Globalization of Latecomer Asian Multinationals and Theory of Multinational Enterprise

Globalization of Latecomer Asian Multinationals and Theory of Multinational Enterprise

Wiboon Kittilaksanawong (Nagoya University of Commerce and Business, Japan) and Weiqi Dai (Zhejiang University of Finance and Economics, China)
Copyright: © 2015 |Pages: 28
DOI: 10.4018/978-1-4666-6551-4.ch005

Abstract

The fast globalization of latecomer multinationals from Asian emerging economies with impetus has appeared to challenge the established theories of Multinational Enterprise (MNE). This chapter reviews extant theories of MNE and provides areas of refinement and extension to these theories to reflect highly contextualized and unique internal and external conditions of these MNEs. In particular, this chapter provides an analysis of the key theoretical perspectives of MNE and highlights four areas that extend existing theories. These areas include country-of-origin effects, ownership advantages, learning processes, as well as global and industry context for internationalization. These areas of refinement are then illustrated by seven case studies of MNEs from mainland China and Taiwan in their accelerated internationalization and their focus on acquisitive growth strategy in terms of speed of internationalization, target countries, and mode of entry.
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1. Introduction

The fast globalization of multinational enterprises from emerging economies (EEMNEs), particularly in Asia, appears to challenge the established theories of MNEs (Cuervo-Cazurra, 2012; Deng, 2012; Luo & Tung, 2007; Luo & Wang, 2012; Mathews, 2006; Meyer & Thaijongrak, 2013; Ramamurti, 2012). Although these MNEs are the latecomers, they have quickly become world leaders in their respective industries. Given the particularities in the context of Asian emerging economies, such phenomenon has resulted in a rising interest of scholars and practitioners on how business management in this context potentially changes the traditional understanding of MNEs.

Some scholars have argued that a novel theory is required to elucidate behaviors of these MNEs (e.g., Guillen & Garcia-Canal, 2009; Luo & Tung, 2007; Mathews, 2006), while others have asserted that existing theories are sufficient to explain this phenomenon (e.g., Dunning, Kim, & Park, 2008; Rugman, 2010). Nevertheless, many scholars have suggested the study of EEMNEs helps to extend existing theories (e.g., Child & Rodrigues, 2005; Cuervo-Cazurra, 2012; Luo & Wang, 2012; Meyer & Thaijongrak, 2013; Ramamurti, 2009, 2012). This chapter, therefore, reviews the extant theories of MNEs and provides areas of refinement and extension to the theories to reflect highly contextualized and unique internal and external conditions of these EEMNEs.

This chapter combines critical elements of extant perspectives on outward foreign direct investment (OFDI) and new insights from unique conditions within the home country of EEMNEs from Asia. In fact, apart from host country influence, impacts of particularities in home country of these EEMNEs on their idiosyncratic internationalization behaviors cannot be underestimated (Luo & Wang, 2012). When these home country conditions exert significant influence, extant theories of MNEs, which are mainly developed in the context of advanced economies, may not provide appropriate predictions on OFDIs of these EEMNEs.

Particularly, the traditional conceptualization that MNEs arise from home-based ownership advantages (Dunning, 1980, 1988) and home country-specific characteristics (Rugman, 1981; Rugman & Verbeke, 2003), and that MNEs utilize home-based operational advantages in global competition (Porter, 1990) may not be completely relevant to EEMNEs. For example, EEMNEs may invest overseas to avoid poor institutional environments at home (Boisot & Meyer, 2008; Cuervo-Cazurra & Genc, 2008; Witt & Lewin, 2007; Yamakawa, Peng, & Deeds, 2008). Essentially, difficulties of conducting business due to such disadvantages at home strengthen the capability of EEMNEs that subsequently becomes their competitive advantages when venturing overseas.

Key Terms in this Chapter

Internationalization Process Model: A theory in economics that explains how firms gradually intensify their activities in foreign markets.

Emerging Market: A country that has some characteristics of a developed market but is not yet a developed market.

Eclectic Paradigm: A theory in economics, also known as the OLI Framework, where O, L, and I refer to ownership advantages, location advantages, and internalization advantages respectively.

Outward Foreign Direct Investment: A business strategy where a domestic firm expands its operations to a foreign country via a green field investment, acquisition, and/or expansion of an existing foreign facility.

Merger and Acquisition: A merger is a combination of two companies to form a new company, while an acquisition is the purchase of one company by another in which no new company is formed.

Globalization: The tendency of investment funds and businesses to move beyond domestic and national markets to other markets around the world.

Country of Origin: The country of manufacture, production, or growth where a product or service comes from.

Multinational Corporation: A corporation that has its facilities and other assets in at least one country other than its home country.

Internalization Theory: A theory in economics that applies to a multinational corporation in shifting assets between subsidiaries across border.

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