Strategic Options for MNEs Operating in Emerging Markets

Strategic Options for MNEs Operating in Emerging Markets

Andreas M. Hartmann (Tecnológico de Monterrey, Mexico)
DOI: 10.4018/978-1-5225-0276-0.ch002
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Abstract

This chapter outlines some of the basic opportunities, conditions, and strategic options for firms operating in emerging markets. Increasing FDI figures show that emerging markets offer many opportunities for foreign investors, but also pose specific challenges for doing business. Some factors are more abundant and less expensive, especially low to medium-skilled labor and natural resources, while sophisticated services are more difficult to obtain. A specific characteristic of emerging markets is the lack of business-enabling intermediaries. Therefore, foreign MNEs frequently need to fulfill tasks that are not within their range of activities in their home countries. Additionally, many governments in emerging economies act slowly and erratically; and laws are often not enforced systematically. In this context, foreign MNEs can choose between acquiring a local company, partnering up, or going it alone. The chapter looks at the pros and cons of these modes of internationalization and presents some concluding comments on the flexibility required by working under such conditions.
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Context: The Increasing Importance Of Emerging Markets For Mnes From Developed Countries

Even if the emerging economies still lag behind the developed countries in almost all socioeconomic indicators, they now have collectively become the target for more than half of the world’s foreign direct investment. According to the 2014 World Investment Report, “FDI flows to developing economies reached a new high at $778 billion, accounting for 54 per cent of global inflows, although the growth rate slowed to 7 per cent, compared with an average growth rate over the past 10 years of 17 per cent” (UNCTAD, 2014: xiii). On the other hand, the developing economies accounted only for 32.3% of worldwide FDI outflows, which shows that the most common direction is still from developed to emerging countries.

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