The internationalization ofemerging market business

groups: an integrated literaturereviewAttila Yaprak

International Business School of Business Administration,Wayne State University, Detroit, Michigan, USA, and

Bahattin KarademirFaculty of Economics and Business Administration, Cukurova University,

Adana, Turkey

Abstract

Purpose – The purpose of this paper is to review the extant literature on the institutional,market-centered, and the resource-based perspectives on the internationalization of BGs in emergingmarkets; to suggest that business group affiliation is an important ingredient in theinternationalization of emerging market MNCs; and to offer examples of internationalization fromone emerging market, Turkey.

Design/methodology/approach – This is a critical literature review integrating two strands ofliterature, the institutional, market-centered and resource-based theories of internationalization andthe OLI and the LLL models of emerging market multinationals’ international expansion.

Findings – The theorizing indicates that an integrated theoretical approach should lead to a betterunderstanding of emerging market business group affiliates’ internationalization.

Research limitations/implications – As a literature integration paper, the paper is limited in itspractical implications.

Originality/value – The paper is a critical literature review and is likely to lead to testablehypotheses about the internationalization of business group affiliates from emerging markets.

Keywords Emerging markets, International business, Turkey, Globalization, Strategic groups

Paper type Literature review

IntroductionAs emerging markets have become significant economic entities in the new worldeconomy, large, diversified business groups (BGs) and networks of closely affiliatedbusinesses in them have inspired a large body of literature. This literature has exploredthe formation, evolution and composition of BGs, their group ownership,diversification and control patterns, BGs’ interactions with their societalenvironments, and their roles in fostering or hindering the performance of theirnational economies (Khanna and Yafeh, 2007). In a parallel stream of research, studieshave explored the internationalization patterns of firms from emerging markets (EMs)(see Journal of International Management, 2007 (special issue), for example). Each ofthese research streams has evolved in relative isolation, however. While rich andwell-accepted, the literature on BGs has not delved sufficiently into the

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Received June 2008Revised March 2009Accepted April 2009

International Marketing ReviewVol. 27 No. 2, 2010

pp. 245-262q Emerald Group Publishing Limited

0265-1335DOI 10.1108/02651331011037548

internationalization motivations, processes, and patterns of EM firms, and theliterature on EMMNCs, while new and exciting, has viewed this process primarily asthat of independent firms, not of BG-affiliated entities, when in fact many EMinternationalizing firms are those who are affiliated, to one extent or another, with BGsin their home markets. This is exemplified by the internationalization experiences ofthe chaebol-affiliated Samsung Electronics Company and LG Electronics Inc. in SouthKorea; qiye jituan-affiliated Haier Electronics Group Co. Ltd in China; thefamily-conglomerate-affiliated companies, Tata Motors Inc. and Aditya Birla NuvoLtd in India, and the family-holding-affiliated firms, Arcelik-Beko (Koc Group),Anadolu Efes (Anadolu Group), and Vestel Elektronik (Zorlu Group) in Turkey.According to one Turkish study, for example, Arcelik-Beko, Anadolu-Efes, and VestelElektronik drew 62.5 percent, 52.3 percent, and 85.5 percent of their total revenues,respectively, from their international operations in 2005 (Turkishtime, 2007). Indeed,studies in the extant literature are increasingly proposing that BG affiliation mightinfluence EM firms’ internationalization motives, processes and patterns (Garg andDelios, 2007, Singh et al., 2007); and that BGs in EMs might be becomingmultidivisional (M-form) multinationals, with focal groups of firms dedicated tointernationalization (Hoskisson et al., 2000) Thus, in this paper, we extend the theorieson BGs’ evolution and the internationalization of firms from EMs by attempting tosynthesize them and by arguing that BG-affiliation is a major ingredient in EM firms’internationalization in the context of one EM, Turkey.

This should be a significant contribution to the literature for at least two reasons.First, viewing BGs’ internationalization processes through an integrated theory lenswill help us observe the interplay among the institutional contexts, market conditions,and organizational capabilities as BG-affiliated EM firms internationalize in adynamic, rather than a snapshot, manner (Kock and Guillen, 2001, Carney andGedajlovic, 2002, Yang et al., 2009). Second, viewing EM firms’ outwardinternationalization processes as sourced in their BG-affiliation, and not simply asindependent entities, should help us better understand the role that BGs play in theoutward internationalization of EM firms. The need for these contributions isunderlined in a recent Boston Consulting Group Report (2007) which has argued thatwe should learn much about these new global challengers as they will rise ascompetitors, customers, candidates for partnerships and mergers and acquisitions, andas potential acquirers in the decades ahead.

