A new breed of multinationals from emerging markets is appearing in many industries. Western firms are wrong to underestimate, as they often do, the competitive threat from these firms. The discussion herein highlights the non-traditional competitive advantages these firms use to win at home and abroad and shows how these firms use internationalization not only to exploit competitive advantage but to bolster it. The article concludes with suggestions for how Western managers should respond to the competitive threat from emerging market multinationals.
Up-and-coming multinational enterprises (MNEs) from emerging markets are shaking up many industries and ruffling the feathers of Western MNEs. Familiar names include Tata of India, Lenovo of China, Embraer of Brazil, and Lukoil of Russia. Following closely behind are dozens of lesser known firms with similar aspirations, and more than a few of them are likely to succeed (Ramamurti & Singh, 2009). In this article, I consider three questions:
1.
How serious is the competitive threat from emerging market multinational enterprises (EMNEs)?
2.
What kinds of competitive advantage do they enjoy and why?
3.
How should Western firms respond?
Many American and European firms underestimate the competitive threat from EMNEs. Take the example of Huawei, a Chinese telecom equipment firm that was founded in 1988 by an officer of the People's Liberation Army at a time when companies like Ericsson and Siemens already had a foothold in that market (Ramamurti, 2011a). Huawei began by selling public telephone exchanges (PBXs) to small and medium enterprises in rural China, a segment neglected by Western firms. In the early 1990s, Huawei introduced its first digital switch for telephone operators and used its state connections to gain a piece of the Chinese market, which was dominated by two state-owned telephone companies. It poured money into research, hired the best and brightest Chinese engineers, deployed nearly half its headcount in research and development (R&D), entered into multiple technology alliances with Western firms, and gradually expanded into other emerging markets. Its key competitive advantages were low cost (30%–40% lower than Western rivals), a willingness to customize hardware and software, and quick turnaround for customer requests. Its technology was reportedly inferior to that of Western firms but of ‘good enough’ quality for price-sensitive buyers. Huawei's product appealed to telecom firms in emerging markets and, as quality improved, to operators in Western Europe.
By 2010, the company offered its own 4G products and was expanding into smartphones, routers, storage, and other high-end products. The only market beyond its reach was the United States, where rumors that it was controlled by the Communist Party prevented it from winning big orders despite Huawei's protestations that it was fully owned by employees. Meanwhile, following the dot-com collapse, Nortel of Canada went bankrupt, a weakened Lucent merged with Alcatel, and each of the other firms (i.e., Siemens, Nokia, Motorola, and Ericsson) faced challenges of their own. Huawei, in contrast, was on its way to becoming the #1 telecom equipment company in the world. The point of the story is that as late as 2000, few Westerners were aware of Huawei's existence or its global ambitions. The competitive threat from EMNEs is still routinely overlooked by many Western firms.
