The Expansion of Emerging Economy Firms into Advanced Markets: The Influence of Intentional Path‐Breaking Change

• Date: 01 May 2014
• Author: Pierre Dussauge,Miguel Rivera‐Santos,Kiattichai Kalasin
• DOI: http://doi.org/10.1111/j.2042-5805.2014.1076.x
• Published date: 01 May 2014

THE EXPANSION OF EMERGING ECONOMY

FIRMS INTO ADVANCED MARKETS:

THE INFLUENCE OF INTENTIONAL

PATH-BREAKING CHANGE

KIATTICHAI KALASIN,1* PIERRE DUSSAUGE,2and

MIGUEL RIVERA-SANTOS3,4

1College of Management, Mahidol University, Bangkok, Thailand

2Strategy and Business Policy Department, HEC Paris, Jouy en Josas, France

3Strategy and Organization Department, EMLYON Business School, Ecully,

France

4Management Division, Babson College, Babson Park, Massachusetts,

U.S.A.

Existing literature has investigated the drivers behind the expansion of emerging market firms

into other emerging markets, but we are only beginning to understand how emerging market

firms expand into more advanced markets. Grounding our arguments in institutional theory

and the notions of managerial intentionality and path-breaking strategies, we argue that

emerging market firms can intentionally pursue path-breaking changes that set them on an

organizational path better suited to advanced market conditions, by listing their stock on

advanced financial markets or divesting unrelated business. Wetest our arguments on a sample

of 855 emerging market firms from 18 countries over a six-year period. Our results strongly

support our argument that emergingmarket firms can intentionally change their organizational

paths and develop the ability to expand into advanced markets. Copyright © 2014 Strategic

Management Society.

INTRODUCTION

Much of the research on international expansion of

multinational enterprises (MNEs) is rooted in the

notion of firm-specific advantages (Hymer, 1976).

This view posits that firms engage in international

expansion when they seek to leverage their firm-

specific advantages in new settings. This, in turn,

allows them to overcome liabilities of foreignness

(Zaheer, 1995; Zaheer and Mosakowski 1997) and

achieve a competitive advantage over indigenous

firms in the host country (Caves, 1971; Dunning,

1980; Dunning and Lundan, 2008, 2010; Guillen

and Garcia-Canal, 2009; Hymer, 1976; Vernon,

1966). Other scholars argue that ownership advan-

tages are originally molded by firms’ home country

environments (Dunning and Lundan, 2010; Peng,

Wang, and Jiang, 2008; Porter, 1991; Schroath, Hu,

and Chen, 1993; Vernon, 1966), which allows

firms, in turn, to compete in the international arena.

In this view, the characteristics of advanced econo-

mies result in firms from these economies fre-

quently possessing technological and management

expertise advantages over local firms in less devel-

oped countries (Cuervo-Cazurra and Genc, 2008;

Erramilli, Agarwal, and Kim, 1997; Rangan and

Drummond, 2004).

Keywords: emerging economy MNEs; international expansion;

advanced markets; path-breaking change; managerial intention-

ality; multilevel analysis

*Correspondence to: Kiattichai Kalasin, College of Manage-

ment, Mahidol University, 69 Vipawadee Rangsit Road,

Samsennai, Phayathai, Bangkok 10400, Thailand. E-mail:

kiattichai.kal@mahidol.ac.th

Global Strategy Journal

Global Strat. J., 4: 75–103 (2014)

Published online in Wiley Online Library (wileyonlinelibrary.com). DOI: 10.1111/j.2042-5805.2014.1076.x

Copyright © 2014 Strategic Management Society

By contrast, studies of emerging markets (EMs)

suggest that EM firms typically deal with gaps in

their ecosystems, poor infrastructures, and embry-

onic formal institutional frameworks (Chittoor et al.,

2009; Hoskisson et al., 2000; Cuervo-Cazurra and

Genc, 2008; Khanna and Palepu, 2006; Peng et al.,

2008), although there is significant variation from

country to country. This local environment leads to

firms that may be highly adapted and very competi-

tive in their home markets or in other developing

countries (Cuervo-Cazurra and Genc, 2008; Hu,

1995; Khanna and Palepu, 2006; Li and Yao 2010),

but they can find it difficult to transfer their competi-

tive advantages to advanced economies (Hoskisson

et al., 2000; Luo and Tung, 2007; Uhlenbruck,

Meyer, and Hitt, 2003; Wright et al., 2005). Some

scholars, thus, consider multinationals originating

from emerging markets (EM MNEs) as latecomers

and inferior challengers to MNEs originating from

advanced markets (AM MNEs) (Barnard, 2010;

