Emerging Market Firms in the Global Economy: Volume 15

Table of contents

(18 chapters)
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Purpose

This study seeks to contribute to the relatively sparse literature on how emerging market firms (EMFs) acquire firm-specific advantages (FSA), how they adjust their organizational structures, processes, HR policies, leadership and cultures in the internationalization process, and how they interact with their domestic institutional context.

Design/methodology/approach

We report the results of a survey sent off to the most internationalized Indian firms, measured by foreign income. Our survey includes 26 variables measuring individual aspects of organizational innovation.

Findings

Our respondents report significant changes along all 26 organizational variables over the period investigated (2003–2008). Based on self-reported assessments by top managers, our findings suggest: first, that Indian firms are rapidly transforming their organizations, second, that Indian executives are increasingly confident that they will be able to compete successfully on an international scale, and third, that Indian firms may increasingly benefit from organizational innovation complementing their low cost advantages.

Research limitations/implications

First, our sample size is relatively small at 76. Second, the ratings on the organizational variables we studied are based on self-reporting. Finally, our survey especially captures developments at the largest and most international Indian companies.

Practical implications

With its organization-wide scope of analysis, our study may guide EMF managers looking at organizational innovation in the internationalization context.

Originality/value

This paper elucidates the interplay of Indian firms’ internationalization and organizational innovation.

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Purpose

This paper probes the factors which influence (i) the degree of internationalization and (ii) the subsequent economic performance, achieved by SMEs in India. These two objectives have been examined in the context of firm level push/pull factors, barriers/challenges, firm resources, and strategy.

Design/methodology/approach

This study is based on empirical data gathered through a semi-structured questionnaire from 84 exporting SMEs in the (most internationalized) engineering industry of Bangalore in India during January 2012 to February 2013. The two key research questions have been analyzed using stepwise multiple regression models. The degree of internationalization is defined as the percentage of foreign sales in total sales turn over, as of 2010/2011, and economic performance is represented by (i) the value of sales turnover as of 2010/2011, and (ii) growth of sales turnover from inception till 2010/2011, alternatively. Firm level variables (age of firms, firm size, nature of firm organization), entrepreneurial characteristics (age of the founder and education), time taken to enter the export market for the first time, mode of entry, degree of initial internationalization, years of experience in the international market, whether operated in the international market continuously or not, number of markets currently exported, and number of learnings made are used as the possible explanatory factors for the first objective. In addition, current degree of internationalization is used as the possible explanatory factor for the current level of economic performance whereas initial degree of internationalization for the growth of sales turnover.

Findings

It is firm age, size and experience, and education of the CEO which influenced the degree of internationalization of SMEs. In addition, continuous operation in the international market after an early entry, leading to more learnings positively influenced the degree of internationalization. Further, those who adopted the MNC route as the mode of entry achieved a higher degree. However, what is more significant is the degree of initial internationalization achieved by the SMEs which had strongly influenced its current degree of internationalization. All these bring out that (i) firm level resources & competence and (ii) firm level strategy, together significantly contributed to the degree of internationalization achieved by the SMEs in an emerging economy like India. However, the degree of internationalization had a negative influence on the current sales turnover achieved. Whereas those SMEs, older in age, organized as private limited companies and led by more qualified CEOs, which catered to more number of countries could achieve a higher sales turnover. But degree of internationalization did not have any influence on firm growth. Only younger and smaller firms grew faster than older and larger firms, irrespective of the degree of internationalization.

Research implications

The above results bring out that to achieve a larger firm size, entering the international market need not be the only route, in the current era of globalization. It is possible to achieve a higher economic performance even with a domestic market focus, especially when the domestic market is registering a higher growth compared to the international market.

Originality

The degree of internationalization and its impact on the economic performance of SMEs have been hardly probed adequately based on empirical data in the context of emerging economies. This study fills this void. It reveals that in the era of globalization where domestic firms might have to face competition though not as much as those which operate in the international market, a larger firm size can be achieved with larger focus on the domestic market and with limited focus on the international market.

