International Journal of Emerging Markets

How emerging markets firms will become global leaders

Robert Grosse,
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Journal of Emerging Markets, Vol. 11 Issue: 3,pp. 274-287, doi: 10.1108/IJOEM-07-2015-0138
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IJOEM
11,3
274
Received 27 July 2015
Revised 16 August 2015
Accepted 18 August 2015
Downloaded by 58.65.217.32 At 18:33 30 March 2017 (PT)
International Journal of Emerging
Markets
Vol. 11 No. 3, 2016
pp. 274-287
© Emerald Group Publishing Limited
1746-8809
DOI 10.1108/IJOEM-07-2015-0138
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1746-8809.htm
How emerging markets firms will
become global leaders
Robert Grosse
American University of Sharjah, Sharjah, United Arab Emirates
Abstract
Purpose – Over time the countries characterized as “emerging” change, and some of the companies
from these countries become world leaders even as many of those from traditional economic powers
fade. There is nothing guaranteed about success of companies from emerging markets (EMs), other
than the fact that some of the firms that do survive will be among the success stories of the future.
The purpose of this paper is to explore two questions: what enables companies from EMs to compete
with existing firms? Is there a conceptual structure that is best for analyzing these firms and
their strategies?
Design/methodology/approach – This paper discusses the strengths of EM multinational
enterprises (MNEs) from the perspective of Dunning’s eclectic view, and gives four detailed examples
of companies from this perspective.
Findings – It is suggested that while the eclectic view offers excellent insight into EM MNEs, an
analysis of their strategies and policy implications requires further perspective such as through the
global value-added chain.
Research limitations/implications – No single model will capture all of the important features of
EM MNEs, but Dunning’s view and the global value-added chain are good tools.
Practical implications – Hopefully, both research analysts and company managers will be able to
utilize the view presented here to better manage/understand EM MNEs.
Originality/value – This view demonstrates a mechanism for exploring key elements of EM MNEs
and by moving to the global value-added chain additional, original perspective is gained.
Keywords Emerging markets, Value chain, Emerging market multinationals, Eclectic theory,
Production networks, Theory of the multinational enterprise
Paper type Conceptual paper
Introduction
It was not that long ago (after Second World War) that companies such as Samsung,
Hyundai, and Lucky Goldstar from Korea were seen as emerging market (EMs)
companies – which have since become world leaders at the same time as Korea became
a post-emerging country and member of the Organization for Economic Cooperation
and Development (OECD). In the late 1800s firms such as Singer Sewing Machine
Company, Levi Strauss & Company, and General Electric were considered to be firms
from an EM, namely, the USA. They gained strength and market share relative to the
“traditional” powerful firms from the UK and continental Europe. The same could be
said for British firms in the mid-1700s: the English East India Company; Guinness; and
Hudson’s Bay Company, along with new textile manufacturing companies. These
companies grew large and powerful relative to the “traditional” leading firms from
Holland such as the United East Indies Company (VOC) and the West Indies Company,
and others from Italy such as Beretta and Torrini Firenze, and yet others from Japan
such as Mitsui and Sumitomo.
Over time, new countries replace former leaders in the world economy, and new
companies replace the former leading companies as well. The process may even be cyclical
by the time of the twenty-first century, as China returns to a world-leading position that it
once held for most of the period of 1500-1900, and as more and more Chinese companies
 become world leaders. Table I shows some of the jostling among countries as the leading Emerging
economies of the world during the past 500 years, based on country GDP[1]. markets firms
It is quite striking that China was the world’s largest economy for most of the period,
except for a brief time when India overtook China, and then after the turn of the
twentieth century when the USA overtook China.
The point of this brief commentary on the history of companies from EMs and on
EMs themselves is that over time the countries characterized as “emerging” change, 275
and some of the companies from these countries become world leaders even as many of
those from traditional economic powers fade. There is nothing guaranteed about
success of companies from EMs, other than the fact that some of the firms that do
survive will be among the success stories of the future. What enables companies from
EMs to develop their ability to compete with existing firms? In today’s context there are
a number of characteristics that appear fairly frequently, though the literature is quite
mixed on the question of what matters most.
The rest of this paper proceeds as follows. First, an overview is offered of the kinds of
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competitive advantages that characterize many of the large and successful multinational
enterprises (MNEs) from EMs. In this context some of the key literature on this subject is
noted, with the intent of demonstrating that there is not a clear and consistent
competitive foundation for such diverse companies from quite different countries.
Second, a reorganization of the logic for success by EM MNEs is offered with the use of
Dunning’s eclectic theory. This is not presented as a theory of such EM firms, but rather
as a conceptual structure that emphasizes the sources of competitive advantage that they
possess. Examples of Itaúsa, Geely, Wipro, and FEMSA are used to illustrate the
framework and the quite different kinds of advantages that lead EM firms into positions
of global strength. The analysis concludes by pointing out the potential survivorship bias
in our thinking, as well as the role of luck in these firms’ success stories.

