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MNCs’ Expansion in Asian Emerging Markets 1
GROWTH STRATEGIES OF MULTINATIONAL COMPANIES IN ASIAN
EMERGING MARKETS: A Changing Perspective from Offshoring to Strategic expansion
Word Count: 10000
MNCs’ Expansion in Asian Emerging Markets 2
Executive Summary
The purpose of this report is to analyse the motivational factors that contribute to the shift of
operational activities of multinational corporations in emerging markets in Asia. Previously,
the global firms preferred to move lower cost operations to these emerging markets, which is
more like offshoring for cost savings. Even today, the organisations are offshoring their
operations to such economies so to gain cost arbitrage, but the trends have been changing
with the increase in growth of emerging economies in Asia. The global companies are
expanding their production facilities to Asia so that they can get access to entire market in the
region as well as reap the rewards of lower costs, high skilled workforce, and increased
economic growth.
The first chapter of the report will introduce the topic, followed by the second chapter – a
detailed literature review. The third chapter will then discuss the methodology used to
prepare this report. Basically, for this report, five articles and/or reports are selected which
will be analysed in chapter four so to look into opinions of different authors in regards to the
topic being discussed. The fifth chapter will the summary of the whole report, presenting a
conclusion. This report will lead to the conclusion that the multinational companies are not
only offshoring for cost saving, but strategically expanding to serve their business objectives.
Keywords: Asia, cost savings, emerging markets, globalisation, Greenfield investments, joint ventures, market entry modes, MNCs, multinational companies, offshoring, strategic expansion, strategies.
MNCs’ Expansion in Asian Emerging Markets 3
Table of Contents
Executive Summary.................................................................................................................2
List of FiguresFigure 1: GDP forecasts for BRICs...........................................................................................8Figure 2: Economic forecasts for Emerging Markets................................................................9Figure 3: Market Entry Modes.................................................................................................13Figure 4: Eagle – Emerging And Growth Leading Economies...............................................26Figure 5: Strategic Objectives for Establishing Operations in Emerging Markets.................29Figure 6: Operating model in Multinational Companies Emerging Markets..........................33Figure 7: Multinational Companies’ Strategies for Emerging Markets..................................34
1.0 Introduction1.1. Background....................................................................................................................41.2. The Research Aim..........................................................................................................41.3. Justification of the Study................................................................................................51.4. Limitation of the Study..................................................................................................51.5. Structure of the Report...................................................................................................51.6. Conclusion......................................................................................................................7
2.0 Literature Review and Discussion2.1.
Introduction...................................................................................................................72.2. Strategic Factors affecting Entry Mode Choices of Multinational Companies
in Emerging Markets – Offshoring or Strategic Expansion.............................................11
2.3. Factors Motivating Strategic Expansion of MNCs in Asian EMs..............................15
2.4. Strategic Issues faced by MNCs in EMs.....................................................................18
2.5. Gaps in Existing Literature.........................................................................................20
2.6.
Conclusion...................................................................................................................20
3.0 Methodology3.1.
Introduction.................................................................................................................213.2. Selection of
Articles....................................................................................................213.3.
Conclusion...................................................................................................................24
4.0 Analysis4.1.
Introduction.................................................................................................................25
MNCs’ Expansion in Asian Emerging Markets 4
4.2. Discussion and Analysis..............................................................................................26
4.3.
Conclusion...................................................................................................................35
5.0 Conclusion5.1.
Introduction.................................................................................................................365.2. Summary of the
Report...............................................................................................365.3. Limitation of the
Study...............................................................................................385.4. Future
Research...........................................................................................................385.5.
Conclusion...................................................................................................................38
References...............................................................................................................................39
MNCs’ Expansion in Asian Emerging Markets 5
Chapter 1: Introduction
1.1. Background
Emerging markets provide enormous opportunities for global manufacturers because
of growing segment of wealthy and sophisticated customers. Most of the multinational
manufacturing companies try to focus on manufacturing and developing the products that suit
the needs of the customer in emerging markets and can be sold at considerably lower prices.
Many global companies gain access to emerging markets by offshoring to sell their products
at lower level, and this is not enough to ensure long-term growth. These companies can
achieve success by relying on their product features and product diversification (Deloitte
Research, 2006), which implies that cost reduction is not the only motivation factor which
induces multinational companies to expand their operation to emerging market economies in
Asia. It is quite clear that companies are increasingly making efforts to internationalise
themselves by entering emerging markets as these markets are becoming the most important
factor of their global business model. Today global companies are giving extraordinary
importance to expanding in emerging market economies especially in Asia. Increase in global
companies’ presence in such economies is not only a result of their low cost strategies such as
offshoring, but forward thinking companies are going beyond that. Such companies have
become more strategic in their operations and are considering institution of core functions of
their value chains in emerging markets in Asia.
1.2. The Research Aim
This study is presented to examine the factors that motivate the strategic expansion of
multinational companies in Asian emerging market economies. The aim of study is to define
and analyze strategic factors that strongly impact the decisions of global firms in terms of
adopting offshoring activities and acquiring growth strategies to enter in emerging markets in
MNCs’ Expansion in Asian Emerging Markets 6
Asia. It helps to explore the strategic issues the internationalised companies are confronting
and examine the extent to which they are getting affected by these key threats that hinder
their entry and performance in these regions through strategic expansion. The methodology
used to conduct the research is meta-analysis of five relevant research articles to analyse as to
why strategic expansion in Asian emerging economies is more desired than offshoring by
global companies.
1.3. Justification of the Study
Despite the enormous amount of literature on Asian emerging markets and the success
factors of multinational companies in relation to emerging markets, the area of business
expansion of global companies in such economies is under researched. This study will answer
the questions as to why and how the global organisations enter and operate in Asian region.
1.4. Limitation of the Study
The topic of the study is deemed to be a common one, but the way it is analysed in the
study is a novel approach. The outcomes of the study are based on five research articles and
reports, which is a very limited approach to draw a conclusion. Finding articles for this report
was a challenging task because a few studies have highlighted the importance of strategic
expansion in Asian emerging economies and the comparative analysis of expansion with
offshoring. The opinions presented in some articles are likely to be biased, and the survey
studies depend on the views of respondents which also have an element of being biased.
1.5. The Structure of the Report
This chapter aims to provide the background of the research problem selected for
further study. The research aim is clearly stated and the structure of the entire report is
described. The limitations and justification of the study are also fore-grounded. It develops
MNCs’ Expansion in Asian Emerging Markets 7
the basis for the next chapter by illustrating the expected outcomes of the study. The second
chapter will be the literature review of the area of the discussion. There are a number of
studies which have established and structured the research questions for this report. Several
studies have been analysed and few are selected for the detailed analysis to derive conclusion
of the study. The literature review will first define as to why emerging markets in Asia are
given particular attention for multinational investments. It will then state the strategic factors
that may affect entry mode choices of multinational companies in emerging markets so that
the alternatives can be compared with the offshoring activities of global firms in emerging
economies. The factors that motivate the strategic expansion of global firms in Asia will be
discussed in next section. The further section will provide the critical issues in strategic
choices of these firms. The gaps in the existing literature will also be discussed, followed by a
concise conclusion.
