C H A P T E R 2 0
Emerging economies
Chapter objectives
2. Explain how many emerging economies are becoming more integrated into the global
economy, in terms of trade, FDI and other forms of interaction and interdependence.
4. Examine the implications of changes in emerging economies for MNE managers in terms of
new strategies and organization structures.
Chapter summary
1. Emerging economies are increasingly important for multinational enterprises (MNEs) as
2. Emerging economies tend to be controlled more strongly by their governments and are less
predictable and riskier than triad markets.
3. Emerging market countries need investment from, and access to, a triad bloc in order to
4. Current trends such as privatization, liberalization and legislative changes that are designed
5. FDI into Asia is concentrated in 10 fast-growing economies. There is strong intraregional
6. Despite years of liberalization, the Central and East European (CEE) region attracts
7. Latin America and the Caribbean region receive 11 percent of global FDI (less than China).
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8. Africa receives less than 4 percent of global FDI and remains relatively unattractive and
9. The newly industrializing countries (NICs), a subgroup of nontriad economies, have
10. NICs and other emerging markets in Asia are seen by some to be following the Flying
11. Emerging economies are growing in importance sources of innovation and as locations for
R&D investment by MNEs.
Chapter outline
Introduction
Triad firms and emerging economy firms: why the mutual interest?
An overview of emerging economies, by region
AsiaPacific and the Middle East
Shifting patterns of comparative and competitive advantage
Flying Geese model
Emerging economies as sources of innovation
Market access to the triad
Lecture outline
A. Introduction
1. Emerging market countries are (a) growing in importance for international managers for
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2. There are two types of international expansion that are important in relation to nontriad
B. Triad firms and emerging economy firms: why the mutual interest?
1. The large markets of North America, Europe and Japan still dominate the global
economy, but they are growing slowly relative to emerging markets both large, like
2. For new MNEs evolving in nontriad regions, the main attraction of triad markets such
C. An overview of emerging economies, by region
1. AsiaPacific and the Middle East receive 23 percent of global FDI flows, the most of
any nontriad region. But 90 percent of FDI is concentrated within 10 out of the 55
3. There are two clear trends that indicate the dynamism of the Asia region. First, the
growth of intraregional investment is particularly driven by the regional giants India
4. Despite years of political and economic change, including liberalization, the Central and
Eastern European (CEE) region still attracts a relatively small percentage of global FDI
5. Only 8.5 percent of global FDI went to the Latin America region in 2006. The three
largest economies of Argentina, Brazil and Mexico had a difficult decade in terms of
6. Six of the 50 largest nonfinancial TNCs from developing countries listed by the United
7. As home to most of the worlds least developed countries (LDCs), Africa has always
recorded low levels of inward FDI because of its political instability, weak
8. Only 5 of the 50 largest nonfinancial TNCs from developing countries listed by
D. Shifting patterns of comparative and competitive advantage
1. FDI into nontriad regions tends to be concentrated in a few countries within each
region. While FDI still tends to be related to primary resources, such as oil, minerals
and agricultural commodities in many of these countries, there are a growing volume of
2. Traditional trade theories can help explain current patterns of growth in emerging
markets. The theory of absolute advantage suggests that each nation should specialize in
producing goods it has a natural or acquired advantage in producing. Exports of these
3. The above theories underpin Michael Porters diamond model (see chapter 10) and the
Flying Geese model. The Flying Geese model suggests that Asian economies are
following similar development paths, but are at different stages along this path,
following the lead goose Japan. Over time, each country, or group, will gain and then
4. Many studies note that the sequential transfer of industrial specialization does not
follow the same pattern in each country. Or that it tends to be more of a parallel
5. Traditional theories about the MNE tended to view the triad as a source of innovation
and nontriad regions as recipients in a simple outward diffusion model. But other
6. In recent years, Singapore, Taiwan, Korea, Malaysia, Chile and the Czech Republic
have all ranked well as up-and-coming innovators. The development of world class
E. Market access to the triad
1. For nontriad firms, the triad regions encompass by far the largest, wealthiest and most
2. To develop global industries, nontriad nations need both trade and investment from the
triad nations and also access to the markets of at least one of the triads. This implies that
the focus of business strategy for firms in a smaller, nontriad nation should be to secure
Answers to review and discussion questions
1. Why do MNE managers need to develop an understanding of changing economic
conditions in nontriad regions?
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2. What characteristics do we tend to associate with emerging economies that are
important considerations for foreign investors?
3. How have emerging economies liberalized to encourage FDI?
4. How does inward FDI help emerging economies and their domestic industries?
5. Which nontriad regions and countries have achieved the most rapid economic growth
in the last 10 to 20 years and what factors have helped their development?
6. Why does Africa receive relatively little inward FDI?
7. What insights does the Flying Geese model of economic development provide for
understanding current and future trade and investment flows? What are its
weaknesses as a model?
Insights can be gained into the processes affecting the changing global locations of different
industries and business activities and into the relatively changing competitive advantage
between countries.
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8. How did Indian IT, software and services firms evolve beyond their reliance on cheap
labor to develop firm-specific advantages and internationalize?
Answers to real cases
The Indian IT, software and services industry
1. How well does Porter diamond framework explain the beginnings of the Indian IT and
software services industry?
2. Why has this kind of industry not developed in other parts of the world, where triad
companies also outsource IT activities (such as Barbados)?
It is often difficult to determine the specific factors that lead one industry to develop in one
country and not in a similar country. One major reason for India to be the home of this growing
3. What are the threats and opportunities for Western software firms arising from this
shift in the competitive landscape, and how are they strategically responding to these?
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Bumrungrad International in Thailand
1. How is the growing provision of alternative sources of health services around the
world likely to affect the triad-based providers, public and private?
The growing costs of employer health-care schemes in the USA and elsewhere in the triad are
one reason for the growing provision of medical tourism around the world. Alternative sources
2. Explain the rise of Bumrungrad International and the Thai medical tourism industry
in terms of country-specific advantages (CSAs) and firm-specific advantages (FSAs).
Country-specific advantages (CSAs) of the medical tourism industry in Thailand include the
3. Should health-care offshoring be viewed or treated any differently to any other
globalizing industry, such as software or BPO services?
Health-care offshoring should be viewed differently to other globalizing industries such as