Country/year 1500 1600 1700 1820 1870 1913 1950 2003 2008

USA 800 600 527 12,548 98,374 517,383 1,455,916 8,430,762 9,485,136
China 61,800 96,000 82,800 228,600 189,740 241,431 244,985 6,187,983 8,908,894
India 60,500 74,250 90,750 111,417 134,882 204,242 222,222 2,257,166 3,415,183
Roman /Holy 43,551 64,627 80,107 n.r.a n.r. n.r. n.r. n.r. n.r.
Roman Empirea
Italy 11,550 14,410 14,630 22,535 41,814 95,487 164,957 1,107,193 1,157,636
UKb 2,815 6,007 10,709 26,232 100,180 224,618 347,850 1,289,685 1,446,959
France 10,912 15,559 19,539 35,468 72,100 144,489 220,492 1,298,819 1,423,562
Germany 8,256 12,656 13,650 26,819 72,149 237,332 265,354 1,572,784 1,713,405
Japan 7,700 9,620 15,390 20,739 25,393 71,653 160,966 2,686,224 2,904,141
Spain 4,495 7,029 7,481 12,299 19,556 41,653 61,429 686,076 797,927
Holland/
The Netherlands 723 2,072 4,047 4,288 9,952 24,955 60,642 360,759 411,055
Notes: Largest country is shaded for each year. aThe Roman Empire ended around 500 AD. The Holy
Roman Empire largely replaced it in about 800 AD, with Charlemagne’s coronation, and then ceased to
exist, arguably, in 1806. The countries formerly in the Empire had combined GDP of about $130,000 in Table I.
1820, still ranking far behind China. bThe UK is shown without its colonies. So if, for example, colonial Country economic
India were included until independence in 1947, then the UK would have been the largest economy size comparisons
during most of 1750-1913 in the long run
Source: Data from Angus Maddison database, Statistics on World Population, GDP and Per Capita (GDP in constant
GDP, 1-2008 AD (www.ggdc.net/maddison/oriindex.htm) US$1990 MM)
 IJOEM Competitive advantages of EM MNEs
11,3 EMs firms demonstrate a number of competitive advantages in domestic and
international competition. The advantages are firm specific (ownership advantages) in
some cases and country specific (location advantages) in others. These advantages
tend to differ somewhat from those found in existing MNEs from industrial countries,
particularly because they focus less on new technology and marketing/advertising
276 skills and more on low costs and client relationships (Guillen and Garcia-Canal, 2009;
Mathews, 2006; Contractor, 2013). There is no simple divergence of advantages
between the two groups: the EM firms in some instances are technology leaders
(such as Embraer, Infosys, and Acer), and in some cases existing USA and EU
MNEs are cost leaders (such as Walmart, Ryanair, and McDonalds). But more
frequently the EMs firms are technology followers (e.g. Ranxbury in generic
pharmaceuticals, Lenovo in computers, and China Telecom in telecommunications),
and the US/EU firms are technology leaders (such as Intel, Apple, and Novartis).
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EM companies are located in countries with high growth rates and low costs (location)
The growth rates of many EMs, especially those with successful multinational firms
that we are examining, have been far higher than growth rates in the USA, the EU, and
Japan during the past twenty years. Table II shows this high growth rate phenomenon,
which is likely to continue for easily the next 20 years as well.
The only Triad[2] country in the top 25 growth economies since 2010 is natural
resource-intensive Australia, in 25th place. This reality of economic growth implies
that, for overseas expansion in the near future, EMs (especially in Asia) will dominate
the opportunities available to companies from around the world. This is clearly an
advantage for firms located in these countries, since they will have both knowledge of
these markets and established positions in serving them.
A second country-specific characteristic of many EMs firms is that they often
achieve lower unit costs than their US/EU competitors. This is logical, since they are
operating in home countries with almost always lower costs than in the USA, EU, or
Japan (e.g. Conference Board, 2013). While efficiency in production may lag the most
technologically advanced countries, still unit costs for most products and services tend
to be lower in EMs. This broad picture is illustrated in Figure 1, which shows the price
of a Big Mac hamburger in several dozen countries in 1993 and 2013. The table shows
that, as in all years that the index has been produced since 1986, the EMs tend to have
lower prices than the USA, as well as most European Union countries and Japan.
It is often argued that low costs are not a sustainable competitive advantage, since
as exchange rates change, so do costs in an international comparison. True, but the
costs of production in many EMs, despite exchange rate changes, remain either lower
or even much lower than those in the USA/EU. The competitiveness shifts are more
between EMs – while the competition is more between EMs firms and OECD firms.
(e.g. the Big Mac index from 1990 through 2014 showed that most EMs were
consistently undervalued relative to the dollar, and EU currencies overvalued[3].
A third country-specific advantage of many EMs firms is the language of
operation. If the company comes from a Latin American EM (other than Brazil), the
language of operation is probably Spanish, which gives such firms an advantage over
US or UK firms, where the language is English. If the company comes from a former
French colony, then it will have a language advantage over competitors from
non-French-speaking countries. And of course if the EM company comes from an
English-language country, it will have an advantage over firms from
 GDP GDP 2014 Growth rate Growth rate Growth rate Growth
Emerging
ranking Economy US$ value 1990-1999 2000-2009 2010-2014 ranking markets firms
1 USA 14,204,322 3.232 1.817 2.212 29
2 Japan 4,909,272 1.470 0.557 1.492 33
3 China 4,326,187 10.011 10.301 8.580 1
4 Germany 3,652,824 2.205 0.825 1.953 30
5 France 2,853,062a 2.006 1.415 1.013 40 277
6 UK 2,645,593 2.083 1.940 1.687 32
7 Italy 2,293,008 1.484 0.537 −0.519 47
8 Brazil 1,612,539 1.878 3.356 3.228 21
9 Russian Federation 1,607,816 −4.906 5.480 2.831 23
10 Spain 1,604,174 2.652 2.773 −0.507 46
11 Canada 1,400,091 2.383 2.093 2.558 26
12 India 1,217,490 5.769 6.897 7.259 2
13 Mexico 1,085,951 3.616 1.842 3.336 19
14 Australia 1,015,217 3.277 3.230 2.600 25
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15 Republic of Korea 929,121 6.678 4.672 3.735 16