The third chapter will explain the methodology of study used for this dissertation.
Five articles and survey reports are selected for detailed review. This chapter will define the
nature of those articles, their reliability and validity, and the criteria on the basis of which the
studies are chosen and analysed. One report is selected from the studies discussed in literature
review, while five are separately picked out particularly for the analysis section. The five
studies selected will be analysis in next chapter. The fourth chapter will be structured in a
way that can give the justification of the articles selected for the report and how they are
related to the topic. The articles and reports are compared to see which ones are more related
to the research aim and what factors they present to derive the desired outcome. Different
authors have used different approaches to answer a particular concern, but the underlying
reasons for those results are almost same. The last chapter will summarise the whole report
answering the research question.
MNCs’ Expansion in Asian Emerging Markets 8
1.6. Conclusion
This chapter provides the background of the topic chosen for the study and the
overview of the whole report. It is basically a start for further study and analysis as it
presented the core research problem and methodology by which the research questions will
be answered. This will give a clear direction toward the outcomes of the study. The following
chapter of critical analysis of literature review will assist in gaining rich understanding of the
multinational companies expanding in emerging markets.
Chapter 2: Literature Review
2.1. Introduction
Enormous amount of available literature shows that the traditional developed markets
of world have become increasingly saturated and competitive, which is why multinational
corporations have directed their attention toward emerging economies. The growth rate of
developed markets is forecasted to remain lower than 3% over two decades (Peters, Miller
and Kusyk, 2011). The emerging markets are considered as key locations for future growth as
they continue to grow faster than the developed world and promise to offer favourable growth
opportunities to many multinational companies. According to Kearney (2012), in the past two
decades, the world's emerging markets have become the focus of corroborated research for
many reasons. Majority of land and people constitute emerging markets which are
increasingly provided with a secure reputation as a diverse set of business, economic,
financial, cultural, social, institutional, political, and legal environments. A research study by
Zhang et al. (2007) reveals that emerging markets represent countries that are undergoing a
significant economic transformation and are home to about 80% of the world’s population.
Such economies are established as the primary destinations for exports as well as direct
investments. According to a study by Buckley and Ghauri (2004), multinational companies
MNCs’ Expansion in Asian Emerging Markets 9
focus on maximizing economies of scale and minimizing their costs so to attain efficiency in
emerging economies.
Lerner, Baes and Kilefors (2008) have identified that the fastest growing emerging
markets are BRIC countries which are Brazil, Russia, India and China. In 2008, a forecast by
Goldman Sachs indicates the cumulative GDP growth rate (at around 2% per annum) for G7
countries which are today’s largest developed economies is low as compared to the BRIC
countries. The biggest emerging market China is expected to grow at an annual growth rate of
more than 10%, followed by Indian economy which is predicted to grow by more than 8%
annually. This is the main reason as to why relative importance of such economic
powerhouses is leading to a strong transformation process. It is quite clear that the aggregate
GDP of the BRIC economies is around 20% of the combined GDP for the G7 countries
today, which is expected to reach at the same level by 2025. Unsurprisingly, BRIC’s GDP is
predicted to increase by more than double compared to that of G7 countries. Figure 1 shows
that the BRIC economies will be three times larger in four decades than the entire world’s
economy today.
Figure 1: GDP forecasts for BRICs
Source: Lerner, Baes and Kilefors, 2008
MNCs’ Expansion in Asian Emerging Markets 10
Two of these countries are included in Asian region. For instance, China, India,
Indonesia, Thailand, Bangladesh, Philippines Sri Lanka, Malaysia and Vietnam are
considered as emerging market countries in Asia.
Figure 2: Economic forecasts for Emerging Markets
Source: Sviokla and Gutstein, 2011
In a speech, the Managing Director of the IMF, Kohler (2003) has pointed out that
Asia is considered to have a potential to grow faster than any other region in the world.
Moreover, the importance of emerging market economies in Asia has been substantially
raised among many western companies because of the global financial and economic
upheaval in 2008 which affected developed countries severely, having minimal impact in
Asia. Emerging markets in Asia have been promoting their global competitiveness, lower
operational costs and sustainable growth. Therefore, when multinational companies plan to
invest across borders, emerging markets cannot be overlooked by the management (Peters,
Miller and Kusyk, 2011). Kohler (2003) points out that the global economy is subject to a
strong potential for long-term economic growth. The notion of economic globalisation has
benefited emerging market countries in Asia in many ways. Hence, further prosperity for
MNCs’ Expansion in Asian Emerging Markets 11
Asia can be assured by developing global markets. The major reason for the economic
growth is technological progress in Asia which is continuing at a rapid pace. The emerging
markets in Asia have directed toward gaining huge benefit from advanced technologies
because of their productive, efficient and increasingly skilled work force. Another reason is
the strong financial and trade connection with global partners to gain further productivity by
encouraging market expansion and division of labour. Such economies are deemed as a hub
for opportunities in the international market place and a major engine to derive growth in the
global market economy.
Financial success of a firm is linked with its investment in emerging markets, of
which evidence is recently provided by an Economist Unit survey which has been conducted
with multinational firms from developed countries. Merely 24 percent of the companies that
acquire lower that 5 percent revenue from emerging economies informed that they had been
performing well compared to their competitors. In opposition to that, the multinational firms
that had been gaining more than 5 percent revenue from emerging economies, a bit lower
than 40 percent of them believed their performance had been better than that of their peers.
According to (Cheni, 2004), the advantages global firms intend to achieve can be enjoyed by
diversification of their investment portfolio to different locations, thereby functioning better
in host countries to operate more proficiently in their home country. It had also been noticed
that emerging markets are investing in other emerging markets, which induced the foreign
direct investment. Kekic, (2011a) has argued that “the increased share of emerging markets in
outward investment is increasing the share of emerging markets in inward flows because a
disproportionate share of outward investment by emerging markets goes to other emerging
markets.” For instance, a significant share of total foreign direct investment inflows to Asian
countries consists of foreign direct investment inflows between the countries in the region.
Another research study by Kekic (2011b) has mentioned that 30% of the foreign direct
MNCs’ Expansion in Asian Emerging Markets 12
investment inflows to China were made by Hong Kong alone, and the other 10% contributed
collectively by South Korea, Singapore and Taiwan. These four countries are considered as
the biggest investing countries in Asia.
