To contribute to our knowledge of the capabilities that are perceived as strategic by emerging market firms, this chapter presents a study of eight Chinese companies with different internationalization levels. They includes two exporters, the high-tech bus manufacturer Higer and the low-tech manufacturer of car seats Baby First. We also examine high-tech multinationals AVIC (aviation), Advantech (computer systems), and ShangGong Group (industrial sewing machines), in addition to low-tech Chervon (hand-held outdoor tools) and Siwei-Johnson (specialized vehicles). Finally, we examine retail service firm Sanpower. By examining and comparing/contrasting the capabilities identified as strategic by these companies, we aim to gain insights into strategic capability development based on the experience of the world’s largest emerging economy. For example, more than one company mentioned their reflection capabilities, a cognitive process where people attempt to increase their awareness and learn from past business experiences, and explained how they apply this mechanism to corporate governance.

In this chapter, we integrated data obtained from the interviews conducted with business leaders from seventy-two companies across twelve emerging markets in five continents to better understand which capabilities leaders of emerging market multinationals identify as being strategic. In doing so, we examined which capabilities appear to be commonly assessed as being strategic across our study contexts, and which ones varied by industry, company multinationality, and country of origin. In particular, we examined emerging market companies headquartered in Eastern Europe (Russia and Poland), Asia (China, India, and Kazakhstan), Latin America (Argentina, Brazil, Chile, Colombia, Mexico, and Peru) and Africa (South Africa). Looking across the various capabilities identified by the senior managers in our study, our results suggest that the strategic capabilities needed by emerging market firms to be successful outside their home markets occur at multiple levels, including management level, firm level, industry level, and national level. These capabilities influence both a firm’s ability to internationalize and its ability to be successful, abilities that often have reinforcing influences on each other.

This chapter introduces the background and key research question of the project for this book, which is an output of a multi-country study on a highly important subject in emerging markets: what types of capabilities do emerging market firms need, and how do they acquire and upgrade these capabilities in order to achieve competitiveness in the global market? The chapter highlights two unique aspects of emerging markets: weak institutions and lack of endowment. The main theme of the book thus becomes how emerging market companies develop competitive capabilities to international levels facing these two critical constraints. The chapter also discusses the organization of the book, which comprises twelve different country studies, and presents the methodology used to select and evaluate the firms studied.

Along with the fast growth of emerging markets over the last couple of decades, there has been a surge in a new breed of global players from these countries. Their entry into the global market has disrupted the competitive landscape and presented a threat to traditional global leaders from developed countries. The sources of competitive advantage and unique capabilities of these newly emerging global challengers and leaders have been well documented in academic research and consulting reports. So far, most research on EMNCs has focused on how they differ from incumbent advanced-economy global players, especially in terms of their direction of global growth and modes of entry into selected countries. However, scant attention has been paid to the operational issues these new players face at all stages of their global expansion, from country selection to managing local growth.

Based on in-depth case studies of a large pool of EMNCs from various emerging markets, we have examined factors relating to the operational difficulties EMNCs face when they invest overseas. While there are differences specific to certain sectors and countries, we have been able to identify common elements of these operational challenges. In Chapter 2, we presented our findings in a process-oriented framework that provided the structure for our discussion of issues related to the operational challenges occurring at different stages of EMNC development. We divided these challenges into two broad sets – challenges EMNCs face as they seek to enter and start operating in a foreign country and challenges managers face once the firm has established operations overseas. In Chapters 3 to 8, we systematically reviewed these issues with the aim of producing more operationally successful EMNCs. In this concluding chapter, we summarize some key lessons and our final thoughts on managing successful EMNC operations. Each of the companies we have discussed experienced particular challenges in moving abroad, some of which detracted from their ability to benefit from the perceived advantages and opportunities of internationalization, due to resource, capability, and environmental issues. Nevertheless, we can distill some lessons from the analysis of these firms that will be useful to managers of emerging market firms that are considering taking their companies abroad.

