Discuss asset seeking motives as they relate to multinationals from emerging markets.

Question

What will be an ideal response?

Answer 1

Internationalization literature has often focused on the firm’s ability to exploit competitive advantages derived from their firm specific assets in multiple markets in explaining internationalization. In foreign markets, firms are faced with additional costs and risks as they are not familiar with the market. However, potential benefits from exploiting their advantages in different markets can outweigh the costs. Competitive advantages which lead to firm success in multiple markets are often knowledge-based intangible assets and capabilities of the firm. Some examples may be marketing or technological assets. For instance, a firm can enter multiple markets with a technologically superior product and grow its customer base rapidly. On the other hand, EM firms often lack the firm-specific advantages which are mainly intangible in nature such as managerial, marketing and technological capabilities, which have been considered as the basis of international expansion in international business theories.

In international business, firm internationalization is also regarded as a gradual process. Within this process, internationalization is considered as a gradual movement starting from investing into similar economies and increasing exposure as the firm develops knowledge and experience in these economies. Emerging market firms often internationalize directly to developed markets which are very different from their own domestic markets. Moreover, they are able to internationalize with seemingly limited firm-specific assets. This behaviour has led to the discussion of a strategic asset-seeking pattern in analysing emerging market firms.

Firms from EMs may internationalize in order to acquire strategic assets, which enable them to compete with MNEs from developed countries. Such strategies are designed to gain access to resources such as technology, brand and managerial capabilities, which EMs need. Then, in venturing abroad, such EM firms are motivated by the need to acquire assets that may generate a competitive advantage. An advantage of the EM firms is that the complementary assets they need such as R&D capabilities are available in the form of smaller enterprises, as larger MNEs are becoming integrated and focused (Hennart, 2009). Many MNEs are willing to sell business units in order to dilute slow businesses and align their strategy with competencies, thereby EM MNE acquisitions are possible (Luo and Tung, 2007).

However, even when firms acquire resources, efficiency of the acquired information or resource is dependent upon the firms’ internal efforts. While some EM firms choose to acquire assets directly, many EM firms export or gain foreign presence first in similar environments or with low priced undifferentiated products, and then start building up on their strategic capabilities like marketing, or technology. Firms can gradually build technological capabilities, create products good enough for other EMs and later on focus on producing world class products and engage in innovation activities, however this process is dependent on the firm ability to learn, disseminate and internalize knowledge (Teagarden and Cai, 2009).