16 The Netherlands 860,336 3.166 1.714 0.259 45
17 Turkey 794,228 3.978 3.767 5.423 8
18 Poland 526,966 3.813 3.900 3.077 22
19 Indonesia 514,389 4.835 5.106 5.806 5
20 Belgium 497,586 2.217 1.622 1.114 39
21 Switzerland 488,470 1.184 1.977 1.946 31
22 Sweden 480,021 1.767 2.025 2.386 28
23 Saudi Arabia 467,601 3.102 5.153 5.249 9
24 Norway 449,996 3.560 1.832 1.459 34
25 Austria 416,380 2.723 1.670 1.273 37
26 Islamic Republic of Iran 385,143 4.642 4.921 0.711 42
27 Greece 356,796 2.085 2.786 −4.801 48
28 Denmark 342,672 2.471 0.932 0.554 44
29 Argentina 328,385 4.521 3.047 4.399 12
30 Venezuela, RB 313,799 2.463 3.978 1.131 38
31 Ireland 281,776 7.043 3.526 1.430 35
32 South Africa 276,764 1.386 3.598 2.442 27
33 Finland 271,282 1.863 2.029 0.540 45
34 Thailand 260,693 5.275 4.062 3.596 17
35 Portugal 242,689 2.922 0.941 −0.934 47
36 Colombia 242,268 2.861 4.136 4.819 10
37 Czech Republic 216,485 0.200 3.426 0.948 41
38 Hong Kong, China 215,355 3.636 4.219 3.771 15
39 Nigeria 212,080 2.626 8.929 5.742 7
40 Romania 200,071 −2.278 4.742 1.396 36
41 Israel 199,498 7.214 3.689 3.790 14
42 Malaysia 194,927 7.248 4.787 5.805 6
43 Singapore 181,948 7.300 5.279 6.445 3
44 Ukraine 180,355 −8.892 4.720 0.560 43
45 Algeria 173,882 1.570 3.851 3.320 20
46 Chile 169,458 6.376 3.739 4.634 11
47 Pakistan 168,276 3.976 4.489 3.537 18
48 Philippines 166,909 2.752 4.456 6.274 4 Table II.
49 United Arab Emirates 163,296 5.456 4.888 4.001 13 Gross domestic
50 Arab Republic of Egypt 162,818 4.335 4.880 2.692 24 product 2014 and
Source: aData from World Bank (http://siteresources.worldbank.org/DATASTATISTICS/Resources/ GDP Growth Rates
GDP.pdf) (US$ millions/a.p.r.)
 IJOEM 1993 and 2013
11,3 Vietnam
Venezuela
0.00
0.00
0.00
56.95

Uruguay 9.29
0.00
USA 0.00
0.00
Ukraine –48.87 0.00
UAE –28.30
0.00
Turkey –4.70
0.00

278 Thailand
Taiwan
–37.55
–42.26
–16.00
0.00
Switzerland 47.46
72.00
Sweden 35.12
50.00
Sri Lanka –37.92 0.00
Spain –1.24 25.00
South Korea –24.64
27.00
South Africa –50.85
0.00
Singapore –19.08
0.00
Saudi Arabia –41.48
0.00
Russia –42.04
–50.00
Portugal –16.76
0.00
Poland –40.01
0.00
Downloaded by 58.65.217.32 At 18:33 30 March 2017 (PT)

Philippines –41.80
0.00
Peru –21.14 0.00
Pakistan –34.19
0.00
Norway 64.73
0.00
New Zealand –5.65
0.00
The Netherlands –2.65 0.00
Mexico –37.25
0.00
Malaysia –49.63
–43.00
Lithuania –29.72
0.00
–29.85 2013 Dollar Valuation
Japan 51.00
5.81 1993 Dollar Valuation
Italy 30.00
Israel 5.34
0.00
Ireland –2.37
0.00
Indonesia –38.47
0.00
India –67.07
0.00
Hungary –17.39
–22.00
Hong Kong –51.90
–49.00
Greece –26.64
0.00
Germany 2.71 28.00
France 10.05
52.00
Finland 0.00 15.69

