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GROWING BY LEAPS AND BOUNDS
The Rise of Emerging
Market Multinationals
By MAURO F. GUILLÉN and ESTEBAN GARCÍA-CANAL
P
erhaps one of the most far-reaching
developments of the past 20 years has
to do with the rise of emerging econo-
mies, which once represented no more
than 15 percent of the global economy and now
have come to account for nearly half of all eco-
nomic activity. These economies are growing fast
and are located around the world, in Africa, South
and East Asia, Latin America and the Middle East.
Some have become major exporters of manufac-
tured goods, while others sell agricultural, energy
or mineral commodities.
Emerging countries have also become ma-
jor sources of foreign direct investment (FDI)
– that is, companies based in emerging econo-
mies have expanded throughout the world,
making acquisitions and setting up manufac-
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turing and distribution operations, not just
in other emerging economies and developing
countries, but in developed ones as well.
Overall, emerging market multinational
companies (MNCs) are still few and far be-
tween. As of the end of 2009, they accounted
for around 14 percent of all cumulative FDI in
the world, up from 7 percent in 1990.
However, the rate at which they are catching
up is very fast: In 2009, they generated around a
quarter of all new FDI in the world, a proportion
that is predicted to surpass 50 percent within a
few years.
The list of leading MNCs from emerging
economies is considerable. Argentina’s Arcor
is the largest candy company in the world, and
Tenaris is the largest maker of seamless steel
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 REALIZING
EMERGING
REALITIES The Rise of Emerging Market Multinationals

tubes. Mexico’s Bimbo is the largest bakery. lation to the home countries of other major
Brazil’s JBS is the biggest meat company, while MNCs operating in the world today.
Embraer is the largest regional jet and execu- It’s also worth noting that emerging market
tive jet manufacturer. South Korea’s Samsung is MNCs were born in a peculiar context – one
the largest consumer electronics firm. China’s that has conditioned their development. Their
BYD is the leading manufacturer of nickel-cad- markets for labor, capital, intermediate goods,
mium batteries. And the list goes on. and final goods and services are incomplete or
Over the next few years, several emerging imperfect. There is some policy uncertainty,
market firms are poised to become No. 1 in their and their dispute resolution systems and le-
respective industries: Cemex, from Mexico, in gal frameworks are quite unpredictable. Their
cement; Acer, from Taiwan, in personal com- governments tend to intervene heavily in the
puters; TCS and Wipro, from India, in IT ser- economy, and in some industries there is con-
vices and outsourcing; Vale, from Brazil, in min- siderable political interference as well. Such
ing; and Sinovel, from China, in wind turbines, characteristics are reflected in the structure
among others. and behavior of these MNCs, as we will explore
Within two decades, we predict that emerg- in this article.
ing market MNCs will account for half of the This article is based on extensive research
world’s largest 500 firms, up from 106 at the we have conducted on MNCs in Asia, North
present time. and Latin America, the Middle East and West-
There are two important reasons for this ern Europe, including our examination of the
trend. First, emerging economies’ higher international expansion of Spanish firms over
growth rates see them amassing large trade the past 25 years, which formed the basis of our
surpluses, which encourages asset acquisition recent book, The New Multinationals: Spanish
in foreign countries. Firms in a Global Context. We’ve observed that
Second, emerging economies are develop- a new breed of MNC is reshaping competition
ing robust internal consumption markets, mak- in global industries. Let’s examine the reasons
ing local firms bigger and savvier at marketing behind this phenomenon.
themselves on a global scale.
This virtuous circle will contribute to mak- Waves of Expansion
ing the global economy more multipolar, more The modern MNC has its origins in the second
competitive and certainly more diverse in re- Industrial Revolution of the late 19th century,
which launched such technology-intensive in-
dustries as chemicals, plastics, specialty metals
EXECUTIVE SUMMARY and automobiles. These were capital-intensive
sectors in which knowledge and brand repu-
The proliferation of multi- advantages they enjoy, and tation played an increasingly important role.
national companies from how they have at times sub- North American, British and continental Euro-
emerging countries has taken verted conventional theories pean firms expanded around the world on the
observers, policy makers and of growth. basis of intangible assets such as technology,
scholars by surprise. The Managers of traditional, brands and managerial expertise.
authors’ research on these established MNCs can learn During the 1920s, consumer goods indus-
up-and-coming MNCs reveals from their example by adopt- tries such as food processing, tobacco, beverag-
several crucial features that ing more network-based es and personal care items also developed and
distinguish them from their structures and innovative or- spawned a large number of MNCs. The climax
developed country counter- ganizational forms. They also of the worldwide expansion of European and
parts, namely related to their have to think about sources North American MNCs was reached during the
speed of internationalization, of competitive strength other 1950s and ’60s, as trade and investment barriers
competitive (dis)advantages, than technology and brands, gradually fell around the world.
political capabilities, expan- especially in the areas of While there were significant variations in
sion path, preferred entry execution and political skills terms of strategy and structure among North
mode and organizational – because the new breed of American, European and Japanese MNCs, firms
adaptability. Exploring these MNC is fast reshaping global expanding from richer and technologically ad-
factors reveals some of the competition. vanced countries tended to share a core set of