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Purpose

This paper examines how personal networks influence the internationalization process of Russian multinational corporations.

Design/methodology/approach

We identify and review 78 articles published in five International Business journals that address the role of networking and relationships in firm internationalization. We then use the network perspective to examine how Russian multinationals internationalize.

Findings

Combining the key conclusions of the reviewed studies with insights from the network perspective, and adding insights that we have gained both through first-hand experience and by following the Russian business media, we develop a model that links personal networking and Russian multinationals’ internationalization. We outline four functions that personal networking plays – access to information and knowledge, resource commitment, development of marketing and sales capabilities, and further network expansion.

Originality/value

This paper challenges established views of how firm internationalization occurs. It combines two previously unrelated streams of literature, the network model of internationalization and the role of personal networking within the Russian business environment, and argues that personal networking plays a much larger role in how Russian MNCs internationalize than has the International Business literature has acknowledged.

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Purpose

This paper seeks to provide an understanding of the relationship between the management control policy of emerging economy (EE) firms and the knowledge transfer with the acquired firm, as well as the mechanism by which specific management control policy facilitates knowledge transfer with the acquired firms.

Design

Employing an organizational learning theory, this paper examines the knowledge transfer from acquired firms to acquiring EE firms through multiple-case study of three EE firms.

Findings

Based on organizational learning theory and the results of case studies, this paper finds that the cooperation and willingness of employees in the acquired firm and language barriers are the main factors influencing the relationship between management control policy and the parent company’s knowledge transfer process.

Research implication

This study sheds light on cross-border knowledge transfer to EE firms from an organizational learning perspective and broadens the understanding of post-acquisition knowledge transfer in an emerging market context.

Practical implications

This study suggests that the low-level management control facilitates knowledge transfer from acquired firms. This is especially true when the parent company from the EE has limited learning experience and faces substantial language barriers between itself and its acquired firm.

Originality

This paper extends existing research by exploring how low-level control of acquired firms in developed markets facilitates knowledge transfer of EE firms after cross-border acquisition. Future research can extend this line of research by examining the knowledge transfer mechanism of EE firms through qualitative and quantitative methods.

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Purpose

This study addresses foreign markets selection decisions by Russian mobile telecommunications operators and the impact of top management team composition on the degree of firms’ internationalization.

Design/methodology/approach

The qualitative exploratory study analyzed 24 foreign market entry decisions and the composition of the top management team of the two leading Russian mobile telecommunications operators, VimpelCom and Mobile Telesystems (MTS/AFK Sistema).

Findings

Russian mobile telecommunications operators adopted a gradual approach to foreign market selection, as the study revealed the positive impact of the target market’s geographic proximity to Russia on the investment decision. The international background of the top management team was positively related to the increasing distance of the selected foreign markets.

Research limitations/implications

Further studies may include quantitative evaluation of investment decisions by mobile telecommunications operators from other emerging-market firms, as well as a longer observation period and investment decisions by firms operating in other industries.

Practical implications

Russian and other emerging-market firms should evaluate the importance of the top management team composition and international experience prior to initiation of the internationalization process.

Originality/value

Russian multinationals represent a relatively understudied phenomenon, despite the importance of outward foreign direct investments from Russia among other emerging-market firms.

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Purpose

This study empirically identifies three strategies for creating shareholder value for firms who venture into Emerging markets (EMs) in search of corporate growth and profitability.

Methodology

To uncover these value creating strategies, we apply Cluster analysis techniques, analysis of variance as well as survey several qualitative case-studies of firms who have entered EMs worldwide.

Findings

Our findings demonstrate how firms can – and do – tap into the potential that EMs offer, despite the inherent riskiness of these markets and/or constraints on corporate resources. Statistically, no single shareholder value creating strategy is more (or less) remunerative than other strategies. Many equally profitable trajectories coexist vis-à-vis corporate growth in EMs.

Research limitations/implications

Our findings are based on stock-markets’ expectations of firm performance; these expectations may not correspond to the actual future firm performance.

