Chapter

Reverse Innovation and the Role of Local Partners in Emerging Markets: The Experience of Foreign Subsidiaries in Brazil

Authors:
To read the full-text of this research, you can request a copy directly from the authors.

Abstract

In recent years, emerging markets have come to represent the largest share of global GDP and have made gains in economic development and political influence. In turn, emerging market companies have taken on a new level of importance in driving innovation, local development and global competition. Advancing an integrative view that captures the diversity of innovation among companies in emerging markets, this book highlights the rapid evolution of emerging markets from imitators to innovation leaders. Building upon research conducted by the Emerging Multinational Research Network (EMRN) in collaboration with several universities in North and South America, Europe and China, this rich and expansive collection includes studies of innovation in regions yet to receive focused analysis in the field. The authors also re-examine dominant theories of innovation and capability creation based on a broad range of case studies and research insights. Offering a taxonomy of emerging market innovations, this collection reveals the unique drivers, types, and outcomes of innovation in emerging markets.

No full-text available

Request Full-text Paper PDF

To read the full-text of this research,
you can request a copy directly from the authors.

ResearchGate has not been able to resolve any citations for this publication.
Article
Full-text available
In this paper, we use the term jugaad to describe the frugal, flexible, and inclusive approach to innovation and entrepreneurship emerging from India. We articulate why this method is appropriate within the Indian context and highlight similarities between jugaad and related types of innovation originating from other emerging (and developed) economies. Next, we identify different types of organizations that engage in jugaad and elucidate their abilities, or lack thereof, to undertake such innovation. Finally, we incorporate the notion of jugaad within current theorizing on innovation and entrepreneurship and outline an agenda for future research on this topic. Overall, we provide insights on a mode of innovating that is increasingly prevalent in India as well as certain economies around the world and take steps towards integrating this concept into the mainstream theory, practice, and policy discourses around innovation and entrepreneurship.
Article
Full-text available
Purpose – The paper aims to address two key gaps in the literature of frugal innovation. First, it disambiguates frugal innovations into its types, and into the various levels at which it happens. Second, it builds upon the theoretical foundations of resource-based view, new institutional economics, economics of location, and institutional theory to offer testable propositions on determinants of frugal innovations. Design/methodology/approach – This is a conceptual paper. The authors first systematically reviewed the extant literature on frugal innovation and related domains and categorized the existing understanding on the domain into various typologies of frugal innovation. The authors then justified why certain key theoretical lenses are tenable to understand the determinants of frugal innovation and then examined the conditions that enable such innovations. Findings – The paper has three key findings. First, frugal innovation comprises of a frugal mindset, a frugal process and a frugal outcome, which may be practiced distinctly. Second, frugal innovators are of three types: grassroots-level, domestic-enterprise level, and MNC-subsidiary level. Each has their distinctive incentives and styles of frugal innovation. Third, a frugal mindset is encouraged by a resource-scarce environments, weaker institutional intermediaries, and a higher tolerance for uncertainty. Frugal processes are espoused by poor property rights regime and a critical size of lead market; and frugal outcomes are influenced by the network-position of innovators, and the presence of critical lead-markets. Research limitations/implications – The propositions are though testable, but proxies need to be developed to measure the variables, such as a frugal mindset, and a frugal process. Further, the current view on various types and levels of frugal innovation is that of mutual exclusivity, whereas this may not always be the case. Hence, it might be useful to identify contingencies in which these distinctions fade away. Originality/value – The paper is valuable in two key aspects. First, it offers a much-needed theoretical underpinning to the phenomenon of frugal innovation, such that the phenomenon could be better understood and influenced. Second, it nuances the phenomenon by identifying distinct types of frugal innovators in terms of their motivation, institutional influences, and styles of innovation.
Article
Full-text available
The integration-responsiveness (IR) framework is a leading analytical tool of global strategy but it is less valuable in explaining the heterogeneity of strategic choice for subsidiaries within an MNE. We propose an IRE framework of subsidiary strategy that complements the IR framework for the subsidiary level with a third dimension—selling to local versus export markets (E). Resource-based considerations suggest that subsidiary strategies must fit the resources both the parent MNE and the local context. We examine how our three dimensions of subsidiary strategy are locally contingent. We suggest that local resource endowments, local competition, and the distance between the home and host country influence the use of responsiveness and exporting strategies, but influence integration strategies only to a small degree. We find empirical support for hypotheses developed from these arguments using survey data from MNE subsidiaries in two Central and Eastern European economies.
