Outward Foreign Direct Investment Activities and Strategies by Firms from Emerging Markets: Management Literature Review from 2005 to 2010

Outward Foreign Direct Investment Activities and Strategies by Firms from Emerging Markets: Management Literature Review from 2005 to 2010 Monica Yang Adelphi University, School of Business, Hagedorn Hall of Enterprise 329 1 South Ave Garden City, NY 11530 Tel:+1-516-877-4649 Fax: :+1-516-877-4607 e-mail: yang2@adelphi.edu This manuscript is published in Current Topics in Management (edited by M. Afzalur Rahim), Vol. 16, 2012, pp. 143-166

Abstract Recognizing the increasing role of emerging markets in international trade and management, we offer a systematic literature review of outward foreign direct investment (OFDI) activities and strategies initiated by firms from emerging markets. We used specific terms such as emerging markets, emergent markets, developing economies, outward foreign direct investment and strategy to identify articles published in eleven management journals between 2005 and 2010. The final sample size is fifty-two articles. Major theories in these selected articles are identified and five major research topics are adopted to further analyze research results. These five research topics include the study of trends of OFDI, the comparison between firms from emerging and developed markets, the internationalization process (sequence/pattern), the determinants of internationalization, and the globalization of emerging market MNEs. This study enhances the understanding of outward FDI by emerging markets not only by showing recent developments and gaps in the literature but also by providing directions for future research in this research area. 2

An important component of globalization during the last two decades is the increased participation of developing economies (or so-called emerging markets) in the global economy. UNCTAD (2010) show that firms based in emerging markets have attracted half of global foreign direct investment inflows, and invested one quarter of global foreign direct investment outflows. The term emerging market refers to those countries whose national economies have grown rapidly, where industries have undergone and are continuing to undergo dramatic structural changes, and whose markets hold promise despite volatile and weak legal systems (Hoskisson, Eden, Lau, & Wright, 2000; Luo & Tung, 2007). These markets range from the countries of Brazil, Russia, India, China and South Africa (sometimes referred to as BRICS), to countries in Latin America, South Asia, and the Middle East. Management research on emerging markets has been growing since the 1990s (Hoskisson et al., 2000; Peng, 2001), however, the focus is on how and what firms enter and do in emerging markets. When firms from emerging markets are expanding into foreign markets at a more rapid pace than their developed market counterparts (UNCTAD, 2010), it becomes essential to scrutinize outward foreign direct investment (OFDI) activities and strategies by firms from emerging markets. In their review of the strategy research in emerging markets, Wright, Filatotchev, Hoskisson, and Peng (2005) categorize four strategic options in this research field: (1) firms from developed economies enter emerging markets; (2) domestic firms compete within firms of emerging markets; (3) firms from emerging markets enter other emerging markets; and (4) firms from emerging markets enter developed markets. This study is the first to consider the third and fourth strategic options, which embrace OFDI activities of 3

emerging markets, as equally important as the first two options in the development of international business management. Recently, top management journals such as Journal of International Business Studies (2007) and Journal of International Management (2007 and 2010) have published special issues of emerging markets and their OFDI activities. We thus argue that a systematic approach that evaluates and organizes this growing literature is critical and necessary. The purpose of this article is to review management research in OFDI by firms from emerging markets that has been published between 2005 and 2010. In our review we set out to identify the major topics that have been examined. Subsequently, we examine the gaps in the existing literature for future research. It is hoped that this review provides researchers a foundation on which to build on existing works, and develop new knowledge for future theoretical examination of this research field. In addition, for managers of multinational firms, this review enhances their understanding of emerging market firms by highlighting unique characteristics and challenges faced by these firms in the process of internationalization. Management Research on OFDI Activities and Strategies from Emerging Markets, pre-2005 One characteristic of the research on strategies of emerging markets pre-2005 is that the focus is on FDI in emerging markets, not by emerging market firms. Hoskisson et al. (2000), Peng (2001), and Wright et al. (2005) authored three seminal review papers of emerging markets before 2005. Hoskisson et al. (2000) and Peng (2001) examine strategy formulation and implementation by private and public enterprises in different emerging markets. Different from Hoskisson et al. (2000) and Peng (2001), Wright et al. (2005) categorize strategies of emerging markets by noting where firms are 4

from (developed vs. emerging markets) and what markets they enter. Therefore, Wright et al. (2005) can be seen as formally introducing and classifying outgoing strategies of emerging economies. In so doing, the discussion of outgoing strategies and activities by emerging markets began to get close attention. Strategy research of emerging markets pre-2005 is centered on a research question whether western theories are generally applicable in emerging economy environment or whether contexts of emerging markets permit development of new theoretical concepts or modification of old ones. For example, both Hoskisson et al. (2000) and Wright et al. (2005) discussed challenges that conventional theory derived from developed markets face. This research question attempts to understand the extent to which theories and methodologies are suited to the unique social, political, and economic context of emerging markets. As to major theories applied in this research field, Hoskisson et al. (2000) first identify three major theories: institutional theory, transaction cost economies, and the resource-based view of the firm. Unlike Hoskisson et al. (2000), Peng (2001) focuses only on the resource-based view of the firm and demonstrated how this theory has explained or could apply to the study of international management in the emerging markets. After Hoskisson et al. (2000), Wright et al. (2005) in their review work proposed another theory, agency theory, to the existing three. Disagreeing with Hoskisson et al. (2000), Wright et al. (2005) argue that institutional theory is the most dominant theory in the study of emerging markets. Other theories such as the resourcebased view and agency theory are likely to blend within institutional theory. 5

