Introduction
When one asks students to name a few Mexican multinationals, which in this book we call MultiMexicans, many struggle. Some may have read the case studies of the cement producer Cemex or the bakery giant Bimbo. However, the vast majority tend to mention brands of tequila and beer, which in most cases are foreign owned, or talk about the exports by contract manufacturers, i.e., maquilas, but without being able to name the firms. This lack of awareness is not limited to students, however. Many academics and a fair number of managers only know about a few MultiMexicans. This is partly a result of lack of knowledge or misperceptions about the competitiveness of local Mexican firms, and partly a result of lack of exposure to the brands of MultiMexicans, because many of these multinationals operate in industrial sectors or acquire foreign brands in their international expansion.
However, there is an increasing number of Mexican firms that are not only exporting but also establishing operations abroad, and some of them have already achieved regional and global leadership. For example, of the 122 Latin American multinationals, i.e., MultiLatinas, that the magazine AmericaEconomía identified among the 500 largest firms in Latin American in 2016, 45 were from Mexico. This placed the number of MultiMexican firms well ahead of other Latin American countries such as Brazil with 31, Chile with 24, Colombia with nine, or Argentina with six (AmericaEconomia, 2016). Some MultiMexicans have become leaders in their industries, like the baked goods firm Bimbo (1st in the world), the tortilla maker Gruma (1st in the world), the construction materials producer Cemex (5th largest in the world), the telecommunications firm América Móvil (1st in Latin America), and the chemical firm Mexichem (1st plastic tube producer in Latin America). However, not all MultiMexicans are large firms. Some are mini-multinationals: successful multinationals with a limited global presence, such as the car components firm Nemak or the cinema chain Cinépolis.
Surprisingly, given their growing importance in global markets, we have a limited number of studies of MultiMexicans, with no books providing a systematic analysis. Instead, we have a few articles and book chapters that explain the internationalization of a few large MultiMexicans. These include, for example, the study of the cement producer Cemex by Lessard & Lucea (Reference Lessard, Lucea, Ramamurti and Singh2009), the analysis of the competitiveness of Mexican business groups in Grosse & Mesquita (Reference Grosse and Mesquita2007), the description of some Mexican firms in the study of MultiLatinas by Santiso (Reference Santiso2013), or the description of the conglomerate Grupo Carso, the cement producer Cemex, the baked goods firm Bimbo, and the brewer Grupo Modelo in Casanova (Reference Casanova2009). This is surprising, as Mexico by 2016 had become the 11th largest economy in the world, with US$2.3 trillion in PPP terms, ahead of Italy, Korea, and Spain (World Bank, 2017). Its GDP per capita in PPP terms was 18 thousand, ahead of China and Brazil, with 15 thousand each, and India, with 6 thousand, although below the 25 thousand of Russia, to establish a comparison with the so-called BRIC countries. Thus, it appears that the time is ripe to analyze MultiMexicans comprehensively, covering a multitude of industries and a variety of sizes; that is what this book offers.
Hence, this book differs from others by being the first to provide a systematic analysis of MultiMexicans. What also differentiates the book is the approach we take, providing a contextual analysis of their global expansion, in which the internationalization of firms is placed within the particular conditions of the industry and especially of the home country. This contextual analysis provides both a deep understanding of the historical situation that enabled Mexican firms to upgrade their competitiveness to international levels, and a sophisticated understanding of the strategies they used to conquer foreign markets. With this dual approach, we aim to generate insights that are useful for managers, not only of other Mexican firms but also of firms in other emerging markets, who are considering how to transform their firms into global competitors.
Now, the question is, is there something special about these firms for our understanding of multinationals? Can current models and analyses of multinationals be used to explain their expansion? The answer is yes and no. Yes, in the sense that good models are applicable and previous insights and approaches can be used to understand their internationalization, and no, in the sense that the context of operation of MultiMexicans plays a large role in their transformation into international competitors and subsequent internationalization, and existing models do not accommodate this role well. Thus, to better understand the insights that we derive from the analysis of MultiMexicans, in the following paragraphs I briefly review the core models of the multinational. I then discuss the phenomenon of multinationals from emerging markets, and how their analysis highlights the importance of studying the impact of the home country on internationalization. I conclude with an overview of the themes that we cover in the book and the insights that are identified in the conclusions.
Traditional Models of the Multinational
The international business literature has offered several explanations for the existence of the multinational and the process of internationalization. These models were developed in the 1970s and 1980s by analyzing multinationals from advanced economies (mostly European and American companies and later Japanese firms) as these firms set up wholly owned operations around the world. Their behavior did not fit well with economic explanations of foreign investment that assumed it was a financial flow (for a good historical overview of the literature see Dunning, Reference Dunning and Rugman2009, and Hennart, Reference Hennart2009a). The result of these theoretical advances was the development of two types of multinational model. One type sought to explain the existence of multinationals, firms that controlled assets abroad and managed cross-border transactions. Another type of model sought to explain the process by which firms expanded across countries.
