INTRODUCTION

In the previous chapters we analyzed the challenges that accompany the decisions of EMNCs to establish operations in foreign countries. We now turn our attention to the operational difficulties that occur once an overseas subsidiary has been established. Whereas much attention has been devoted to the initial challenges of expanding abroad, it is less common to give adequate consideration to postinvestment operational issues, which can lead to unexpected problems and ultimately contribute to poor subsidiary performance. This lapse of attention may occur because managers are overfocused on completing a deal quickly and secretly, particularly in the case of cross-border acquisitions. In the case of joint ventures and other strategic alliances, difficulties can also arise in working with partners that seemed like good fits on the basis of their competencies but have incompatible organizational cultures. The lack of experience in operating in different types of environments, which is often the case for managers of EMNCs, undoubtedly contributes to these difficulties as well.

The liability of foreignness, which we discussed in detail in Chapter 4, can create difficulties for firms across multiple aspects of their operations. For EMNCs, these difficulties can be exacerbated due to characteristics associated with their home countries and their collective stage of development within their home markets. Broadly speaking, these difficulties involve identifying the relationship between the EMNC and its customers in the local environment, identifying the advantage of the local operation in comparison to competitors, strengthening sources of competitive advantage, protecting them from mutation and substitution, and identifying new sources of competitive advantage. These issues also involve identifying and meeting institutional and social expectations in the host country.

While these general operational difficulties involve a wide range of activities, based on our examination of actual issues faced by EMNCs, the most common difficulties fall into two main categories: limitations in experience in managing overseas operations and reputational issues. While these difficulties could apply to some degree to any newly internationalizing company, EMNCs are particularly vulnerable due to their lower levels of international experience and sophisticated home-country capabilities when expanding abroad. For example, despite their abundant labor supply, many emerging multinationals find their international growth is limited by the lack of qualified people with the necessary cross-cultural and overseas management skills.