Article
Full-text available
Recent research on the competitive advantage of multinational corporations (MNC) has emphasized the importance of the ability of subsidiaries to assimilate new knowledge from their external environment. Such an ability is important for the individual subsidiary's own performance as well as for the possibility it affords the MNC to combine and use resources from different parts of the corporate system. This paper explores the nature of business embeddedness at the subsidiary level and its role at the corporate level. It is suggested that the subsidiaries' embeddedness in a network of business actors can explain why certain subsidiaries demonstrate higher achievements than others, both in terms of their market performance and regarding their importance for competence development within the MNC. It is argued that the closer a subsidiary's external business relationships with suppliers and customers the easier it will be to assimilate new knowledge from outside, the more it will be able to innovate and therefore the more it will be able to advance its performance in the local market. Further, because embeddedness influences the innovative capacity of subsidiaries, it is also claimed to be a decisive factor in explaining which subsidiaries will contribute to competence development at the corporate level. Hypotheses concerning the relationships between a subsidiary's external technical embeddedness, market performance and the subsidiary's importance for competence development at the level of the MNC are formulated and tested in a LISREL model. Data is used from 97 subsidiaries belonging to 20 global divisions of 13 Swedish multinational corporations. The results indicate that a subsidiary's extemal technical embeddedness can be a strong predictor of both its own expected market performance and its role as a provider of competence to other MNC units. The paper concludes with a discussion about the role that a subsidiary can play as a bridgehead between external and intemal units of an MNC and the negative impacts that might occur if a subsidiary's business network is too embedded.
Article
Full-text available
This paper investigates the implications of subsidiary autonomous activities for the governance of the multinational enterprise (MNE).  Bounded rationality constraints faced by MNE corporate level management lead to severe limits imposed on subsidiary autonomous activities. The bounded rationality construct is revisited, and decomposed into information selection and information judgment in the context of subsidiary autonomous activities. Key Results  A new conceptual framework is developed to gain insights into the governance-related conditions for the successful development of subsidiary autonomous activities.  Managerial tools are suggested, namely more selectivity in geographic scope and more attention devoted to the composition of corporate level management, to foster convergence between corporate level and subsidiary level perspectives.
Article
Full-text available
Network structures and relational characteristics have become increasingly prevalent in the study of how firms find and exploit market and technological opportunities. Some scholars claim that a large number of relationships with a low degree of relational embeddedness facilitate a firm's possibilities to gather new knowledge; others stress a high degree of embeddedness between the firm and its counterparts in order to absorb the new knowledge. The same bi-polarity can be seen when network structures are considered; certain scholars favor open structures while others favor closed network structures. The fact that each firm has restrictions in terms of resources highlights the question of how configurations of networks and relationships influence firms' possibilities to find and exploit opportunities. In this paper, we utilize different strands of theories about network structure and relationship characteristics to develop an understanding of how they should be configured in order to facilitate a firm's search for opportunities.
Article
Full-text available
Western multinational corporations (MNCs) increasingly locate advanced functions, including product development and engineering, in emerging economies to gain access to lower-cost science and engineering (S&E) talent and specialized service providers. Over time, new S&E clusters have developed in emerging economies that are strongly oriented toward global MNC demands. This study investigates the role of foreign MNCs in the formation of these S&E clusters. It is proposed that pioneer MNCs promote the initial development of S&E clusters by customizing local institutions and business practices in accordance with their sourcing needs and based on their experience in other local business contexts, including their home country. As a result, these clusters may develop specialized resources and service capabilities that particularly attract follower MNCs of the same national origin that have similar sourcing needs. This study may inform both cluster formation research and policy making in emerging economies.
Article
Full-text available
Central to this study is the emerging body of knowledge describing how social exchange relationships are being nurtured. A random sample of 343 Australian distributor firms from within the motorized vehicle industry was used to test a model developed on the basis of social exchange theory. Psychological contracts are perceptual in nature and were found to encompass reciprocal obligations stemming directly from the relational orientation between suppliers and distributors. This construct was also shown to have a positive impact upon the level of trust and commitment within the relationship. These findings have significant managerial implications for the manner in which managerial decision makers are modelling the firm–customer relationship because trust and commitment are essential elements in the development and maintenance of such relationships. The theoretical and managerial implications discussed have highlighted the need for further studies because there are deficiencies in the marketing literature pertaining to this important construct.