Why Multinationals Exist
The first type of model explains why multinationals exist. Among the models we have the OLI framework, the internalization theory of the multinational, and the knowledge-based explanation of the multinational, which I briefly explain now.
The OLI framework, introduced by Dunning (Reference Dunning, Ohlin, Hesselborn and Wijkman1977), describes the existence of a multinational, i.e., a firm with foreign direct investments (FDI), as the result of the combination of three advantages: Ownership, Location, and Internalization. Ownership advantages refer to the situation in which the company has particular resources or capabilities that enable it to do things better than competitors, that is, that provide it with a competitive advantage. These same resources and capabilities that the firm owns can then be used in other countries to achieve a competitive advantage there. Location advantages refer to the situation in which the company invests abroad to benefit from the better conditions of inputs or factors of production, i.e., the comparative advantage of a location, or to serve new markets. Finally, internalization advantages refer to the situation in which managers decide to internalize cross-border transactions, i.e., manage transactions within the company rather than using contracts with third parties, because doing so is more efficient or effective. This paradigm, which was initially developed from the study of British and later US firms, has been refined and extended over the years to adapt it to new realities of international business and theoretical advances. These highlight different subtypes of ownership advantage, which include asset-based advantages from the ownership of particular resources, transactional advantages from the capability to coordinate operations, and institutional advantages from the capability to manage institutions and norms (Eden & Dai, Reference Eden and Dai2010).
A modification of the OLI paradigm is the FSA/CSA model of the multinational (Rugman & Verbeke, Reference Rugman and Verbeke1992). This model discusses the existence of a multinational as the result of the combination of two types of advantage: (1) firm-specific advantages (FSAs), which only the company can access and which include the ownership and internalization advantages of the OLI framework; and (2) country-specific advantages (CSAs), which not only the company but also other companies in the same location can access and that include the location advantages of the OLI framework. One contribution of this model is highlighting that some of these advantages are tied to a place and are not transferable across countries, i.e., they are location bound, hence limiting the ability of a company to engage in international operations. In contrast, other advantages are not location bound and support the ability of a company to become a multinational by transferring them across borders. Similar to the OLI framework, the FSA/CSA model is a general framework that focuses attention on those resources and capabilities that provide the multinational with an advantage. However, both tend to assume that the advantages exist and do not get into an analysis of how resources and associated advantages emerge.
The internalization model of the multinational (Buckley & Casson, Reference Buckley and Casson1976) and the related transaction cost analysis of the multinational (Hennart, Reference Hennart1982; Teece, Reference Teece1986) explain the conditions under which a multinational will use different governance modes when engaging in cross-border transactions. This theory focuses on the ‘I’ of the ‘OLI’ paradigm, and provides detailed descriptions of the governance modes and the reasons for using contracts, alliances, or the firm as the mechanism to manage cross-border transactions based on the characteristics of the assets and ability to contract effectively (Anderson & Gatignon, Reference Anderson and Gatignon1986). In this model, it is better to use the market when engaging in cross-border transactions because markets tend to be more efficient transaction systems; the price mechanism provides appropriate signals and competition among providers ensures better quality. However, it may be better to internalize cross-border relationships when the multinational: (a) has assets that have low secondary uses, i.e., are specific to a relationship; (b) cannot find appropriate contract partners; and (c) cannot specify a clear contract that governs the use of those assets because of problems of information asymmetry and uncertainty, and ineffective contract protection and contract dispute settling mechanisms. This approach has been extended to incorporate the notion that there are several contracting parties with alternative objectives and that complementary assets and their access play a role in determining the appropriate transaction mode (Hennart, Reference Hennart and Rugman2009b). This model provides a deep understanding of the scope of the multinational and the conditions under which it internalizes cross-border transactions or uses alliances or contracts to manage them. However, at the same time, this model tends to assume that the company has resources and capabilities that provide it with a competitive advantage in the first place.
