Knee Deep in the Big Muddy: The Survival of Emerging Market Firms in Developed Markets

Zusammenfassung

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This study of Latin American banks located in the United States employs a resource-based framework to explain how subunits of emerging market firms can overcome the challenges of operating in a developed market. * Our results show that an EMF subunit can draw upon ethnic identity as a valuable and costly-to-imitate resource to achieve competitive parity in the developed market. * Ethnic resources can be generated not only from ethnically similar customers but also from ethnically similar competitors in the local market. * In addition, the parent firm' level local and non-local resources can help to achieve competitive parity for the EMF subunits in that country, which in turn positively influences survival. * However, over expansion can lead to spreading local and non-local resources too thin, thus adversely affecting survival.

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Auszug

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Knee Deep in the Big Muddy: The Survival of Emerging Market Firms in Developed Markets

Introduction

When a firm expands across national borders, the principal hazard faced by its subunits is the liability of foreignness (Hymer 1960/1976, Mezias 2002, Nachum 2003, Zaheer 1995). Liability of foreignness is the sum of the social costs that arise from the unfamiliarity, relational and discriminatory hazards that foreign firms experience over and above those faced by local firms in the host country (Eden/Miller 2004). Because of liability of foreignness, subunits of multinationals entering a host country have a lower likelihood of surviving after entry into the new market.

To overcome the liability of foreignness, some scholars argue that multinational enterprises (MNEs) need to provide overseas subunits with certain firm-specific (home-based) resources, to enable survival and higher foreign subsidiary performance (e.g., Caves 1982, Mitchell/Shaver/Yeung, 1994, Rugman 1981, Shaver/Mitchell/Yeung 1997). These resource-based arguments for overcoming liability of foreignness are well suited for subunits of developed market firms, but their efficacy for subunits of emerging market firms (EMFs) remains unclear. Most EMFs that enter developed markets compete from a position of double disadvantage: The firms incur additional costs of doing business abroad, and in addition they are often resource poor compared to domestic firms in developed markets (Thomas/Eden/Hitt/Miller 2007). Although there are clear exceptions such as the Tata Group and Wipro from India, Embraer from Brazil, and Cemex from Mexico that have stronger resources than many of their developed market competitors (Bartlett/Ghoshal 2000, Khanna/Palepu 2006, Makino/Lau/Yeh 2002), the majority of EMFs have weaker marketing resources (e.g., brand recognition) and technology resources (e.g., fewer patents and copyrights) than most developed market firms. This weakness makes it difficult for EMF subunits to compete effectively by using a resource-exploitation strategy in developed markets (Dawar/Frost 1999, Hoskisson et al. 2000, Khanna/Palepu 1999).

In effect, emerging market firms entering developed markets start off "knee deep in the Big Muddy" or more likely waist or neck deep, to quote the old Pete Seeger song about an army platoon trying to cross the Mississippi River. Do these EMFs have the resources to "cross the river" and survive? Despite the double-disadvantage that exists (presented above), some EMF subunits do manage to survive and even prosper in developed markets. For example, Miami, Florida i...

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