Article
Full-text available
It's no easy task to identify strategies for entering new international markets or to decide which countries to do business with. Many firms simply go with what they know-and fall far short of their goals. Part of the problem is that emerging markets have "institutional voids": They lack specialized intermediaries, regulatory systems, and contract-enforcing methods. These gaps have made it difficult for multinationals to succeed in developing nations; thus, many companies have resisted investing there. That may be a mistake. If Western companies don't come up with good strategies for engaging with emerging markets, they are unlikely to remain competitive. Many firms choose their markets and strategies for the wrong reasons, relying on everything from senior managers' gut feelings to the behaviors of rivals. Corporations also depend on composite indexes for help making decisions. But these analyses can be misleading; they don't account for vital information about the soft infrastructures in developing nations. A better approach is to understand institutional variations between countries. The best way to do this, the authors have found, is by using the five contexts framework. The five contexts are a country's political and social systems, its degree of openness, its product markets, its labor markets, and its capital markets. By asking a series of questions that pertain to each ofthe five areas, executives can map the institutional contexts of any nation. When companies match their strategies to each country's contexts, they can take advantage of a location's unique strengths. But first firms should weigh the benefits against the costs. If they find that the risks of adaptation are too great, they should try to change the contexts in which they operate or simply stay away.
Article
Full-text available
The year 2005 marks the beginning of the "International Decade for Action: Water for Life" and renewed effort to achieve the Millennium Development Goals (MDGS) to reduce by half the proportion of the world's population without sustainable access to safe drinking water and sanitation by 2015. Currently, UNICEF and WHO estimate that 1.1 billion people lack access to improved water supplies and 2.6 billion people lack adequate sanitation. Providing safe water and basic sanitation to meet the MDGs will require substantial economic resources, sustainable technological solutions and courageous political will. We review five major challenges to providing safe water and sanitation on a global basis: (1) contamination of water in distribution systems, (2) growing water scarcity and the potential for water reuse and conservation, (3) implementing innovative low-cost sanitation systems, (4) providing sustainable water supplies and sanitation for megacities, and (5) reducing global and regional disparities in access to water and sanitation and developing financially sustainable water and sanitation services.
Article
Full-text available
With established markets becoming saturated, multinational corporations (MNCs) have turned increasingly to emerging markets (EMs) in the developing world. Such EM strategies have been targeted almost exclusively at the wealthy elite at the top of the economic pyramid. Recently, however, a number of MNCs have launched new initiatives that explore the untapped market potential at the base of the economic pyramid, the largest and fastest-growing segment of the world's population. Reaching the four billion people in these markets poses both tremendous opportunities and unique challenges to MNCs, as conventional wisdom about MNC global capabilities and subsidiary strategy in EMs may not be appropriate. How MNCs can successfully enter these low-income markets has not been effectively addressed in the literatures on global and EM strategies. An exploratory analysis, involving interviews with MNC managers, original case studies, and archival material, indicates that the transnational model of national responsiveness, global efficiency and worldwide learning may not be sufficient. Results suggest that the success of initiatives targeting low-income markets is enhanced by recognizing that Western-style patterns of economic development may not occur in these business environments. Business strategies that rely on leveraging the strengths of the existing market environment outperform those that focus on overcoming weaknesses. These strategies include developing relationships with non-traditional partners, co-inventing custom solutions, and building local capacity. Together, these successful strategies suggest the importance of MNCs developing a global capability in social embeddedness. Journal of International Business Studies (2004) 35, 350–370. doi:10.1057/palgrave.jibs.8400099
Article
This study examines factors that influence the development and transformation of local innovations into global innovations from an emerging market subsidiary. We argue that subsidiaries’ relational embeddedness with the external local network is essential for the development of local innovations. Turning local innovations into global ones is the result of the level of innovativeness evoked by the subsidiary located in an emerging market. However, the transformation of local into global innovations is more likely to happen in the case of subsidiaries having previous reverse knowledge transfers in functional areas. Reverse knowledge transfers indicate internal embeddedness, which is essential for local innovation to be transformed into global innovation. We draw on survey evidence from 131 foreign subsidiaries operating in Brazil. Using a Structural Equation Modeling technique, our results support our hypotheses and show that subsidiaries’ relational embeddedness with the external local network is positively associated with local innovation, which is transformed into global innovation, especially when innovation is developed in the subsidiary´s functional areas with previous reverse knowledge transfers. We draw implications for the field of subsidiary management research, specifically to understand the role of local innovation from foreign subsidiaries in emerging markets.
