the time to train a new employee before he starts to
work. We mainly train on the job...the working hour is from 9
to 5:30;
however, in our company, we pay for performance,
we pay for your hard work. The more you work, the more
you learn, and the faster you develop.”
‘Foreigners come
to ask me about old
documentations,
but we don’t have
any…in Teleman,
things are passed
down mouth-to-
mouth!’
‘Sometimes, no one knows what exactly the procedure is, and when you have managed to figure it out, it changes after two weeks’
What are those unique challenges faced by Teleman?
If you were hired as HR director, what would be the first thing you do to tackle these challenges?
Discussion
Now that we have the resources/capabilities (ownership advantage), where shall we go to invest?
L-Advantages: advantages enjoyed by firms if/when operating in certain locations; factors to consider:
Markets: size and growth of consumer demand; income level
Location-bound human resources: skilled labor forces
Natural resources: Oil, gas, mining deposits
Policy & institutions: e.g. incentive schemes, low tax
Psychic distance: “defined as factors that make it difficult to understand foreign environments” (Johanson and Valhne, 2009, p. 1412).
2. Location advantage
Founded in 1953 in Florida, USA
In 2016, BK was the world’s largest flame- broiled fast-food hamburger chain.
Sales in 2013
USA & Canada: 58%
EMEA: 29%
Latin America and Caribbean: 9%
APAC: 5%
Location choice of Burger King
Colombia: First entered in early 1980s but departed; reentered in 2008
France: first entered in 1979, departed in 2001 (16 restaurants, vs. 450 McDonald’s), reentered in 2013.
China: 2004
Russia: 2010
India: 2014
Four strategic goals for entering foreign markets; while analytically distinct, they are not mutually exclusive (Peng and Meyer, 2016).
Natural resource seeking
Firms’ quest to pursue natural resources in certain locations
L-advantage: quality and costs of natural resources
Market seeking
Firms’ quest to go after countries that offer strong demand for their products and services
L-advantage: strong market demand and customers willing to pay
Strategic goals & location choice
Efficiency seeking
Firms’ quest to single out the most efficient locations featuring a combination of scale economies and low-cost factors
L-advantage: economies of scale, abundance of low-cost labour force and suppliers, transport and communication infrastructure
Innovation seeking
Firms target countries and regions renowned for generating world-class innovations
Innovative individuals, firms and universities, industry agglomeration
Strategic goals & location choice
EMNCs often undertake FDI to seek strategic assets and knowledge (i.e. innovation seeking) to improve their competitive position (Luo & Tung, 2007)
For instance, acquisition becomes very popular among EMNCs as ways to gain quick access to advanced technology and catch up with AMNCs
Reverse knowledge transfer from subsidiaries as an important way for EMNCs to build up their capabilities (e.g. ownership advantages)
Reverse knowledge transfer in EMNCs
Defined as ‘the degree of dissimilarity between the partners' business practices, institutional heritage and organizational culture.’ (Simonin,1999: 473)
e.g. business practices, operational mechanisms, corporate culture, values, and management style
Organizational distance amplifies ambiguity
Could lead to lack of understanding of the logical linkages between actions and outcomes, inputs and outputs, and causes and effects
High organizational distance hinders the effectiveness of knowledge transfer.
Organizational distance
EMNCs’ strong political tie enlarge the dissimilarity between HQs and overseas subsidiaries
HQ faces the pressure to align with strategic goals and mandates of home state (e.g., maintaining bilateral relationships); might not be entirely market-oriented, thus a high level of organizational bureaucracy and hierarchy and less entrepreneurial orientation
Overseas subsidiary: less politically motivated; tend to pursue their own business interests (e.g., profits) and efficiency
The case of EMNCs
The motivation of the source unit
Local manager: Why should I transfer my knowledge?
How are you going to utilize this knowledge?
The absorptive ability of the recipient unit
Lost in the bureaucratic process: prolonged decision making process
HQ’s superiority mentality
The transmission mechanisms
How to contribute while (not) being part of the big family
The HRM implications
Now that we have the resources/capabilities (O- advantage), and have decided where to go (L- advantage), how are we going to do the business?
I-advantage: advantages of organizing activities within a multinational firm, rather than using an external market transaction (e.g. exporting, outsourcing; licencing; franchising; these are not FDI).
3. Internalization advantage
3. Internalization advantages
| I-advantages: avoiding possible market failure | FDI as a better option |
| Asset specificity | FDI vs. exports or outsourcing |
| Information asymmetry | FDI vs. outsourcing where monitoring of the actual process is important |
| Dissemination risk | FDI vs. licensing of technology |
| Tacit knowledge transfers | FDI vs. licensing/franchising of complex knowledge |
What could Coca-Cola do?
Exports (transporting millions of bottles from USA to China?)
Outsourcing (asking an firm in India to do marketing?)
Licensing/ franchising (giving permission to a Russian firm to produce and sell Coca-Cola in Russia? )
FDI
Set up R&D centre
Production centre
Distribution centre
Marketing & sales
(Introduced in 1886)
Dunning’s OLI framework focuses on ‘advantage’ that a firm should possess when conducting FDI
EMNCs possess different types of ownership advantage, and seem to concentrate on particular type of location advantage; both have important HRM implications
It draws our attentions to the issue of ‘disadvantage’ (e.g. escaping home country negative institutional environment; poor country image); topic of Week 3
To conclude