Practical implications

The principles we have isolated have a broad appeal because they identify variety of paths that facilitate shareholder value creation via participation in EMs. We expose the inner workings of these trajectories and illustrate particular firm-specific and location-specific combinations associated with profitable EM ventures.

Originality/value

This study seriously challenges the conventional view that value creation is a function of singular positive influences. On the contrary, this study establishes that value creation is multi-dimensional and submits that a more refined way to augment performance is to develop an ability to combine relevant firm-specific and location-specific factors so that they can, if needed, offset the impositions of each other.

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Purpose

Research on international experience notes its positive influence on subsequent international expansion by firms. We test this relationship in the context of the Indian software industry whose offerings, unlike many other services, are storable implying that delivery can be separated from production.

Design/methodology/approach

We analyzed the domestic expansion of a sample of publicly listed Indian software firms over the period 2000–2009 with help of Poisson regression.

Findings

We find that even internationally experienced Indian software firms might prefer to expand domestically because of limited financial and managerial resources and concerns about diluting their cost advantage. The storable and separable nature of software services will support this strategy of serving clients remotely. The domestic expansion of assets will, however, be slower for firms with the highest level of industry accreditation. It will also be slower if there are institutional pressures in the form of rivals locating development centers near clients in developed countries.

Originality/value

Our results demonstrate that international experience alone is not sufficient for firms to expand overseas.

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Purpose

This paper questions currently accepted arguments about the impacts of pro-market reforms in the internalization of emerging country firms, through an in-depth analysis of the Brazilian case, thus revealing new dimensions to add to the extant literature.

Design/methodology/approach

Historical analysis is the central mode of investigation leading to a commitment of offering historically grounded explanation for pro-market reform impacts in the Brazilian industry.

Findings

Outcomes reveal that the impacts of pro-market reforms depend on (a) the purpose of their adoption, (b) the compatibility with the features of the local institutional context, and (c) the relative bargaining power of local firms vis-à-vis foreign multinationals.

Research limitations

The research is based on the Brazilian experience only which is indicative of what may have happened in other Latin American countries; however, the analytical approach may be extended to the study of other emerging countries.

Practical and social implications

By having a systemic perspective encompassing the different actors and the interdependence among themselves, it allows for an enhanced view of the factors which led to the adoption of pro-market reforms and the forces which acted for its configuration, thus helping policy-makers to better approach industrial policy-making.

Originality

A longitudinal perspective within a historical analysis is adopted, focusing on the interplay of macro-level and firm-level factors, resulting in a better understanding of the reasons which led to the adoption of pro-market reforms, the resistance to its implementation and its real outcomes.

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Purpose

Our aim is to investigate the quality of segment disclosures by companies in Brazil, Russia, India and China (known as the BRIC economies) that are expanding their operations internationally, and in so doing to assess the extent of convergence with globally recognized standards, that is, International Financial Reporting Standards (IFRS).

Methodology

We examine the financial statements and narrative information provided by the largest BRIC companies. We carry out a content analysis and also apply multivariate regression techniques to evaluate if key firm-specific factors are associated with the number of operating and geographic segments disclosed.

Findings

Our results show that the extent of disclosure by the majority of BRIC companies is of a high standard taking into account both quantitative and narrative data. The disclosure of operating segments is commonly based on business lines though most companies also report additional geographic information. As expected, operating segment disclosures are positively associated with the extent of internationalization (percentage of foreign sales) and majority state ownership.

Limitations

We have examined only the largest companies in each BRIC country and so there are limitations regarding the generalizability of our results. Future research could usefully examine the practices of a wider range of companies within each of the BRIC countries. This could also be extended to a study of disclosure behaviour in other emerging economies.

Originality/value

Our study provides new evidence concerning the quality of corporate financial reporting in the BRIC economies with special reference to a comparative international analysis of the segment disclosure practices of major BRIC companies expanding internationally.