In contrast to these, the knowledge-based view of the multinational (Kogut & Zander, Reference Kogut and Zander1992), which builds on the broader resource-based view (Barney, Reference Barney1991), argues that knowledge is the key asset of a company. It studies how the development, transfer, use, and protection of knowledge across borders enable domestic companies to become multinationals. In the resource-based view, a firm is a collection of resources and capabilities (Penrose, Reference Penrose1959). Among those, some provide the firm with an advantage when they are (Barney, Reference Barney1991): (a) valuable because they can be used to create value for customers; (b) rare because only the company or few companies have them; (c) difficult to imitate by competitors because other firms cannot replicate them easily; and (d) difficult to substitute by competitors because other firms cannot find alternative ways to achieve the same function. Among the resources that a firm can control, knowledge is the key one because it enables the firm to obtain and manage all the other resources and capabilities (Kogut & Zander, Reference Kogut and Zander1992). However, at the same time, knowledge is a difficult resource to manage (Nonaka, Reference Nonaka1994). Its tacit nature – i.e., much knowledge is not codified in manuals and websites that can easily be retrieved and shared, but rather is embedded in the minds of employees – makes it a resource that is more difficult to imitate as competitors cannot easily observe the knowledge. It also makes it a resource that is more difficult for the firm to transfer and use across borders. As a result, firms become multinationals to effectively manage the transfer and use of knowledge across borders, as well as to benefit from the knowledge that is created from the management of these cross-border relationships. This knowledge-based view, and the underlying resource-based view, focuses attention on how firms develop resources and the associated competitive advantage, thus complementing previous models.
How Multinationals Expand Across Borders
The second set of models focuses on explaining the process by which domestic companies become multinationals (see a review in Cuervo-Cazurra, Reference Cuervo-Cazurra, Kellermanns and Mazzola2011; Melin, Reference Melin1992). These include the product lifecycle model, the incremental internationalization model, and the innovation-related model.
An early process model is the product lifecycle model (Vernon, Reference Vernon1966). This takes the concept of the product lifecycle from the marketing literature – in which a product is introduced in the market and then its sales grow, reach maturity, and eventually decline – and applies this idea to explaining how sales and production move across countries from the most to the least advanced economies. Thus, the internationalization process starts with the company in an advanced country introducing a new product to satisfy the needs of sophisticated consumers in advanced economies. As demand in other advanced economies grows, the firm first exports and then produces in the other countries to be more responsive to differing consumer preferences and to counter local competitors. As the product matures, new competitors imitate the innovation and the product becomes standardized, so the company moves production to low-cost countries to reduce production costs and starts selling there. With declining demand, the company stops producing in advanced economies because it is too costly to manufacture there, and serves both advanced and developing countries with imports from low-cost countries. This model, which was developed by abstracting from the experiences of US firms in the 1950s, seems to be a good explanation of the diffusion of innovations across countries, but not necessarily of the expansion of a particular firm across countries (Melin, Reference Melin1992). Moreover, instead of following this life cycle, nowadays innovations are commonly introduced across multiple countries at the same time, and production is outsourced directly to countries with lower production costs. This is the result of factors such as the disaggregation of value chains across countries, with innovators easily finding manufacturers in lower-cost countries; the creation of innovations in emerging countries that are marketed in emerging and advanced economies; and fast competitive imitation across countries facilitated by information and communication technologies. Hence, although the model generated significant research aiming to validate its arguments, nowadays it is rarely used as an explanation of the internationalization of a particular firm.
The incremental internationalization model (Johanson & Vahlne, Reference Johanson and Vahlne1977), also known as the Uppsala model because it was developed at Uppsala University, has become one of the leading explanations of the internationalization process. Building on behavioral economics (Cyert & March, Reference Cyert and March1963), it explains the process by which a domestic company expands abroad in search of new markets and becomes a multinational as being driven by managerial knowledge and risk aversion. Managers of a firm consider expanding to other countries to increase sales, using resources and capabilities developed in the home country. Managers have to make two main decisions that shape this expansion. One is the decision on which country to enter. The firm expands sequentially from the home country, first to countries that are similar to the home country, and later to countries that are dissimilar. As managers are risk-averse and know little about foreign markets, they tend to choose countries that are similar to the home country in terms of psychic distance (i.e., differences between countries that limit the flow of information) to reduce the uncertainty and risk of operation and to increase their ability to use existing knowledge and capabilities abroad. Once managers gain direct experience from operating in these countries and expand their knowledge set, they then take the company to countries that are farther away from the home country in psychic distance. The second decision is to select the mode of operation in a particular country, with companies internationalizing gradually within a country by first exporting, then using sales representatives, later using their own sales subsidiaries, and finally establishing production facilities. This sequential process helps managers gain direct knowledge and experience of how to operate in the business and institutional conditions of the host country and also reduces the risk of exposure in the host country by limiting the firm’s commitment to a country they do not know well. Once managers gain experience and knowledge from operating in the country, they can take more risks and increase the firm’s commitment to the host country.
The incremental internationalization model, which was initially developed using the experience of Scandinavian firms, has been very influential in explaining the expansion of firms and has been subject to extensions as well as critiques. The model was extended to include a network view of the multinational (Johanson & Vahlne, Reference Johanson and Vahlne2003). This proposes that internationalization knowledge can be gained in advance of the firm’s foreign expansion from interacting with partners and employees that already have international knowledge, thus providing a broader understanding of knowledge in the model (Forsgren, Reference Forsgren2002). Thus, a firm with such a network of sources of knowledge at home may be able to internationalize faster and broader than the original model proposed.
