I wrote and
consulted on how best to privatize
these firms and deregulate their
sectors. In the process, many firms in
the developing world were sold to
local business groups, such as the
Tata or Reliance groups in India and
their counterparts in other countries.
Others were sold to foreign
multinationals, such as Unilever or
France Telecom.
In the 2000s,many of these privatized
firms were revitalized and they began
to internationalize. At the same time,
many private firms established in the
import-substitution era reinvented
themselves to compete successfully at
home and abroad—Indian examples
would include firms like Hindalco,
Wipro, Ranbaxy, Tata Steel, and
Videocon. Finally, a host of new
firms created after economic
liberalization began to compete
globally quite early in their lives—
Indian examples of this would
include firms like Suzlon Energy,
GVK Biosciences, and hundreds of
small software or BPO companies. In
the last few years, my research has
focused on the internationalization of
these three types of emerging-market
firms.
My latest book, Emerging
Multinationals from Emerging
Markets (Cambridge University Press,
2009) brings together some of the
world's leading experts in
international business, who have
researched the internationalization of
firms, each from one emerging
economy. We discussed the findings
threadbare at a conference organized
by Northeastern University's Center
for Emerging Markets and two
research centers at the Wharton
School, University of Pennsylvania.
The revised studies constitute the
chapters of this book.
The book yielded many useful
insights. We learned that Emerging-
Market Multinational Enterprises
(EMNEs) internationalize on the basis
of very different competitive
advantages than Western
multinationals. Their capabilities are
rooted in the distinctive features of
emerging economies, such as lowincome
consumers, low-wage
workers, underdeveloped
infrastructure, weak institutions, and
rapid growth. Multinational firms
have always started out with
strengths derived from characteristics
of their home market, and that is true
also of EMNEs. It's just that emerging
economies have different
characteristics than developed
economies.
Basically, firms in emerging markets
tend to internationalize on the basis a
few generic strategies. I stumbled
upon this taxonomy as a result of
watching firms in emerging
economies for many years.
The local optimizer strategy is a firm
that makes products, and use
production methods, optimized for
emerging economies. This usually
entails products that are rugged, easy
to maintain, and not very expensive,
and whose production is done with
raw materials, processes, and
"appropriate technologies" that keep
capital and operating costs low. A good Indian example is Mahindra &
Mahindra, whose modestly priced
SUV (Scorpio) and low cost tractors
are well suited to India and
therefore to many other emerging
economies. The internationalization
of local optimizers is founded on this
transferable competitive advantage.
The low cost partner is a firm that
arbitrages the low wages of emerging
markets to become a supplier partner
of companies in high wage countries.
This strategy is particularly powerful
in China and India, which have large
pools of low wage, skilled and
unskilled workers. The arbitrage
strategy works less powerfully for
middle income developing countries,
such as Brazil, Mexico, and Thailand,
and is not viable in high income
countries, such as Singapore or Hong
Kong. The target market for the
exports of these EMNEs is developed
countries. FDI in the developed
countries may follow as the firms
attempt to move up the value curve.
Chinese firms pursuing this strategy
aremore likely to be inmanufacturing
(e.g. Wanxiang, an auto parts
supplier), and Indian firms pursuing
this strategy are more likely to be in
services (e.g. Infosys or Wipro), but
the distinction is likely to blur over
time. The low cost partner is likely to
expand into other emerging markets
to diversify the supply locations from
which it serves customers in highwage
countries. Thus, its competitive
foundations and internationalization
paths are quite different from those of
the local optimizer.
