Changing detriment into benefit : emerging market risk as competitive advantage

Abstract

This paper argues that greater levels of risk, generally thought to be detrimental to business performance in emerging markets, are actually a benefit and an important source of competitive advantage for emerging multinational enterprises (EMNEs) competing in the global arena. EMNEs that have survived despite these challenging business environments are more comfortable with and skilled at managing risk than their developed market peers as evidenced in two ways. First, EMNEs are able to stabilise their business performance to statistically match the risk spread of those in developed markets despite their more volatile environments, and second, EMNEs perform progressively better than developed market firms at increased levels of risk. Interestingly, EMNEs react identically to risk drivers that developed market firms responded to twenty years ago, but developed market firms no longer respond the same way. Today, these risk drivers vary significantly between EMNEs and multinational enterprises (MNEs). For example, in every EMNE-MNE comparison, expectation, firm age, firm independence and available slack had contrasting influences. These differences may be attributed to the earlier stage of development for EMNEs rather than an emerging market influence. Most firms, regardless of origin, strive for low risk levels while the best returns are to be made at medium risk levels. This evidence both supports and contradicts Bowman’s Paradox of a negative risk-performance relationship. The strongest risk drivers are internationalisation, recoverable slack and past performance. Copyright