Finally, in terms of key research findings of OFDI by emerging markets prior to 2005, Wright et al. (2005) argue that firms from emerging markets will defeat those from developed markets in other emerging markets because the former own resources that may readily apply to the resource situation in similar institutional settings to their home setting. Furthermore, in the discussion of firms from emerging markets to enter developed markets, Wright et al. (2005) identify major motives (i.e., acquire/develop new resources and capabilities) and difficulties (i.e., liability of foreignness, lack of resources, and lack of incentive for entrepreneurial activity) that emerging market firms might face. To summarize, management research on FDI by emerging markets before 2005 concentrate heavily on inward FDI in emerging markets by firms from developed markets. The study of the outward strategy by firms from emerging markets is in an early stage of development. Although researchers have begun to highlight unique features of the institutional environment of emerging markets, empirical evidence of OFDI by emerging markets are not sufficient. We argue that one significant contribution of pre- 2005 literature is that critical management theories and research direction are identified. For example, both Peng (2001) and Wright et al. (2005) believe that resource-based view and institutional theory are major theories in the future study. Therefore, they argue that social capital in the emerging markets is an important resource of firms from emerging markets. They both use business groups as an example to disclose several unique characteristics of emerging market firms. Furthermore, researchers before 2005 have recognized organizational heterogeneity in the emerging markets and thus we argue that it is valuable to make distinctions among business forms. Peng (2001), for instance, had identified four business 6

forms in emerging markets: multinational firms, state-owned enterprises, start-ups (entrepreneurial), and business groups (conglomerates). Because each business form embraces unique institutional resources as well as restrictions of emerging markets, it is plausible to become a finer approach to organize future literature in this field. Management Research on OFDI Activities and Strategies from Emerging Markets, 2005 to 2010 As firms from emerging markets increasingly take an active role in global investment, management scholars show interest in their outward foreign direct investment strategies. To begin the review of OFDI and international expansion strategies from emerging markets, we first used specific terms such as emerging markets, emergent markets, developing economies and strategy to identify articles on emerging markets published in the management journals. Table 1 shows the list of management journals that we reviewed. We chose these journals because they were recognized as critical journals in several management journal rankings (Frank, Edlund, & Oster, 1990; Minger & Harzing, 2007; Pisani, 2009). -------------------------------------- Insert Table 1 about here -------------------------------------- As shown in Table 1, a thorough search of articles in these management journals led to a collection of 164 articles that focused on strategy research both in and by emerging markets. Thereafter, we use outward and foreign direct investment to narrow the scope of these papers. Of the 164 articles, nearly one third (52) articles address the outward FDI by emerging markets. Among these management journals, Journal of International Business Studies and Journal of International Management have published the most studies of outward FDI by emerging markets (71.2%). 7

With these 52 articles, we used keywords provided by authors of each article to identify theories and research topics in this research field. Only six articles (11.6 %) did not list any keyword. We authors and three research assistants then independently reviewed and coded the contents of all articles to assess inter-rater reliability. In cases where discrepancies in coding occurred, all raters discussed their findings, and the first author determined the final classification. On all assessments there was overall agreement of 92%. The final 52 papers, using diverse geographical settings, theoretical frameworks and methodological approaches, collectively provide insights that would hopefully not only address existing gaps in our understanding of emerging market firms but also provide useful directions for future research. In the following sections, we first identify major theories adopted in the selected articles, followed by the discussion of five major research topics and their findings. Finally, we discuss methodology adopted in these articles. Major Theories Table 2 lists major theories cited in these articles. As shown, twenty three articles (44.3%) adopted the international theory of multinational enterprises such as the eclectic paradigm, foreign direct investment, globalization, and internationalization process. Transaction cost theory is the crucial foundation of most international theory of multinational enterprises. -------------------------------------- Insert Table 2 about here -------------------------------------- 8