Our paper is organized as follows. We review the relevant theories that underlie BGdevelopment in EMs and discuss the main arguments in the emerging EMMNCliterature. We then present arguments favoring BG affiliation in the internationalexpansion of EMMNCs. We offer examples from one EM, Turkey, to support ourarguments. We conclude with a discussion of the potential contributions of our workand questions for future research.

Relevant literature on business groups and their internationalizationBusiness groups have been conceptualized in many ways (Cuervo-Cazurra, 2006, Yiuet al., 2007). We view BGs as collections of firms that are bound together in formal andinformal ways in an intermediate sense to achieve an economic purpose, such as rapidmarket entry (Granovetter, 1995), and as coalitions of organizations that go beyondtemporary alliances among two or more otherwise independent firms that do not

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constitute a legally consolidated or integrated entity (Guillen, 2000a). For the purposesof this paper, our conceptualization also views them as composed of legallyindependent and unrelated, diversified firms that are linked through multipleinter-firm formal linkages, such as ownership, lending, trade, joint research, jointproduction, interlocking board memberships, and personnel exchanges (Keister, 1998),and informal ties, such as family, friendship, caste, religion, language, ethnicity, andregion (Granovetter, 1994, Encarnation, 1989). In our view, these inter-firm linkagesform multiple types of networks which facilitate sharing, combining, andcomplementing firm-specific resources and information among the group firmswhich are coordinated and controlled by core entities, such as holding companies(India, South Korea, Turkey) or parent companies ( Japan) (Mursitama, 2006; Yiu et al.,2007). These features distinguish BGs from other types of networks, such as supplier,distribution, strategic, and geographic networks as classified by Cuervo-Cazurra(2006).

Khanna and Palepu (2000a) indicate that BGs in EMs can be studied through threesets of lenses. Embedded in transaction costs in capital markets, the first streamconceptualizes BGs as responses to market imperfections, typical in EMs (see forexample, Leff, 1978). Emerging from sociology, the second stream emphasizessolidarity, common norms and integrative codes of behavior in these groups (see forexample, Keister, 1998). Emerging from political economy, the third streamconceptualizes BGs as socially counterproductive rent seekers and underscores thesignificance of relationships between business groups and political power structures(see for example, Rettberg, 2005).

In this paper, we complement Khanna and Palepu’s (2000a) view of BGs throughthese three lenses by integrating the institutional, the market-centered, and theresource-based views and by extending this conceptualization to theinternationalization of BGs in line with Yang et al.’s (2009) conceptualization. As theinstitutional approach emphasizes the role of institutions and social contexts (Chung,2001, Maman, 2002, Tsui-Auch and Lee, 2003), the market-centered theory emphasizesthe role of market imperfections and related transaction costs (Khanna and Palepu,1997, 1999, 2000a; Khanna and Rivkin, 2001), and the resource-based view emphasizesthe role of organizational and technological assets (Amsden and Hikino, 1994; Kockand Guillen, 2001) in the emergence, functioning, and internationalization of BGs, theintegration of these views into extant theory should be a useful undertaking (seeFigure 1).

The institutional approachInstitutional theory argues that the institutional environment frames the emergingorganizational arrangements, practices and structures in which firms operate; that is,converging values and norms in organizational settings move organizations in thesame institutional context to become homogeneous, but different from those in othercontexts (Baum and Oliver, 1991). In order to increase their legitimacy and chance ofsurvival, organizations adopt similar organizational arrangements and practices whichreflect the values of their institutional contexts (Zucker, 1987). The institutionalapproach is particularly relevant in the evolution and functioning of BGs in EMsbecause of the wide range of sociological and cultural factors that define these markets(Khanna and Yafeh, 2007, Peng, 2002, Khanna and Rivkin, 2001), including the roles of

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the state as it influences the development of the economic and social contexts of themarket, and of social relationships, such as kinship, as these shape the social context inwhich BGs function and evolve. For example, the economic policy orientation of thestate, including its international trade and investment policies, its impact in shapingthe development of market institutions, and its interaction with entrepreneurs willinfluence the evolution of BGs in EMs. Recent work by Maman (2002) illustrates, forexample, how common factors in the institutional contexts of Israel and South Korea,such as state economic policies and the protection of local entrepreneurs, fostered thedevelopment of BGs in these countries. In a similar vein, Tsui-Auch and Lee (2003) andChung (2001) show that patterns of BG growth in Singapore and South Korea andTaiwan, respectively, are functions of national economic change initiated by the statein these countries. In a similar vein, Granovetter (1994) underscores the significant roleplayed by social solidarity and social structure among the component firms of a BG,such as region, ethnicity, kinship, or religion, that aid in the functioning and evolutionof BGs in EMs. For example, Granovetter (1994) finds that kinship is a strong correlate