First, it is important to consider the country of origin. Operating in emerging markets provides many comparative advantages, including lower labor costs, underdeveloped natural resources, and new, young consumers, which provide a base for continuous growth.

INTRODUCTION

Once the manager has selected the country that provides the best opportunities and identified the sources of advantage to be transferred and the mechanisms that ensure the transfer happens, the next step is to select the mode of entry that best enables the firm to access the complementary resources that it is not transferring across countries to be able to have a fully functioning operation in the host country. We look at how to do this in this chapter. Complementary resources are resources that support the resources that are a source of advantage but that are not sources of advantage in themselves. For example, a firm's source of advantage may be its technology, and the marketing function may be merely a complement, enabling the firm to sell the technology to its customers. However, if the company lacks complementary resources, it is disadvantaged, because this deficiency will detract from the advantage created by other resources as the company does not have a fully functioning operation abroad. In our previous example, if the firm has a poor marketing function, it may serve its customers poorly and detract from the advantage provided by the technology as customers look for other products that, although not as technologically sophisticated, are better adapted to their needs.

One additional challenge with complementary resources is that because they are not perceived as a source of advantage, their analysis is often neglected. The usual assumption regarding complementary resources is that they can be obtained from external vendors when the need arises. However, in some cases, complementary resources are not readily available, and the lack of them can call the overall success of the foreign expansion into question. This appeared to be the case behind the acquisition of the French firm Thomson by the Chinese electronics firm TCL Corporation (TCL).

OPENING CASE: TCL ACQUISITION OF THOMSON

In November 2003, TCL International Holdings combined with the French firm Thomson and became the world's largest producer of television (TV) sets, making 18 million a year, 6 million more units than Sony. Thomson owned 33 percent and TCL 67 percent of the combined firm, which became known as TCL-Thomson Electronics (TTE). Unfortunately, this provided the Chinese firm with the wrong complementary resources in a rapidly changing industry.

INTRODUCTION

In this chapter, we examine the final process issue of our operational difficulties framework related to EMNC expansion. After managers of EMNCs overcome the hurdles associated with establishing operations in foreign countries and integrating these operations into the overall corporation, they must attempt to build upon the initial investments by identifying new business opportunities in the local country and the competitive advantages they can use to pursue them. They may also attempt to build upon MNC networks to identify new business opportunities outside the country that can be served from the local operation and identify advantages that can be used to set up new business operations outside the country in coordination with other subsidiaries. By pursuing these activities, EMNCs may be able to consolidate and supplement their initial investments within a country to develop synergies and a stronger overall presence.

As we have seen in previous chapters, there are differences in institutionalized expectations about organizational practices between developing country home markets and developed country host markets, and EMNCs have relatively little experience operating in these markets to guide them in incorporating local practices into their subsidiary operations. While these issues may be present in any MNC, for EMNCs with operations in developed countries, the possibilities for differences in such role expectations and the need to develop abilities to reconcile them are exponentially higher. In this chapter, we review operational difficulties associated with EMNC expansion, focusing particularly on issues related to learning and innovation and expanding EMNC competencies. We begin our exploration with the case of Tata Motors and its efforts to expand geographically as well as into higher-level automobile categories.

OPENING CASE: TATA MOTORS

Tata Motors is an Indian car company with manufacturing subsidiaries in Argentina, South Africa, Thailand, and the United Kingdom and research and development (R&D) operations in South Korea, Spain, and the United Kingdom. The company had revenues of US$38.6 billion and 66,000 employees in 2014. While Tata had initial success in investing overseas, these investments did not significantly improve the company's reputation, and Tata was primarily seen as a manufacturer of low-cost automobiles, the most notable being the Tata Nano launched in 2009. Partly as a way to combat this, Tata Motors acquired the British brands Jaguar and Land Rover from the US automaker Ford Motor Company in 2008.