The second popular theory adopted in these fifty two papers is resource based view (10 articles, 19.2%), followed by institutional theory (9 articles, 17.3%), social network theory (8 articles, 15.4%), agency theory (4 articles, 7.7%) and organizational learning (3 articles, 5.8%). This result is consistent with what Hoskisson et al. (2000) and Wright et al. (2005) have predicted. In the following section, we use five major research topics to further analyze research results between 2005 and 2010. These five research topics include the study of trends of OFDI, the comparison between firms from emerging and developed markets, the internationalization process (sequence/pattern), the determinants of internationalization, and the globalization of emerging market MNEs. Major Research Topics and Findings Trends of OFDI. Recognizing the surge of OFDI by firms from emerging markets, business scholars pay attention to the characteristics of this trend such as size, target locations/investment destination, key players, activity types and entry mode choices. Morck, Yeung, and Zho (2008), Buckley, Cross, Ta, Xin, and Voss (2008) and Kalotay and Sulstarova (2010) are three representative papers. Morck et al. (2008), for example, identified the empirical characteristics of China s OFDI from 1979 to 2006 and found out that at the infant stage, China s OFDI was biased towards tax havens and Southeast Asian countries, mostly conducted by state-controlled enterprises. Later the OFDI 2003-2006 by China remained small relative to the economy s size, and most firms focused on nearby developing countries and Africa. In the setting of China, Morck et al. (2008) found that main players were always large, profitable state-controlled enterprises with lucrative state-enforced monopolies. Contrary to Morck et al. (2008), Kalotay and 9

Sulstarova (2010) examined the OFDI by the Russian Federation from 1993 to 2008. Using the data of cross-border M&A activities, they found that major players in the early stage were mostly privately-owned transnational firms but later switched to state-owned firms. Researchers also identify specific drivers of the surge of OFDI and evaluate broader implications of this trend with economic and management theories. Several economy-level explanations (i.e., high interest rate, weak corporate governance and distorted capital allocation) and firm-level explanations (i.e., internalization, reverse ownership and private benefits of control) have been identified as the drivers behind the surge of OFDI by emerging markets (e.g., Morck et al., 2008). Buckley et al. (2008) and Luo et al. (2010), for instance, argued that government direct push is another major force behind this trend. In the setting of Russia Federation, Kalotay and Sulstarova (2010) found that different motivations exist between state-owned and private-owned firms. Specifically, private-owned firms sought safety nets abroad to protect themselves from domestic uncertainty while state-owned firms were motivated by a desire to control the value chain of their products. To assess whether or not emerging market OFDI conforms to the general model of OFDI, literature between 2005 and 2010 has proposed more unique features of emerging market firms. Buckley et al. (2008), for instance, explicitly list six unique propositions with regard to OFDI from emerging markets. Unfortunately, Buckley et al. (2008) found little supporting evidence for these six propositions in the case of China. Kalotay and Sulstarova (2010) in their study have found supporting evidence that homecountry factors play a particular role in shaping Russian OFDI. 10

To summarize, existing research between 2005 and 2010 have provided answers to the characteristics and drivers of OFDI by some specific emerging markets. However, there is little discussion on how OFDI by emerging markets has affected their own home countries on measures such as economic productivity (e.g., Zhao, Liu, & Zhao, 2010). Moreover, due to the dynamic nature of OFDI trends over different time periods, longitudinal studies which can display significant changes emerging market firms experience will still be in strong need in the future. Finally, because most studies choose China as the research setting, the generalization of current research results becomes questionable. We thus believe that future research will continue to discover unique characteristics and drivers behind OFDI by more emerging markets. The Comparison Between Firms from Emerging and Developed Markets. In addition to sketching characteristics and drivers of OFDI by emerging markets, researchers focus on the comparison between firms from the emerging markets and those from the developed markets. So far, the comparison between firms from the emerging markets and the developed markets is on the differences in ownership/location/ internationalization (OLI) advantages. The common theoretical model often cited here is the OLI model. Petrou (2007), for example, examined service multinational enterprises (banking groups) and found that both emerging and developed market firms are motivated to exploit ownership (O) and internalization (I) advantages. However, their location (L) motives, location choices and location entries are different. Specifically, multinational banks from emerging markets are more likely to follow clients from home whereas those from developed markets are more likely to enter emerging markets in search of foreign market opportunities. 11

The other focus of the comparison between firms from emerging markets and the developed markets is their performance in the least developed market. Most empirical studies have reached the same conclusion that pre-2005 literature has found. Firms from emerging markets perform better than those from developed markets in least developed countries. Cuervo-Cazurra and Genc (2008) confirmed that MNEs from emerging markets are used to operating in countries with difficult governance. In the case of 76 international joint ventures in Africa, Acquaah (2009) didn t find a difference in performance but firms from emerging and developed markets are likely to adopt different strategies in Africa. We see this research stream as the response to the research question whether existing theories by western firms can be applied to emerging markets. To answer this question, the search for similarities and difference between emerging market and developed market firms has been successful but not yet sufficient. We believe this research stream will continue to grow because more comparisons between firms from the emerging markets and developed markets are expected. For instance, it is worth exploring the entry mode choices of both emerging and developed market firms or the performance and competition in the developed, not less-developed, markets. Internationalization Process: Sequence/Pattern. The literature in the process of internationalization by firms from emerging markets is further divided in two parts: one is the sequence/pattern of the process of internalization, and the other is the search for determinants affecting the internationalization process and results. The research focus in the study of the pattern of the internalization process is to revise old theories and propose a new model for the internationalization process. Two 12