2.2. Strategic Factors affecting Entry Mode Choices of Multinational Companies in
Emerging Markets – Offshoring or Strategic Expansion
The choice of market entry mode is an essential issue in a firm’s internationalization
procedure. Identification of influencing factors in relation to firms’ entry mode choice has
been intensively studied in the extant literature. It is important to analyse what actually
determines the decision of companies whether they should opt for offshoring their operations
or acquire strategic expansion through foreign direct investment. Today the value creation
through offshoring has come forth as a famous and broadly acknowledged competitive
strategy for multinational companies in several industries. Companies, particularly, in
developed economies are seeking for exploiting opportunities that are identified offshore with
the objective of surviving in both inland and international markets, which has been a major
focus and pressure of globalization. Using international Offshoring Research Network
project’s survey data, Lewin, Massini and Peeters (2009) have empirically studied and
highlighted the causal factors of companies’ choices for offshoring innovation projects. The
authors have figured out how the probability of a firm going offshore is influenced by
knowledge, experience and deliberation of company management, and environmental
elements. The findings of the research have suggested that offshoring innovation activities
and decisions have been necessarily undertaken due to the increasing shortfall of technical
and scientific skills, and qualified and competent personnel in the US. It is evident that
offshoring may be chosen for various forms of cost savings, but labour is not much
importantly considered as the way of cost saving.
MNCs’ Expansion in Asian Emerging Markets 13
While offshoring has been viewed as a competitive strategy, emerging market
economies are considered to be best and increasingly appealing locations for innovation
offshoring by multinational companies. Asia has been emerging as an innovation offshoring
location for over the past decade. Lewin, Massini and Peeters (2009) have suggested that
internationalisation of corporations for technical and knowledge workforce and display of
intellectual penetration in organisational innovation management have been the explanatory
factors for offshoring innovation activities. At the vanguard of this orientation course of
innovation offshoring is the US firms, but now Asian governments and corporations have
been participating in the trend as advocators or supporters, and roots of innovation. Apart
from offshoring, exporting to emerging countries is considered as the essence of
globalisation, because of the growing opportunities of gaining market share in these
economies. Gao et al (2010) have examined different views of strategy determinants, and put
a structured approach in order to enquire as to what factors determine the export intensity and
also propensity. The authors have incorporated different resource-based, institution-based and
industry-based views for their analysis of the results of companies’ export behaviours and
their performance. The findings of the study reveal that export behaviours of the international
companies are significantly impacted by the institutional environment without the influences
of the resourcefulness of the companies and various industry elements. Moreover, the
resourcefulness of the companies creates impacts on their export behaviours in terms of
differentiation approaches. An important thing to note is that the companies cannot really get
benefits of exporting, which do not adequately own competencies and the ones which
compete on the basis of cost leadership strategic moves.
Apart from offshoring, a firm can enter an emerging market by adopting different
strategies depending on the internal and external environment of the firm. Market penetration,
market development, product development and diversification are key approaches that are
MNCs’ Expansion in Asian Emerging Markets 14
usually utilised by most companies when investing in emerging market economies. The
multinational firms can choose an emerging market for export of their products and get
advantages of ownership and control through licensing, joint ventures, mergers &
acquisitions, and in some cases, franchising (Growing Your Business - Growth & Expansion
Strategies, 2011).
Figure 3: Market Entry Modes
Source: Johnson and Turner, 2003
Meyer et al (2009) have argued that joint venture strategies can be enforced in a
lighter institutional model to approach to a number of resources. For a firmer institutional
model, multinational firm may not opt for joint ventures, but rather adopt acquisition
strategies that can play a more significant role to reach or gain access to the intangible
resources that are implanted in the organisational contexts. Moreover, the equity based
ownership is sought out by some global companies, small capitalists which are not much
concerned about strategic investment and the investors that are operating in large assignments
and processes especially in the extractive sectors. The business operations that are run in joint
investment with local or foreign investing partners are more organised and practicable in
sharing risk profile, enhancing the scope of functioning of business in emerging market
economies. These considerations have raised the conceptions of entities with “cross
MNCs’ Expansion in Asian Emerging Markets 15
ownership of business”, especially in Asian economies (Capital Markets Consultative Group,
2003). For instance, a research paper by Meyer and Tran (2006) has identified acquisitions
strategies and multi-tier branding schemes applied by foreign firm to penetrate local markets.
The authors also presented strategic categorisations for acquisitions described by various
types such as indirect, staged, Brownfield, and/or multiple possessions. The acquisitions
strategies are then examined Carlsberg’s entry and development in four countries (China,
Vietnam, Lithuania and Poland) that are distinctly different in various aspects.
Meyer et al (2009) have also discussed the entry strategies of the multinational firms
entering emerging market. They have enquired in their research paper as to how the business
strategies of the multinational companies are influenced by market-supporting institutions.
They have enforced and promoted the integration of institution-based strategic choices with
resource-based contexts and settings. The focus of their study is to show how different entry
modes in separate organisational settings are used in persuasion of resource-based strategies.
The authors have further highlighted that firms can get the best of different forms of
skilfulness that markets are lacking regarding the features of organisational settings and the
resources at hand. The different modes of entry strategies used for overcoming inefficiencies
are mergers and acquisition, Greenfield and joint ventures.
Generally, the main purpose of multinational corporations is to minimise their costs
and make the most of economies of scale, whilst abridging the possibilities of duplication, so
as to accomplish enhanced efficiency in their operations. Moffet (2005) has argued that
detailed analysis of large multinational firms demonstrates a number of instructive
motivational factors which represent the reasons as to why multinational corporations aim to
invest and expand their operations across borders. The explanatory factors include seeking
domestic markets for increased sales of their products, searching demanded raw materials,
and exploring managerial knowledge, expertise and/or advanced technology. Multinational
MNCs’ Expansion in Asian Emerging Markets 16
firms are more likely to figure out and invest in economies where the essential factors of
production are more inexpensive. According to Kekic (2011b), the key objectives that induce
global firms expand their operations in emerging markets deemed to be taking advantage of
economies of scale and lowering manufacturing costs. The goals can be achieved by
increasing sales and rationalising manufacturing procedures. Foreign direct investment in
emerging markets that have plentiful natural resources is stimulated by high prices for a
number of commodities.
2.3. Factors Motivating Strategic Expansion of MNCs in Asian EMs
There are plenty of literatures that identify and analyse the linkage between key
determining factors and strategic entry modes choices, but few studies have investigated
multinational companies’ strategic choices for entering in the Asian emerging economies.
Few research studies have analysed the factors affecting the level of ownership of foreign
firms in equity ventures in China (Pan, 1996), and in Vietnam (Tsang, 2004). These studies
are similar in context as China and Vietnam have various features in common, though, the
findings of the former research cannot be applied equally to Vietnam. Tsang (2004) has also
discussed the entry mode options available for the foreign investors in the circumstances of
Vietnam. The author has pointed out the critical factors that have substantial effects on entry
mode selection of multinational firms when they entre in Vietnam. The factors influencing
strategic modes are: “advertising intensity, country risk of Vietnam, project investment
amount, project duration, cultural distance, competitive intensity, and location of
investment”. Evaluating the impacts of the above mentioned factors, the author has found that
merely a few of these substantial elements have created crucial impacts on the level of
ownership acquired through joint venture and the selection of entry modes based on a certain
percentage of foreign equity.