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 REALIZING
EMERGING
REALITIES The Rise of Emerging Market Multinationals
Emerging market MNCs owe their remarkable rise
to a combination of two key factors: imitation of
established MNCs; and innovation, in response to
their peculiar characteristics.
features. Chief among them were their techno-
logical, marketing and managerial strengths,
which enabled them to overcome the so-called
“liability of foreignness” in a variety of markets.
For the most part, they invested in wholly or
majority owned subsidiaries. They transferred
technology, products and knowledge from
headquarters to far-flung operations around
the globe, relying on elaborate bureaucratic and
financial controls.
This state of affairs was prevalent until
the 1990s, and essentially meant that North
American, European and Japanese firms came
to dominate global industries.
Beginning in the 1990s, new sets of compa-
nies started to make headlines for their global
expansion. They included manufacturing firms
from Taiwan and South Korea, and infrastruc-
ture and financial services companies from Por-
tugal and Spain. Within a few years, companies
from Brazil, Chile, China, Egypt, India, Indo-
nesia, Mexico, Nigeria, Thailand, Turkey, the
United Arab Emirates and Venezuela, among
others, had joined this trend.
These new MNCs operate internationally
using multiple modes ranging from alliances
and joint ventures to wholly owned subsid-
iaries. Some of them are small and product
focused, while others are large and diversified
across many industries.
Research on the phenomenon has referred
to them in a variety of ways, including “Third
World multinationals,” “latecomer firms,” “un-
conventional multinationals,” “challengers” or
“emerging multinationals.”
While they may not possess the most so-
phisticated technological or marketing skills
in their respective industries, they have ex-
panded around the world in innovative ways.
They have become key actors in FDI and
cross-border acquisitions.
The proliferation of the new MNCs has
taken observers, policy makers and scholars by
surprise. Just a decade ago, many of these firms
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Apr 2021.
were marginal competitors; today they are chal-
lenging some of the world’s most accomplished
and established MNCs in a wide variety of in-
dustries and markets.
The unexpected rise of emerging market
MNCs begs three fundamental questions.
First, do these firms share some common
features that distinguish them from the tra-
ditional, largely North American model of the
multinational firm?
Second, what advantages have made it pos-
sible for them to operate and compete, not
only in host countries at the same or lower
level of economic development, but also in the
richest economies?
Third, how have they been able to expand
abroad at such dizzying speed, in defiance of
the conventional wisdom about the virtues
of a staged, incremental approach to interna-
tional expansion?
Six Distinguishing Features
Emerging market MNCs owe their remarkable
rise to a combination of two key factors: imita-
tion of established MNCs, which they have em-
ulated strategically and organizationally; and
innovation, in response to the peculiar charac-
teristics of emerging and developing countries.
This latter factor is extremely relevant.
Emerging market MNCs originate from coun-
tries with institutional environments that are,
by definition, less defined and weaker than
more developed contexts. This imposes some
additional challenges and constraints, requir-
ing that they come up with more imaginative
solutions to tackle them. It also frees them from
some of the stricter legal regimes concerning
property rights, for example, which might hold
others back from growing quite so fast.
Our research on emerging market MNCs
has revealed several crucial features that dis-
tinguish them from their predecessors and con-
temporary counterparts (Exhibit 1 provides a
summary). Exploring these reveals some of the
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 REALIZING
EMERGING
REALITIES The Rise of Emerging Market Multinationals