The main criticisms of the incremental internationalization models are directed to the idea that firms follow a sequence of expansion across countries, first entering countries that are closer to home in psychic distance and later those that are farther away, as well as a sequence within a country, entering first via exports and later via foreign direct investment. Thus, for example, the born-global model (Oviatt & McDougall, Reference Oviatt and McDougall1994), which was developed in international entrepreneurship, was introduced as a challenge to the incremental internationalization model by arguing that small firms in high-tech industries do not expand incrementally. Instead, some of them export to a multitude of countries either at or close to their creation. Changes in the global economy in the form of advances in information and communication technologies and transportation technologies, as well as market liberalization, have enabled newly created firms to start exporting widely (Knight & Cavusgil, Reference Knight, Cavusgil and Cavusgil1996). This is especially the case for firms that operate in digital industries whose products can be distributed via the Internet at almost no cost.
A third process model of the multinational is the so-called innovation-related model (Cavusgil, Reference Cavusgil1980; Czinkota, Reference Czinkota1982), referring to the idea of serving foreign markets as akin to an innovation. This model, which was developed in international marketing, explains how a company changes from being exclusively focused on the domestic market to becoming an active exporter as a result of changes in managerial attention and knowledge. Most companies are created to serve the domestic market, as managers tend to have a deeper knowledge of the needs of domestic customers, thus leading their firms to create products and services that serve those needs. However, for some firms their products may become known abroad through exposure at business fairs or word of mouth. Thus, the firm may start receiving requests from customers abroad. In response, the firm may fulfill these sporadic requests without paying much attention to them. However, if the foreign requests increase, managers may start shifting their attention towards fulfilling them, gaining knowledge of how to serve foreign markets in the process. Once managers gain enough experience in serving foreign markets, they alter their attention and the focus of the company towards foreign markets, transforming the firm from a passive to an active exporter and seeking sales in a variety of countries. Although useful for explaining the beginning of the internationalization process via sales, the model seems to be limited regarding its explanatory power as it does not take into account other internationalization methods such as FDI and licensing, and thus could to some extent be considered as the specification of the early stages of the incremental internationalization model.
Although useful for providing explanations and predictions about the development of multinationals and their internationalization process, these traditional models are built on assumptions derived from the study of multinationals from advanced economies. The models tend to assume that the home country is advanced and thus that firms can develop the most innovative products and services to serve the highly sophisticated consumers there. With these innovations in place, the next step is finding other countries in which they can be sold most profitably. The models also assume that there is a well-established institutional arrangement typical of advanced economies that supports firms’ development of resources and capabilities and helps firms protect their innovations from unauthorized imitation by competitors. Along these lines, the models also assume that there is a well-established contractual protection system that enables firms to find appropriate suppliers and concentrate on developing and improving their sources of advantage. Thus, most of these models have not paid much attention to how the home country affects the behavior of companies other than as a supportive influence.
However, the supporting environment that characterizes advanced economies – wealthy, demanding consumers that drive innovations, established innovation systems, property rights protections that facilitate the development of innovations, appropriate contract protection norms and institutions, and sophisticated intermediaries – is not universal. Firms in emerging economies suffer from large sections of the population with low levels of income (Prahalad, Reference Prahalad2005) and underdeveloped intermediaries and institutions, the so-called institutional voids (Khanna & Palepu, Reference Khanna and Palepu2010); these challenge the assumptions of traditional models. It is this issue – how the underdevelopment of the conditions of the country of origin affect the internationalization of firms – that the study of emerging market multinationals can help illuminate.
New Models of the Multinational: Emerging Market Multinationals
The study of the global expansion of MultiMexicans is part of a broader theme of analyzing multinationals from emerging markets, which in recent times have become new competitors in the global arena. Some firms, like the Brazilian airplane manufacturer Embraer, the Indian steel maker Tata Steel, and the Chinese telecommunications equipment manufacturer Huawei, have become leaders in their industries. Among the Forbes Global 2000, which lists the largest firms as a combination of revenue, profits, assets, and market value, by 2016 there were 480 firms from emerging markets (Forbes, 2016). Their rise to global leadership has caught the attention of scholars, who have focused on providing a better understanding of how these companies have managed to upgrade their capabilities and challenge established leaders from advanced economies. This attention has resulted not only in the usual research books (e.g., Cuervo-Cazurra & Ramamurti, Reference Cuervo-Cazurra and Ramamurti2014; Ramamurti & Singh, Reference Ramamurti and Singh2009; Williamson, Ramamurti, Fleury & Fleury, Reference Williamson, Ramamurti, Fleury and Fleury2013) and articles in academic journals (e.g., see the special issues edited by Aulakh, Reference Aulakh2007; Cuervo-Cazurra, Reference Cuervo-Cazurra2012; Gammeltoft, Barnard & Madhok, Reference Gammeltoft, Barnard and Madhok2010; Luo & Tung, Reference Luo and Tung2007) dissecting the actions taken by these firms. It has also resulted in popular press books (e.g., Guillen & García-Canal, Reference Guillen and García-Canal2012), consulting reports (e.g., the series on the leading emerging market multinationals published by Boston Consulting Group in 2006, 2009, 2011, 2013) and newspaper articles (e.g., Economist, 2008, 2010) describing and celebrating these firms.