Euro area 2.25

0.00
Estonia –22.40
0.00
Egypt –47.56
0.00
Denmark 7.83 86.00
Czech Republic –23.40
0.00
Costa Rica –5.38
0.00
Colombia –1.75
0.00
China –42.76
–34.00
Chile –13.63 0.00
Canada 15.44
–4.00
Britain –11.78 23.00
Brazil 15.98
23.00
Belgium 4.40
47.00
Austria –4.34 0.00
Australia 1.39
–23.00
Argentina –14.85
58.00

–80.00 –60.00 –40.00 –20.00 0.00 20.00 40.00 60.00 80.00 100.00
Figure 1.
The Big Mac Index Notes: 1993 and 2013 . Figure values are over (+) and under (–) valuation of
currencies relative to the US$

non-English-speaking countries when entering and operating in other English-language

countries (Selmier and Oh, 2013)[4].
Fourth and finally, EMs companies have experience dealing with more fragile
economic conditions and often more volatile ones than the traditional multinationals.
 That is, since the economic and often political/social conditions in EMs tend to be more Emerging
volatile or changeable than in Triad countries, companies from EMs will have markets firms
more experience in dealing with these conditions. So, the EM firms should have a
competitive advantage in entering and operating in other EMs due to experience
operating in volatile/unstable environments. This is a relevant competitive strength when
operating in other EMs (Contractor, 2013), though not particularly useful when operating
in Triad countries. Even so, with world economic growth coming primarily from the EMs 279
for the foreseeable future, this experience can be a major competitive advantage.
Examples of this capability abound: in Eastern Europe companies such as electric
power company CEZ (Czech Republic) and insurance giant PZU (Poland) survived the
transition to non-communist governments and the rocky road to market-based
development policies; in Asian dragon countries firms such as tobacco and banking
group Djarum (Indonesia) and beer and oil group San Miguel/Petron (Philippines) have
followed Japanese and Korean firms into rapid growth; in Latin America companies
such as Mexico’s Grupo Alfa and FEMSA dealt with repeated rounds of financial crisis
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from the 1980s through the 2008-2009 crisis; and even (South) African companies such
as Pick N. Pay and Barloworld have dealt with the enormous problems of corruption
and government instability in that region. The ability of a company such as GUM
department store in Russia to survive the many upheavals in that economic and
political system is legendary. But likewise, the proven ability to survive of firms such
as Grupo Diego Cisneros in chaotic Venezuela or Perez Companc in Argentina is a basis
for those companies, and many like them, to expand into other EMs successfully.
Next the discussion moves from advantages that are based primarily on EM
country characteristics to advantages based on the company itself.

EM firms possess a number of firm specific or ownership advantages (ownership)

One very important characteristic of many EM firms is that they tend to be successful in
chasing the home-country diaspora across borders (e.g. Kumar and Steenkamp, 2013;
Dunning and Narula, 2004). So, it is quite common to see Hispanic/Latin American
consumers in the USA buying food products from Goya, and watching Televisa channels
on TV. The UK has countless South African pubs and shops stocking South African fare
such as biltong, Mrs Balls chutney and Pronutro. Indian consumers outside of India often
buy Basmati rice and watch Bollywood movies. Chinese consumers outside of China may
buy Guilin rice noodles as well as Huawei cell phones and Haier refrigerators.
This advantage could be considered a form of customer relationship management[5].
Ability to serve dual markets (high income and low income) is a second source of
competitive advantage often achieved by firms from EMs relative to rivals from Triad
countries. It may not seem important to firms from the USA or the EU to look for lower-
income clients as key customers for the firm’s products or services. But in EMs, where
lower-income segments may constitute three-fourths or more of the population, this
broad range of potential clients is highly attractive[6]. Companies such as Nando’s
fast-food restaurants in South Africa aim at the “C and D” income classes of consumers,
with good quality and low prices, while also serving the A and B segments of the market,
who are the more traditional upper-income groups targeted by foreign firms. Likewise,
Natura cosmetics company in Brazil has successfully designed products for both the
lower-income segments of the market, as well as for the Macy’s-type customers.
A third frequently observed competitive advantage of EMs firms, and another that
is also firm specific, is the possession of a superior distribution system in the domestic
market. That is, local firms that have grown up in the local environment often are able
 IJOEM to beat out local competitors by building more efficient and/or more extensive and/or
11,3 proprietary distribution systems for their products and services. As the winners in this
battle continue to grow, they are able to use this distribution capability to compete with
foreign rivals who enter the market as well.
The Mexican cement company, Cemex, is well known for having developed a satellite-
based (now internet-based) communication system using a global positioning system
280 (GPS) for tracking and shipping cement to customers throughout the Mexican market.
This technology-based distribution plan was far ahead of local competitors, and even
placed Cemex ahead of international rivals LaFarge and Holcim in the industry.
Another example of a distribution system managed by an EM company is that of
the Arab International Logistics company (Aramex). This express package and freight
delivery company is based in Dubai, United Arab Emirates. The domestic market is
small, though if the Arabian Peninsula is viewed as the home market, it is reasonably
large, including about 80 million inhabitants. Aramex dominates this kind of shipping
in the region today. In addition Aramex operates a network of delivery vehicles in 60
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countries served by 14,000 employees.