theories that are frequently adopted here are 1) the eclectic (OLI) paradigm and 2) the incremental development model. For example, Li (2007) uses three longitudinal cases from China and proposes a Linkage-Leverage-Learning (LLL) model to integrate with the traditional OLI model. Cuervo-Cazurra (2007), on the other hand, analyzes twenty Latin American MNEs and proposes three alternative sequences of value-added activities in the internationalization process by firms from emerging markets. Finally, Chittoor and Ray (2007) adopt strategic group analysis to analyze the internationalization path of forty Indian pharmaceutical firms. They end up proposing a conceptual model of internationalization with four international strategies and conclude that different internationalization paths lead to similar levels of performance. Meanwhile, some researchers are interested in a so-called leap frogging internationalization process of successful MNEs from emerging markets. Pananond (2007) is one example that uses two case studies of Thai multinationals to show the shift in the dynamic of their international expansion. Lee and Slater (2007) is another study that uses the unique case of Samsung to explain its extraordinary development path. Two key characteristics of MNEs from emerging markets in the leap frogging internationalization process are identified: one is the aggressive risk-taking investment behavior in search of entrepreneurial rent and the other is the effective policy of managing technology development. Because studies here are mostly focusing on the successful case of a few emerging market firms, the results are primarily descriptive and the generalization of them is still in need. The study of the sequence/pattern of the process of internalization has contributed to current international business studies by generating new theories (e.g., Li, 2007) for 13

the internationalization process of firms from emerging markets. Nevertheless, as mentioned earlier, most studies remain on the conceptual level and the use of case study of few successful firms is the major research method. These are the shortcomings of this research stream. Because most firms under study are either state-owned or governmentsupported MNEs, we argue that future research needs to consider other types of firms (e.g., privately-owned) from emerging markets and test the generalization of the research results here in a broader setting of other emerging markets. Determinants of Internationalization Process. The other research focus under the topic of the internationalization process of emerging market firms is to discover the determinants affecting this process. Both Tables 3 and 4 summarize empirical studies between 2005 and 2010 in this area. Table 3 lists empirical studies that adopt a macro perspective to examine the influence of the economic and institutional environment on the internationalization process of emerging market firms. Table 4, on the other hand, presents those empirical studies scrutinizing firm-level factors in affecting the internationalization process of emerging market firms. Major dependent variables in the study of the internationalization process, as shown in Table 3 and 4, range from the measurement of FDI activities such as the percentage change of OFDI (Tolentino, 2010), the intensity of international venturing (e.g., Bhaumik, Driffield, & Pal, 2010; Tan & Meyer, 2010; Yiu, Lau, & Bruton, 2007) to the performance of organizations such as the survival rate (Garg & Delios, 2007) and profitability performance (e.g., Gubbi, Aulakh, Ray, Sarkar, & Chittor, 2010; Zhou, Wu, & Luo, 2007). The measurement of OFDI strategy is limited to the choice of entry mode (e.g., Cui & Jiang, 2009; Demirbag. 14

McGuinness, & Altay, 2010) and location (e.g., Filatotchev, Strange, Piesse, & Lien, 2007; Kalotay & Sulstarova, 2010). -------------------------------------- Insert Tables 3 & 4 about here -------------------------------------- As to the determinants of the internationalization process, major independent variables in Table 3 include macroeconomic factors (Tolentino, 2010) and institutional factors of both home and host markets (e.g., Buckley et al, 2007; Demirbag, Tatoglu, & Glaister, 2009; Gubbi et al., 2010). Buckley et al. (2007), for instance, in the sample of Chinese firms found that political risk, cultural proximity, host market size, geographic proximity and host natural resources endowments are significant factors affecting OFDI. Tolentino (2010) in investigating the relationships between home country macroeconomic factors and OFDI revealed that the differences of national economic characteristics between China and India resulted in the variability in their OFDI activities. Furthermore, Demirbag et al. (2009) examined the influence of institutional factors such as political constraints, linguistic distance, knowledge infrastructure and the extent of parent diversity on the equity ownership mode. In their findings, the impact of cultural distance was not significant but variables like corruption resulted in a preference for joint venture over wholly owned subsidiary. Finally, in terms of the influence of host country institutions, Gubbi et al. (2010) found supporting evidence in the sample of Indian firms that the magnitude of value creation in their cross-border mergers and acquisitions increases when their target firms are located in advanced economic and institutional environments. 15

