EMERGING MULTINATIONAL CORPORATIONS 

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chapter Two; Theoretical and conceptual framework of emerging multinational corporations

INTRODUCTION

This chapter provides insight into the theoretical and conceptual framework of emerging market multinational corporations. It is organised into four sections. The first section describes the concept of EMNCs. The theories explaining EMNC evolution are discussed in the second section, while the remaining sections consider the types of EMNCs and entry modes adopted by them to go multinational.

CONCEPT OF EMERGING MULTINATIONAL CORPORATIONS

The distinctive features of the concept of emerging multinational corporations can be elaborated  on  by  dividing  this  term  into  its  two  constituent  parts,  namely  ―emerging markets‖ (describing where EMNCs are based) and ―multinational corporations‖ (addressing which firms are listed under the title EMNCs).

 Emerging markets

The term emerging markets (EMs) was firstly introduced by the International Finance Corporation (IFC) in 1981 to describe new developing stock markets (Aybar & Thirunavukkarasu, 2005). This term has since been widely used by different researchers and international organisations. According to literature review (Arnold & Quelch, 1998; Aybar  & Thirunavukkarasu, 2005; Constanza, 2009; Hoskisson, Eden, Lau & Wright, 2000; Cortesi & Plantoni, 2011; Sandberg, 2012), it emerges that three variables are commonly used to identify an emerging market.These variables are population standard of living [often measured as the average gross domestic product (GDP) per capita, the pace of economic growth (frequently measured as the GDP growth rate) and finally economic policies adopted by the government to maintain economic growth and improve the living conditions of its citizens. According to the World Bank classification, emerging countries often belong to the lower or upper-middle income categories, experience a higher growth rate than that achieved by industrial economies, and are more oriented towards applying a wide spectrum of economic policies favouring free market mechanisms.
Furthermore, according to Constanza (2009), emerging markets are characterised by institutional instability and lower levels of economic development, compared to industrialised economies. Sandberg (2012) suggests that the category of emerging markets should include growing economies facing structural transformation from a centrally controlled economy, or from what she describes as the ―pre-market stage‖, to the stage  of matured industrialised economies. This is to be done through adopting integrated and coherent reforms of companies, markets, and society.
Despite the relative convergence among different studies in defining the concept of EMs, remarkably varied lists of emerging markets have been adopted by the different international organisations reviewed in this thesis. These are OECD (2005), IMF (2008), the World Bank (2011), the Institute of International Finance (2012), Standard and Poor’s (2012), UNCTAD (2012), Bloomberg (2014), and the Financial Times (2015), as reflected in Table 2.4 in the Annexure. A general observation on Table 2.4 is that the number of emerging countries, listed by aforementioned organisations, ranges from 10 to 62 countries. Unlike other international organisations, UNCTAD (2012) supports a narrow definition of emerging markets. Its list encompasses only 10 countries belonging to Asia and Latin America. It, therefore, excludes many countries such as China, India, and Russia, commonly listed by other organisations, as being emerging countries. In addition, it does not include the Middle Eastern and emerging African countries, such as South Africa and Egypt. UNCTAD statistics are proven to be the primary data source used in various studies concerned with capturing emerging multinational corporations activities (Goldstein & Pusterla, 2008; Sauvant, Maschek & McAllister, 2009; Cortesi & Plantoni, 2011; Kudina & Pitelis, 2014). However, owing to the previously mentioned critics, researchers are unlikely to adopt UNCTAD’s EM list. Instead, they often promote extended EM lists to become more inclusive and representative of all continents, as reflected in Table 2.5 in the Annexure. It is also noted that amongst the 62 countries classified as emerging by the eight international organisations, only 20 countries are common among these organisations (i.e. mentioned by  at least five out of the eight organisations). These countries are Argentina, Brazil, the Czech Republic, Chile, China, Colombia, Egypt, Hungary, India, Indonesia, Malaysia, Mexico, Morocco, Peru, the Philippines, Poland, Russia, South Africa, Thailand, and Turkey. After determining the salient characteristics of emerging markets, this thesis proceeds to discuss   in   detail   the   second   constituent   part   of   the   term   ―emerging   multinational corporations‖ addressing the question of which firms should be considered as multinational corporations (MNCs).