Rather than entering into local delivery service in the USA or EU to compete head-on
with DHL, Fedex, and UPS, Aramex has used alliances in those countries, operating
through agreements with other delivery companies there. Aramex created the Global
Distribution Alliance in which more than 100 logistics and transportation companies
offer local service to their alliance partners in over 200 countries[7].
A fourth and final firm-specific source of competitive advantage, generally not
attributed to EMs’ firms, is proprietary technology. It would be a mistake, however, to
ignore this traditional source of advantage that has been noted consistently in studies
of international competitiveness for USA, Japanese, and EU firms over the years. There
are growing exceptions among EM firms, which do indeed demonstrate the capability
of developing and implementing such technology-based advantages. The GPS-based
distribution management system of Cemex was noted above. The ability of firms such
as Huawei and ZTE from China to develop proprietary technology in telephone
switching gear, network equipment, and software has become widely recognized, as
these companies become the world leaders in this sector. China’s national oil giant
PetroChina employs more than 2,000 scientists, holds hundreds of patents, and invests
billions of dollars every year in R&D – more than any other major oil company.
In addition, we see growing numbers of firms such as Infosys from India developing
proprietary software technology. Despite these exceptions, it is true that EMs firms do
broadly tend to compete on the basis of the previously noted competitive advantages.
That is, most tend to be technology followers rather than leaders.
Finally, consider the choice by companies to make or buy production inputs or
downstream outputs and services. This idea of vertical and horizontal integration is
labeled “internalization” by Dunning.

EM firms are agile and can move from externalized to internalized and vice versa
(internalization)
Because the EM firms are generally smaller than their traditional MNE counterparts[8],
they are more likely to use and have used alliances to achieve goals of expansion to
other markets, to increase production capability, to do R&D, to gain access to overseas
distribution channels, and to carry out other costly parts of the value-added chain.
It would be very difficult and probably incorrect to argue that EM firms use more
alliances than Triad-based companies. What does appear to be a differentiator for EM
 firms is their flexibility to enter and leave businesses relative to their Triad Emerging
counterparts (Grosse, 2015; Guillen and Garcia-Canal, 2012). markets firms
Many EM MNEs operate in a range of business activities across sectors. Tata Group
operates in more than a dozen industries, with major companies in steel, autos,
chemicals, consulting, beverages, and hotels. Over time the group has entered and left
other industries as well, including insurance and airlines. The Luksic Group in Chile
has built a similar portfolio of businesses, beginning from copper mining in the 1950s 281
and extending to newspapers, beer, candies, hotels, and railroads. The group has
bought and managed the largest or second largest bank in Chile on three separate
occasions over the years, beginning with Banco O’Higgins in 1979. Along with Spanish
partner Banco Central Hispano, the group then bought controlling interest in Banco de
Santiago in 1995, and sold it all to Banco Santander in 1999. Finally, the group
purchased control of Banco de Chile in 2000, and still retains control today. These brief
examples demonstrate the diversified nature of many EM business groups and their
strategic capacity to enter and leave businesses over time (cf. Khanna and Yafeh, 2007).
Downloaded by 58.65.217.32 At 18:33 30 March 2017 (PT)

This ability to adapt to changes in the competitive or regulatory environment and to

switch industrial sectors is quite common among leading EM MNEs, from the Cisneros
Group in Venezuela that began with local transportation in Caracas and moved into
telecommunications and media, to the BarloWorld group in South Africa that began
with a Caterpillar tractor distributorship and moved into auto distributorships, and
then into steel production, consumer electronics, and even mining – recently
concentrating on vehicle dealerships and auto rentals.

EM firms and Dunning’s OLI theory

It should be evident from the three previous sections that the competitive capabilities of
EM firms can be categorized easily according to location and ownership advantages,
and perhaps also with the internalization capability just mentioned. This reasoning fits
squarely within the eclectic paradigm of John Dunning (1977, 1988). No single theory
can capture all of the important nuances of EM multinationals, but the three
dimensions of Dunning’s approach – ownership, location, and internalization – do allow
us to focus on key elements of their competitiveness as presented above. While the
sequence of presentation here implies that location advantages are more important
than ownership advantages, it is clear that a combination of advantages is usually
what enables an EM company to succeed in international competition.
The real problem with this effort to categorize EM MNEs is that they are so
heterogeneous that they cannot be differentiated from traditional MNEs in a conclusive
manner. For example, Saudi Aramco and PetroChina are just as technology-intensive
and vertically integrated as Exxon and Shell. Huawei and Baidu are no less technology
driven or market share leaders than Ericsson or Google. The average EM company in
the Fortune Global 500 is smaller than the average Triad-based company in the list –
but the EM companies are much younger than their rivals on average, and it is easy to
imagine that their size differences will fade away as the ages of the firms become more
similar. Perhaps some additional perspective can be gained by considering several
examples of large, successful EM MNEs today.

