Exploring the interconnections between institutions, innovation, geography, and internationalization in emerging markets

Citation

Newburry, W., McIntyre, J.R. and Xavier, W. (2016), "Exploring the interconnections between institutions, innovation, geography, and internationalization in emerging markets", International Journal of Emerging Markets, Vol. 11 No. 2. https://doi.org/10.1108/IJoEM-04-2015-0080

Exploring the interconnections between institutions, innovation, geography, and internationalization in emerging markets

Article Type: Guest editorial From: International Journal of Emerging Markets, Volume 11, Issue 2.

Introduction

The Academy of International Business (AIB) operates a series of 18 region-based chapters. In Fall 2012 and Spring 2013, two of these chapters, the AIB Southeast US chapter and the AIB Latin America chapter conducted annual meetings with similar themes. In the spirit of inter-chapter cooperation, the chapters endeavored upon this special issue of the International Journal of Emerging Markets (IJoEM) bridging the two chapter meetings. This special issue is based on an integrated theme from these conferences – institutions, innovation, geography, and internationalization in emerging markets. The selected papers are drawn from exemplary contributions from both conferences combined with similarly themed papers submitted directly to IJoEM.

The study of emerging markets and the unique characteristics of emerging market multinationals have been gaining increasing attention for at least the past two decades (e.g. Khanna and Palepu, 1997; Hoskisson et al., 2000; Cuervo-Cazurra and Genc, 2008). Reflective of this, IJoEM has now entered its tenth year of publication. Within the broader emerging markets context, this special issue captures several interrelated themes that have been repeatedly demonstrated to be important phenomena to both emerging markets and their firms. The interrelationships between these themes are illustrated in Figure 1. As can be seen in the figure, we envision institutions, innovation, and geography as three interconnected constructs which reinforce each other, while also serving as key drivers of internationalization in emerging markets. We review each of these themes individually below in the context of the articles in this special issue before returning to discuss their interconnections.

Figure 1 Institutions, innovation, geography, and internationalization

We also observe that these themes have been widely present in IJoEM articles throughout the journal’s first ten years of operation. Table I summarizes the number of times each of the main themes from this issue have appeared in either the title of an IJoEM article and/or the abstract and keywords. Additionally, the percentage of times these themes have appeared in all IJoEM articles is indicated. The term "institution" and its variants has appeared in approximately one third of all IJoEM abstracts and keywords. "Innovation" has appeared in approximately 8 percent of abstracts and keywords. "Geography" and the related term "location" have appeared in about 11 percent of IJoEM abstracts and keywords. Given the focus of the journal, the term "international" and its variants have appeared in the abstract or keywords of virtually all journal articles. Overall, these percentages suggest the themes of this special issue are highly relevant to the IJoEM readership.

Table I Occurence of special issue themes in IJoEM article titles and abstracts

Institutions

We start with the construct of institutions, which is perhaps the most studied phenomenon in the emerging markets context. Institutions have been identified as having a strong influence within emerging markets since early in the field’s study (e.g. Hoskisson et al., 2000). A large portion of this literature examines institutional voids, or the relative lack of development of certain institutions in emerging markets, starting with Khanna and Palepu’s (1997) examination of voids in capital, labor, and product markets. These voids have been shown to not only impact the operational environment for foreign multinationals entering emerging markets, but have also been shown to impact the capability development of emerging market multinationals, themselves (Xavier et al., 2014, Cuervo-Cazurra and Genc, 2008). Although emerging market institutions generally hinder business activities, they may also support the development of local companies whenever the state provides some support. Institutions and/or institutional voids may in some cases drive innovation by creating a need for firms to develop new ways to solve a problem that may be standardized in developed country contexts. They can also create a support structure for innovation, along with conditions favorable to the geographic concentration of businesses in an area. Given these influences, it is not surprising that the effects of institutions have been examined in many contexts. For example, Inoue et al. (2013) show, at the firm level, the positive effect of minority government ownership on the performance of Brazilian firms. The same effect is noted by Xavier et al. (2013) at the Business Group level. Yang and Stoltenberg (2014) analyzed a more direct state action in pushing Chinese multinational firms to internationalize by offering financial resources.

