Host countries' level of development and internationalization from emerging markets : a typology of firm strategies

Abstract

Host countries' level of development affects internationalization from emerging markets. The challenges and opportunities firms face, the resources and assets they need, and ultimately how they internationalize are shaped by whether firms internationalize to developing or developed countries, and whether they operate within a single or across multiple levels of host country development. I propose a typology of four firm strategies to deal with different host location types: local optimization, global consolidation, brokering and niche filling. Local optimization happens when firms seek out less competitive markets in similar and lower income countries, managing institutional and infrastructural challenges through collective action. Firms seeking global consolidation manage their limited capabilities and legitimacy through mergers and acquisitions as they springboard from low to high income host locations. Suppliers in global value chains and the customer-facing partners of advanced multinationals in low income countries are arbitrageurs between high and low income countries. They use brokering to avoid head-on competition with advanced multinationals, but to grow, firms must retain their primary relationships while developing non-competing relationships. Niche filling involves firms targeting knowledge-intensive offerings at lucrative high income markets, managing their smaller resource base vis-à-vis competitors through non-equity or digitally-enabled modes of internationalization. Firms can simultaneously use different strategies for different types of foreign markets.