Cases of four leading EM family-based firms in the twenty-first century

Itaúsa from Brazil
The Itaúsa Group is a Brazilian conglomerate of banking and industrial businesses that
began in the 1960s as Brazil’s first investment bank, and then found itself invested in
 IJOEM industrial client companies to the extent that it became a holding company for several
11,3 of them. The resulting organization is Itaúsa, with Banco Itaú including the fairly
recently acquired Unibanco, plus three major industrial divisions: Duratec (a
manufacturer of wood panels and porcelain and metal bathroom fittings for the
construction industry); Itaútec (a manufacturer of ATMs and computer software,
mainly for bank automation) and Elekeiroz (a manufacturer of chemical products such
282 as resins for the construction industry). The Itaúsa group is 61 percent owned by the
Egydio Souza Aranha family, with the remaining shares traded on the Sao Paulo stock
exchange. The banking part of the conglomerate is 50 percent owned by Itaúsa and
50 percent by the Moreira Salles family.
Itaúsa’s internationalization has been primarily through the banking division, which
acquired banks and/or set up offices in every major Latin American country. Today
Banco Itaú is the largest bank in Latin America. The overseas operations are almost
exclusively in Latin America, with additional offices in the money centers of London and
New York. Itausa’s competitive strengths come from its “typical[9]” diversified business
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base, its large scale of operations, especially in banking, and its existing customer
relationships, especially in Brazil. Success in the large domestic market enabled Banco
Itaú to attain the scale needed to compete with the largest international banks. The bank
had total assets of US$362 billion at yearend 2014, ranking it 13th in the world.

Zhejiang Geely Holding Group Co., Ltd from China

Geely was founded by Li Shufu in 1986 as a private refrigerator manufacturing
company. Over the years he expanded into motorcycles (in 1994) when he bought a
failed state-owned motorcycle manufacturing company, and finally into vans and
automobiles several years later. The founder’s stated goal for many years has been to
position Geely as an international auto manufacturer; it remains a family-owned
business, as with many of the largest non-SOE EM companies. Because Geely was
launched in the third-tier city of Hangzhou near Shanghai, Mr Li was constrained from
expanding into Shanghai, where the government supports Shanghai Automotive, or
other first-tier cities with similar support for local companies and limits on entry by
Chinese companies from other provinces. So he looked overseas and in other non-major
Chinese markets. The company’s first step overseas was a joint venture with British
taxi manufacturer MBH in 2006. That company went bankrupt a few years later, and
Geely took over the assets and the brand name.
In 2010 Geely became the first Chinese auto company to establish a major foreign
presence. Geely purchased Volvo from the Ford Motor Company and thus acquired
both manufacturing technology and a distribution network throughout Europe and in
several other national markets. For several years now Geely has allowed the Volvo
business to operate fairly independent of the Chinese parent company, though some
Volvo cars are now assembled in China, and Geely is trying to take advantage of the
Volvo manufacturing skills for their own models. And Geely has taken limited steps to
sell Geely models overseas through Volvo dealerships.
Geely is different from the other three cases here in that it is a single-industry
business, which is much more common among Chinese multinationals (and US and UK
ones) than firms from other countries. Geely’s strengths relative to foreign MNEs include
its location in relatively low-cost China, along with its ability to achieve scale economies
by operating in the enormous Chinese market. With the acquisition of Volvo, Geely may
attain a level of technology leadership that puts it well ahead of other Chinese
automakers. This could lead the company to a position in China where domestic
 consumers perceive its quality of cars to be as good as or better than at VW and GM, thus Emerging
permitting Geely the ability to build local market share in a manner that has eluded the markets firms
other domestic manufacturers such as Shanghai Automotive and FAW. At this point
Geely is not as large as the major state-owned Chinese auto companies, with annual sales
in 2014 of US$3.5 billion; and it remains a family business of the Li Shufu family.

FEMSA from Mexico 283

FEMSA was founded in 1890 as Cerveceria Cuauhtemoc, a beer brewery based in
Monterrey, Mexico. As in many EM situations, the company found various inadequacies
in the local market for inputs into its business, so FEMSA internalized a number of other
activities including bottle-making, beer distribution, steel-making to produce beer-making
equipment, etc. The various businesses were grouped together under a holding company,
VISA, which was one of Mexico’s largest companies for several decades. In 1985 the group
bought the Moctezuma brewery, and the combined entity became Mexico’s largest beer
brewer with brands such as Dos Equis, Tecate, Indio, and Carta Blanca.
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While the beer business remained a cornerstone of FEMSA’s portfolio, the company
expanded heavily into soft drinks, forming a joint venture with Coca-Cola in 1991 and
later acquiring other Coca-Cola bottlers throughout Latin America to become the
largest franchisee worldwide. In 2010 the entire beer business was sold to Heineken in
exchange for 20 percent of Heineken’s shares and two seats on the Heineken board.
So today FEMSA is a portfolio investor in the beer business, and a major Coca-Cola
franchisee. In addition the group launched a convenience store business, OXXO, in
1977, and by 2014 had more than 11,000 stores in Mexico and Colombia.
FEMSA is a regional multinational, with a dominant position through Latin
America as a Coca-Cola franchisee and a growing international presence in convenience
stores with OXXO. The beer business is an asset, which potentially could be built up as
an operating activity if FEMSA were to purchase a controlling stake in Heineken.
The company’s real strengths are in their established cola distribution network in Latin
America and their customer relationships with Heineken and Coca-Cola as well as with
retail beverage clients in the region. FEMSA today operates completely at the
downstream end of the value-added chain, despite the company’s history as a brewer at
the upstream end of that business. The company has very clearly demonstrated an
ability to adapt to changing business and economic conditions over the years, and this
flexibility may be its single biggest competitive advantage. FEMSA group sales in 2014
were US$16.7 billion. The company is controlled by a trust in the hands of the Garza
Laguera family, holding 75 percent of voting shares, with the remaining 25 percent of
total shares traded on the Mexican and New York stock exchanges.