MNCs’ Expansion in Asian Emerging Markets 17
A survey by Zhu, Wang and Quan (2011) was conducted for the investigation of the
relation between different entry modes and the features of a franchising company. The study
has been undertaken by analysing the constituents of international franchising companies
when they are looking for expansion in Chinese market, and the results of the survey and
study has shown that there are four factors that create strong impact on entry mode choices to
be made by international franchisors. Those factors include international market experience
of a company, maturity of the franchising system the company is using, risk spread and risk
modelling techniques, and difference in cultural aspects and distance of geographical region.
Kumar and Annushkina (2011) have discussed the entry modes options that can be availed by
multinational companies which are willing to enter in Indian market for expanding business.
The authors have highlighted an important finding that: Even though India has been growing
through a number of serious issues such as far-flung poverty, imperfect infrastructure, abused
or destroyed political environment, and the widespread corruption and bureaucratic
environment, the country was deemed to be the second most appealing endpoint for inward
foreign direct investment in 2005. The country is at the top level in Offshore Location
Attractiveness Index.
Enormous literature has shown that the overall economic activities and development
of emerging market economies have been improved and bettered far more than those of
developed economies, which may explain as to why foreign direct investment inflows to
emerging countries have nourished and well sustained. Kekic (2011a) has suggested that the
developed world has gone through the worst financial turmoil in 2008 since the Second
World War. Emerging markets have witnessed their growth even in periods of crisis, which
presents a picture as if these countries are to some extent dissociated with the developed
world. Fidrmuc and Korhonen (2010) have examined the contagion effect of global financial
crisis of 2008 on business or trade cycles in India and China. The findings of the study
MNCs’ Expansion in Asian Emerging Markets 18
suggest that Asian emerging markets exhibit the business cycles that are characterised by a
low level of coordination with those of OECD countries. Nevertheless, the economic
developments in Asian emerging markets have been significantly influenced by the recent
financial turmoil but to a lesser extent compared to developed countries. The foreign direct
investment inflows falling due to recession has been limited for the growing trend of
meliorating business environments and trade liberalization in many emerging economies over
past few years (Kekic, 2011a).
In Asia, China is considered as the hub for attracting foreign direct investments and is
at the top of the list of favourite countries for global foreign investors. Eichengreen and Tong
(2007) have discussed in their research paper what ways China is attracting foreign direct
investment which has a direct impact on other Asian countries foreign direct investment
inflows. The authors have suggested that Asian countries’ foreign direct investment inflows
are also increased due to China’s rapid climb that it seems the manufacturers from these
Asian countries are adjunct to the same supply chain. Many multinational companies seek
buyers in Asian countries like China, so they may opt for production close to the target
market, which makes it clear as to why investors are more inclined to put their money in
these countries as compared to OECD countries. India is the next country that is likely to be
the captivating location for foreign direct investment, despite the fact that the country is
assuming the risks of red tape and presenting unnecessary procedures with inadequate
infrastructure installations. It is not to be overlooked that these troubles can sabotage the
opinions and decisions of potential investors (Capital Markets Consultative Group, 2003).
It is not wrong to say that the China and India have been the fundamentals for the
higher-up functioning and outperformance of emerging economies, for their upheld rapid
growth. Kekic (2011a) argues that the performance of other emerging markets, let alone
China and India, must have exceeded than that of developed economies in 2009. After China
MNCs’ Expansion in Asian Emerging Markets 19
and India, for instance, Vietnam is deemed as the following emerging market economy in
Asia. The country has been the core focus of a number of huge multinational corporations of
the world to bring foreign investment in the region, which can induce economic development
of the country through technology transfer, managerial skills carry-over, capital formation,
enhancement of organisational capabilities, share of knowledge, and greater market access.
This is because the investment by foreign owned companies lead to considerable increase in
the country’s GDP, and on other hand, it adds up to the export turnover. Domestic companies
in Vietnam are also subject to feel spillover impacts of foreign direct investment (Undén,
2007). After China, India and Vietnam, other emerging countries such as Thailand and, to a
certain level Malaysia, are anticipated as the next attractive destinations for foreign direct
investment by holding up the interests if investors. Foreign manufacturing firms operating in
labour-intensive sectors and natural resources industries of Thailand and Malaysia design
strategies and plans to hold up and further enhance their investments holdings. Indonesian
environment for foreign investment is viewed as being rather weak, and the country is
considered as attractive for the investors that are functioning in natural resource industries
(Capital Markets Consultative Group, 2003).
2.4. Strategic Issues faced by MNCs in Asian EMs
Although, foreign direct investment in emerging markets are inclined to increase for a
number of reasons, some researchers have anticipated slower economic growth in emerging
markets comparative to recent years. This can be due to less supportive international
environment. Kekic (2011b) has pointed out the factors that ensure the careful analysis of
investing decisions in emerging markets. Some countries are prone to increased nationalism
and populism which, in some cases, may result in renunciation of existing contracts of local
companies with foreign firms. MNCs operating in these markets are subject to a number of
risks such as external instabilities, potential abrupt variations in exchange rates and
MNCs’ Expansion in Asian Emerging Markets 20
vacillating prices for commodities that may also hinder investment decisions of global firms.
More often than not, the international trade is settled in international currency that is US
dollar. Foreign direct investment inflows are affected by exchange rates in a number of ways.
Local currencies in emerging markets are devalued against dollar, which has been a major
reason of attracting foreign direct investment. Foreign investors are less likely to consider
investing money in emerging market economies when they are anticipating devaluation in the
local currency, and/or if exchange rate is volatile.
Udomkerdmongkol, Morrissey and Görg (2009) have provided evidence for exchange
rate impact on foreign direct investment inflows to emerging markets from the US, by
undertaking a research using sample of sixteen emerging economies and their annual panel
data from 1990 to 2002. An important point that mostly investors take account of is the
problems of individual countries in the Asian region as if the imperfections persist in the
economies, investors will lose confidence thereby ensuring a slump in foreign direct
investment to the region. On the contrary, if these problems are dealt with in a successful
manner, foreign direct investment can still be limited for the presence of excess capacity in
critical industrial sectors (Capital Markets Consultative Group, 2003). Emerging market
economies provide multinational corporations with fresh and diverse markets in which they
are growing vigorously in terms of globalising their operations and selling existing products
offerings and brands there. The markets which global enterprises are entering in require
different strategies to operate. The product offerings and brands should be produced that suit
local market needs and demands, and in a perfect match of those preferences with the
companies’ competences. Global companies can have access to the broadest market as a
market leader through enforcing multilevel strategies with local product and global branding
strategies. The local and international resources must be put to use to make the strategies
effective. The development of functional capacities and abilities is deemed necessary to deal
MNCs’ Expansion in Asian Emerging Markets 21
in the particular market. A global firm operating in local market is not efficient in production
or other operational activities, and its operations have to be complemented by the resources
that are under control of local companies. Foreign firms often face threats or hindrance from
local companies for directly acquiring their assets, or in some cases, they find local firm
incompetent to continue operating together with them. The local resources can be acquired by
foreign investors through employing improper or unlawful strategies.