Different from Table 3, Table 4 lists empirical studies that identify firm-level resources as key determinants of the process of internationalization. Major determinants are corporate governance/ownership structure (e.g., Bhaumik et al., 2010; Filatotchev et al., 2007), strategic intent (e.g., Cui & Jiang, 2009), parental networks (e.g., Elango & Pattnaik, 2007; Zhou et al., 2007), business group affiliation (e.g., Garg & Delios, 2007; Tan & Meyer, 2010), and experience (e.g., Tan & Meyer, 2010; Thomas, Eden, Hitt, & Miller, 2007). These firm-level determinants draw heavily upon management theories such as resource-based view, network theory and organizational learning theory. Below is the detailed discussion of the results of these determinants. In the discussion of the influence of corporate governance/ownership structure, Filatotchev et al. (2007) examined four ownership structures of the parent company (family share ownership, non-family insider share ownership, shareholding of domestic (foreign) financial institutions, and regional network) and investigated their impact on the choice of the mode of entry. The result of this study supports that the ownership structure of the parent company does matter with regard to the OFDI decision. Similar to Filatotchev et al. (2007), Bhaumik et al. (2010) in the setting of Indian automotive and pharmaceutical firms found that family firms and firms with concentrated ownerships are less likely to invest overseas. They also discovered that strategic equity holding by foreign investors facilitates OFDI activities. In terms of the role of strategic intent, Cui and Jiang (2009) in the setting of Chinese firms found that firms prefer wholly subsidiary entry mode when they adopt a global strategy, face severe host industry competition, and emphasize assets seeking purposes. Recognizing that emerging market firms would build their capabilities to 16

operate in international markets through learning from parental networks, several researchers emphasize the influence of network ties of parent firms on the process of internationalization. For instance, Yiu et al. (2007) focused on specific ownership advantages which refer to business and institutional network ties. The findings of this paper supported that the relationship between these network ties and international venturing is moderated by the degree of home industry competition and export intensity. Similar to Yiu et al. (2007), Elango and Pattnaik (2007) found that network scope was beneficial for increasing exposure to international markets but only in the case of networks that were either small or medium sized. As to those firms who lack market power in their home market, they would benefit through their foreign partnership. Zhou et al. (2007), however, only found some support for their argument that home-based social networks of emerging market firms play a mediating role in the relationships between inward and outward internationalization and firm performance. In addition to the influence of parental networks, researchers examine another critical firm resource of emerging firms: the business group affiliation. Garg and Delios (2007), for example, test if the business group affiliation affects a subsidiary s survival chances. In the setting of India MNEs, they found that business group affiliation did not have an independent influence on a subsidiary s survival rate, but it had a contingent effect, where the contingency emerged from the development stage of the host country. Finally, firm experience, the commonly discussed firm resource in the organizational learning literature, is explored in the internationalization of emerging market firms. Thomas et al. (2007) aim to explain how different types of experience affect the propensity for emerging market firms to enter developed markets, and their 17

likelihood of survival. Three types of experience are alliance experience with developed market firms, failure experience in developed markets, and the overall experience in developed markets. With a sample of 104 Latin American firms, Thomas et al. (2007) found that failure experience in developed markets reduces the likelihood of entry, but increases the likelihood of survival. Meanwhile, Tan and Meyer (2010) categorized managerial resources (i.e. experience) into two types: internationally-transferable and institutionally-bounded. In a sample of 182 business groups from Taiwan, Tan and Meyer (2010) found that international work experience, not international education, is the transferable resource that favors internationalization. Network relationships with other local associations, classified as institutionally-bounded resource, are negatively related to internationalization. To summarize, research on the determinants for OFDI activities of emerging markets has identified unique factors from three levels: institutional environment, industry (market) and firm resources. Despite that these studies have gradually enhanced our understanding of what factors affect the internationalization process of emerging market firms, there is still room to discuss how emerging market firms learn in their process of internationalization. More issues relating to learning such as whether and how do emerging firms imitate other firms? is not yet adequately explored. Moreover, when more global involvement of private and entrepreneurial firms from emerging markets, we believe that more determinants (especially from firm-level) and the comparison between these firms and current state-owned firms are worth exploring in the future study. 18

Globalization of MNEs from Emerging Markets. Finally, we identify a growing and promising research topic, that is, the role and global development of multinational firms from emerging markets. Because some MNEs from emerging market studies have already been discussed in an earlier section (i.e., the process of internationalization), we here focus the discussion of theory development on MNEs from emerging markets and future globalization competition between MNEs from emerging and developed markets. Gammeltoft, Barnard, and Madhok (2010) propose three options for theory development regarding MNEs from emerging markets. These three options clearly indicate different attitudes toward the question Do we need new theory for MNEs from emerging markets? The first option is to expand the scope of current theory such as expanding the types of advantages of ownership to asset advantages and transaction advantages. According to Gammeltoft et al. (2010), this option faces risks of stripping the power of distinction of key theoretical concepts. The second option is to extend current theory, including rethinking current concepts and causal relationships among these concepts, so that uniqueness of MNEs from emerging markets can be included. Buckley et al. (2007) is one representative adopting this option. Finally, the third option is to develop new theoretical perspectives for MNEs from emerging markets and disregard current theories. Luo and Tung (2007) is one critical paper that follows this option. Luo and Tung (2007) present a springboard perspective to describe and summarize key features of the internationalization of MNEs from emerging markets. This paper makes at least two contributions. First, Luo and Tung (2007) provide a typology for MNEs from emerging markets along two dimensions: one captures the uniqueness of 19