Within this special issue, the paper "Knowledge will set you free: enhancing the firm’s responsiveness to institutional change" by Luis Dau is an exemplary study of the importance of institutions in emerging markets, while also showing connections to both innovation and geographic considerations by combining theory from the economic geography and learning literatures. The paper also contains dimensions such as international product diversification and accumulated internationalization knowledge that directly link it to the internationalization component of the theme. This paper examines how international learning can aid firms in responding to changes in institutional processes, with a focus on pro-market reforms. Utilizing a sample of 405 firms across Latin Amercia from 1989 to 2008, the paper demonstrates how specific international strategies related to organization, space and time interact with pro-market reforms to influence firm profitability stemming from these reforms.

Innovation

Our next construct is innovation, which generally refers to the process of change or making something new that adds value within a company. While innovation is important to all firms, it is particularly important within the emerging markets context given the numerous dimensions within which emerging markets differ from their developed country counterparts. For example, Fleury et al. (2013) examined factors impacting the innovative capabilities of Brazilian multinationals, which were able to compete in more sophisticated markets due to innovative processes (Arbix, 2010). Yip and McKern (2014) alerted us to the fact that Chinese companies are becoming more innovative as multinational companies relocate their R&D activities to emerging markets.

Innovation was the direct focus of two papers within this special issue, indicating the importance of the topic along with its multidimensional nature. The paper, "Experience the ‘ambience’: Testing perceptions of ambient advertising innovations between US and Indian consumers," by Jun Wu, Anshu Arora, and Amit Arora, provides a comparative examination of advertising innovations between the USA and India. By comparing these countries, the paper demonstrates a connection between innovation and institutional development. While this study does not directly measure affects across borders, by examining this issue in both a developed and developing world context, the manuscript also provides guidance on the comparative aspects that may need to be addressed when doing business across markets. The study tests a model focussing on relationship strength (R) between the product and the customer, inherent dramatic surprise (I) and prodigious execution (P), demonstrating differences in the predictions of each of these factors between a developing and a developed country.

"Reverse innovation antecedents" by Felipe Borini, Sidney Costa and Moacir Oliveira Junior examines the direction of flow of innovation, and the factors that lead to innovations flowing from subsidiaries to their headquarters. This paper directly connects the innovation and internationalization elements of our overall theme by examining the transfer of knowledge and innovation across country borders. Based on responses from 167 foreign subsidiaries within Brazil, the authors find relationships between reverse innovation and headquarters support, autonomy and integration. The results provide guidance to firms investing in emerging markets on how to better capitalize on innovations stemming from their investments within these markets.

Geography

Geography generally refers to physical features of the earth and patterns of locations. In the context of this special issue, geographic factors could potentially include such broad factors as agglomeration economies within a city or region, or the degree to which the local institutional structure supports these activities. They could similarly relate to how factors such as cities, country boundaries, and various distance types (e.g. Cultural, Administrative, Geographic, and Economic; Ghemawat, 2001) impact the operations of emerging market firms. Among several factors, Contractor (2013) exposed the role of extensive diasporas and common language as determinants of foreign direct investments, and the competitiveness of firms from emerging countries.

This dimension of our call is most evident in three papers focussed on industry clusters in various Latin American countries. The manuscript "Competitiveness of clusters: A comparative analysis between wine industries in Chile and Brazil," by Greici Sarturi, Carlos Augusto, João Maurício Boaventura, and Silvio Santos, compares factors impacting the competitiveness of the wine clusters in Brazil and Chile. Agglomeration effects (e.g. Shaver and Flyer, 2000) generally refer to the positive benefits that firms often receive when members of an industry cluster together in a geographic location. By conducting a theoretical and empirical examination of the factors impacting the competitiveness of the Brazilian wine cluster located in the Serra Gaúcha and the Chilean cluster located in Valle del Maule, this study helps us understand the issues affecting cluster competitiveness in two important emerging markets. Given the global nature of the wine industry, particularly with respect to Chilean wines, this study also has implications for the study of internationalization.

"State capitalism and clusters: the case of Brazilian shipbuilding," by Frank Dubois and Marcos Primo, examines the intersection of geography and institutions by focussing on government efforts in the form of state capitalism to develop the commercial shipbuilding industry in Northeastern Brazil. The paper examines how government investments and incentives impact industrial cluster formation in this region. The authors find that state capitalism has positive impacts on economic development in the region, but is also limited in terms of its ability to promote short-run improvements in cluster capabilities.

Our third paper focussing on clusters is by Carlos Jardon and Regina Pagani and titled: "Is collective efficiency in subsistence clusters a growth strategy? The case of the wood industry in Oberá, Argentina." Similar to the other two cluster-related papers in this special issue, this paper follows the logic that territories or regions contain higher order capabilities which extend to firms within a region, and contribute to resources of these firms as a source of competitive advantage. The paper focusses on small- and medium-sized enterprises and advises these companies to work together though territory-based networks to develop sustainable capabilities that can benefit firms in the region.