Article
This study investigates business models for frugal innovation (i.e. a specific form of resource-constrained innovation) in the medical device and laboratory equipment industry in the context of emerging markets. Based on original data from five case studies, we investigate how firms can set up value creation and value capturing mechanisms to reach new customer segments in remote rural areas with unprecedented value propositions. With this research, we contribute to the literature on frugal innovation and business models in emerging markets. It is among the first empirical studies to apply a fine-grained perspective on resource-constrained innovation in emerging markets. In doing so, we focus on its most disruptive form, which is when these innovations entail entirely new applications. We advance and detail the value proposition for frugal innovation in these industries and argue that frugal innovation create new markets. Further, we show how firms set up their value creation and value capturing mechanisms to achieve the value proposition and identify two distinct Research & Development (R&D) strategies for frugal innovation.
Article
Location of new products, 191. — The maturing product, 196. — The standardized product, 202.
Article
Constrained by their peripheral position in the global factory system and underdeveloped institutions at home, emerging-market multinational enterprises (MNEs) are likely to achieve monopoly-based, rather than knowledge-based, financial gains from internationalization conditional on R&D. Emerging market MNEs need to engage in R&D to upgrade orchestration know-how within the global factory. This needs to be accompanied by the development of home-based enabling institutions. This article develops the argument based on internalization theory, and tests hypotheses against the experience of major emerging-market MNEs from 2004 to 2011.
Article
The idea of reverse innovation, local innovation happening in emerging markets for the global market, has gained much academic and managerial attention in recent years. The purpose of this study is to understand how reverse innovation has successfully diffused into the product and market development strategies at Philips Inc., a prominent multinational company (MNC) of the modern era. Furthermore, the study presents the success achieved by these innovations at both the domestic and global levels, along with their implications regarding socio-economic sustainability in emerging markets. In order to investigate the research questions, a case study of Philips China was conducted involving three product innovations that were found to be suitable examples of reverse innovation. After the study of extant literature on the topic, drawing from research databases, newspaper articles, and company press releases, five semi-structuredinterviews were conducted with key managers and a market practitioner to gain sufficient understanding for this exploratory study. Subsequent case analysis concludes that these innovations are examples of reverse innovation representing a new paradigm change in innovation flow. This flow of innovation from emerging markets to developed markets as confirmed by Corsi's framework could potentially disrupt developed markets as well as contribute to ensure healthy living conditions for the population living in developing countries. If so, this represents a sustainable socio-economic change in-line with the United Nations' Sustainable Development Goal (SDG) of "ensuring healthy lives and promoting well-being for all at all ages." This is relevant as Philips aspires to be a prominent private sector player in achieving the above-stated goal by defeating non-communicable disease and strengthening local healthcare systems.
Article
Purpose – The purpose of this paper is to discuss the role of institutions in emerging markets by sketching out the unique institutional features of these markets and their implications for multinational corporations (MNCs). Design/methodology/approach – The study is conceptual in nature and provides an examination and interrelation of some of the key developments of institution-based research in the context of emerging market studies. Findings – This paper examines several idiosyncratic institutional features of emerging markets, including institutional voids, the relative importance of informal compared to formal institutions, institutional pressures by local governments, as well as institutional change and transitions. Practical implications – The paper discusses key effects and implications of the unique institutional environments of emerging markets for managers of MNCs, such as the relevance and importance of context, political, economic and social adaptability, as well as institutional arbitrage. Social implications – The paper discusses institutional legitimacy pressures in emerging markets for MNCs’ social performance, the relevance and importance of social institutions in these markets, as well as the need for social adaptation in order to successfully do business in emerging markets. Originality/value – This paper provides a current and relevant discussion of the key formal and informal institutional idiosyncrasies of emerging markets compared to developed markets and forwards a number or practical prescriptions for how to navigate these different and unique institutional environments.