Wipro from India

The major business process outsourcing company, Wipro, was born as the Western India
Vegetable Products company, a vegetable oil manufacturer, near Bombay in 1945. When
the reins were passed by founder Mohamed Premji to the second generation, his son
began moving the company into new businesses, including information technology
among others. This direction began with the sale of computer software and PCs in the
1980s. At the same time, Wipro entered into manufacturing of soap, industrial hydraulic
cylinders and even medical diagnostic equipment (in a joint venture with GE).
By the beginning of the twenty-first century, Wipro had concentrated its efforts
more heavily in the IT arena, with production of PCs, internet service provision (jointly
with KPN from the Netherlands), and IT outsourcing (jointly with KPMG Consulting).
 IJOEM In 2012 the company divided its businesses into Wipro Enterprises, which holds the
11,3 various non-IT manufacturing entities, and Wipro Ltd for IT outsourcing and some IT
manufacturing. Since that time Wipro has become the fourth largest business process
outsourcing company in the world, after IBM, Tata Consultancy Services, and Infosys.
In comparison with IBM, Wipro is able to offer lower-cost business process services,
due to its base in India. Relative to TCS and Infosys, Wipro is essentially a head-to-head
284 competitor, with a stock of existing client relationships that enable Wipro to maintain a
large volume of sales and thus economies of scale. Wipro annual sales for 2014 were US
$8 billion, of which approximately 10 percent were in the non-IT businesses.
The company is quoted on the Bombay Stock Exchange and the NASDAQ, but
controlling (75 percent) ownership is held by the Azim Premji family.
These four case descriptions demonstrate some of the variety of EM MNEs in the
early twenty-first century. They do not, however, reflect a “typical” EM multinational.
If sales are a measure of leadership among EM firms, then the largest 50 multinationals
are almost all state-owned oil companies and banks[10]. If Chinese companies and
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SOEs are excepted, the next level of large MNEs from EMs are almost always family-
based groups, often diversified into multiple industry sectors. And if we concentrate on
the four examples here, their competitive strengths range from advantages based on
the country of origin, to customer relationship management, to the ability to be flexible
and move across industries on a repeated basis.

Conclusions
It is extremely clear that one size does not fit all. EM MNEs are exceedingly varied,
from SOEs to family based, diversified business groups. The largest Chinese firms tend
to be government-owned and focussed on a single-industry sector, while the Latin
American and Southeast Asian firms tend to be multi-sector, family business groups.
There is one clear bias in the perspective offered here, namely, the survivorship bias.
That is, the companies discussed above are ones that have survived competition in
their home markets and abroad, and thus are success stories. There are many, many
companies that followed similar strategies and did not survive, for various reasons, so
we cannot be overly emphatic about the conditions and characteristics that led to these
successes. Good management and some element of luck[11] surely contributed to
these success stories – and likely the company and country characteristics that have
been identified here also contributed to these successes.
Based on the historical point made at the outset, we will continue to see markets and
companies emerge, and some of them may be economic/business leaders for extended
periods of time. None of the advantages discussed here are permanent, and the key
aspects of flexibility (or agility) and diversification are highlights that seem to have
served many emerging companies well over the years.

Future research areas

This analysis has not resolved the question of whether new theories are needed to
understand EM MNEs, or if existing theories are adequate. Given that Dunning’s eclectic
theory is a “kitchen sink” theory, where everything is thrown in, it can encompass EM
multinationals very easily. The question is whether or not this perspective illuminates the
characteristics and strategies of EM MNEs usefully for analysts, and if it is sufficient for
strategy- and policy-makers for their decision making. I find this OLI theory to be quite
useful in thinking about EMs companies, but I found that working in several of them
that a number of additional elements were key considerations. What are the main
 competitors doing? How much risk is the firm willing to accept in moving into new Emerging
products or new markets? Does the controlling family want to build a global empire or markets firms
remain fairly close to home? Do home and host country regulatory issues largely
constrain key decisions? There is plenty of room for new theorizing about the drivers of
these companies’ activities and successes.
The differences among successful EM multinationals are just as great as the
differences between EMs firms and Triad firms. The largest Chinese firms tend to be 285
state-owned, and the largest Indian firms tend to be family based. The largest non-oil
firms from EMs other than China tend to be more diversified across sectors than US
companies of similar size. The largest firms from smaller EMs are usually much
smaller than Fortune 500 size – so how should we think about them and their
strategies? Overall, EM-based multinationals are quite varied, so coming up with a
conceptual framework to explain their characteristics better than existing theories
poses a big challenge – which offers an opportunity to new analysts in the field.
I recommend that more attention be paid to the issue of diversification across
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industry sectors and to entry and exit from businesses over time. Each of these
strategies has appeared in many cases of successful EM MNEs, and more thinking
about why these strategies seem to work would be very valuable. I also favor a look at
the fit of these companies into global value-added chains (or production networks), to
help understand their current locations as well as opportunities for extending into other
activities or locations. For example, FEMSA very likely could move back upstream in
the beverage business; Itaúsa could look into producing additional products and
services used in the banking industry; and Wipro could consider moving into further
back-office activities to support their current business process outsourcing services.
And in each case the company can look for additional geographical locations to serve or
from which to obtain its inputs. By placing a company into the overall value chain in
which it participates, the analyst (or manager) can see more clearly the opportunities
for expansion and the threats to future competitiveness.
And as always, more empirical evidence that can be analyzed is desirable. Comparing
Indian with South African MNEs will be very instructive for identifying characteristics
that may work in one context but not the other; similarly comparing Chinese MNEs with
those from any other EM will also help us to better understand the particular strengths of
the Chinese firms, and also of the Chinese economic system. There is plenty of room for
empirical as well as conceptual advances in our understanding of EM companies.

