East Asian, European, and North American Multinational Firm Strategies in Latin America

Abstract

Over the past decade, multinationals (MNCs) have followed three main objectives while entering Latin America: efficiency seeking, growth seeking, and resource seeking. Efficiency seeking MNCs aim to reduce costs in their global production process through access to cheaper labor, and proximity to destination markets such as the United States. Growth seeking firms enter Latin American markets to grow and/or acquire new markets. They are by nature more dependent on the macroeconomic conditions in local markets for their success. Resource seeking firms enter Latin America in the search of minerals, metals, and hydrocarbons. This paper introduces the concept of “natural markets” to explain the relative successes of MNCs from different regions – Europe (mainly Iberian), USA, and Asia. ‘Natural markets’ for a MNC are defined as those markets sharing a common history or language or having a high level of physical proximity with the country of origin of the MNC. This paper proposes that a firm focusing on natural markets has a comparative advantage, and thus increases the probability of its success. The paper also draws upon the experiences of successful MNCs in Latin America to infer some lessons for East Asian MNCs wishing to operate in the region.

Outward foreign direct investment as escape response to home country institutional constraints

“…Portugal and Spain are outlier points that show very high increases in OFDI stock. The IB literature on these two countries points to a number of factors that may have confounded the effect of coordination in these two countries, including: late internationalization consistent with Dunning's investment development path theory (Dunning, 1981;Buckley and Castro, 1998); competitive pressure following accession to the European Union and the completion of the European Common Market in 1993 (Salmon, 2001;Casanova, 2004;Guillén, 2005); home country market saturation and deregulation (Salmon, 2001;Casanova, 2004;Guillén, 2005); and the desire to counter takeover threats from larger European rivals (Casanova, 2004). Excluding Portugal and Spain raises the correlation coefficient to þ 0.52.…”

When geography matters: International diversification and firm performance of Spanish multinationals

“…As a result of the particular characteristics of Spanish MNEs (late internationalizers, full access to the EU as Spain is a member country, a shared language and historical links with Latin America) most of them are expected to take an incremental pathway to multinationality entering first into foreign countries culturally and institutionally proximate and moving sequentially into more distant countries as proposed by the Uppsala internationalization process model (Johanson and Vahlne, 1990). The fact that the European Union and Latin America concentrate 43% and 26% respectively of the Spanish Outward FDI stock (Mincotur, 2018) clearly indicates that these two regions are the 'natural markets' for Spanish firms (Casanova, 2004). Further, we also expect differences in the ID-P relationship when firms internationalize using investment modes as compared to exporting ones, as firms have already accumulated international experience and established business relations in foreign markets (as exporting firms) or can have access to this knowledge resources when following a supportive customer in its international expansion (service firms).…”

“…Given the particular characteristics of Spanish MNEs (late internationalizers, concentration of their FDI stock in their 'natural markets') it is likely that they will take an incremental pathway to multinationality establishing their first foreign subsidiaries into countries within a single region, either Europe (due to having a high level of geographical and institutional proximity) or Latin America (because a shared common language and history) (Casanova, 2004). The arguments used to motivate the first three phases of the M-curve (see Section 'The four phases of the M-curve in the case of Spanish MNEs') fully applied in the case of Spanish MNEs that have a regional focus.…”

Determinants of International Competitiveness of SMEs in a Developing Economy: Evidence from Bangladesh

“…As the developing countries economic structure, behaviour, political and educational systems and level of industrialization differs from the same of developed countries, findings based on studies of developed countries cannot be always applicable to developing countries. (Casanova, 2004;Cuervo-Cazurra, 2008;Peña-Vinces et al, 2012).…”