Figure 1.Institutional,market-centered, and theresource-based views ofEM BGs’Internationalization

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of business group formation in the Korean chaebols; kinship and ethnic bonding playsthe same role in Chinese business groups in Thailand and Indian groups in East Africa;geographic region and ethnicity-based solidarities are key in the ethnic enclaves ofCuban business groups in Southern Florida; and, the multiple axes of solidarity basedon government, local business and capital elites are important for the grupos in Brazil(Granovetter, 1994). Khanna and Palepu(2000a) underscore that BGs provide a specialkind of relationship in which economic and kinship bonds become inextricablyintertwined, and where a moral community is created within which the likelihood ofopportunistic behavior, a core component of transaction cost economics, is lessened.They further argue that through their encouragement of information disseminationamong group members, by reducing the possibilities of contractual disputes, and byproviding a mechanism for efficient dispute resolution, business groups providemechanisms for solidarity and for the lowering of intra-group transaction costs. Othersargue that as firms are byproducts of their social and institutional contexts, differentsocial and cultural patterns will spawn different types of organizations in differentmarkets (Guillen, 2000a; Kock and Guillen, 2001). For instance, Guillen (2000b)suggests that BGs are more likely to flourish in markets with vertical relationships,such as in South Korea, but not in societies where reciprocal or horizontal relationshipsare the norm, such as Taiwan.

The internationalization of BGs from EMs is also affected by the institutionalcontext from which that internationalization emanates. As Yang et al. (2009) indicate,formal institutional arrangements such as government policies and informalinstitutional ingredients such as norms and values that govern the nature and paceof exchange can influence both inward and outward flows of international trade andinvestment. A comparative advantage in entrepreneurship or innovativeness mayrender an institutional context to be a donor rather than a recipient of internationalinvestment. Environmental uncertainties caused by rapid, unexpected changes athome and abroad, such as the economic policy orientation of the state or the businesscommunity may also influence the competitiveness of a country’s firms and thus theiroutward and inward trajectories of international trade and investment. Peng et al.(2008) show, in addition, how the political, legal, and societal changes in Indianinstitutions, such as intellectual property rights, have affected the strategies of bothIndian and non-Indian firms when competing in and out of India. They also show thatwhile it is the combination of formal and informal institutions that affect the strategicchoices of firms, in cases where formal institutions are underdeveloped, informalinstitutions, such as personal relationships (guanxi) play a larger role ininternationalization. Thus, the institutional context matters in EM firms’internationalization experiences as well.

The market-centered viewOthers explain the existence of business groups as microeconomic responses toconditions of market failure, especially imperfect markets in capital and intermediateproducts that are common in emerging markets (Khanna and Palepu, 2000a).Proponents of this position see business groups as responses to transaction costsprimarily in capital markets, but in markets for entrepreneurial talent, productmarkets, labor markets, and cross-border markets for technology as well, which lead topreferential access, for instance to capital (Khanna and Palepu, 2000b, Chang and Choi,

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1988), and as responses to agency problems in the market, whereby firms are able tosecure intermediate goods with lower costs and less uncertainty by joining or forminggroups rather than procuring them through the market or integrating vertically(Granovetter, 1994). According to this view, BGs would exist in the absence of awell-functioning market; that is, BGs would exist to enhance value by serving asfunctional substitutes for allocation failures in the markets for factor inputs (Khannaand Palepu, 2000a). In essence, they would exist to provide a market intermediationopportunity to firms operating in imperfect capital, product, labor and technologymarkets, especially in the earlier phases of a market’s development; the deeper theimperfections in these markets, the greater the intermediation importance of BGs willbe in those markets (Guillen, 2000a, Khanna and Palepu, 2000a). Khanna andPalepu(1997) summarize this view when they argue that due to information problems,misguided regulations, and inefficient judicial systems, a variety of market failures willemerge and the institutional mechanisms that enhance the proper functioning of thesemarkets will be either absent or ineffective. Thus, institutional voids which result inmarket imperfections would need to be filled in order to maintain well-functioningmarket systems. In the absence of developed market institutions, BGs will imitate thesefunctions. As there will also be managerial complexities and costs involved in thiseffort, BGs will analyze the costs and benefits of diversification and branch out to theextent that they will derive sufficient benefits to overcome the costs of thatdiversification (Khanna and Palepu, 2000a).