One surprise about emerging market multinationals is that they are coming from countries that are underdeveloped and that, according to standard models, should not generate multinationals this early in their development. The investment development path model of foreign direct investment (Dunning, Reference Dunning1981) proposes that the level of inward and outward FDI evolves with the level of development of the country. In underdeveloped countries, there are relatively high levels of inward FDI from foreign firms investing to benefit from the low-cost factor of production and exploit the comparative advantage of the country, and relatively little outward FDI as domestic companies are not internationally competitive because they tend to produce low-tech and unsophisticated products. As the country develops and becomes an emerging economy, the level of inward FDI continues to increase, attracted by the higher sophistication of factors of production at still relatively low costs, while outward FDI starts to increase as domestic companies become increasingly competitive. Once the country has become an advanced economy, the level of inward FDI diminishes because it is relatively expensive to produce there, while the level of outward FDI increases as domestic companies become innovators and seek new markets. Following this logic and given their lower level of development, emerging countries should not be able to support many internationally competitive firms. These firms may be internationalizing merely on the basis of the comparative advantage of their home countries and economies of scale, lacking sophisticated resources and capabilities that would enable them to become global competitors (Rugman, Reference Rugman and Sauvant2010).
Nevertheless, many emerging markets are becoming leading sources of FDI, and some of their firms are achieving regional or even global leadership in their industries. This has surprised many observers and has led to the rapid emergence of literature that is trying to understand the behavior of emerging market multinationals and how they differ from the widely analyzed multinationals from advanced economies (Cuervo-Cazurra & Ramamurti, Reference Cuervo-Cazurra and Ramamurti2014; Ramamurti & Singh, Reference Ramamurti and Singh2009; Williamson, Ramamurti, Fleury & Fleury, Reference Williamson, Ramamurti, Fleury and Fleury2013). Much of the literature has focused on describing some of the particular features and unique strategies of emerging market multinationals (e.g., Casanova, Reference Casanova2009; Chattopadhyay, Batra & Ozsomer, Reference Chattopadhyay, Batra and Ozsomer2012; Guillen & García-Canal, Reference García-Canal and Guillén2008; Santiso, Reference Santiso2013). One outcome of this has been studies highlighting the importance of analyzing the influence of the home country on the internationalization of firms (Cuervo-Cazurra & Genc, Reference Cuervo-Cazurra and Genc2008; Garcia-Canal & Guillen, Reference García-Canal and Guillén2008; Holburn & Zelner, Reference Holburn and Zelner2010; Luo & Wang, Reference Luo and Wang2012), particularly the role that institutions play in global strategy (Khanna & Palepu, Reference Khanna and Palepu2010; Peng, Wang & Jiang, Reference Peng, Wang and Jiang2008; Martin, Reference Martin2014; Meyer, Estrin, Bhaumik & Peng, Reference Meyer, Estrin, Bhaumik and Peng2009).
As a result, we have a Goldilocks debate regarding the novelty of analyzing emerging market multinationals (Cuervo-Cazurra, Reference Cuervo-Cazurra2012). Some authors propose that existing models of the multinational can explain emerging market multinationals and thus no new models or ideas are needed (Rugman, Reference Rugman and Sauvant2010). In contrast, other authors propose that new models are needed because these companies are very different in their behavior and drivers of internationalization (Guillen & García-Canal, Reference García-Canal and Guillén2008). A third group of authors proposes that existing models of the multinational can be extended and modified to explain the behavior of multinationals from emerging markets by incorporating some of the distinguishing characteristics of these countries (Ramamurti, Reference Ramamurti2012).
Models of Emerging Market Multinationals
Some authors have proposed models to explain the particularities in the internationalization of emerging market firms. Most of them are presented as a critique of previous models and highlight some new characteristics of the internationalization of emerging market firms, such as their rapid and wide expansion or their expansion in search of competitive resources. We have four models that address some of these particular features: the LLL model, the springboard model, the “new” model of the multinational, and the nonsequential internationalization model.