advantages they enjoy, and how they have sub- rent international business environment.
verted conventional theories of growth.
2. COMPETITIVE (DIS)ADVANTAGES. A second dis-
1. SPEED OF INTERNATIONALIZATION. Twenty years tinguishing feature of emerging market MNCs
ago, companies such as Vale, Cemex and Lenovo is that they all, without exception, have had to
were mostly domestic firms; nowadays, they op- deal with the liability of being latecomers, and
erate in dozens of countries, and are among the the competitive disadvantage that this invari-
Top 3 firms in their respective industries of min- ably entails. Established MNCs from the most
ing, cement and personal computers. advanced countries generally have the resources
This reflects the first way in which emerg- and capabilities they desire in-house, whereas
ing market MNCs are distinctive: the speed at emerging market MNCs must work harder to ob-
which they have internationalized. The pace at tain and upgrade their resources and capabilities.
which they are closing the gap with their most Constantly having to play catch-up and close the
advanced counterparts from North America, gap with their developed country counterparts
Europe and Japan is accelerating. subsequently conditions their approach to in-
It’s no coincidence that this is happening ternational expansion.
during a time of intense market globalization.
Although local differences still matter, achiev- 3. POLITICAL CAPABILITIES. Having said that, al-
ing global reach and global scale have become though their marketing and technological skills
more important than ever, and emerging mar- and resources may be weaker, emerging market
ket MNCs know this better than most. MNCs tend to possess much stronger political
Once they’ve achieved a certain degree of capabilities, giving them a decided advantage
success at home, the main way for them to go to over better endowed MNCs. Emerging market
the next level, in terms of expanding their capa- MNCs have learned how to deal with discretion-
bilities and market reach, is to go global – prefer- ary and unstable governments in their home
ably sooner rather than later. countries. They know how to operate in heav-
Ironically, the meager international pres- ily regulated environments, long before they
ence they’ve had up until recently has actually were deregulated. This makes them better pre-
worked in their favor, allowing them to adopt pared than traditional MNCs to succeed in for-
strategies and organizational structures that eign countries characterized by weak or rapidly
now happen to be most appropriate to the cur- changing institutional environments.
Considering the high growth rates and pe-
culiar institutional environments of these fast-
ABOUT THE AUTHORS evolving countries, political capabilities have
proved especially valuable, not only for navigat-
Mauro F. Guillén is the director Esteban García-Canal is a ing these tricky environments, but when mov-
of the Joseph H. Lauder professor of organizational ing into advanced economies as well. Having
Institute at Penn. He holds the management at the University mastered the emerging market environment,
Dr. Felix Zandman Endowed of Oviedo. His research making the leap to the more stable and straight-
Professorship in International interests include strategic forward business environments of Europe and
Management at the Wharton alliances, organizational design, North America can feel much less traumatic
School and a secondary international strategy, as well than going in the opposite direction. Conse-
appointment as professor of as emerging market MNCs. quently, they have quickly managed to boost
sociology at the University of His work has appeared in the their presence in a variety of infrastructure
Pennsylvania. He also serves on Strategic Management Journal, industries, ranging from water and electricity
the World Economic Forum’s Academy of Management generation and distribution, to telecommuni-
Global Agenda Council on Perspectives, Research Policy, cations and the operation of airports, ports and
Emerging Multinationals. He Journal of Institutional and toll highways.
received a Ph.D. in sociology Theoretical Economics and
from Yale University and a Harvard Business Review, among 4. EXPANSION PATH. These features, taken to-
doctorate in political economy others. He recently coauthored gether, point to another key characteristic of
from the University of Oviedo The New Multinationals with emerging market MNCs. As they expand, they
in his native Spain. Mauro F. Guillén. run up against a significant dilemma: balancing

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 REALIZING
EMERGING
REALITIES The Rise of Emerging Market Multinationals

EXHIBIT 1
The Keys to Their Climb
EMERGING MARKET MNCs DIFFER IN SEVERAL CRUCIAL
WAYS FROM THEIR PREDECESSORS.