Multinational corporations

According to Spero & Hart (2010), multinational corporations are business enterprises that maintain overseas direct investments in order to control or possess value-added assets in more than one country. Consequently, the enterprise that operates outside its national economy only as a contractor to foreign firms is not counted as a multinational corporation. Many other researchers (Markusen, 1995; Caves, 2007; Dunning & Lundan, 2008; Buckley & Casson, 2009) adopt a similar perspective and define MNCs as firms that acquire a substantial controlling power in establishments located in at least two countries, through outward foreign direct investment. In the same vein, most international organisations, inter alia, UNCTAD, IMF, and OECD, define MNCs based on a sole criterion; the ratio of foreign to total assets. The threshold is usually determined to be more than or equal to 10 percent. UNCTAD (2009) perceives an MNC as an incorporated or unincorporated company that consists of a parent enterprise (which possesses not less than 10 percent of assets or voting power of a company existing outside its national economy), and foreign affiliates (not less than 10 percent of assets or voting power of these affiliates is owned by a company that exists abroad). To be considered as a multinational corporation, equity modes have to be the sole entry modes for initiating the global orientation of a firm. Thus, firms using non-equity modes (such as exports) at the beginning of their going multinational process are not viewed as MNCs. Similarly, IMF (2008) and OECD (2008) define an MNC or direct investment enterprise as an incorporated or unincorporated enterprise in which a direct investor, who is a resident in another country, owns 10 percent or more of the ordinary shares or the voting power. The affiliate may be a subsidiary (when a foreign investor owns more than 50 percent), an associate (when a non-resident investor owns equal to or less than 50 percent), or a branch (a wholly or jointly owned unincorporated enterprise). From another perspective, it is important to raise the remark of Markusen (1995) pertaining to the similarity between multinational corporations and outward foreign direct investment, to the extent that both terms have often been used interchangeably to refer to the same phenomenon. In addition, UNCTAD (2009) defines both outward foreign direct investment and multinational corporations in quite a similar way, in a sense that both terms may be, to a certain degree, considered synonymous. OFDI refers to a type of investment that aims to build a long-term relationship between one company (direct investor) and another company existing abroad (invested enterprise). The direct investor must possess no less than 10 percent of the assets or the voting power of the invested enterprise. Correspondingly, most studies (Narula & Dunning, 2000; Aykut & Goldstein, 2006; Salehizadeh, 2007; Sauvant, Pradhan, Chatterjee & Harely, 2010) depend on OFDI statistics to quantitatively analyse MNCs.This can be attributed to the unavailability of detailed statistics on the activity of MNCs at the national level. Furthermore, the United Nations Economic and Social Council (ECOSOC) (2009) mentions that ―Multinational corporations present a special measurement challenge for the balance of payment accounts‖. ECOSOC interprets these challenges by the fact that the accounting systems of MNCs do not necessarily capture the real economic value of their activities and transactions, as it should be reflected in the national accounts of the different countries they invest in.Before concluding this section, it should be taken into consideration that MNCs significantly differ according to their involvement in the international markets, or what is referred to as the multinationality/internationalisation degree¹. This can be captured through wide-ranged indicators, based on the data sources and the main target of each study (Sullivan, 1994; Gomes & Ramaswamy, 1999; Spero & Hart, 2010; Aggarwal, Berrill, Kearney & Huston, 2011). Aggarwal, Berrill, Kearney and Huston (2011) suggest classifying different multinationality degree indicators into three main categories.These include performance indicators, company structural indicators, and company behavioural indicators². Owing to the fact that companies usually become involved in various markets through a mixture of penetration modes, Sullivan (1994) counters using a single variable approach to capture the degree of a firm’s involvement in international markets. Rather, some researchers and international organisations promote composite indices to measure the multinationality level of a firm (Gomes & Ramaswamy, 1999³; Sullivan, 2004⁴; UNCTAD, 2010⁵; Aggarwal, Berrill, Kearney, and Huston, 2011⁶). Having discussed the basic definitions of emerging multinational corporations, it remains important to consider a variety of crucial issues, such as how EMNCs start, why one firm can evolve into a multinational corporation while another cannot, what the main drivers are for going multinational, and when a firm starts engaging with international markets. All these issues are addressed in the next section, which reviews the different theories relevant to EMNC evolution.