Several paradoxes underscore the market-centered view’s mixed perspective onhow BGs function and evolve in EMs (Khanna and Palepu, 1999, 2000a, b; Khanna andRivkin, 2001). The market intermediation role played by BGs appears to diminish asmarkets develop; the relationship between BG diversification and firm performancemay be curvilinear; BG affiliation appears to generate non-diversification-relatedpositive performance effects, such as expansion of geographic scope, but these seem todecline as market institutions evolve over time; and the costs and benefits of BGmembership might actually offset each other in some cases. Thus, the market-centeredarguments also appear to matter in BG behavior, though the empirical findings onthese appear to be mixed.

The market-centered approach also has implications for internationalization. AsYang et al. (2009) argue, the nature and size of domestic as compared to foreigndemand, the nature of competitors at home and abroad, the presence of supportingindustries and supply chains at home and abroad, and the extent and nature of rivalryamong a country’s firms compel that country’s firms to expand abroad or stay home.Since a country’s industries will tend to experience different globalization potentials,their firms will tend to adopt global strategies that are consistent with their particularindustry conditions (Porter, 1990). Firms in a given market context will showisomorphism in their competitive efforts, especially in oligopolistically-structuredindustries and will adopt similar international expansion strategies. That is, firms mayengage in collective sense-making and imitate each others’ internationalizationpatterns. The nature of the home and the global environments will also impact BGs’internationalization. Unpredictable, unstable, or saturated demand at home,competitive pressures from imports, the pull of foreign market opportunities, andhigh production costs can also push an EM BG abroad (Erdilek, 2008). We argue, inaddition, that as markets evolve, the institutional void-filling and the market

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intermediation roles BGs used to play will decline while their organizational andtechnological capabilities will rise to a sufficient extent that they will transform theseinto the pursuit of, and effective operation in, world markets. This view might besupported by another, equally persuasive, perspective that in some EMs, such as SouthKorea and to a lesser extent Turkey, the state may have pushed BGs into earlyinternationalization even before markets developed sufficiently to give them theopportunity to develop globally competitive skills.

The resource-based viewThe RBV regards a firm as a bundle of resources, skills and capabilities (Wernerfelt,1984) and argues that the accumulation, consolidation and utilization of these rare,inimitable, valuable, and unbundlable resources will determine the economicperformance of the firm (Peteraf, 1993). Scholars who apply the RBV to the study ofBGs highlight the role that organizational assets and capabilities play in the evolutionand functioning of BGs in EMs. Granovetter (1995), for instance, argues that BGscreate internal resource pools and develop capabilities through participation inbusiness networks, a view in line with the network view of the firm (Keister, 1998,Mursitama, 2006). Amsden and Hikino(1994) argue that project execution, production,and innovation capabilities are the critical skills that firms have to possess to performsuperlatively in turbulent and uncertain environments. As they indicate, thesecapabilities need to be viewed in the context of the firm’s decision about whether todevelop skills internally or to buy these externally. For example, in the initial stages ofits growth, a BG may transfer project execution capabilities from abroad since it willlikely lack sufficient levels of project execution capabilities for internalization. Incontrast, since internalization of these capabilities will create learning opportunities forthe firm, it would want to own these capabilities. As the firm’s in-house capabilitiesrise, the firm will better exploit its owned capabilities. As these develop, Amsden andHikino (1994) argue, the diversified BG will create value through appropriating thesecapabilities into the different industries in which it operates, and into which itdiversifies, and at lower cost. As the BG moves from lower to higher technology, itsproject execution skills, for instance in effectively combining foreign and localresources to enter new industries initially or to internationalize later, will also improve(Amsden and Hikino, 1994).

In addition, Kock and Guillen (2001) underscore the role that certain organizationalassets and capabilities play in the evolution of BGs, particularly emphasizing the role ofthe state in creating a selective environment in which certain skills and capabilitiesbecome important. They argue that certain entrepreneurial and organizationalcapabilities affect the patterns of corporate growth and adoption of certainorganizational structures as BGs evolve in EMs. In their view, as the countryindustrializes, BGs will shift from one capability portfolio position to another, enteringmature industries initially as they do not typically possess the capabilities to competewith first movers from advanced economies. Aided by protectionist trade regimes thatassist them in these industries by restricting foreign firms’ entry, they will sharpen theircontact capabilities, especially those with relevant government agencies. Restrictivetrade regimes will give them the opportunity to accumulate contact capabilities andexperience high rates of growth. In the following phase, project execution skills and massproduction skills will become more important forcing BGs to invest in sharpening these

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capabilities. In the final phase, organizational and technological capabilities which fosterthe development of product and process innovations will become more important (Kockand Guillen, 2001). Thus, a need will arise for greater control and relatedness amongdiversified affiliates, encouraging BGs to transform into multidivisional structures andfollow multi-focused strategies, facilitating their international competitive capabilities(Hoskisson et al., 2000). It follows that as a group moves toward this structure, affiliatedfirms in the same division that are relatedly diversified will gain from sharing bothintangible (social solidarity) and tangible (financial resources, intra-corporate trade) tieswith other member firms, especially as a result of the cross-subsidization of intra-grouptransactions (Chang and Hong, 2000). Indeed, Chang (2003) underscores the performancebenefits of this cross-subsidization through evidence from South Korean chaebols.

