Ramamurti and Singh have achieved the rare feat of editing a book that is at the same time interesting and has academic rigour. With their contributors, they set out to explain the increasingly important role of emerging market multinational enterprises (EMNEs) in the world economy. At the start they say that they want to determine to what extent the success of these emerging market companies is based on their country of origin and to what extent their success can be explained by existing mainstream international business theory. Alternatively, is a new explanation needed? In the first paragraph they list some of the organisations to which they are referring: Huawei (telecommunications) of China, Cemex (Cement and Construction) of Mexico, Gazprom (Oil and Gas) of Russia and Embraer of Brazil, whose planes I fly in if I travel to Europe on KLM’s short haul services.
Up to now, the common explanation of the role and success of EMNEs in business textbooks has been as low cost partners to developed economy firms. These textbooks provide plenty of examples of this sort of activity, like the subservient joint venture roles taken on by Chinese car producers such as Shanghai Automotive Industry (SAIC) to a range of US, European, Japanese and South Korean car manufacturers or the role of Indian IT firms in providing low cost call centre and software support to western IT and communications firms. However, this is no longer the whole story. EMNEs are increasingly taking the world stage in their own right and many are becoming incredibly successful.
Internationalisation & EMNEs’ Strategies
Particularly interesting to me were the sections of the book onthe internationalisation that has been taking place based on foreign direct investment from emerging economies into rich countries; key examples of this being the Lenovo acquisition of various parts of the IBM business and more noticeable in the UK, the impact of Tata Motors acquisition of the Jaguar-Land Rover Group. Both Jaguar and Land Rover have experienced a fairly rapid renaissance of late, such that the new smaller Range Rover is now the must have vehicle for a lot of rich young females in the UK. I wonder if this would be the case if the same car bore a Tata badge rather than Land Rover.
Ramaurti and Singh describe Tata Motors approach as the internationalisation of a global consolidator. An emerging market company using its earnings in the domestic environment to acquire resources and knowledge in developed economies of Europe and North America. In the case of the Jaguar-Land Rover acquisition, the important elements of the acquisition are the know-how and crucially the brand names. They go on to describe how other EMNEs are using alternative strategies, for example to acquire natural resources around the world (e.g. the Chinese Oil companies), or local optimisers, who have developed products and services particularly appropriate for low income countries across parts of Asia, Africa and Latin America without ever bothering to tackle the big developed markets in North America, Europe or Japan. Good examples of this approach are the Indian telecoms companies like Bharti Telecom who provide services across the Middle East and Africa, or Chinese car manufacturers like Great Wall and Chery who produce lower cost vehicles well-suited to the growing middle markets in emerging economy economies.
Some successful EMNEs continue to use country specific advantages such as low wages to become low cost partners, such as the many original equipment manufacturers working with big western brand. One of the more well known of these being Foxconn Technology Group, based in Taiwan but producing consumer electronic goods for Apple in China. But this is far from the only route available to EMNEs. If Ramamutri and Singh were to predict the future – which they try to avoid – I wonder if they might foresee Foxconn using its earnings to acquire a western brand name that has fallen on hard times, to enable to produce their own equipment in competition with Apple.
The features of the successful EMNEs
Whilst the book does not identify what we can call new theories, Ramamutri and Singh do offer a typology of strategies used by EMNEs to become successful in competition with organisations from developed economies. They also note that one of the features of many of the successful EMNEs is that they have been able to thrive in difficult and risky business environments, which many western organisations would not endure. For example Orascom, the Egyptian based telecoms and construction company, which despite difficult trading conditions in North Africa during the Arab spring, has continued to provide telecoms services in much of this region, which is largely untouched by the big European mobile phone services.
Third world multinationals: a look back Louis T. Wells, Jr
The book contains interesting chapters by Louis Wells of Harvard, outlining something of the history of EMNEs, previously referred to as Third World companies. We can quickly forget that several of the world’s biggest contemporary companies (for example: Toyota, Sony, Samsung) originated from countries that were once considered to be developing rather than developed. Also included in the chapters are a series of country studies, on the usual BRICS countries (the S indicating South Africa) Mexico, Thailand and Israel (the latter of which will for many Europeans appear to be an anomaly, although it will appeal to a US readership).
Apart from the rather spurious justification for the inclusion of Israel as a country study, my main criticism of the book is the rather anachronistic chapter produced by Alan Rugman, formerly of Henley Business School, who died recently in July 2014. Alan Rugman was one of the leading academics in the world of international business and developed his eclectic theory of based on the organisational, locational and internalisation (OLI) advantages of relocating activities away from the home location. Rugman always contended that to be classed as a truly international business, firms needed to have significant activities in a triad of locations, namely North America, Europe and East Asia. Not may organisations qualify on this count, so he always contended that most international business was regional not global. According to his classification, the only EMNE to make it to truly global status was Flextronics of Singapore based on their activities in 2001 when his research was undertaken. I think this argument is at the same time rather dated and self-serving. To deny the significance of the EMNEs because they are mainly regional rather than global in their outlook is to deny the significance of the impact of Chinese firms of economic development in Africa, of Brazilian firms on economic development in Latin America and the importance of Indian and Turkish firms in the Middle East. I felt that Rugman’s chapter was, as a result, was at odds with the rest of the book, but presumably is retained because of his status in the field and the prestige it brought to the collection of chapters.
Despite the above criticism, I consider this book to be both an important text in the field of strategy and international business and a very interesting and informative read. It charts an important phenomenon of our age at a time when the growing significance and importance of EMNEs is not yet reflected by many of US centric international business textbooks.
Durham University Business School