Multinationals and Emerging Markets: Understanding the institutional environment

Eva Cecilie Knutsen

Student thesis: Master thesis

Abstract

The challenges facing multinational corporations (MNCs) are increasingly complex. Among contemporary issues facing MNCs are the opportunities of success and failure in the context of emerging market environments. This thesis investigates the particularities surrounding emerging market institutional context. It takes a critical view of the definition of emerging markets and proposes that MNCs cannot understand and evaluate their emerging market context by only looking at economic indicators for the definition of emerging markets. Instead a further look into the institutional context is merited. This is also something that is warranted by scholars of the international business perspective. The thesis starts by looking at the liability of foreignness that is often experienced by firms when entering new markets, exemplified by recent difficulties experienced by Danish companies in the Chinese context. It further conducts an empirical study of developing countries in three geographical regions to objectively analyze their potential as emerging markets. The study uncovers the ambiguities connected to defining emerging markets, and the difficulties of categorizing emerging markets in order to establish a clear view of the corresponding threats and opportunities. The levels of institutional differences are many and hard to decipher. From this point of view, a deeper investigation into the institutional frameworks and dynamics of emerging markets is merited. To better investigate the research question of how a better understanding of institutional environment dynamics may help MNCs optimize their ability to manage their emerging market context, a literature review of theories from both the perspectives of international business and that of international political economy is undertaken. From the perspective of international business, a review of the theories of resource-based view, institutional theory, stakeholder theory as well as resource dependence theory is undertaken. From international political economy, theories of power were focused on to enhance the understanding of emerging market dynamics. The theories reviewed here include those of neo-Gramscian framework, business power and conflict, as well as views on host government power. This thesis has explained how elements of power and control, issues not generally included in generic theories explaining how MNCs manage their institutional context, may be of value to MNCs. The value lies in the extent that firms hold an explicit knowledge of the complex institutional dynamics taking place in their surrounding environment, and based on this are able to increase their ability to successfully manage their activities in emerging markets.

EducationsMSc in International Business and Politics, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2012
Number of pages85