Institutional Complementarity and Substitution as an Internationalization Strategy: The Emergence of an African Multinational Giant

• Author: Dustin Stringfellow,Anthea Jefthas,John Luiz
• Published date: 01 February 2017
• Date: 01 February 2017
• DOI: http://doi.org/10.1002/gsj.1143

INSTITUTIONAL COMPLEMENTARITY AND

SUBSTITUTION AS AN INTERNATIONALIZATION

STRATEGY: THE EMERGENCE OF AN AFRICAN

MULTINATIONAL GIANT

JOHN LUIZ,

1,2

*DUSTIN STRINGFELLOW,

2

and ANTHEA JEFTHAS

2

1

Department of Business and Management, School of Business,

Management and Economics (BMEc), University of Sussex, Brighton, U.K.

2

Graduate School of Business, University of Cape Town, Cape Town,

South Africa

Research summary: We examine the internationalization decisions made by one of

Africa’s most successful companies, South African Breweries, as it underwent a period

of aggressive expansion. We see processes of both institutional complementarity and

substitution at different phases and with different motives. At first it sought countries

that played to its strength, namely the knowledge of doing business in environments of

institutional uncertainty, but later it pursued an institutional diversification strategy

whereby it attempted to minimize its institutional risk exposure. As it became larger, its

aspirations increased too, and its over-exposure to emerging market institutional risk

saw it engage in institutional substitution into advanced countries. Through this phased

international process, it was able to develop its internal assets, and this enabled the

moves into developed markets.

Managerial summary: We demonstrate that firms can exploit their knowledge of

‘weak’institutional settings and turn it into a source of advantage as they internation-

alize into locations with similar institutional ‘weaknesses.’Using the case of one of

Africa’s most successful multinational enterprises, we illustrate the value gained from

initially capitalizing upon institutional complementarity (utilizing the comparative

advantage linked to institutional know-how) by exploiting the experience of the home

country’s environment into similar settings. Over time and through learning-by-doing,

pressure arose to diversify the risk linked with over-exposure to institutional uncer-

tainty and country risk, and this was associated with the process of institutional substi-

tution into more advanced countries. We see emerging multinational learning and

building its capabilities by leveraging its understanding of its home country institu-

tional environment. Copyright © 2016 Strategic Management Society.

INTRODUCTION

International business literature on internationaliza-

tion is dominated by work that emphasizes the cau-

tious incremental routes of internationalization, as

decision makers balance risk and return in uncer-

tain locations (Johanson and Vahlne, 1977).

Keywords: emerging multinational enterprises; institutional

voids; African multinational; firm and country specific advan-

tages; institutional leverage capability

*Correspondence to: John Luiz, School of Business, Manage-

ment and Economics (BMEc), University of Sussex,

Jubilee Building G08, Brighton BN1 9SL, Great Britain.

E-mail: J.M.Luiz@Sussex.ac.uk.

Copyright © 2016 Strategic Management Society

Global Strategy Journal

Global Strategy Journal, 7:83–103 (2017)

Published online in Wiley Online Library (wileyonlinelibrary.com). DOI: 10.1002/gsj.1143

Multinational enterprises (MNEs) take advantage

of their home country or firm-specific advantages

(CSAs/FSAs) to overcome the liability of foreign-

ness as they move abroad (Dunning, 1988). The

question is whether emerging multinational enter-

prises (EMNEs) behave in the same manner as pre-

dicted by the existing theory base. Questions have

been raised because EMNEs seem to have adopted

less gradual and incremental approaches and have

often been perceived to be more risk seeking in

their approach (Luo and Tung, 2007; Mathews,

2006). The accelerated expansion has been an

important characteristic of the EMNE whereby they

have committed significant resources and capital

early on in their internationalization processes

(Mathews, 2006). It also raises a question about the

nature of the advantages that EMNEs possess and

how this is affected by home country institutional

environments. The relative institutional underdevel-

opment of their home countries may give rise to

situation-specific advantages and may impact their

international expansion and how they appropriate

value from their exclusive assets in foreign markets

(Kirca, Fernandez, and Kundu, 2016: 629).

The question arises, where do African MNEs fit

in? The call for papers for this special issue raised

some interesting issues that we seek to address in

this article. Given the complexity of the business

environment in Africa, have MNEs arising from

the continent adopted different strategies and com-

petencies? If so, how will these translate into a

global context outside Africa? In this article, we

focus on how an African MNE adapted to and

managed institutional voids and distances between

its home and host countries and how this influenced

the decisions of which markets to enter. We focus

on one of Africa’s largest and most successful

MNEs, South African Breweries (henceforth

referred to as SAB), over time.

a

We show that it

followed a process of institutional complementarity

and substitution at different phases of its

internationalization and with different motives

influencing these phases. At first it sought countries

that played to its strength, namely the knowledge

of doing business in environments of institutional

uncertainty; but later it pursued an institutional

portfolio diversification strategy whereby it

attempted to minimize its institutional risk expo-

sure. The unpredictable environment faced by Afri-

can MNEs means that their decision to

internationalize is not only driven by the usual

motivations of seeking new efficiencies, markets,

or assets, but also by concerns about their home

environment and an effort to diversify institution-

ally to absorb possible future shocks at home. This

adds a new layer of understanding to our existing

knowledge base of EMNEs and seeks to explain

their decisions in a more dynamic manner, taking

into consideration not only host country institutions

but institutions in their home countries, too, and

relates this to the phases of their internationaliza-

tion experience. We show that institutions should

not only be thought of as constraining economic

activity, but also being a source of comparative

and competitive advantage (Landau et al., 2016;

Martin, 2014).

As FDI from emerging markets increases, it

becomes critical to understand the motivations and

behaviors of EMNEs in comparison to developed

multinationals (DMNEs). While there has been a

growing literature on multinationals from Asia and

Latin America, there is a dearth of research on

EMNEs from Africa. Given that the continent has

experienced a growth boom over the past two dec-

ades that has seen its growth second only to emer-

ging Asia, it is the right time to explore further the

development of this literature within an African

setting.

LITERATURE REVIEW

Theory and emerging multinational enterprises

The Uppsala model (Johanson and Vahlne, 1977)

proposes that firms internationalize through an

incremental process. The model is based on the

assumption that local knowledge is vital for a com-

pany to succeed and that by operating in a given

market, firms are able to acquire the aforemen-

tioned knowledge to successfully compete; and it is

for this reason that internationalization is usually a

slow process. As firms gain more knowledge about

1

Founded in 1895, South African Breweries (SAB) is the

South African subsidiary and historical birthplace of SABMil-

ler plc. In 2002, in one of its largest transactions, SAB

acquired the Miller Brewing Company in the U.S., whereupon

it changed its name to SABMiller plc. Given that we are

examining the process through which SAB became a global

company and morphed into SABMiller, we will refer to it as

SAB throughout, except in particular circumstances where it

needs be referenced as SABMiller particularly. In October

2015, AB InBev announced a $104 billion bid for SABMiller,

which was finally approved by shareholders in September

2016.

84 J. Luiz, D. Stringfellow, and A. Jefthas

Copyright © 2016 Strategic Management Society Global Strategy Journal, 7:83–103 (2017)

DOI: 10.1002/gsj