Article
Purpose – This paper aims to synthesize the literature on embeddedness of MNE subsidiaries, rethinking the concept of “multiple embeddedness” in order to clarify the importance of the subsidiary-specific advantages. Design/methodology/approach – A new and innovative framework based on four key relationships: home country-specific advantages (CSAs)-Headquarters (HQ); HQ-subsidiary; subsidiary-host CSAs; and subsidiary-HQ. This framework is used to discuss the complex phenomenon of “multiple embeddedness”. Findings – The framework proposed sheds light on the subsidiary's need to develop and sustain over time its subsidiary-specific advantages (SSAs) and, where possible, to “upgrade” these SSAs and to integrate them across the entire network of the MNE. The framework is based on two pillars. The first one is the “creation and development” of firm-specific advantages (FSAs) (in the home country) and SSAs (in the host country); the second one is the “transfer” of these advantages from the parent to the subsidiary and vice versa. In addition, several interesting interrelations are found between the four main relationships, and the central role of the recombination capabilities and the importance of distance are highlighted. Originality/value – This paper is one of the first to develop a framework incorporating all the relevant relationships in multiple embeddedness. The framework is innovative and “embeddedness” is analyzed in a novel way, as many studies only partially analyze this complex phenomenon and neglect one or more of these relationships.
Article
Over the last century and a half, global technological leadership has shifted from Great Britain to the USA. In this paper we argue that China is positioning itself to assume global leadership in technology within the coming few decades. We identify three sources of competitive advantage for China’s ascent in the global technology stakes: its massive domestic market, its centralized power and willingness to employ state-sponsored industrial policy and government support, and the process of globalization that continues to transform markets worldwide. After acknowledging skeptical views of China’s capacity to achieve global technology leadership, we survey the present state of affairs and assess its prospects for growth based on statistical evidence and multiple examples. We argue that the three sources of competitive advantage we explicate offer China a path to imminent global technological leadership.
Article
Drawing on institutional and corporate reputation theory, this study investigates the impact of mass-media-based corporate reputation on firms’ market value in the emerging markets. Further the study analyzes the moderating impact of business group affiliation and the social media presence of Chief Executive Officers (CEOs) on corporate reputation and firm valuation relationship. From a sample of fast-growing industries in India, the study finds that corporate reputation that the firm earns in mass media does enhance its market value and impact is higher when firm is standalone compared with when it is affiliated to a business group and when the firm’s CEO is present on social media through Facebook, LinkedIn and Twitter.
Article
Emerging markets offer tremendous growth opportunities for firms. While established multinational firms typically focus on premium segments in emerging markets, they often fail to leverage additional growth opportunities in so-called good enough or low-income segments in emerging markets. Customers in these low-income markets have substantially different requirements and are very price sensitive. Theoretical and case-based research suggests that innovating for these low-income segments in emerging markets differs significantly from innovating for premium or traditional Western markets.
Article
Reverse innovation commonly refers to an innovation initially launched in a developing country and later introduced to an advanced country. Adopting a linear innovation model with the four sequential phases of concept ideation, product development, primary target market introduction, and subsequent secondary market introduction, this study expands the espoused definition of reverse innovation beyond its market-introduction focus with reversals in the flow of innovation in the ideation and product development phases. Recognizing that each phase can take place in different geographical locations, the paper then introduces a typology of global innovation with 16 different types of innovation flows between advanced and emerging countries, 10 of which are reverse innovation flows. The latter are further differentiated into weak and strong reverse innovation, depending on the number of innovation phases taking place in an emerging country. This analytical framework allows recasting of current research at the intersection between innovation and international business. Of the 10 reverse innovation flows, six are new and have not been covered in the literature to date. The study addresses questions of ethnocentrism and the continuity of the flow of innovation, and discusses possible extensions of the model with respect to the number of geographical categories and phases of innovation. Four research propositions highlight areas for future investigation, especially in the context of optimizing a firm's portfolio of global innovation competence and capability. The implications for management are concerned with internal and external resistance to reverse innovation. Most significantly, while greater recognition and power of innovation in formerly subordinate organizational units is inconvenient to some, the ability to leverage the potential of reverse innovation makes a firm more likely to succeed in global innovation overall.
