Country of Origin and Host Country Effect on the Competitive Advantage of Developing Country Multinational Companies Ascendancy to Business Superiority

Abstract

As the key drivers of globalization, multinational enterprises (MNEs) play an important role in increasing economic interdependence among national markets. Despite the ranging and overdramatized debate on globalization, Rugman and Verbeke (2005) argue that there are few firms that are truly global and most are, at best, regional. Scholars in global strategy have attempted to examine reasons for internationalization, how firms internationalize, the entry modes they use and how they structure their operations in global markets. The strand of these studies aims to examine how firms ascend to global markets and the internationalization approaches they pursue. A number of approaches that firms use to internationalize have been adopted among them The Penrosian approach (Penrose, 1959; Prahalad and Hamel, 1990); The ‘product cycle hypothesis’ (Vernon, 1966; Bradley, 1995; Svend Hollensen, 2004, 2008)); The Uppsala Internationalization model, (Johanson and Wiedersheim-Paul, 1975; Johanson and Vahlne, 1977; Barkema et al., 1996; Johansson and Vahlne, 1977, 1990); The transaction cost approach (Svend Hollensen (2004, 2008); The eclectic approach, (Dunning, 1981; Buckley and Casson, 1976; Rugman, 1981)); and The network approach, (Johanson and Mattson, 1988).  Sorensen (1997) has classified the internationalization models in four groups, based on internationalization modes (progressive models), contingency models, business network (interactive models) and social construction and Rubaeva, (2010) has examined these from a reason for internationalization, environment factor and more of entry (REM) perspective. Despite spirited efforts to study the MNEs, a lot of research on these enterprises has focused on MNEs from developed economies, (Advanced Country Multinational Companies, ADMNCs). There has been limited attention on how Developing Country Multinational Companies (DMNCs) ascend to business superiority and how they penetrate regional and global markets. Existing views on internationalization do not sufficiently explain the internationalization of DMNCs. The country of origin and its effect on the competitive advantage of the DMNCs is host country is an area that is under researched. The competitive disadvantages that host country poses to the DMNCs is not fully elucidated. The effect of the country of origin image on the entry mode as well as how this affects the competitive posture should be areas that raise research interest.In this paper, we examine theoretical perspectives of MNCs, the sources of competitive advantages for DMNCs, how the DMNCs build and deploy their competitive advantages in pursuit of internationalization, the host Country and country of origin effect, and the variations of sources of competitive advantage across locations of DMNCs. We posit that AMNCs and DMNCs ascendancy to business superiority follows different trajectories, given the differences in resource base, technology, image of country of origin, cultural context and variations in Government policy among others, and that the MNCs in their current form, as advanced by Rugman and Verbeke, (2005) are more regional than global and that globalization has been over-dramatized. We contend that regionalism and nationalism need to occupy the space that has been granted to globalization, and that DMNCs can take advantage (location, cultural, market etc.) of the new wave of slowing down on globalization. Our perspective is that we do not have a grounded theory on DMNCs business superiority ascendancy, and research attention in this area should be profound.

Keywords: Internationalization, advanced country multinational companies, developing country multinational companies, competitive advantage, country of origin, host country, Uppsala model, Eclectic Theory, Transaction Cost Approach