Internationalization

Finally, internationalization generally describes the degree to which firms pursue activities outside their home country (Newburry et al., 2014). A rich literature exists within the international business field examining the impact of internationalization on firm performance (e.g. Contractor et al., 2003; Lu and Beamish, 2004; Kirka et al., 2011). Moreover, related variables such as foreignness have been proven to have important explanatory power in emerging market settings (e.g. Newburry, 2010). As the internationalization of firms from emerging markets and from the services industry become more pronounced, other explanatory variables have been added, such as customer involvement (Zhang et al., 2015) and the mindset of top management (Contractor, 2013).

While all the articles in the special issue touch on at least one of the three prior issue themes, the theme of internationalization permeates either directly or indirectly through them all. However, this element is most directly present in "The effects of past satisfaction and commitment on the future intention to internationalize," by Jase Ramsey, Livia Barakat, Matthew Mitchell, Thomas Ganey, and Olesea Voloshin. This paper directly addresses the internationalization element of this special issue by examining factors impacting the internationalization intents of 42 large Brazilian MNEs. The authors show systematic differences between firms based on their level of satisfaction and commitment to internationalization. While the authors expectedly found that the degree of satisfaction with prior internationalization positively related to future internationalization intents, they unexpectedly found that commitment to internationalization has a marginally significant negative moderating influence on this satisfaction-future intent relationship. While any explanation of the results is speculative, this suggests a complex relationship between satisfaction and commitment in emerging markets worthy of future study.

Conclusions

The papers in this special issue provide a glimpse into the interconnections between the constructs of institutions, innovation, geography, and internationalization in emerging markets. While it is common for academic research to focus narrowly on very specific topics, it is also useful to periodically examine the broader interconnections between areas to provide an overall map of related research topics. Academic interest in emerging markets has grown steadily over the past two decades. We hope that this collection of articles helps bolster that interest by illustrating the interconnections between some commonly studied research topics in this context.

While not exclusively focussed on Latin America, the issue also devotes significant attention to this relatively understudied region, with one paper focussing on Latin American MNCs as a whole, plus four others focussing on Brazil, one on Chile and one on Argentina. Taken together, Vassolo et al. (2011) noted that Latin America’s aggregated gross domestic product is roughly equivalent to that of China and three times larger than India’s. As such, it is a region worthy of greater academic attention.

Overall, we hope this issue spurs greater studies on the interconnected nature of academic constructs in emerging markets, as well as further cooperative efforts between groups in bringing such studies together.

William Newburry -Florida International University, Miami, Florida, USA

John R. McIntyre - The Georgia Institute of Technology, Atlanta, Georgia, USA

Wlamir Xavier - Eastern New Mexico University, Portales, New Mexico, USA and Universidade do Sul de Santa Catarina (UNISUL), Florianópollis, Brazil

References

Arbix, G. (2010), "Structural change and the emergence of the Brazilian MNEs", International Journal of Emerging Markets, Vol. 5 Nos 3/4, pp. 266-288

Contractor, F.J. (2013), "Punching above their weight: the sources of competitive advantage for emerging market multinationals", International Journal of Emerging Markets, Vol. 8 No. 4, pp. 304-328

Contractor, F.J., Kundu, S.K. and Hsu, C. (2003), "A three stage theory of international expansion: the link between multinationality and performance in the service sector", Journal of International Business Studies, Vol. 34 No. 1, pp. 5-18

Cuervo-Cazurra, A. and Genc, M. (2008), "Transforming disadvantages into advantages: developing-country MNEs in the least developed countries", Journal of International Business Studies, Vol. 39 No. 6, pp. 957-979

Fleury, A., Fleury, M.T.L. and Borini, F.M. (2013), "The Brazilian multinationals’ approaches to innovation", Journal of International Management, Vol. 19 No. 3, pp. 260-275

Ghemawat, P. (2001), "Distance still matters: the hard reality of global expansion", Harvard Business Review, Vol. 79 No. 8, pp. 137-147

Hoskisson, R.E., Eden, L., Lau, C.M. and Wright, M. (2000), "Strategy in emerging economies", Academy of Management Journal, Vol. 43 No. 3, pp. 249-67

Inoue, C.F.K.V., Lazzarini, S.G. and Musacchio, A. (2013), "Leviathan as a minority shareholder: firm-level implications of state equity purchases", Academy of Management Journal, Vol. 56 No. 6, pp. 1775-1801