business ownership (state owned or not) and the other international diversification (narrow vs. broad). Second, Luo and Tung (2007) explicitly reveal and summarize unique motives, strategies, and factors affecting/facilitating/compelling international expansion strategies of MNEs from emerging markets. For instance, Luo and Tung (2007) indicate that MNEs from emerging markets have advantages (e.g., cost advantage) and disadvantages (e.g., limited knowledge of overseas markets.) In the internationalization process, these firms display a series of aggressive, risk-taking measures by proactively acquiring or buying critical assets from mature MNEs to compensate for their competitive weaknesses. Moreover, MNEs from emerging markets are not path dependent nor evolutionary in selecting entry modes and project location. Bonaglia, Glodstein, and Mathews (2007) particularly demonstrate how three MNEs from emerging markets pursue global growth through accelerated internationalization combined with strategic and organizational innovation. These firms did not delay their internationalization until they were large. Instead, they internationalized in order to grow large. In terms of unique challenges and problems that MNEs from emerging markets face, Luo and Tung (2007) point out several issues such as poor corporate governance, lack of global experience, managerial competence and professional expertise, and weak product/process innovation. In the discussion of determinants that affect the success of MNEs from emerging markets, Luo and Tung (2007) show that those facilitating factors include home government support, willingness of global players to share or sell strategic resources, offshore availability of standardized technology, desire to hit the core and key 20

international markets, entrepreneurial leadership. All these factors are waiting for further empirical verification and support. When the world interconnects closely, the tension of global competition increases and thus the discussion of emerging vs. developed market MNEs becomes a natural subject. One well-discussed advantage that MNEs from emerging markets have is their ability to manage their unique home market institutional contexts which can be extended to international markets (Aulakh, 2007; Luo & Tung, 2007). Pananond (2007) offers another two competitive advantages of MNEs from emerging markets: one is networking capabilities and the other is industry-specific technological capabilities derived from technological accumulation. Meanwhile, Chittoor and Ray (2007) argue that firms that are able to supplement the conventional exploitation strategies with exploration through new products and new markets would emerge as third world MNEs with capabilities that could potentially challenge MNEs from developed markets. Finally, Bonaglia et al. (2007) argues that the successful keys of MNEs from emerging markets lie in their ability to treat global competition as an opportunity to build capabilities, move into more profitable industry segments, and adopt strategies that turn latecomer status into a source of competitive advantage. To conclude, current literature of MNEs from emerging markets has enhanced our understanding of the characteristics of them and challenges and problems they face. Because the variation among different emerging and third-world MNEs is still big, it seems difficult to reach a generalization/conclusion on MNEs from emerging markets now. We thus argue that the search for new approaches to categorize different types of MNEs from emerging markets is welcome. In addition, the approach that Luo and Tung 21

(2007) propose captures only two major characteristics of MNEs from emerging markets. When MNEs from emerging markets evolve, new approaches to capture distinctive characteristics among these MNEs will be necessary and beneficial for advancing research in this area. Moreover, we believe that the question Will MNEs from emerging or developed markets win in the global competition? will become a potential research focus in this field. So far, with the papers reviewed here, the answer to this question is mixed. Pananond (2007), for example, didn t have a straight answer to this question but he points out two competitive advantages of MNEs from emerging markets as opposed to MNEs from developed markets. Chittoor and Ray (2007), on the other hand, seem to affirmatively answer the question above. They suggest MNEs from emerging markets who can supplement the conventional exploitation strategies with exploration through new products and new markets would potentially challenge MNEs from developed markets. Because it takes time to develop and nurture sustainable competitive advantages, we argue that the question above is determined by the interaction between MNEs from emerging markets and developed markets (e.g., competition vs. cooperation). Methodology Analysis In this section, we discuss methodological issues adopted in those papers we review. Of 52 articles, 41 (78.9%) are empirical studies (9 of them are case studies) and 11 (21.2%) are conceptual/theoretical papers. Among these 41 empirical studies, 24 (58.6%) are cross-sectional and 17 (41.4%) are evolutionary pieces. In terms of data collection methods, while interview is mostly adopted in the case studies, the most common method among these papers is the usage of secondary sources such as 22