Cuervo-Cazurra and Genc, 2008; Guillen and

Garcia-Canal, 2009; Li, 2003, 2007; Mathews, 2002,

2006; Rongping, 2009). Scholars in this vein suggest

that EM firms typically possess less advanced tech-

nology, less managerial and marketing expertise,and

often more limited financial resources to compete

against the incumbent MNEs from advanced econo-

mies (Barnard, 2010; Bartlett and Ghoshal, 2000;

Cuervo-Cazurra and Genc, 2008; Guillen and

Garcia-Canal, 2009; Mathews, 2006). Furthermore,

they are likely to possess less legitimacy and an

inherited negative image, making it more difficult for

these firms to enter into advanced economies. For

example, labels such as ‘Made in China’ or ‘Made in

Thailand’ are typically considered inferior by first-

world customers (Bartlett and Ghoshal, 2000). As a

result, many EM firms face not only the liabilities of

foreignness (Zaheer, 1995; Zaheer and Mosakowski,

1997), but also liabilities of origin (Bartlett and

Ghoshal, 2000; Pant and Ramachandran, 2012)

when expanding into advanced economies. Conse-

quently, some scholars say it is better for EM MNEs

to venture into countries with similar institutional

frameworks and insufficient economic resources

(Cuervo-Cazurra and Genc, 2008; Hu, 1995; Khanna

and Palepu, 2006; Li and Yao, 2010). For example,a

Thai company may find it much easier to expand its

business into Laos or Vietnam than to venture into

Japan or Australia. By expanding into similar econo-

mies, EM firms can leverage their knowledge of

environments characterized by institutional voids to

enter other emerging economies or less developed

countries (Cuervo-Cazurra and Genc, 2008; Khanna

and Palepu, 2006; Li and Yao, 2010).

Yet, some EM MNEs do choose to expand into

advanced countries. Among others, firms like

China’s Haier, Huawei, Galanz, and Lenovo; India’s

Dr. Reddy’s Laboratories, Infosys, Ranbaxy, Tata

Group, and Wipro; Mexico’s Cemex, (Khanna and

Palepu, 2006); and Thailand’s Red Bull have all

expanded into, and are successfully competing in,

advanced markets (AMs). The current literature does

not fully explain how such global champions from

emerging markets end up expanding into multiple

advanced economy markets, rather than focusing on

emerging markets similar to their own. This phe-

nomenon raises a significant research question for

international business scholars (Chittoor et al., 2009;

Cuervo-Cazurra and Genc, 2008; Luo and Tung,

2007; Mathews, 2006): how EM firms adapt to be

able to expand into advanced economies.

To address this theoretical gap, we build on prior

studies suggesting that EM MNEs, shaped by their

home business environments and institutions, are

adapted to emerging economy contexts (Cuervo-

Cazurra and Genc, 2008; Hu, 1995; Khanna and

Palepu, 2006; Li and Yao, 2010), but may not be

adapted to market competition in advanced econo-

mies. Specifically,we build on two distinct but related

notions: managerial intentionality and path-breaking

change. International business scholars have recently

started to emphasize the role of managerial intention-

ality, which ‘describes the volitional dimension of

managerial behavior’ (Hutzschenreuter, Han, and

Kleindienst, 2010: 116), in explaining why firms

internationalize in different ways and with different

speeds in spite of similar starting conditions

(Hutzschenreuter, Pedersen, and Volberda, 2007;

Hutzschenreuter et al., 2010). In parallel, strategy

scholars have explored how companies can break the

organizational path they are following by pursuing

path-breaking change (Karim and Mitchell, 2000;

Sydow, Schreyogg, and Koch, 2009).

Building on these two notions, we argue that EM

MNEs are locked in an organizational path adapted

to the emerging economy context and, thus, need to

intentionally break this path (Sydow et al., 2009) if

they want to be able to expand into, and compete in,

advanced markets. An organizational path is the

result of self-reinforcing organizational dynamics,

which lead to organizations being locked in path-

dependent trajectories (Sydow et al., 2009). When

these trajectories lead to undesirable results due to

changes in internal or external environments, top

76 K. Kalasin, P. Dussauge, and M. Rivera-Santos

Copyright © 2014 Strategic Management Society Global Strat. J., 4: 75–103 (2014)

DOI: 10.1111/j.2042-5805.2014.1076.x