The Development Effects of Multinational Enterprises from Developing Countries

The increasing prominence of MNEs from the developing countries (DC MNEs) has triggered an intensive debate in both the academic and popular press about its potential to influence growth and development, not just in their home and host countries, but also in the global economy at large. Despite being the subject of research for three decades, there is surprisingly little consensus in this regard.

Nonetheless, the following facts seem to survive scrutiny. First, that DC MNEs typically invest less in R&D and have weaker ownership assets than ‘conventional’ MNEs. Second, their internationalization tends to rely more on leveraging country-specific advantages and organizational innovations than firm-specific ownership assets. Third, the institutional environment in the home countries of DC MNEs influences their organization and governance. DC MNEs are often organized in diversified business groups and aim for more horizontal and vertical integration than what would be optimal in a more developed market (Khanna and Yafeh 2007; Hemrit 2011). Fourth, long-term linkages and networks characterize the relationships between firms. DC MNEs often rely on networks with ethnic, linguistic or cultural affinities that tend to be relatively closed and built on personalized governance and control systems. Fifth, DC MNEs exhibit a more mixed pattern of ownership than MNEs from developed countries. Many DC MNEs are either privately held (e.g. family-owned business groups) or wholly or partly owned by the state. Sixth, home governments support support the internationalization of domestic firms in order to strengthen the home economy’s international competitivenes (Rasiah et al. 2010).

The importance of FDI to development and growth is a much studied area (e.g., Lall and Narula 2004, Narula and Dunning 2010).  In principle, FDI can raise labor productivity, output, employment, and incomes (Blomström et al. 1996). In addition, the literature suggests that further gains may arise because of the increased competition and discipline generated by foreign firms, from technological, managerial, and organizational spillovers, and from learning-by-doing effects in local suppliers (Hirschman 1958, De Mello Jr. 1997; Blomström and Kokko 1998). Most contemporary analyses and national strategies tend to emphasize the positive potentials inherent in FDI, but the positive assessment is not unanimous and many debates remain unsettled (Narula and Dunning 2010). FDI flows may also have negative effects on growth when there is a mismatch between the investment projects and the host country’s socio-economic conditions and absorptive capacity.  The net effect of FDI also depends on a variety other factors such as the host country’s policy environment, and the structure of its political and social institutions. If DC MNEs do differ from conventional MNEs, it is likely that the development effects of DC MNEs are also different.

The purpose of this special issue of the European Journal of Development Research is to explore the development effects of MNEs from developing economies. Broadly speaking, the literature on DC MNEs has taken an Economics, International Business (IB) or Management perspective, but we will deliberately to seek alternative, more pluralistic (and cross-disciplinary) approaches, including contributions from political economy, sociology and anthropology. The empirical evidence on the developmental effects of outward FDI/DC MNEs remains fragmented and inconclusive: What are the developmental effects of DC MNEs? Are there tangible differences between DC MNEs and conventional MNEs in host countries? Are there important variations across and between industries, home countries, and host countries? How have geopolitical circumstances shaped their activities? Particular emphasis should be placed on the development effects that can be traced from the special characteristics and behavior of DC MNEs.

Key questions

We welcome papers from a variety of contexts that advance our theoretical and empirical understanding of the processes that shape and determine the developmental dimensions of DC MNEs, whether from a sociological, political, or economic perspective. The special issue welcomes a broad range of methodologies in enhancing our understanding of the aforementioned processes.  These include quantitative studies, qualitative and case studies, multi-country comparative studies, replication studies and studies of specific projects. Key questions that may be addressed include:

What are the political economy and sociological causes and implications of the growth of DC MNE activity?

How do the operations of DC MNEs in developing countries differ from “conventional” MNEs? These differences can refer to technology as well as organizational capabilities, marketing, labor relations, and other operational dimensions.

Are the linkages between DC MNEs and local firms different from linkages between local firms and conventional MNEs?

What role do home governments play in supporting to DC MNEs?

What are political and sociological effects of DC MNE activity, relative to conventional MNEs?

Do DC MNEs affect migration patterns, both within countries and between countries?

Do DC MNEs follow different strategies in engaging in resource-seeking activities? What are the consequences of DC MNE investments in natural resources?