The LLL model, or Linkage, Leverage, and Learning model (Mathews, Reference Mathews2006), argues that emerging market multinationals internationalize thanks to a different set of drivers to those identified in the OLI model. Thus, they establish linkages to other companies to acquire advantages externally, have an outward orientation, and focus part of their foreign expansion on the access to strategic assets. Second, they leverage their connections with partners to obtain resources by using networks strategically. And third, they learn, and build their advantages via repetition and continuous improvement.
The springboard model (Luo & Tung, Reference Luo and Tung2007), uses the metaphor of a springboard to explain the internationalization of emerging market firms. These companies are characterized by aggressive, risk-taking acquisitions of critical assets of firms in advanced economies to compensate for their competitive weaknesses. They invest abroad to obtain strategic assets needed to compete more effectively against multinationals from advanced economies, and to avoid home country institutional and market deficiencies.
The so-called new model of the multinational (Guillen & García-Canal, Reference García-Canal and Guillén2008), indicates that emerging market multinationals are internationalizing more quickly and widely than multinationals from advanced economies, despite limitations in their competitive advantage. They achieve this by using strong organizational and political capabilities as well as alliances and acquisitions.
The nonsequential internationalization model (Cuervo-Cazurra, Reference Cuervo-Cazurra, Kellermanns and Mazzola2011), proposes that emerging market multinationals do not have to follow an incremental internationalization process in which they select countries that are similar to the home country first and countries that are more distant later, as advanced economy firms did. Instead, the firms have two paths. They enter countries that resemble the home country, such as other emerging countries, in which they can apply their knowledge more easily even if the size of the market is not very large. Or they can enter countries that provide better market opportunities, such as advanced economies, even if it is more difficult to use existing knowledge from the home operations.
Implicit Assumptions in the Models of Emerging Market Multinationals
Despite these arguments, the uniqueness of emerging market multinationals and their ability to serve as the basis for new models of the multinational needs to be qualified. The reason is that some of the drivers of the internationalization of emerging market multinationals that some authors claim as unique are not necessarily so, because they also affect the expansion of advanced economy firms (Ramamurti, Reference Ramamurti2012): global context, industry, and stage of internationalization. First, emerging market multinationals are internationalizing at a time in which communication and transportation technologies and the liberalization of international trade and investment support the internationalization of all firms. Second, many of the emerging market multinationals used to illustrate the research pieces operate in industries that are global in nature and thus their faster and wider internationalization is facilitated by their industry characteristics. Third, many emerging market multinationals are in their early stages of internationalization, and thus their experiences cannot be compared to those of advanced economy multinationals that are already operating globally. Advanced economy firms in their early stages of internationalization in the past faced challenges that are similar to the ones experienced by emerging market multinationals nowadays, such as the lack of globally known brands or few managers with experience serving foreign customers.
What is unique about emerging market multinationals is how the underdevelopment of the home country affects the firm’s development of resources and capabilities and subsequent internationalization. For example, the weakness of the home country in supporting the development of advanced capabilities leads many companies to enter advanced economies to purchase capabilities, not only technological but also managerial and organizational (Madhok & Keyhani, Reference Madhok and Keyhani2012). Another example is how the underdevelopment of institutions that support contracts and protect intellectual property rights induce some emerging market multinationals to engage in escape investment, relocating activities abroad to limit the exposure to the home country (Cuervo-Cazurra & Ramamurti, Reference Cuervo-Cazurra and Ramamurti2014). In some extreme cases, firms even relocate their headquarters to avoid the association with the home country, becoming migrating multinationals (Barnard, Reference Barnard, Cuervo-Cazurra and Ramamurti2014).
Most of the attention has been devoted to analyzing multinationals from the so-called BRIC countries (Brazil, Russia, India, and China). These countries, and their firms by association, have received the bulk of attention because they have been considered the up-and-coming economic dynamos of the world (O’Neill, Wilson, Purushothaman & Stupnytska, Reference O’Neill, Wilson, Purushothaman and Stupnytska2005). Thus, we have several books analyzing multinationals from Brazil (Fleury & Fleury, Reference Fleury and Fleury2011; Ramsey & Almeida, Reference Ramsey and Almeida2009), Russia (Panibratov, Reference Panibratov2012), India (Pradhan, Reference Pradhan2008; Sauvant, Pradhan, Chatterjee & Harley, Reference Sauvant, Pradhan, Chatterjee and Harley2010), or China (Alon, Fetscherin & Gugler, Reference Alon, Fetscherin and Gugler2012; Backaler, Reference Backaler2014; Lacon, Reference Laçon2009; Zeng & Williamson, Reference Zeng and Williamson2007; Yeung, Xin, Pfoertsch & Liu, Reference Yeung, Xin, Pfoertsch and Liu2011). These have provided new and more nuanced understandings of the particular characteristics of these firms in context.