Khanna, T. and Palepu, K. (1997), "Why focused strategies may be wrong for emerging markets", Harvard Business Review, Vol. 75 No. 4, pp. 3-10

Kirka, A.H., Hult, G.T.M., Roth, K., Cavusgil, S.T., Perry, M., Akdeniz, M.B., Deligonul, S., Mena, J.A., Pollitte, W.A., Hoppner, J.J., Miller, J.C. and White, R.C. (2011), "Firm-specific assets, multinationality, and financial performance: a meta-analytic review and theoretical integration", Academy of Management Journal, Vol. 54 No. 1, pp. 47-72

Lu, J.W. and Beamish, P.W. (2004), "International diversification and firm performance: the S-curve hypothesis", Academy of Management Journal, Vol. 47 No. 4, pp. 598-609

Newburry, W. (2010), "Reputation and supportive behavior: moderating impacts of foreignness, industry and local exposure", Corporate Reputation Review, Vol. 12 No. 4, pp. 388-405

Newburry, W., Gardberg, N.A. and Sanchez, J.I. (2014), "Employer attractiveness in Latin America: the association among foreignness, internationalization and talent recruitment", Journal of International Management, Vol. 20 No. 3, pp. 327-344

Shaver, J.M. and Flyer, F. (2000), "Agglomeration economies, firm heterogeneity, and foreign direct investment in the United States,", Strategic Management Journal, Vol. 21 No. 12, pp. 1175-1193

Vassolo, R.S., De Castro, J.O. and Gomez-Mejia, R. (2011), "Managing in Latin America: common issues and a research agenda", Academy of Management Perspectives, Vol. 25 No. 4, pp. 22-36

Xavier, W.G., Bandeira-de-Mello, R. and Marcon, R. (2013), "Minority government ownership: evidence from Brazil", EIBAzine – European International Business Academy Newsletter, No. 12, pp. 9-13

Xavier, W.G., Bandeira-de-Mello, R. and Marcon, R. (2014), "Institutional environment and business groups’ resilience in Brazil", Journal of Business Research, Vol. 67 No. 5, pp. 900-907

Yang, X. and Stoltenberg, C.D. (2014), "A review of institutional influences on the rise of made-in-China multinationals", International Journal of Emerging Markets, Vol. 9 No. 2, pp. 162-180

Yip, G. and McKern, B. (2014), "Innovation in emerging markets – the case of China", International Journal of Emerging Markets, Vol. 9 No. 1, pp. 2-10

Zhang, X., Zhong, W. and Makino, S. (2015), "Customer involvement and service firm internationalization performance: an integrative framework.", Journal of International Business Studies, Vol. 46 No. 3, pp. 355-380

Further reading

Arita, S. (2013), "Do emerging multinational enterprises possess South-South FDI advantages?", International Journal of Emerging Markets, Vol. 8 No. 4, pp. 329-353

About the Guest Editors

William Newburry is a Department Chair and the SunTrust Bank Professor at the Florida International University. His research focusses on how multinational corporations manage and relate to both subsidiaries and employees, particularly in emerging market contexts. Professor Newburry has published 30+ papers in top-tier, peer-reviewed journals and 12 in scholarly books. He has co-edited two books and is currently co-authoring another focussing on operational challenges facing emerging market multinationals. He is the Series Editor of Research in Global Strategic Management, and the President/Chapter Chair of the Academy of International Business Latin America Chapter (AIB-LAT). William Newburry is the corresponding author and can be contacted at: mailto:newburry@fiu.edu

John R. McIntyre is the Director of the Georgia Tech Center for International Business Education and Research and a Professor of Management and International Affairs in the Scheller College of Business and the Sam Nunn School of International Affairs, Georgia Institute of Technology, Atlanta, Georgia. He has published over 100 research articles and chapters; books include: Globalization of Chinese Enterprises (2008), Multinational Enterprises and the Challenge of Sustainable Development (Elgar, 2009); China Rules: Globalization and Political Transformation, (Palgrave MacMillan, 2009), Strategies for Sustainable Technologies and Innovations (E Elgar, 2013); Innovation in Business Education in Emerging Markets (Palgrave Macmillan, 2013). Awarded the 2015 Steven A. Denning Faculty Award for Global Engagement.

Wlamir Xavier is an Assistant Professor of Management at the Eastern New Mexico University and a Professor of Management at the UNISUL University, in Brazil. His research focusses on the business group phenomenon in emerging countries and non-marketing strategies.