Declaration and Copyright 
Acknowledgement 
Preface
Abstract
List of Figures
List of Tables
Acronyms
Chapter One : introduction
1.1 SETTING THE CONTEXT
1.2 PROBLEM STATEMENT AND LITERATURE GAP
1.3 OBJECTIVES AND CONTRIBUTION OF THE THESIS
1.4 RESEARCH QUESTIONS
1.5 OUTLINE OF THE THESIS
1.6 METHODOLOGY AND DATA SOURCES
Chapter Two: theoretical and conceptual framework of emerging multinational corporations
2.1 INTRODUCTION 
2.2 CONCEPT OF EMERGING MULTINATIONAL CORPORATIONS 
2.2.1 Emerging markets
2.2.2 Multinational corporations
2.3 EMNCs THEORIES
2.3.1 The first category: firm advantages based theories
2.3.2 The second category: host country advantages based theories
2.3.3 The third category: firm and host country advantages based theories
2.4 TYPES OF EMNCs
2.4.1 Geographical dispersion of economic activities of EMNCs
2.4.2 Timing of engaging with global markets
2.4.3 Relation between the headquarters and affiliates
2.4.4 Global orientation motives
2.4.5 Other classifications
2.5 MARKET ENTRY MODES 
2.5.1 Types of market entry modes
2.5.2 Classification of market entry modes
2.6 SUMMARY
Chapter Three: emerging multinational corporations landscape: where do emerging African
multinational corporations stand? 
3.1 INTRODUCTION 
3.2 EMERGING MNCS OVERVIEW
3.2.1 Performance of EMNCs
3.2.2 Foreign markets of EMNCs
3.2.3 Preferred entry mode of EMNCs
3.2.4 Industry breakdown of EMNCs
3.3 LEADING COUNTRIES OF EMNCS
3.3.1 Performance of BRICS MNCs
3.3.2 Foreign markets and preferred entry mode of BRICS MNCs
3.3.3 Industry breakdown of BRICS MNCs
3.4 AFRICA’S STATUS IN THE EMNCs LANDSCAPE.
3.4.1 Performance of EAMNCs
3.4.2 Foreign markets and preferred entry mode of EAMNCs
3.4.3 Industry breakdown of EAMNCs
3.5 SUMMARY
Chapter Four: push drivers of South African and Egyptian multinational corporations 
4.1INTRODUCTION 
4.2 SOUTH AFRICAN AND EGYPTIAN MULTINATIONAL CORPORATIONS OVERVIEW
4.2.1 Performance of South African and Egyptian MNCs
4.2.2 Foreign market entry mode of South African and Egyptian MNCs
4.2.3 Sector breakdown of South African and Egyptian MNCs
4.2.4 Ownership structure of South African and Egyptian MNCs
4.2.5 Openness of South Africa and Egypt to OFDI
4.3THEORETICAL FRAMEWORK AND LITERATURE REVIEW 
4.3.1 Theoretical framework
4.3.2 Previous research
4.4 DRIVERS OF EGYPTIAN AND SOUTH AFRICAN MNCs
4.4.1 Methodology and data sources
4.4.2 Empirical results
4.4.3 Limitations of the findings
4.5 SUMMARY
Chapter Five: pull drivers of South African and Egyptian multinantional corporations
5.1 INTRODUCTION 
5.2 FOREIGN MARKETS OF SOUTH AFRICAN AND EGYPTIAN MULTINATIONAL CORPORATIONS
5.3 THEORETICAL FRAMEWORK AND LITERATURE REVIEW 
5.3.1Theoretical framework
5.3.2 Literature review
5.4 PULL DRIVERS OF EGYPTIAN AND SOUTH AFRICAN MNCs
5.4.1 Methodology and data sources
5.4.2 Empirical results
5.4.3 Limitations of the findings
5.5 SUMMARY
Chapter Six: conclusion and policy recommendations 
6.1 KEY FINDINGS OF RESEARCH
6.1.1 Performance of emerging African MNCs and their status in the EMNCs landscape
6.1.2 Industry breakdown of emerging African MNCs
6.1.3 Ownership structure of emerging African MNCs
6.1.4 Preferred entry mode of emerging African MNCs
6.1.5 Foreign markets of emerging African MNCs
6.1.6 Push drivers of emerging African MNCs
6.1.7 Pull drivers of emerging African MNCs
6.2 LIMITATIONS OF RESEARCH
6.3 POLICY RECOMMENDATIONS.
6.4 LESSONS LEARNED
6.5 FUTURE RESEARCH PROSPECTS 
BIBLIOGRAPHY
ANNEXURE

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