However, the ideas gained from analyzing multinationals from BRIC countries may not be fully applicable to firms from other emerging economies. BRIC countries are the largest emerging countries in terms of population, economic size, and natural resources. This gives their firms the opportunity to grow large and hone their competitive advantages at home before they venture abroad, helping them compete against large multinationals from advanced economies. In contrast, firms operating in small and mid-sized emerging markets may not be able to achieve such advantages at home when their managers decide to invest abroad. Their more limited home markets and lower availability of resources mean that some cannot reach a competitive size at home before they venture abroad, placing them at a relative disadvantage in international markets and requiring them to follow different processes for upgrading capabilities and internationalizing.
MultiMexicans: Better Understanding Capabilities in Upgrading and Internationalization
Hence, in this book, we analyze the internationalization of MultiMexicans as a laboratory for identifying novel ways in which firms from smaller and mid-sized emerging countries build up their competitive advantage to international levels and expand globally. And we do so by paying special attention to how the context of operation of the firm affects these processes, analyzing both large and small firms to present a comprehensive understanding of all the issues that these firms face.
One distinguishing characteristic of this book is how we analyze firms in their context. We pay attention to identifying how the conditions of the country influence how firms develop their competitive advantage and expand abroad. In the case of MultiMexicans, the transformation of Mexico in the twentieth century deeply influenced how firms behaved. Mexican firms were sheltered from foreign competition by the import substitution process that was implemented in Mexico from the 1940s to the 1980s, and were quickly exposed to foreign competition during the liberalization of the 1990s (Hoshino, Reference Hoshino2001). The 1994 North American Free Trade Agreement opened the door to the entry of many American and Canadian multinationals that were not only much larger, but also had more sophisticated technologies and capabilities. This forced Mexican firms to upgrade their capabilities quickly. Some Mexican firms did so in collaboration with the newcomers, as they became assemblers for foreign firms in the so-called maquila parks in the Mexican states bordering the United States. They internationalized indirectly by becoming part of the global value chains of foreign multinationals, initially, later expanding on their own using knowledge gained from the foreign partners on how to compete across borders. Others focused on increasing their scale at home by acquiring local competitors to become the dominant players, and later ventured abroad in search of new markets in which they could grow. And yet others expanded abroad even when they lacked both the size and expertise of foreign markets, taking the plunge and venturing on their own. All these processes were aided by new free trade agreements that made Mexico one of the most open economies in the world, placing additional pressure on domestic firms to become internationally competitive and paving the way for their wide foreign expansion.
Another distinguishing characteristic of this book is the discussion of tradeoffs that firms face in their foreign expansion. For example, in the case of Mexican firms, managers face the choice of expanding into other emerging economies or selecting advanced economies for their foreign ventures. Mexico is positioned next to one of the largest and most demanding advanced markets, the United States. At the same time, it is close to many neighboring countries in Latin America with which it shares cultural and historical ties. Thus, Mexican firms can easily choose to go upmarket and enter the neighboring United States, where they may learn how to serve highly demanding customers that can help them further improve their capabilities. However, this approach is risky, as they face additional challenges from their lower level of marketing sophistication or the negative perceptions of their country of origin. Alternatively, MultiMexicans may choose to move to similar markets in other Latin American countries in which they can benefit from the sale of products to customers that have similar economic and cultural profiles to the ones at home. However, this move may limit their learning and further capability in upgrading.
Contents of the Book
Hence, in this book, we build on this dual approach – context and tradeoffs – to provide a deep and nuanced discussion of MultiMexicans and draw lessons for managers of other firms in other countries. The book’s chapters cover a wide variety of industries and companies to gain a diversity of insights on how firms become multinationals. We use a comparative case study methodology to gain a deeper understanding, selecting two of the leading firms in their sector and comparing their experiences over decades. The last chapter describes this methodology and how we used it in the book.
The second chapter provides an overview of the phenomenon of MultiMexicans. It gives a short introduction to the evolution of the country in recent decades to provide some historical background to those who are not familiar with the development of Mexico. It also aims to dispel some myths about Mexico and its economic backwardness, given its recent and relatively successful development. It then presents an overview of the population of MultiMexicans and a description of their patterns of international expansion, highlighting a few distinguishing characteristics, such as their family ownership and their membership in business groups, that play a specific role in their upgrading and expansion.