Notes
1. Of course the measure of economic leadership could be per capita income, or an index of
well-being, or some other indicator. This point is not important here, since we really just
want to show that companies from new countries regularly enter the world economy and
displace ones that were leaders before. It should also be noted that the “countries” in the list
include names that did not exist in most cases until the seventeenth century, though
Maddison’s measures attempt to count the income generated in those parts of the world that
later became countries.
2. The Triad refers to the USA/Canada, the European Union, and Japan plus Australia and
New Zealand. These are the most-developed countries in the world. A similar grouping are
the members of the Organization for Economic Cooperation and Development (OECD).
3. The Big Mac index for 2000-date is available from The Economist at the website: www.
economist.com/content/big-mac-index
 IJOEM 4. Of course companies from the country of origin of the language (e.g. UK, France, Spain) also
have this advantage.
11,3
5. Contractor (2013) looks at the disaporas of overseas Indians, Chinese, Mexicans, etc., as
sources of managers to work in overseas affiliates of EM MNEs, and as sources of technical
knowledge for use in these same companies. A video describing Chinese company sales
expansion that aims at diapora members is: www.wsj.com/video/taking-chinese-brands-to-
286 a-global-stage/51B2D05F-625F-4BBD-AFE3-D45433098C51.html. Note that while the
advantage targets diasporas from home countries generally, there are only a few
companies from those countries of origin that gain the diaspora advantage. So this is
considered a firm-specific advantage, rather than a country-specific one.
6. This focus on low-income consumers was first raised by Prahalad and Hart (2002) article.
7. Aramex is following a clear strategy to build its network of delivery infrastructure in the
Middle East, Africa, and Asia rather than in the traditional Triad countries. Aramex
acquired Mail Call Couriers in Australia, Berco Express in South Africa, Avanti Couriers in
Malaysia, and OneWorld Courier in Kenya in the past five years. At the same time
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the company has proceeded to set up alliances with additional local delivery companies in
other emerging markets and to establish a franchising model to include locally owned
delivery companies under the Aramex brand name. The company operates a very
decentralized management structure, with local affiliates in each country maintaining a
large degree of freedom in their activities, linked by the global information network to
coordinate shipments.
8. This is an overstatement, since by 2014 one-fourth of the companies in the Fortune Global 500
were from emerging markets – and 95 of them were from China. Within another decade it is
very likely that half of the Fortune Global 500 companies will be from emerging markets.
9. Typical emerging market MNEs are diversified into more than one industrial sector.
However, Chinese MNEs tend to be much more focused, similar to US-based MNEs – so they
are the exception in the emerging market context.
10. See Grosse (2015), chapter 9.
11. For example, the Mexican cement company Cemex only exists today because it was “too big
to fail” in 2008 when the debt crisis hit, and its bank lenders decided to accept a
restructuring of debt rather than forcing the company into bankruptcy. Cemex had acquired
Rinker Cement in 2007 for approximately US$15 billion, almost all financed by bank loans.
When the global financial crisis hit, Rinker’s sales plummeted, and Cemex was left with far
less income than needed to meet debt servicing requirements. The company negotiated with
lenders to stretch out its interest and principal payments, thus avoiding bankruptcy – but
only because the lenders would have faced a much worse alternative if they had forced
Cemex into bankruptcy. Cemex was lucky. See, for example, Expansión, December 6, 2009,
pp. 30-38, available at: www.cnnexpansion.com/expansion/2009/11/12/Asi-lo-hice

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in Ramamurti, R. and Singh, J.V. (Eds), Emerging Multinationals in Emerging Markets,
Chapter 13, Cambridge University Press, Cambridge, pp. 399-426.
Ramamurti, R. (2012), “What is really different about emerging market multinationals?”, Global
Strategy Journal, Vol. 2 No. 1, pp. 41-47.
Wells, L.T. Jr (1983), Third World Multinationals: The Rise of Foreign Investments from
Developing Countries, MIT Press, Cambridge, MA.

Corresponding author
Robert Grosse can be contacted at: grosser@global.t-bird.edu

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