2.5. Gaps in Existing Literature
There are plenty of literatures that identify and analyse the linkage between key
determining factors and strategic entry modes choices, but few studies have investigated
multinational companies’ strategic choices for entering in the Asian emerging economies.
Apart from entry choices, most of the studies revolve around multinational firms’ entry in
BRICs, and ignored the emerging markets in Asia in relation to expanding value chains.
There are gaps in the existing literature for comparison of offshoring to strategic expansion in
emerging markets in Asia, and this study is presented to fill those gaps through detailed
analysis.
2.6. Conclusion
Prior studies have provided have provided enormous amount of evidence of
multinational companies investing in emerging markets either through offshoring or foreign
direct investment. Research works by a number of authors have discussed the factors
influencing the decisions of global companies as to why they consider investing in such
economies. There are various reasons for entering in emerging markets: the emerging
markets are providing tremendous potential for growth for global firms; the factors of
production are cheaper as compared to developed economies; financial crisis did not impact
emerging markets much severely compared to the rest of the world; the emerging countries
MNCs’ Expansion in Asian Emerging Markets 22
are mostly rich in terms of natural resources; and others. This study especially takes into
account the Asian context of emerging economies and explore as to why and how
multinational corporations prefer Asian economies for their global expansion.
Chapter 3: Methodology
3.1. Introduction
The previous chapter elaborated several research studies which depicted as to why
multinational companies are interested in Asian emerging markets. It is clearly stated that
emerging markets in Asia provide extensive opportunities for global firms. Not only
multinational companies from outside world are interested in reaping the benefits from Asian
region, but also the companies from Asian region are investing heavily in other Asian
emerging markets. Indeed, their entry modes depend on the nature of the business, but their
business models must have a particular direction as to how the business will be operating.
Although the literature review has elaborated several studies analysed through different
perspectives, the outcomes of the study are needed to be drawn out by choosing and
discussing few articles. This is to comparatively analyse different authors’ views in sufficient
detail. This section will define the criteria for choosing particular studies for further analysis,
and provide the justification for selecting them. It will then highlight the validity and
reliability of each of those articles and reports before moving to next section.
3.2. Selection of Articles
The articles selected for the study are evaluated through specifying inclusion criteria.
Only one study for analysis is selected from the literature review, whereas others have been
separately chosen for the next section. It is important to consider that discussion in the
MNCs’ Expansion in Asian Emerging Markets 23
articles and research studies focus on Asian with respect to multinational organisations
investing in the region.
A research report was presented by Mahidhar et al., (2009) for Deloitte research,
which focused on operational activities of multinational companies in emerging markets in
Asia. The concept of this dissertation was derived from this particular report. The investment
of global firm in Asia is not a new phenomenon, but their approaches of entering into and
operating in such economies are changing and becoming more challenging to be benefitted
by the economic growth. The report is based on “a survey of 247 executives from consumer
and industrial product companies with presence in emerging markets”. The study reveals that
the cost is not the only concern for global companies to move to emerging markets, but this
dissertation will consider emerging markets in Asia, thereby, taking related stuff from the
Deloitte research report.
The second article Ready for take-off (2011) is taken from a journal ‘Asian Agenda’
which is concerned about the markets in Asian region as its name suggests. The article is
basically a feature presenting views of different corporate leaders about the Asian economies
for global business. The focus is not Asian emerging markets only, but of course, they
included this element in their discussion. The article is about the entry strategies of global
organisations when they consider investing in Asian region, and it highlights the advantages
and disadvantages of each strategy. It is indeed a very important article for this report as it
elaborates the expansion strategies of companies considering the growth perspectives of
different countries in Asia.
The third article selected for the report is written by Maxwell (2011) in PwC view,
which revolved around the success factors and issues regarding multinationals entering in
emerging markets. The article depicts the concept of emerging markets first, and then directs
MNCs’ Expansion in Asian Emerging Markets 24
readers’ attention toward how these markets are growing with respect to foreign direct
investment. It talks about trading issues among emerging markets and between emerging and
developed economies.
The fourth article written by Hagel and Ho (2004) precisely focuses on the offshoring
activities of multinational companies in emerging economies, through which they concept of
offshoring is mistaken. The author argues that the outsourcing is really a beneficial approach
for international companies if used in the correct way. Most of the companies prefer moving
offshore just to take some cost savings, which is a very limited approach of business model.
They can reap far more profits by focusing on a broad strategy of outsourcing tasks as turning
them in valuables. The core concept of the report is that the outsourcing is not merely a
concept of saving costs for near-term, rather a strategic issue that needs proper attention to
get greater good and long-term success.
The fifth report selected for this dissertation is basically a report presented by Capital
Markets Consultative Group, which “reflects the views of private sector participants in a
working group examining the determinants, trends and prospects of foreign direct investment
(FDI) in emerging market countries.” This is the most important report to define outcomes of
this dissertation in intended way. It revolves around the foreign direct investment flows to
emerging markets and other countries of the world. For the purpose of this dissertation, only
the content related to emerging markets in Asia will be concentrated on.
MNCs’ Expansion in Asian Emerging Markets 25
Table 1: Brief Outline of Selected Articles
Title/Author(s)
Maxwell (2011)Ready for take-
off (2011)Mahidhar et al.
(2009)Hagel and Ho
(2004)
Capital Markets Consultative Group
(2003)
Paradigm
Success in emerging markets
beyond the BRICS
Developing and Executing entry strategy in Asia
Strategic Expansion in
Emerging Markets
Real value of offshoring in Asia
is the strategic expansion
FDI in emerging markets is increasing and is
expected to continue with the same pace
Philosophy Objective Subjective Objective Subjective Objective
Research Design
Qualitative Qualitative Qualitative Qualitative Qualitative
Data Collection
Document Analysis
Discussion of views
Survey and data analysis
Working paper Survey and data analysis
Validity and Reliability
High validityHigh Reliability
High validityHigh Reliability
High validityHigh Reliability
High validityMedium
Reliability
High validityMedium Reliability
3.3. Conclusion
Despite the enormous amount of literature on the globalisation, the topic of the report
is an under researched area. This report is based on meta-analysis of five articles and reports.
Three articles and/or reports were written after the Great Recession of 2008, whereas the
remaining two were written before the crisis. The methodology of the articles is objective or
based on facts, therefore, it can be used to answer the research questions of this report. The
reports are reliable and valid to serve the purpose of the meta-analysis. The studies Maxwell
(2011), Ready for take-off (2011) and Mahidhar et al. (2009) are considered to be highly
reliable as they are current and have used the approaches necessary for this report. The other
two studies Hagel and Ho (2004) and Capital Markets Consultative Group (2003) are highly
relevant to this report, but their reliability is questionable for the time when they were
written.