FEATURE EMERGING MARKET MNCs TRADITIONAL MNCs

1 Speed of Internationalization Q Accelerated Q Gradual

Strong: required resources

2
Q
Competitive Advantages Q Weak: upgrading of resources required
available in-house

Strong: firms are used to unstable Weak: firms are used to stable political
3
Q Q
Political Capabilities
political environments environments

4 Expansion
Path
In search of markets Q Dual path: simultaneous entry into
developed and developing countries
Q Single path: from less to more distant
countries
In search of Q Into less developed countries as home Q Into less developed countries
lower costs country development raises production
costs
In search of Q Into more developed countries Q Into similarly developed countries
strategic assets

External growth: alliances, joint Internal growth: wholly owned

5
Q Q
Preferred Entry Mode
ventures, acquisitions subsidiaries

Organizational High, because of their recent and Low, because of their ingrained
6
Q Q

Adaptability relatively limited international structures and cultures

presence, which enables them to adapt
technologies to small-scale markets,
excel at project execution and adopt
new technology quickly

their desire for global reach with the previously
mentioned need to upgrade their capabilities as
they evolve. Some may prioritize acquiring global
market reach over upgrading their capabilities, as
Hyundai did in its early expansion. Others may
choose to take the opposite approach, as in the
case of Tata Motors. Few manage to do both at
the same time.
This tension – between gaining global reach
versus upgrading capabilities – forces many
emerging market MNCs to enter developed
and developing countries simultaneously right
at the beginning of their international expan-
sion efforts.
As their homegrown competitive advan-
tages can be readily applied to other emerging
or developing countries, they expand there
naturally. This helps them to grow in size, gain
operational experience and generate profits.
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Venturing into more developed countries,
meanwhile, exposes them to cutting-edge mar-
ket demand, which pushes them to upgrade or
develop their capabilities further. As such, they
concentrate on where they can best achieve
strategic assets, limiting their presence in de-
veloped countries to a few locations where they
already have a partner or where they have ac-
quired a local firm. This serves as a useful learn-
ing experience for them, and as they catch up to
established MNCs, they can shift more invest-
ment to these countries.
5. PREFERRED ENTRY MODE. A further feature of
emerging market MNCs is their preference for
entry modes based on external growth. They use
global alliances and acquisitions to overcome the
“liability of foreignness” in the partner or target
country, as well as gain access to those countries’
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 REALIZING
EMERGING
REALITIES The Rise of Emerging Market Multinationals

competitive advantages, with the aim of upgrad-
ing their own resources and capabilities.
Some emerging market MNCs, like Acer,
built their early expansion on a network of al-
liances and joint ventures with a different local
partner in nearly 20 different markets. Other
emerging market MNCs used their home mar-
ket position to ease the entry of global partners
in exchange for equal access to the partners’
home markets and technology, as in the case of
Lenovo and IBM.
Besides the size of the domestic market,
the stronger the position of emerging market
MNCs in it, the greater the bargaining power of
the firm to enter into these alliances. China’s
Haier, Mexico’s Mabe and Turkey’s Arçelik
in the domestic appliances market illustrate
this point. Their international expansion was
boosted by alliances with world leaders, which
allowed them to upgrade their technological
competences. In the case of some Chinese
firms, their privileged access to financial re-
sources – because of government subsidies or
funding constraints in capital markets, for ex-
ample – facilitated certain acquisitions, which,
in turn, led to capability upgrading processes.
6. ORGANIZATIONAL ADAPTABILITY. Firms need
to be able to implement organizational inno-
vations to adapt to the requirements of glo-
EXHIBIT 2
Learning From
Emerging Markets
These behavior patterns can be adopted by others.
Q Build vertical and Q Use alliances, joint
horizontal networks with ventures and acquisitions
other firms to enter foreign to expand faster and
markets, deepen your make up for competitive
knowledge and gain access shortcomings.
to competitive resources
that the firm lacks. Q Actively manage
relationships with local
Q Use vertical integration officials and forge strong
to operate efficiently on a relationships with relevant
global scale and become stakeholders in the
the world leader in your community.
industry.
balization. The final feature of emerging mar-
ket MNCs is that they enjoy more freedom in
this regard, because they do not face the con-
straints typical of established MNCs.
Many of the major global players with
long business track records from the devel-
oped economies suffer from inertia and path
dependence, due to their deeply ingrained,
even fossilized values, corporate cultures and
organizational structures. Emerging market
MNCs, on the other hand, particularly those
from Asia, have adopted a number of inno-
vative organizational forms suited to their
needs, including networked and decentral-
ized structures.
Such flexibility has enabled emerging
market MNCs to innovate in novel ways.
Their ability to adapt technology to the typi-
cally smaller-scale markets of developing and
emerging economies, their cheaper labor and
imperfect input markets are all reminiscent of
the way that many well-known Latin American
MNCs grew during the 1950s and ’60s.
Emerging market MNCs are also able to
adapt their offer to appeal to a wide range of
consumers that traverse borders. Certain
“ethnic brands” – Bimbo, of Mexico, is a prime
example – appeal not only to consumers in the
home market, but also reach out to the Latino
diasporas in foreign countries, especially in
Spain and the United States.
Others exhibit an uncanny ability to take
existing products and make incremental im-
provements or develop specialized variations
for certain market niches. Acer, of Taiwan,
or Samsung, of South Korea, built their early
reputations in global markets exploiting this
advantage.
Along similar lines, emerging market MNCs
are able to borrow technology from abroad and
then reorganize and execute large-scale pro-
duction projects more efficiently, in industries
as diverse as steel, electronics, automobiles,
shipbuilding, infrastructure development and
turnkey plant construction. Hyundai, of South
Korea, and Cemex, of Mexico, are frequently
cited examples, though many other companies
from Brazil, Chile and Dubai, among others,
have likewise demonstrated a superior ability
to borrow technology and organize efficient
operations across many markets and indus-
tries, including construction, electricity, port
operation and telecommunications.