government or private databases (61.0%). Because data availability and data credibility have been major concerns for the research of emerging markets, we believe that future research will continue to adopt more than one source (e.g., survey and interview, or secondary source with personal interview) to collect and validate data. In addition, the quality of reliable fee-based databases (e.g., Orbis or Zephyr) will determine the extent to which these data appear in future academic research. As to the approaches of statistical analysis, we found that regression models such as pooled OLS and multinomial logit regression are most frequently adopted (58.6%). Other popular statistical analyses include event history analysis, factor analysis and hazard specification. In terms of research setting and sample, China is widely chosen (42.3%) among these articles, followed by India (11.6%) and Latin America (7.7%). More diversity in the research setting shall appear in the future research. Discussion After analyzing the literature in the OFDI of emerging markets from 2005 to 2010, we believe that the existing literature published in the prestigious management journals is moving from anecdotal evidence to a body of systematic research. Similar to literature prior 2005, the major theories adopted are still institutional theory, RBV and economic perspectives (e.g., transaction cost theory). Other emerging theories are agency theory, organizational learning theory and network theory. Another similarity between current literature and those pre-2005 is that the research focus continues to stay on the question to what extent theories and methodologies used to study strategy in mature, developed economies are suited to the unique social, political, and economic contexts of emerging markets? Although some research results have showed similarities of OFDI strategies 23

between developed and emerging markets (e.g.,aulakh, 2007), we also found research results showing idiosyncratic/unique firm characteristics of emerging markets (e.g., Lee & Slater, 2007; Petrou, 2007). Therefore, there is still a debate whether eventually we will have a new management theory of OFDI strategies by firms from emerging markets. Implications for Management This literature review aims to capture the development of leading works in OFDI by firms from emerging markets. The findings of this review provide researchers an important step toward assessing the OFDI by emerging market firms. It is hoped that this review provides researchers a foundation on which to build on existing works, and develop new knowledge and fresh perspectives for future theoretical examination of this research field. Moreover, this study provides implications for management practitioners. For managers of multinational firms, it is important to know what differences exist between firms from emerging markets and developed markets. As shown in this study, emerging market firms have been found to display unique motives and competitive advantages when they internationalize. Firms from emerging markets also have taken different internationalization paths as opposed to those firms from developed markets. Finally, they have new determinants (e.g., ownership and strategic intent) and challenges in the process of internationalization. Therefore, this review study provides managers with a better understanding of emerging market firms. When facing competition from firms from emerging markets, those managers with better understanding of their counterparts would be in a good position. 24

Limitation of the Study Our study has limitations that offer significant opportunities for future research. First, the broad focus limits our ability to include a larger number of journals in our review. Other books and journals, such as Chinese Management Studies, Management and Organization Review, also publish important research in the globalization of emerging markets. However, due to the database availability (i.e., full-text function), we have to narrow our article search and assume that the included journals in our review form a good reflection of the highest quality research in the management field. Secondly, it is also noteworthy that this review focuses on the overall domain of OFDI. Therefore, an in-depth analysis of specific OFDI strategy (i.e., cross-border mergers/acquisitions or joint ventures) is beyond the scope of this study. Directions for Future Research We would like to present three directions for enhancing the future research agenda in the OFDI by emerging markets. First, we look forward to seeing continuing research for unique features of firms from emerging markets. A body of research has been investigating the role of social capital and networks of firms from emerging market (e.g., Kali & Reyes, 2007; Zhou et al., 2007). Networks have been found to be more difficult to operate in developed economies because of the legal and institutional infrastructure that prevent fluid operation of such networks due to intellectual property right laws and other laws restricting cooperation or collusion between firms. Thus, one future research direction is to study how firms from emerging markets use their social capital or networks differently when they enter developed markets. Another unique firm resource of emerging markets is associated with the concept of business group. Business 25

groups have been considered as an effective approach for firms from emerging markets to compensate for the lack of environmental resources available (Guillen, 2000) and to enter country environments with underdeveloped institutions. Because business groups from emerging markets are usually highly product diversified (Wright et al., 2005), it is argued that this unique feature will mitigate the ability of larger businesses from emerging markets in entering developed markets (Yiu et al., 2007). As a result, another future research direction is to take an evolutionary perspective to examine the dynamic evolution of business groups from emerging markets in the process of globalization. Specifically, we expect more research work to examine the changing configuration of business groups and how agency problems (e.g., the composition of the board of directors) are exhibited when these firms move from emerging markets into other emerging markets or developed markets. Secondly, as long as firms from the emerging markets continue to embrace active interest in developing their international strategies, we believe that the comparison between MNEs from emerging and developed markets will stay as another key research topic. Because the globalization experience of these firms brings several challenges for corporate governance such as the relationship between the headquarters and subsidiaries, both types of MNEs, especially MNEs from emerging markets, face the next challenge to internalize their global experience and transform their management practice in the local and global markets. Morck et al. (2008) propose that it is worth paying attention to how MNEs from emerging markets establish their global identity, design flexible operations across countries, and improve corporate governance as opposed to the experience MNEs from developed markets have possessed. Although prior studies on MNEs from emerging 26

