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The purpose of this study is to use the rise of emerging-market multinationals as a vehicle to explore how a firm’s country of origin influences its internationalization.

This paper is a conceptual paper.

We argue that the home country’s institutional and economic underdevelopment can influence the internationalization of firms in two ways. First, emerging-market firms may leverage innovations made at home to cope with underdeveloped institutions or economic backwardness to gain a competitive advantage abroad, especially in other emerging markets; We call this innovation-based internationalization. Second, they may expand into countries that are more developed or have better institutions to escape weaknesses on these fronts at home; we call this escape-based internationalization.

Comparative disadvantages influence the internationalization of the firm differently from comparative advantage, as it forces the firm to actively upgrade its firm-specific advantage and internationalize.

We explain two drivers of internationalization that managers operating in emerging markets can consider when facing disadvantages in their home countries and follow several strategies, namely, trickle-up innovation, self-reliant innovation, improvisation management, self-reliance management, technological escape, marketing escape, institutional escape and discriminatory escape.

We explain how a firm’s home country’s comparative disadvantage, not just its comparative advantage, can spur firms its internationalization.

This chapter complements the one that appeared as “History of the AIB Fellows: 1975–2008” in Volume 14 of this series (International Business Scholarship: AIB Fellows on the First 50 Years and Beyond, Jean J. Boddewyn, Editor). It traces what happened under the deanship of Alan Rugman (2011–2014) who took many initiatives reported here while his death in July 2014 generated trenchant, funny, and loving comments from more than half of the AIB Fellows. The lives and contributions of many other major international business scholars who passed away from 2008 to 2014 are also evoked here: Endel Kolde, Lee Nehrt, Howard Perlmutter, Stefan Robock, John Ryans, Vern Terpstra, and Daniel Van Den Bulcke.

As FDI flows grew in volume and complexity in the 1990s and early 2000s, three new players appeared on the global stage: sovereign wealth funds (SWFs), which were government-controlled entities with the authority to take significant equity stakes in foreign firms; private equity (PE) firms, which resorted increasingly to cross-border acquisitions, and emerging-market multinational enterprises (EMNEs), which ratcheted up their overseas acquisitions and investments. While none of these players was entirely new, each became more visible in the 2000s. Looking ahead, we anticipate that SWFs will continue to be marginal FDI players, with a few exceptions, despite their high visibility; that PEs will play a highly volatile role, varying from marginal at times to important at others; and that only EMNEs were already quite important in 2009 and likely to gain in importance, as emerging economies become prime movers of the global economy. The global financial crisis of 2008–2009 may thus only have speeded up the inevitable rise of emerging economies as both sources and destinations for FDI. We further conclude that EMNEs will contribute significantly to sustainable development because of their distinctive capabilities in making and selling products for low-income customers, and their emerging competence in “green” technologies.

This masterclass examines how two important new books propose to achieve cost innovation, a value creation strategy that can transform an over-priced industry.

In their book, marketing gurus Stephen Wunker and Jennifer Luo Law highlight the potential of cost innovation in helping to create new market demand and transform the competitive dynamics in any industry sector, and they offer guidance on how to develop such a strategy. In their study of transformation by value creation, Professors Vijay Govindarajan and Ravi Ramamurti highlight the potential for cost innovations in emerging markets to help transform health care delivery in the West.

The authors showcased in this masterclass demonstrate how the value-based principles highlighted by Porter and Christensen and Kim and Mauborge are key to transforming any industry to make it more reliable, accessible and affordable.

Cost innovation involves taking a fresh approach to the conventional way of delivering value in any given industry and looking for ways to reimagine it.

The notion of cost as a potential target for breakthrough innovation in its own right is still not widely recognized. As marketing consultants Wunker and Luo Law point out in Costovation: innovation and cost are still most often seen as “magnetic opposites,” the one in natural tension with the other. They set out to challenge this assumption and show how “innovation and cost-cutting” can become “a powerful duo, capable of reshaping markets and creating long-term competitive advantages.”

This chapter focuses on the four topics pertaining to foreign direct investment (FDI) and multinational enterprises (MNEs) that are the focus of this volume: (1) managerial decision-making processes that result in FDI and internationalization; (2) the changing national origin of MNEs, particularly those spawned by emerging markets; (3) the changing scope of MNEs, as they fine-tune and globally disperse their value chains, expand into new services, and rely increasingly on networks, alliances, and offshoring to enhance global competiveness, and speed up internationalization to the point of being “born global”; and (4) the changing relationship between MNEs and home and host countries. After surveying Yair Aharoni's significant contributions in each of these areas, the chapter offers a preview of the volume's contents on each topic. It concludes with an agenda for future research by international business scholars.

As an institution, the multinational enterprise has evolved in complexity. From having roots in just a few Western nations, it now has roots in dozens of nations, including many developing countries. Its scope has likewise expanded from natural resource-based industries and manufacturing to a variety of services. And firms are becoming multinational earlier in their lives and at smaller sizes than in the past. This chapter analyzes the evolution of multinationals over the last century, the forces driving that evolution, and distinctive characteristics of the latest wave of multinationals coming out of developing countries. It also explores the risk of a backlash against globalization and multinationals in Western societies, even as these trends gain in popularity in developing countries. It concludes with questions that international business scholars might want to pursue in their future research.