Article
In this paper, I identify the bottom of the pyramid (BOP) markets as a new source of radical innovation. By focusing managerial attention on creating awareness, access, affordability, and availability (4As), managers can create an exciting environment for innovation. I suggest that external constraints can be utilized to build an innovation sandbox within which new products and business models can be created. Using a live example of such an innovation—the development of the biomass stove for the rural poor in India—I illustrate the process and the usefulness of the approach. Increasingly, global firms are recognizing the implications of innovations at the BOP for developed markets as well. A 2000-dollar car (Tata Nano); 50-dollar cataract surgery (Aravind Eye Care System); less than $0.01 per minute of cell phone time (Airtel); a modern, well-appointed 20-dollar hotel room (Ginger); and a supercomputer (Eka) that costs less than $40 million to develop: These are all part of an emerging phenomenon of innovations from the bottom of the pyramid (BOP). We will examine in this paper how and why these markets are becoming drivers of fundamental innovation—not just in products but also in the whole business system. To operate profitably in these settings, we have to transcend technology and product perspec-tives of innovation and focus on total delivery of value. As a result, we are forced to rethink the very source, the focus, and the processes of innovation.
Article
Based on embeddedness theory and transaction cost theory, this study explores the influences of innovation and adaptation, which benefit from relationship quality between the subsidiaries of foreign MNC and their local suppliers, on the corporate performance of foreign subsidiaries. In order to examine the hypothetic relationships, 104 subsidiaries of foreign MNCs operating in Taiwan were surveyed. The results indicate that the relationship quality, including social capital, information exchange, and frequency of contact, have positive impacts on innovation and adaptation. Additionally, innovation and adaptation function as the mediating mechanism delivering the beneficial influences of relationship quality to the foreign subsidiary's performance. These results imply that the foreign subsidiaries not only devote their resources to innovation for their own interest, but also adjust themselves and invest in the relationships with local suppliers.
Article
While radical innovations and growth strategies supporting such innovations may provide the firm with very high returns, there are also considerable risks in devising and implementing such innovations. Apart from the business risks of venturing into new territories and new markets, radical innovations also carry with them the burden of accounting for market and environmental factors that are often not under the control of the firm. The opportunities presented by the emergence of several Asian markets, such as India and China, are particularly appealing for Western countries willing to expand into these markets. However, market characteristics, institutional development, and customer behaviors bring into sharp focus the choice of a specific innovation and new product development strategy for such markets. This paper examines these various strategic issues in the context of India. The paper concludes with strategic recommendations for managers and some propositions for future academic research.
Article
Purpose – The purpose of this paper is to investigate how institutional voids influence high-tech ventures' innovation, and what strategies high-tech entrepreneurs deploy to cope with the institutional environments they encounter. Design/methodology/approach – A qualitative research approach was taken. In-depth interviews were conducted with nine high-tech entrepreneurs. In addition, governmental officials, overseas associations, and professional investors were interviewed for more/further observations. Findings – Institutional voids may negatively influence high-tech ventures' innovation. They might be moderated by guanxi and government active involvement. On the contrary, institutional voids can offer high-tech entrepreneurs the opportunity to create innovative business models. The co-evolution of institutional developments and high-tech ventures illustrates the particular characteristics of Chinese entrepreneurial environment. Research limitations/implications – Qualitative study cannot simply be generalized, albeit this explorative study provides illustrative insights. Quantitative research (e.g. surveys), which is applied to test the propositions, calls for further scholarly inquiry. Practical implications – Overseas entrepreneurs are presented with the opportunities to pursue an entrepreneurial career. SMEs from developed economies may join the movement with technology entrepreneurs to enter the Chinese market and co-shape the market development. Originality/value – Institutional voids were conceptualized from a multi-dimensional perspective, namely national, regional, and individual. By providing qualitative evidence, different mechanisms to fill the institutional voids are explored.
Article
OVERVIEW: The quality and number of innovations developed by multinational companies from emerging countries is increasing dramatically. In particular, frugal innovations—“good-enough,“ affordable products that meet the needs of resource-constrained consumers—have created tremendous demand in emerging markets. While the development of such products has largely been the domain of local corporations in emerging countries, Western corporations have recently started to engage in frugal innovation as well. This is a difficult task for Western firms, however, because their business models and organizational structures are traditionally designed for the development of advanced products for the affluent few at the top of the economic pyramid. Using Swiss weighing-instrument manufacturer Mettler Toledo as a case example, this article suggests that frugal innovations are largely developed by local R&D subsidiaries of Western firms in emerging countries. A substantial degree of autonomy for those local R&D subsidiaries, including product-portfolio responsibilities, can facilitate the development of frugal innovation.