MNCs’ Expansion in Asian Emerging Markets 26
Chapter 4: Analysis
4.1. Introduction
The definition of foreign direct investment does not include the investment of retained
earnings by foreign investors; other forms of direct investment made between the investors
that are involved in the undertaking and their subsidiaries, branches, subdivisions and
associations; and investment made in offshoring activities and local venture capital funds
established by foreign investors. This implies that the actual flows of foreign direct
investment may not be accurately stated (Capital Markets Consultative Group, 2003). There
are a number of multinational companies that pursue offshoring to gain cost savings. The
companies consider offshoring as a near term favourable chance for cutting costs through
outsourcing of “low skills, low value jobs to locations in Asia with much lower wage rates”.
These companies miss the opportunity of reaping more rewards of outsourcing through
business expansion in Asian countries (Hagel and ho, 2004).
The foreign direct investment in Asian emerging markets is growing. The areas that
come under the scope of direct investment includes the institution of different organisations
such as production operations and facilities, storage warehouses, buildings for banks, and
several other long-term institutions across boundaries, through selecting from a few
alternatives for investments such as Greenfield investments that are related to the building an
entirely new organisation by making investment, the acquisition of or merger with the
existing organisation setting across borders, and entering into joint ventures with small firms.
Such alternatives give the investors the advantages of control and ownership of firms’ assets
as for example buildings and lands (Capital Markets Consultative Group, 2003). It shows that
the multinational companies that move across borders do not do so just due to gain cost
advantages. This section will examine the views of different authors, related to the
MNCs’ Expansion in Asian Emerging Markets 27
investment strategies of multinational companies in Asian emerging markets. It will compare
the selected five articles to find out what motivates global firms enter into emerging markets
in Asia.
4.2. Discussion and Analysis
The definition of emerging markets depends on the information source, which means
different groups have defined it differently. There are 22 emerging markets divided between
“advanced” and “secondary”, as defined by FTSE group. Standard & Poor’s, the rating
authority of sovereign debt of 126 economies, has classified 19 emerging markets out of 126.
BRICS has gained success ubiquitously as it represents a few most prospering countries
identified as emerging markets. Even if one thinks of emerging markets, the term BRICS
clicks the one’s mind. Another emerging term that classifies emerging markets is found to be
the term EAGLEs that defines “the 10 emerging and growth-leading economies” (for
example, see figure 4). “Others are the 12 countries of the Big Emerging Markets (BEM), and
the rather unwieldy CIVETS, which includes Colombia, Indonesia, Vietnam, Egypt, Turkey,
and South Africa” (Maxwell, 2012).
Figure 4: Eagle – Emerging And Growth Leading Economies
Source: Maxwell, 2012
MNCs’ Expansion in Asian Emerging Markets 28
According to a report by Capital Markets Consultative Group (2003), the core
motivating factor of strategic entrance of global corporations in emerging markets seems to
be their strong and stable growth over years. The surprising aspects of these emerging
markets are how they are growing and the way these markets are recognised as growing.
Maxwell (2012) has argued that the investments in emerging markets definitely come from
the western world through North-South commerce which includes the concept of investment
coming in emerging and/or developing countries from developed countries so that they can
get fairly cheap products of same quality, which can then be exported preponderantly back to
their home countries. More often that not, it is a result of a typical nature of commerce what
is known as South-South commerce which is through as famous as North-South commerce,
yet a huge factor contributing to the growth of emerging markets. Broadman has argued that
an enormous amount of trade takes place amongst emerging economies, which further push
them up to grow. “In 1970, South-South trade was about seven percent of world trade. Today,
it is 20 percent of world trade.” It highlights another interesting fact that the global firms
from developed countries face intense competition from the multinational firms from
emerging markets which eat major markets share for many reasons. In addition, Harry
Broadman, Chief Economist and Leader of PwC’s Emerging Markets practice, has suggested
that giving proper consideration to the investments from emerging markets reveals that
almost one-third of the foreign direct investment by multinational companies goes from
emerging markets to other emerging markets (Maxwell, 2012).
There is no shortage of research works that focus on importance of emerging market
economies to multinational companies. The firms that are overlooking emerging economies
for investment are bearing serious opportunity costs for not availing the opportunity of
entering in the countries despite the growing internationalisation and rising competitive
insistence. Furthermore, the investors are permitted to broaden their reach beyond specific
MNCs’ Expansion in Asian Emerging Markets 29
business entities that is diversification across companies for increasing their strategic
advantage and existence in emerging economies (Capital Markets Consultative Group, 2003).
A survey shows that “57 percent anticipate that they’ll need to make strategic changes to
capitalize on the increasing prosperity of consumers in emerging markets.” The success of
multinational companies in emerging economies depends on the infrastructure of the
countries they are investing in. A great example of this is China which demonstrates the level
of increase in economic growth resulted from advancement in infrastructure of the country is
extremely high for over past 20 years (Maxwell, 2012).
The survey conducted by Mahidhar et al., (2009) for Deloitte demonstrated that
manufacturing companies have been trying to get access to the highly growing economies
which can provide low-cost sourcing for over past ten years. The justification they present for
their move to these markets is the globalisation of the world. The interesting part is that a
number of companies have realised cost arbitrage through developing reasonably prospering
business operations in these economies. The survey has induced the optimism in business
world revealing that many companies which have presence in emerging markets are making
more and more efforts to expand their business by developing their business model with a
core focus on emerging markets. More than 88 percent of companies planned in 2009 to
increase their presence in such economies until 2012. Moreover, about half of the companies
anticipated their 20 per cent revenues coming from emerging markets. Not surprisingly, the
proportion of the organisations which planned to inject more than 20 per cent of their
investments in the emerging economies is one third. These figures do not depict that the
organisation will end offshoring in these regions, but they have new opportunities in this
regard. The manufacturing companies do not increase their presence just for the sake of cost
savings, rather they try to expand strategically through development of the “core functions of
their value chains in these regions”. This is the characteristic of ‘forward thinking
MNCs’ Expansion in Asian Emerging Markets 30
companies’. Cost saving is essentially the main concern of approx three forth of
manufacturing companies, but this is not the only reason to get access to markets abroad.
Nearly 70 per cent of the organisations in the survey conducted are concerned about market
expansion (for example, see figure 5). More than 70 per cent organisations consider the cost
saving as equally important key motivator for expansion in emerging markets. Furthermore,
over 50 per cent of manufacturers revealed that the reason for their access to emerging
markets is the need to increase speed to market.
Figure 5: Strategic Objectives for Establishing Operations in Emerging Markets
Source: Mahidhar et al., 2009
MNCs’ Expansion in Asian Emerging Markets 31
A company must opt for such a location that assists in achieving its goals. Entering
Asian market is not difficult, but choosing the right location for business is as “Asia is not a
country”. It is a group of countries which represent an entire world of opportunities. Asian
region can be broken down so as to find the most suitable location for a foreign business.
