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7 - Value-chain configurations of Indian EMNEs

Published online by Cambridge University Press:  05 April 2013

Peter J. Williamson
Affiliation:
Judge Business School, Cambridge
Ravi Ramamurti
Affiliation:
Northeastern University, Boston
Afonso Fleury
Affiliation:
University of Sao Paulo
Maria Tereza Leme Fleury
Affiliation:
Fundação Getulio Vargas, São Paulo
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Summary

Approaches to explaining the internationalisation of emerging market MNEs and the relevance of value chains

What motivates emerging market firms to venture abroad? A leading approach, the ownership location internalisation (OLI) theory (Dunning, 1988), explains the internationalisation activity of multinational corporations (MNCs) as their attempts to extend their ownership advantages (e.g. proprietary access to a superior production technology or a valuable brand) to overseas markets by exploiting location advantages (locating abroad to access low cost inputs or better serve local markets) and internalising the efficiency gains from economies of scale and scope by integrating the firm’s activities across borders. In short, FDI enables firms to exploit their existing firm-specific assets.

This explanation has limited traction when analysing the internationalisation activity of MNEs from emerging markets (EMs). As latecomers, multinational enterprises from EMs are often more competitive in terms of cost of labour and natural resources compared to mature MNEs from developed markets (Ramamurthi and Singh, 2009a). However, many of these companies lack global experience and so have weak technological and innovation capabilities, have inexperienced managerial and professional expertise and show poor governance and accountability by international standards (Luo and Tung, 2007). Furthermore, to the extent that the cost advantages are generic to all suppliers from other EMs, we can expect such advantages to dissipate over time as the global market shares to EM firms expand and bid up wages in these economies. Thus, Rugman and Li (2007) have questioned the long-term sustainability of such internationalisation based on cost advantages for Chinese firms in the absence of clear ownership advantages.

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Publisher: Cambridge University Press
Print publication year: 2013

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