What are the links between FDI and trade for investors from developing countries? Do DC MNEs export back to their home countries, or are their exports directed towards third countries (e.g. the developed economies)?

What are the home country effects of FDI from developing countries? Are the spillover effects in the home countries, i.e., is technology and knowledge diffused from DC MNEs to other firms in the home country?

Proposed time table

The time table for the proposed special issue is as follows:

We invite proposals/abstracts/papers to be submitted to the guest editors by December 1, 2011. First full drafts of the papers should be submitted to EJDR’s website by March 2012 for formal review. Revised drafts will be presented and discussed at the bi-annual OFDI Conference at Copenhagen Business School in November 2012. Final manuscripts will be delivered in early 2013, for publication in Volume 24 (2013) of EJDR.  All submissions need to follow the EJDR guidelines, and will be subject to a double-blind review. See www.palgrave-journals.com/ejdr for details.

Selected references
Blomström, M. and A. Kokko (1998) ”Multinational Corporations and  Spillovers”, Journal of Economic Surveys, 12(3) 247-277.
Blomström, M., R. Lipsey and M. Zejan (1996), “Is Fixed Investment the Key to Economic Growth?” Quarterly Journal of Economics, 111 (1), 269–276.
Child, J. and Rodrigues, S, (2005), “The Internationalization of Chinese firms: A Case for Theoretical Extension?”, Management and Organization Review, 1(3), 381-410.
De Mello, L.R. (1997), “Foreign Direct Investment in Developing Countries and Growth: A Selective Survey”, Journal of Development Studies, 34, 1–34.
Dunning, J.H., R.V. Hoesel and R. Narula (1998), ‘Third World Multinationals Revisited: New Developments and Theoretical Implications’, in J.H. Dunning (ed.), Globalization, Trade, and Foreign Direct Investment, Amsterdam: Elsevier.
Hemrit, M. (2011), Beyond the Bamboo Network: The Internationalization Process of Thai Family Business Groups, Stockholm: Stockholm School of Economics.
Hirschman, A.O. (1958), The Strategy of Economic Development. New Haven, Conn.: Yale University Press.
Khanna, T. and Y. Yafeh (2007), ‘Business Groups in Emerging Markets: Paragons or Parasites?’ Journal of Economic Literature, 45(2): 331-72.
Kumar, K. and Mcleod, M.G.. (1981) Multinationals from Developing Countries, Lexington, MA: Lexington Books.
Lall, S. (1983) The New Multinationals: The Spread of Third World Enterprises, New York: Wiley.
Lall, S. & Narula, R. (2004) FDI and its Role in economic development: Do we need a new agenda, European Journal of Development Research, 16(3), pp. 447-464.
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Mohan, G. and Tan-Mullins, M. (2009) Chinese Migrants in Africa as New Agents of Development? An Analytical Framework European Journal of Development Research, 21, 588–605
Mathews, J.A. (2002) Dragon Multinational: Towards a New Model of Global Growth, New York: Oxford University Press.
Narula, R. (2006), “Globalization, New Ecologies, New Zoologies, and the Purported Death of the Eclectic Paradigm”, Asia Pacific Journal of Management, 23, 143–151.
Narula, R. (2010), “Much Ado About Nothing or Sirens of a Brave New World? MNE Activity from Developing Countries and its Significance for Development”, Background Paper for the Perspectives on Global Development 2010: Shifting Wealth, UNCTAD, Geneva.
Narula, R., Dunning, J.H. (2010). Multinational enterprises, development and globalization: some clarifications and a research agenda. Oxford Development Studies, 38(3): 263 – 287.
Narula, R., Q. Nguyen (2011), Emerging country MNEs and the role of home countries: separating fact from irrational expectations. University of Reading Discussion Paper Series
Ramamurti, R. and J.V. Singh (eds.). (2009) Emerging Multinationals in Emerging Markets, Cambridge: Cambridge University Press.
Rasiah, R., P. Gammeltoft, and Y. Jiang (2010), “Home Government Policies for Outward FDI from Emerging Economies: Lessons from Asia”, International Journal of Emerging Markets, 5 (3/4), 333-57.