Article
We examine how social capital dimensions of networks affect the transfer of knowledge between network members. We distinguish among three common network types: intracorporate networks, strategic alliances, and industrial districts. Using a social capital framework, we identify structural, cognitive, and relational dimensions for the three network types. We then link these social capital dimensions to the conditions that facilitate knowledge transfer. In doing so, we propose a set of conditions that promote knowledge transfer for the different network types.
Article
‘Reverse innovation’ refers to the case where an innovation is adopted first in poor (emerging) economies before ‘trickling up’ to rich countries. Although examples of reverse innovation are still rare, it raises interesting theoretical questions, such as what kinds of innovation emerging economies are likely to spawn, why such innovations might diffuse to rich countries, what competitive advantages local and foreign firms enjoy in this process, and how it affects the global strategy and organization of established MNEs. Research on reverse innovation can enrich and extend mainstream theories of innovation, internationalization, MNE management, and FDI spillovers.
Article
The ability of multinational corporations (MNCs) to leverage their innovation competencies across globally dispersed subsidiaries is an increasingly valuable source of competitive advantage. As multinational enterprises turn to foreign subsidiaries for research and development (R&D) and product development, questions arise regarding the most effective organizational structures for global innovation. Although organizational conditions that satisfy the needs for self-determination and teamwork have long been considered intrinsic motivators, past research has not analyzed the consequences of intrinsic motivators on global innovation. The basic research question is this: In globally dispersed subsidiary R&D units, what organizational conditions and motivators are associated with the highest knowledge output? A sample of 275 globally dispersed R&D subsidiaries were studied from 1995 to 2002. Data were collected from a postal survey, field and telephone interviews, and secondary sources. Subsidiary self-determination and teamwork were found to have a significant effect on knowledge output, as objectively measured by patent citations. Subsidiary self-determination on inputs such as sourcing and hiring, and self-determination on outputs such as marketing and product development, emerged as positive determinants of knowledge generation in R&D subsidiaries. In addition, interteam cooperation and intrateam cooperation were significant determinants of knowledge generation by subsidiaries. These findings highlight the importance of self-determination, teamwork, and cooperation to knowledge creation and innovations. Managers face the tough challenge of how to motivate globally dispersed knowledge workers to conduct research that will generate knowledge and will strengthen firm performance. The results provide theoretical and practical insights on how MNCs can leverage their innovation competencies across foreign R&D subsidiaries.
Article
This study jointly examines the effects of organizational capabilities and public and private expropriation hazards on the level of equity ownership chosen for foreign subsidiaries in emerging markets. Specifically, we explore the mechanisms by which 660 Japanese multinational corporations draw upon industry-specific, country-specific and total international experience to mitigate these hazards in FDI for their 1,727 subsidiaries in 18 emerging markets. Results strongly support a novel specification that forges a link between the capabilities and the public and private expropriation hazards literatures.
Article
This paper explores the importance of relational embeddedness in external networks as a strategic resource for performance and competence development in multinational corporations (MNCs). Two different types of relational embeddedness at the subsidiary level—business embeddedness and technical embeddedness—are proposed to have an influence on the subsidiary's market performance as well as its importance for competence development in the MNC. Using data on 97 Swedish MNC subsidiaries, five hypotheses are tested in a LISREL model analysis. The results suggest that technical embeddedness has a positive impact on both the subsidiary expected performance and its role in the development of products and production processes in the MNC. Indirectly, through external technical embeddedness, external business embeddedness also influences the sister units' product and process development and subsidiary market performance. Copyright © 2002 John Wiley & Sons, Ltd.
Article
This paper investigates how relationship embeddedness in MNC subsidiaries' corporate and external networks influences the contribution of innovation transfer to the recipient subsidiary's business performance. OLS regressions using data on the intra-MNC transfer of 224 innovations indicate that the embeddedness of a subsidiary's relationships in the corporate and external network positively affects the received innovation's contribution to business performance. More detailed analysis demonstrates that the positive link between a subsidiary's embeddedness in the external network and the contribution to business performance of receiving an innovation is negatively affected when the innovation is unique compared with other innovations on the market.