The bulk of the book is a series of chapters that study the process of competitiveness upgrading and internationalization of two leading multinationals operating in the same industry. The 21 chapters follow a common structure to facilitate the comparison across industries and the drawing of conclusions. They first provide an overview of the industry and its evolution in Mexico; identify some of the largest foreign and domestic competitors; describe the transformation of two of the leading Mexican firms from domestic to multinational firms; and provide lessons for other managers. The analysis of the case studies is organized into the three broad industry groupings of primary, secondary, and tertiary industries to highlight how MultiMexicans can emerge and be successful in any industry. The section on primary industries includes chapters that compare multinationals in agriculture (Bachoco and SuKarne), mining (Grupo México and Industrias Peñoles), oil (Pemex), and steel (Alto Hornos de México and Industrias CH). The section on secondary industries comprises chapters that analyze firms in food (Bimbo and Gruma), beverages (Grupo Modelo and Cuauhtémoc Moctezuma), footwear (Flexi and Andrea), cement (Cemex and Cementos de Chihuahua), containers and packaging (Vitro and Envases Universales), ceramic tiles (Lamosa and Interceramic), automotive components (Metalsa and Nemak), and appliances (Mabe and MAN Industries). The section on tertiary industries has chapters on retail (Elektra and Coppel), restaurants (El Pollo Loco and Alsea), hotels (Hoteles City Express and Grupo Posadas), entertainment (KidZania and Cinépolis), television (Televisa and TV Azteca), information technology (Binbit and Softtek), telecommunications (América Móvil and Iusacell), consultancy (Sintec and Feher & Feher), and education (Universidad Nacional Autónoma de México and Tecnológico de Monterrey).
The Conclusions chapter summarizes the lessons that can be drawn from the comparison of this variety of firms and industries, and outlines new ideas gained from the comparative analyses. This chapter introduces a framework that explains the process of internationalization of emerging market firms and four upgrading strategies.
The process model presented in the Conclusions chapter proposes that the conditions of the home country influence the characteristics and behavior of managers, firms, and industries, and these, in turn, affect the upgrading of capabilities and subsequent internationalization. This process model results in the following lessons. The first is the contextuality of the processes that enable emerging market firms to upgrade capabilities and internationalize. Two salient conditions of emerging markets, their relative economic underdevelopment and their relative institutional weakness, affect firms directly through the upgrading of capabilities to international levels and internationalization, and indirectly through the interaction among managers, the company, and the industry. To be able to understand how firms in emerging markets can upgrade their capabilities to international levels and what particular patterns of internationalization they follow, we need to understand the conditions of the home country.
The second lesson is the importance of not only the company but also managers and the industry of operation as drivers of the upgrading of capabilities. Much of the research on emerging market multinationals seems to focus on the characteristics of the firm as the main driver of whether it can improve its competitiveness. However, the industry in which the firm operates exercises powerful influences as a driver of upgrading, particularly as the industry deregulates and exposes domestic firms to the rigors of international competition, bringing imports and foreign companies into their home country. At the same time, managers play a crucial role in deciding when and how to upgrade and how to interpret the pressures from outside the firm and changes in the conditions of the home country in their transformation of the competitiveness of the firm.
The third lesson is that competitiveness upgrading is at the base of the internationalization of the firm and serves both as an enabler and a driver. Upgrading is the enabler that helps the firm reach levels of competitiveness high enough to ensure its success abroad. Upgrading is also a driver of some international expansions in which the manager takes the firm abroad to obtain new technologies and connections with customers that can help it compete better at home. Thus, this dual relationship between upgrading and internationalization, in which upgrading is both an enabler and a driver of internationalization, can result in a positive reinforcing loop with upgrading leading to international expansion that in turn results in a higher upgrading and thus more internationalization.
The final lesson is the identification of a set of four strategies that enable emerging market firms to upgrade their competitiveness in support of their internationalization. These four strategies (Improvement, Integration, Inspiration, and Innovation) reflect differences in the locus and focus of capability upgrading. They can be used as guidance for other firms whose managers are considering transforming into multinationals and want to enhance the chances of success at this.
Although this is an academic book, the conclusions presented in each of the chapters and in the concluding chapter of the book can nevertheless be useful for consultants and managers of emerging market multinationals seeking to understand better how they can take companies abroad and make them successful multinationals. As the cases illustrate, the path to success is never a straight one. Rather than take the models discussed in the literature and try to fit them to the conditions of their companies, consultants and managers of emerging market firms may want to consider following the examples of other companies in emerging markets that faced similar home country conditions, such as MultiMexicans, and provide lessons that are more contextually appropriate for their firms. Managers and consultants first need to understand the sources of competitive advantage of the companies at home and then aim to upgrade these to international levels before considering an international expansion. This may not always ensure success abroad, but it will reduce the probability of failure. And when considering how to upgrade the source of advantage, they need to do so in a manner that takes into account not only the conditions of the company but also the conditions of the industry as well as their managerial abilities. Managers are the ones who make the decisions on whether, when, how, why, and where to internationalize their companies and who reap the rewards of successful effort. Even if there are apparent business opportunities in another country, the question is not whether such opportunities exist, but whether these are the right opportunities for the company. This requires preparation and the ability to run a more complex business. In some cases, it may be better not to take the company abroad when the sources of advantage are not transferable to other countries or when the company does not have enough internationally skilled managers and financial resources to support the foreign operation.