markets have already shed some light on the factors facilitating (or hindering) their globalization process, we expect to see more work out of MNEs from emerging markets (e.g., how do they learn from success and failure of other firms?) and their close interactions (competition or cooperation) with MNEs from developed markets. Finally, future research should concentrate on the development of some specific international expansion strategy taken by emerging market firms such as cross-border mergers/acquisitions (e.g., Aybar & Ficici, 2009). This research direction is still at the early stage because most research is focusing on the factors that drive and influence the direction and the magnitude of the specific international expansion strategy. Since there are several implementing, integrating and maintaining issues after firms adopt a specific strategy, more research work is needed to show how emerging market firms undertake all potential problems. When emerging market firms continue to seek value in their international expansion strategies, our understanding of these firms and their strategies will greatly benefit from future work. 27

References Acquaah, M. (2009). International joint venture partner origin, strategic choice, and performance: A comparative analysis in an emerging economy in Africa. Journal of International Management, 15, 46-60. Aulakh, P. (2007). Emerging multinationals from developing economies: Motivation, paths and performance. Journal of International Management, 13, 235-240. Aybar, B., & Ficici, A. (2009). Cross-border acquisitions and firm value: An analysis of emerging-market multinationals. Journal of International Business Studies, 40, 1317-1338. Bhaumik, S., Driffield, N., & Pal, S. (2010). Does ownership structure of emergingmarket firms affect their outward FDI? The case of the Indian automotive and pharmaceutical sectors. Journal of International Business Studies, 41, 437-450. Bonaglia, F., Glodstein, A., & Mathews, J. (2007). Accelerated internationalization by emerging markets multinationals: The case of the white goods sector. Journal of World Business, 42, 369-383. Buckley, P., Clegg, L., Cross, A., Liu, X., Voss, H., & Zheng, P. (2007). The determinants of Chinese outward foreign direct investment. Journal of International Business Studies, 38, 499-518. Buckley, P., Cross, A., Ta, H., Xin, L., & Voss, J. (2008). Historic and emerging trends in Chinese outward direct investment. Management International Review, 48, 715-748. Chittoor, R., & Ray, S. (2007). Internationalization paths of Indian pharmaceutical firms- A strategic group analysis. Journal of International Management, 13, 338-355. 28

Cuervo-Cazurra, A. (2007). Sequence of value-added activities in the multinationalization of developing country firms. Journal of International Management, 13, 258-277. Cuervo-Cazurra, A., & Genc, M. (2008). Transforming disadvantages into advantages: Developing-country MNEs in the least developed countries. Journal of International Business Studies, 39, 957-979. Cui, L., & Jiang, F. (2009). FDI entry mode choice of Chinese firms: A strategic behavior perspective. Journal of World Business, 44, 434-444. Demirbag, M., McGuinness, M., & Altay, H. (2010). Perceptions of institutional environment and entry mode: FDI from an emerging country. Management International Review, 50, 207-240. Demirbag, M., Tatoglu, E., & Glaister, K. (2009). Equity-based entry modes of emerging country multinationals: Lessons from Turkey. Journal of World Business, 44, 445-462. Elango, B., & Pattnaik, C. (2007). Building capabilities for international operations through networks: A study of Indian firms. Journal of International Business Studies, 38, 541-555. Filatotcheve, I., Strange, R., Piesse, J., & Lien, Y. (2007). FDI by firms from newly industrialized economies in emerging markets: Corporate governance entry mode and location. Journal of International Business Studies, 38, 556-572. Frank, R., Edlund, T., & Oster, F. (1990). The development of strategic management: Journal quality and article impact. Strategic Management Journal, 11, 243-253. 29

Gammeltoft, P., Barnard, H., & Madhok, A. (2010). Emerging multinationals, emerging theory: Macro- and micro-level perspectives. Journal of International Management, 16, 95-101. Garg, M., & Delios, A. (2007). Survival of the foreign subsidiaries of TMNCs: The influence of business group affiliation. Journal of International Management, 13, 278-295. Gubbi, S., Aulakh, P., Ray, S., Sarkar, M., & Chittor, R. (2010). Do international acquisitions by emerging-economy firms create shareholder value? The case of Indian firms. Journal of International Business Studies, 41, 397-416. Guillen, M. (2000). Business groups in emerging economies: A resource-based view. Academy of Management Journal, 43, 362-381. Hoskisson, R., Eden, L., Lau, C., & Wright, M. (2000). Strategy in emerging economies. Academy of Management Journal, 43, 449-467. Kali, R., & Reyes, J. (2007). The architecture of globalization: A network approach to international economic integration. Journal of International Business Studies, 38, 595-620. Kalotay, L., & Sulstarova, A. (2010). Modelling Russian outward FDI. Journal of International Management, 16, 131-142. Lee, J., & Slater, J. (2007). Dynamic capabilities, entrepreneurial rent-seeking and the investment development path: The case of Samsung. Journal of International Management, 13, 241-257. 30