“There are 32 countries and territories in Asia, commonly divided into four regions:
• Central Asia, including Kazakhstan and Turkmenistan
• North East Asia, including mainland China, Hong Kong, Japan and South Korea
• South East Asia, including Malaysia, Singapore, Thailand, Vietnam and Cambodia
• Southern Asia, including India and Bangladesh” (Ready for take-off, 2011)
According to Capital Markets Consultative Group (2003), in 1997, the aggregate
foreign direct investment in Asia was approx $66 billion. After the financial crisis in Asia,
the combined sum of foreign direct investment inflows in Asian countries corrected by about
30% to $46 billion in year 2000. And then again in 2002, it increased to about $63 billion for
the most part due to speedy increase in investment flows to China. China has been kept afloat
by the newly promoted market liberalization concept in the economy and accession of the
country to the World Trade Organisation (WTO). The country was gaining the benefits from
a huge and speedily growing market size that it alone was appreciated for deriving more than
80% of the aggregated foreign direct investment flowing to the Asia region, and for 43% of
the total foreign direct investment inflows in emerging market economies. In those years,
India could not record high gains with respect to foreign direct investment as most of the
investors see India as an attractive place for offshoring. Moreover, among others, Thailand
was extremely harmed by the Asian crisis. Even then, the country reported a rather
considerable contribution to foreign direct investment due to the increased number of
MNCs’ Expansion in Asian Emerging Markets 32
acquisitions of local firms, and/or enhanced share of foreign investors in existing joint
ventures.
Bob Partridge, Greater China Transaction Advisory Services Leader, Ernst & Young
said that “[m]any people think the ‘prize’ is China”. The success in this region highly
depends on two factors: market potential and ease of doing business. “The less developed and
less business-friendly the market, the better the growth prospects and the lower the
competition.” This means a country with higher opportunities and at the same time, high
barriers to entry, its growth prospects will be high, but with minimal competition. It also
depends on the sector which a business is operating in. For instance, the locations where
competition is low for state-owned organisations, or manufacturing and real estate firms,
have a lot of opportunities for foreigner investors. “South East Asia, in particular, has an
incredible appetite for infrastructure building and services, including transport, water and
waste management” says Bob Partridge (Ready for take-off, 2011).
In addition to choosing the right country to enter in Asia, formulating the right entry
strategy is a critically challenging and complex issue. This depends on the magnitude of
funding a foreigner is planning to put in the country which in turn leads to make decision of
entering through equity or non-equity modes of entry. These decisions are based on the
requirements of control in an Asian country, says Simon Moore, Oceania Transaction
Integration Leader, Ernst & Young (Ready for take-off, 2011). The global economic growth
has slacked, the emerging economies, for example, China and India, are expected to continue
growing. These countries are becoming target markets for global firms to achieve objectives
of growth. Doing business in such countries is not easy for companies from developed world.
Firms need to understand the markets, their culture, regulations and other constraints
(Mahidhar et al., 2009). The report by Capital Markets Consultative Group (2003) highlights
that “the type of business venture and the strategic approach to foreign direct investment, the
MNCs’ Expansion in Asian Emerging Markets 33
availability of capital, and opportunities for leverage and risk sharing” can fairly be
manifested by the source of equity through which foreign direct investment has been got off
the ground, and the type of equity. Growth or expansion of business can be achieved through
a number of directions. The top level management who are responsible for setting strategies
should opt for the best possible way that can assure the accomplishment of the main
objectives of the company. Multinational companies must concentrate on choosing the right
mix of operations with respect to the location so that they can “create a sustainable cost and
revenue structure across geographies.” “Companies are choosing locations like India, China
and Thailand to expand high-end manufacturing operations. The type of business activities,
market opportunities, country regulations, tax advantages, and experience in emerging
markets are the key determinants of operating model” (Mahidhar et al., 2009).
Hagel and Ho (2004) have demonstrated that offshoring for the sake of cost saving is
not a good deal. There are companies who outsource low cost operations to emerging markets
in Asia. This is not a right strategy when they can get far more benefits from this region as
the countries in Asia are considered as a platform for higher performance in product
development. International organisations can increase their manufacturing capacities and
capabilities in Asian countries to taste low wage rates, with improved production facilities
and high skilled workforce (Hagel and Ho, 2004). Exporting to Asian countries is a strategy
which does not pose much risk, but it is not a good strategy considering the operating
conditions in the region. Licensing is a useful non-equity strategy but it can expose the
companies to a greater profile of risks. Franchising, on the other hand, is a low risk strategy
in comparison with licensing. Simon Moore argues that “[w]hile a licensing agreement
usually involves IP, franchising is limited to trademarks and the operating know-how of the
business.” Hence, the ownership, “either through Greenfield investment or acquisition”, is the
only way left to gain control of the assets in Asian countries (Ready for take-off, 2011). The
MNCs’ Expansion in Asian Emerging Markets 34
start-up of a Greenfield venture is preferred by multinational corporations with the 100%
investment in equity. It ensures the foreign companies full delectation of the returns in assets
as the firms get preference for gaining control over the management as well as he operations
of the firm, with the access to proprietorship. This is how the competitive advantage is
entered in the markets (Capital Markets Consultative Group, 2003). Greenfield investments
are “often complex and potentially costly,” according to Moore. It gives the total control with
high returns, but can be effective with little or no competition. This strategy is risky due to
lack of information regarding the host country and the government policies.
According to Harsha Basnayake, many governments do not even allow total foreign
control. For instance, in China, Greenfield investments are prohibited. Also, in Malaysia,
Vietnam and Indonesia joint ventures are preferred (Ready for take-off, 2011). Joint ventures
formed with local investors or partners are mainly due to the requirements for entering in the
emerging markets and to benefit from a greater access and control in emerging economies
(Capital Markets Consultative Group, 2003). This strategy is least risky compared to other
alternatives as the results of an acquisition can be estimated with ease and correctly, yet it is
challenging in choosing “a partner with good political and business connections and a strong
customer base”. Through joint ventures, multinationals can get “instant market entry and an
established customer base, political connections and distribution channel access” (Ready for
take-off, 2011). Mahidhar et al. (2009) have also described this in their survey report that the
most widely used approach for market entry is joint ventures, whereas the companies who
have already entered the markets prefer wholly owned subsidiaries.
MNCs’ Expansion in Asian Emerging Markets 35
Figure 6: Operating model in Multinational Companies Emerging Markets
Source: Mahidhar et al., 2009
The authors have further analysed that organisations use specific and simple strategies
when they are willing to outsource their less complex tasks. Today, the companies have
shifted their strategic focus toward developing particular components of their “value chains to
account for new objectives pertaining to growth, innovation and sustainability”. There are
three strategic factor which “determine the emerging market business model: capacity,
capability and risk” (see figure 7).