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 REALIZING
EMERGING
REALITIES The Rise of Emerging Market Multinationals

The adoption of more network-based structures

and innovative organizational forms requires a
special type of manager adept at coordinating these
dynamic and accelerated activities.

Time to Change Up from developing and emerging countries face

Traditional, established MNCs have much to lower hurdles when it comes to adopting new
learn from their emerging market counterparts technology than their more established coun-
(see Exhibit 2). Indeed, many have adopted terparts in developed countries. This makes
some of their behavior patterns. Increased them even more formidable competitors.
competitive pressure from emerging market We’re at a watershed moment. The con-
MNCs – in industries such as cement, steel, tinued growth of emerging economies will go
electrical appliances, construction, banking hand in hand with the rise of emerging mar-
and infrastructure – has, for example, prompt- ket MNCs. While we should not expect all of
ed many North American and European firms to them to be successful, we will surely see more
become much less reliant on traditional prod- of them rising in the rankings of the world’s
uct differentiation strategies and vertically largest firms.
integrated structures. To some extent, the rise
of networked organizations and the extensive
shift toward outsourcing represent competi-
tive responses to the challenges facing estab-
lished MNCs.
The adoption of more network-based struc-
tures and innovative organizational forms
requires a special type of manager adept at
coordinating these dynamic and accelerated
activities. Certain managerial skills become
critical, including the ability to manage mergers
and acquisitions, as well as strategic alliances,
effectively. Managers need to know the ideal or-
ganizational combinations that will extract the
most value, yield the most learning and grant
the most access to vital resources, which will
ultimately increase the international competi- TO KNOW MORE
tiveness of the firm.
They also need to become nimbler and more Q Guillén, M.F. and E. García-Canal. The New
flexible in order to take full advantage of new Multinationals: Spanish Firms in a Global Context.
technology. They have to think about sources Cambridge and New York: Cambridge University
of competitive strength other than technology Press, 2010. Spanish translation: Ariel, 2010.
and brands, especially in the areas of execution
and political skills. Q Guillén, M.F. and E. García-Canal. “How to
Today, the diffusion of new technology and Conquer New Markets With Old Skills.” Harvard
know-how happens so fast that those who pio- Business Review 88, no. 11 (2010): 118-22.
neer them have only a temporary advantage,
making the challenges facing traditional, es- Q Guillén, M.F. and E. García-Canal. “The American
tablished MNCs that much more urgent. First Model of the Multinational Firm and the New Mul-
mover advantages are not as sustainable as they tinationals From Emerging Economies.” Academy
once were. of Management Perspectives 23, no. 2. (2009):
Moreover, research has shown that firms 23-35.

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