Article
After more than a decade of widespread global R&D expansion, top managers in multinational companies take decentralized competencies for granted, expecting their international research and product development functions to deliver results. However, based on more than 150 in-depth interviews and case research carried out with 18 multinational companies from three industry groups between 1996 and 2000, we have identified six fundamental dilemmas that make it difficult even for companies with carefully managed distributed R&D networks to exploit the full potential of global innovation. In addition to a root-problem analysis, we surveyed these companies about the drivers of R&D globalization, and how these drivers would affect their organizations over the next 10 years. Although some of the trends that emerged are industry specific with regard to technology development, we describe five common traits that are expected to shape R&D organization in the mid-term future.
Article
This paper studies the joint impact of corruption on the entry mode and volume of inward foreign direct investment (FDI) using a unique firm-level data set. We find that corruption not only reduces inward FDI, but also shifts the ownership structure towards joint ventures. The latter finding supports the view that corruption increases the value of using a local partner to cut through the bureaucratic maze. However, R&D intensive firms are found to favor sole ownership.
Article
Information and communication technologies have recently become widely used, especially among the younger population. In this study, the factors affecting the preference of undergraduate students for prepaid or postpaid cell phone service plans were analyzed and a multi-layer perceptron type feed forward neural network model was developed to predict the preferences. Using the responses to the questionnaire administered to a group of undergraduate students in Istanbul University, the factors determining the preference for service plan were determined with χ2 test for independence. A classification model based on multi-layer perceptron type neural networks was developed. The classification accuracy of this model was compared to linear regression, LDA, QDA, Naive Bayes and decision tree approaches and shown to be superior.
Article
The concept of embeddedness has general applicability in the study of economic life and can alter theoretical and empirical approaches to the study of economic behaviors. Argues that in modern industrial societies, most economic action is embedded in structures of social relations. The author challenges the traditional economic theories that have both under- and oversocialized views of the conception of economic action and decisions that merge in their conception of economic actors atomized (separated) from their social context. Social relations are assumed to play on frictional and disruptive, not central, roles in market processes. There is, hence, a place and need for sociology in the study of economic life. Productive analysis of human action requires avoiding the atomization in the extremes of the over- and undersocialized concepts. Economic actors are neither atoms outside a social context nor slavish adherents to social scripts. The markets and hierarchies problem of Oliver Williamson (with a focus on the question of trust and malfeasance) is used to illustrate the use of embeddedness in explicating the proximate causes of patterns of macro-level interest. Answers to the problem of how economic life is not riddled with mistrust and malfeasance are linked to over- and undersocialized conceptions of human nature. The embeddedness argument, on the contrary, stresses the role of concrete personal relations and networks (or structures) in generating trust and discouraging malfeasance in economic life. It finds a middle way between the oversocialized (generalized morality) and undersocialized (impersonal institutional arrangements) approaches. The embeddedness approach opens the way for analysis of the influence of social structures on market behavior, specifically showing how business relations are intertwined with social and personal relations and networks. The approach can easily explain what looks otherwise like irrational behavior. (TNM)
Article
Summary The evolutionary approach to technical change considers technological capability building as the outcome of interactions among individuals, firms, and organizations within a socio-economic and institutional framework in a geographically defined space. This paper aims to study technological capabilities by combining the analysis of both micro and meso levels, emphasizing the role of global-local interactions. It addresses the following research question: what are the main determinants of advanced technological capabilities of firms and regions in an FDI-dominated manufacturing sector? We study the case of the electronics industry in two regions of Mexico. The methodology allows accounting for process and product-centered capabilities in the case of the firms, and for components, attributes, and relationships in the regions.
Article
Leveraging the recent research interest in emerging economies, this Perspective paper argues that an institution-based view of international business (IB) strategy has emerged. It is positioned as one leg that helps sustain the “strategy tripod” (the other two legs consisting of the industry- and resource-based views). We then review four diverse areas of substantive research: (1) antidumping as entry barriers; (2) competing in and out of India; (3) growing the firm in China; and (4) governing the corporation in emerging economies. Overall, we argue that an institution-based view of IB strategy, in combination with industry- and resource-based views, will not only help sustain a strategy tripod, but also shed significant light on the most fundamental questions confronting IB, such as “What drives firm strategy and performance in IB?”Journal of International Business Studies (2008) 39, 920–936. doi:10.1057/palgrave.jibs.8400377