MNCs’ Expansion in Asian Emerging Markets 36
Figure 7: Multinational Companies’ Strategies for Emerging Markets
Source: Mahidhar et al., 2009
Successful achievement of the desired capacity is not an easy task. Today,
multinational companies are engagement in undertaking expansion activities so that they can
transmute their revenues and business models in emerging economies. The expansion is at the
level of scale as well as scope of the manufacturing capacity of the firms. This is majorly
because the demand in the emerging economies, for instance, BRICs, Vietnam, Thailand, is
increasing to attain similar level as that of developed countries and anticipated to continue
increasing with the same pace. Therefore, the multinational companies really need to enhance
their production and development capacities to meet the increased demand. Hagel and Ho
(2004) also discussed the capacity building issues with respect to moving offshore in Asian,
especially in China and India. Capacity can be enhanced by hiring more skilled workers,
lower manage to staff ratio, process improvements, ensuring high performance levels,
understanding the culture and regulations, compressed work cycles, enhanced competition
with both foreign and local firms, strong buyer-supplier relationships, and expansion of
adjacent production activities (Hagel and Ho, 2004). The companies need to look into their
MNCs’ Expansion in Asian Emerging Markets 37
capabilities so that they can build strategies accordingly and move their value chains in
emerging markets (backward integration and forward integration) (Mahidhar et al., 2009).
According to Hagel and Ho (2004), expanding backward to the supply chain is an effective
strategy in offshoring to Asian emerging markets. It can help reducing costs and enhance the
capabilities of performing in the region with lower risks. The third area that the companies
are required to cover is the “cross-border business risks” (Mahidhar et al., 2009).
4.3. Conclusion
This section has disclosed few important considerations that the multinational firms
should take into account. More often than not, the modes of directing foreign direct
investment or financing the corporate ventures in emerging economies are not plainly based
on costs and worldwide market circumstances as there are other strategic issues to be noted
upon. The type of investor and investment in emerging economies are critical to the decisions
of global firms. As shown by the results of PwC’s 15th Annual Global CEO Survey, approx
three-quarters of the companies which have established their business operations in emerging
markets want and anticipate expanding their businesses in such regions. It is also considered
that “[t]he world is turning to the East, and consumer goods companies—just like other
sectors that ultimately depend on purchasing power and attractive demographics—are paying
attention” (Maxwell, 2012).
Chapter 5: Conclusion
5.1. Introduction
This study is presented to examine the factors that motivate the strategic expansion of
multinational companies in Asian emerging market economies. The aim of study is to define
and analyze strategic factors that strongly impact the decisions of global firms in terms of
MNCs’ Expansion in Asian Emerging Markets 38
adopting offshoring activities and acquiring growth strategies to enter in emerging markets in
Asia. It helps to explore the strategic issues the internationalised companies are confronting
and examine the extent to which they are getting affected by these key threats that hinder
their entry and performance in these regions through strategic expansion. This section will
summarise the whole report and lead to a concise conclusion based on the methodology used
for the study.
5.2. Summary of the Study
To summarise the whole report, it can be stated that the emerging markets are
considered as key locations for future growth as they continue to grow faster than the
developed world and promise to offer favourable growth opportunities to many multinational
companies. Such economies are established as the primary destinations for exports as well as
direct investments. The fastest growing emerging markets are BRIC countries which are
Brazil, Russia, India and China. Two of these countries are included in Asian region. For
instance, China, India, Indonesia, Thailand, Bangladesh, Philippines Sri Lanka, Malaysia and
Vietnam are considered as emerging market countries in Asia. The notion of economic
globalisation has benefited emerging market countries in Asia in many ways. Such
economies are deemed as a hub for opportunities in the international market place and a
major engine to derive growth in the global market economy.
Multinational companies from developed companies are putting heavy investments in
Asian countries, which signal the origin of foreign direct flows to this region. In addition, a
significant share of total foreign direct investment inflows to Asian countries consists of
foreign direct investment inflows between the countries in the region. Today the value
creation through offshoring has come forth as a famous and broadly acknowledged
competitive strategy for multinational companies in several industries. Companies,
MNCs’ Expansion in Asian Emerging Markets 39
particularly, in developed economies are seeking for exploiting opportunities that are
identified offshore with the objective of surviving in both inland and international markets,
which has been a major focus and pressure of globalization. Apart from offshoring, a firm
can enter an emerging market by adopting different strategies depending on the internal and
external environment of the firm. Market penetration, market development, product
development and diversification are key approaches that are usually utilised by most
companies when investing in emerging market economies.
Formulating the right entry strategy is a critically more challenging and more complex
issue compared to choosing the right country in Asia for investment. This depends on the
magnitude of funding a foreigner is planning to put in the country which in turn leads to
make decision of entering through equity or non-equity modes of entry. Offshoring
sometimes is not considered as a right strategy when multinational firms can get far more
benefits from Asian region as the countries in Asia are considered as a platform for higher
performance in product development. International organisations can increase their
manufacturing capacities and capabilities in Asian countries to taste low wage rates, with
improved production facilities and high skilled workforce. The multinational firms can
choose an emerging market for export of their products and get advantages of ownership and
control through licensing, joint ventures, mergers & acquisitions, and in some cases,
franchising. The ownership, either through Greenfield investment or acquisition, is the only
way left to gain control of the assets in Asian countries.
5.3. Limitation of Research
Although this report includes a fairly detailed literature review of a number of studies,
the methodology of the study is limited as the outcomes are to be measured by the analysis
based in five articles. The criteria for selecting articles were reasonable, yet some issues with
MNCs’ Expansion in Asian Emerging Markets 40
the reliability came by. Meta-analysis of research studies is a good approach to be used for
this sort of study, but it somehow deteriorates the originality of the work. The report does not
include any primary research, leaving behind the element of different approaches for original
research study.
5.4. Future Research
This report leaves a room for further research in the same area. Future research can be
undertaken on the analysis of individual entry mode strategies of multinational companies in
emerging markets. The comparison of all the strategies in different Asian emerging
economies can be looked into. Another area that can be worked on is the comparison of
multinational companies entering in emerging economies and the multinational firms moving
out of the region to enter western world.
5.5. Conclusion
Previously offshoring has been the priority for the global companies when entering
Asian region, which is because of their intentions to get cost advantages. Today, the
multinational companies are not only offshoring for cost saving, but strategically expanding
to serve their business objectives. The strategic objectives for establishing functions in Asian
emerging markets include the cost savings, market expansion, speed to market, access to
talent, new market development, product development and service development.
Multinational firms are making efforts to achieve their goals more efficiently and effectively
in emerging markets in Asia. They are getting the benefits of growth of Asian region in this
way. To get success in the region, their strategies should be more effective than before. The
effective strategies can be the ones formulated and implemented in the context of expanding
value chains in emerging markets in Asia.
MNCs’ Expansion in Asian Emerging Markets 41
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