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Purpose

Stewardship theory is an emergent approach for explaining leadership behavior, challenging the assumptions of agency theory and its dominance in corporate governance literature. This study revisits the agency and stewardship theories by seeking to answer whether chief executive officers (CEOs) in China are committed stewards or opportunistic agents.

Design/methodology/approach

Based on 5,165 observations of 1,036 listed companies in China over the period 2005–2010, the results suggest that the corporate governance mechanisms developed from the agency theory in the West are not necessarily applicable in the Chinese context.

Findings

This study supports the stewardship theory in its findings that empowering CEOs through the practice of CEO duality and longer CEO tenure have a positive effect on firm value in China. Additionally, the positive relationships between CEO duality, CEO tenure and firm value are strengthened by the number of executive directors on the board, and weakened by the number of independent directors on the board.

Practical implications

One size does not fit all. Leadership behaviors in China do not follow the agency assumptions inherent in Western practices, rather they favor the conditions of positive leadership expressed by the stewardship theory. Assuming that the motivations of managers in emerging markets such as China are similar to those in the West may lead to a poor fit between governance policies and the institutional context.

Originality/value

As one of the few studies to connect the theoretical debate between the agency and stewardship theories, this study presents new evidence to support the stewardship theory, thereby strengthening its theoretical importance and relevance in corporate governance literature.

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Purpose

This research seeks to understand how shareholder constituencies including controlling family, nonfamily insiders, as well as domestic and foreign institutions in the corporate governance system of emerging economy firms perceive institutional risks in terms of regulative, normative, and cognitive institutions and influence strategic choices in the internationalization of their invested firms.

Design/methodology/approach

The sample data are Taiwanese publicly listed companies in the electronics and computer industry. Panel data of the parent firms and their overseas affiliates are available from the annual report and Taiwan Economic Journal database. Country-level data are available from the World Investment Report and the IMD World Competitiveness Report. Statistical regression models including tobit and logistic regression are used to analyze the data.

Findings

Controlling family and nonfamily insider shareholders tend to influence their invested firms to enter in institutionally smaller host countries through a shared ownership. Domestic institutional shareholders tend to influence their invested firms to adopt a shared ownership and enter in host countries with larger and smaller institutional distances in terms of regulative and normative institution, respectively. Foreign institutional shareholders tend to influence their invested firms to enter in institutionally smaller host countries through a whole ownership.

Originality/value

The strategic choices of foreign market entry made by emerging economy firms are significantly shaped by the different risk perceptions of shareholder constituencies in their corporate governance system toward the institutional distances between the home and the host country.

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Purpose

According to the market timing theory, firms try to take advantage of windows of opportunity to raise capital by exploiting temporary cost fluctuations of alternative financing sources. In this context, the main objective of this paper is to examine the influence and persistence of market timing in the financing decisions of Brazilian firms that launched IPOs in the period from 2001 to 2011.

Methodology/approach

We analyze the influence of past market values on the capital structure of these firms, based on the main models proposed by Baker and Wurgler (2002), adapted to reflect the characteristics of Brazilian firms’ financial statements.

Findings

We find evidence of market timing, but this behavior is not sufficiently persistent in the period studied to the point of determining these firms’ capital structure. We believe the fact that Brazilian companies rarely carried out follow-on primary equity issues after floating their capital in the period analyzed, due to the presence of more advantageous financing sources (particularly from the national development bank, BNDES), explains the results. Therefore, Brazilian firms appear to be pay heed to different funding sources, in search of windows of opportunity, to guide their financing decisions and determine their capital structures.

Originality/value

The Brazilian capital market has been developing intensely in recent years, making it increasingly relevant to analyze the financing and investment decisions of the country’s listed companies. The Brazilian literature on capital structure is extensive, but few works have addressed the issue of market timing.

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DOI
10.1108/S1569-3767201415
Publication date
2014-11-11
Book series
International Finance Review
Editors
Series copyright holder
Emerald Publishing Limited
ISBN
978-1-78441-066-7
eISBN
978-1-78441-065-0
Book series ISSN
1569-3767