Firm-specific resources and capabilities are also important in explaining theinternationalization behavior of BGs in EMs. As Yang et al. (2009) point out, a firm’sformer international experience, either with partners in its home market or through itsown expansion efforts, may be an important resource in forming international alliancesand subsidiary capability development. Management’s experience, especially ininternational diversification, the firm’s ability to learn and leverage that learningglobally, and the firm’s administrative heritage can all be significant resources in itsinternational expansion. Institutional arrangements in some markets may limit accessto valuable organizational resources, which in turn, may hinder certain types of entryby the firm, however (Guillen, 2000b).

In summarizing this literature on BGs and their internationalization motivations, wehope we have shown that the institutional, market-centered, and resource-basedapproaches provide illustrative lenses through which this process can be examined. Asour literature survey suggests, viewing the role of BGs in the internationalization of EMfirms can be more illuminating when surveyed through an integrated perspective, onethat also considers the evolutionary and contextual dynamics of their development..

The relevant literature on the internationalization of emerging marketmultinationalsThe internationalization processes of firms have been studied in essentially twocontexts, one focusing on those from the developed, and the other on those from thedeveloping economies (Buckley et al., 2008, Li, 2007, Panond, 2007). According toPanond (2007), the literature on the internationalization of EMMNCs has appeared intwo waves. Panond (2007) suggests that the first wave, which emerged in the late 1970sand early 1980s viewed the competitive advantages of EMMNCs as being derived fromtheir ability in reducing costs through scale economies, often substituting machinerywith human labor and replacing imported inputs with cheaper local ones, or improvingperformance through knowledge of operating in less developed markets. The secondwave, which emerged in the 1990s, viewed the competitive advantages of EMMNCs asbeing derived from the incremental learning processes that involve value chainactivities, starting with lower end tasks and incrementally moving up to the upper endactivities on the value chain.

Li (2007) suggests that the recent literature on the internationalization processes ofEMMNCs focuses on asset-seeking motives rather than the asset-exploiting argumentson which developed country internationalization process models, such as the OLIparadigm (Dunning, 1988) are based. He contends that, in contrast to DCMNCs,

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EMMNCs will not consider ownership advantage as a precondition forinternationalization; they will seek this as a strategic motive only after they begin tointernationalize. This view also argues that, unlike the assumptions on which the OLIis based, EMMNCs will not only seek partial internalization modes such as jointventures or alliances as they internationalize; their unique ownership advantages willderive from their social and relational capital which will overcome any ownershipadvantages viewed from developed country lenses (Li, 2007). Luo and Tung (2007)underscore this view with their argument that EMMNCs have been using internationalexpansion as a springboard to acquire strategic resources and reduce institutional andmarket constraints in their home markets. In their view, EMMNCs overcome some oftheir latecomer disadvantages by a series of aggressive, risk-taking measures, such asacquiring critical assets from maturing MNCs to compensate for their competitiveweaknesses, and use international expansion as a springboard to counter-attack globalrivals in their home markets. They also argue that EMMNCs use outward investmentas a steppingstone to bypass rigid trade barriers, alleviate international constraints,and secure preferential treatment offered by EM governments. Thus, in their view,international expansion of EMMNCs is either asset seeking or opportunity seeking andis undertaken in order to bolster economic and social development in the home marketand/or to compensate for firm-level competitive disadvantages in foreign markets.This view is illustrated by Lee and Slater’s (2007) analysis of Samsung Electronics’recent success in internationalization that involved global brand building. Otherexamples that support this view include Chittoor and Ray’s (2007) description of theinternationalization processes of Indian pharmaceutical groups through combinationsof exploitation and exploration motives along product and market dimensions, andKlein and Wocke’s (2007) description of three South African firms’ development offirm-specific advantages that are non-location based. These studies contend thatsuccessful EMMNCs will begin establishing market presence abroad through assetexploitation initially, but will soon follow with asset seeking behavior.

These studies exemplify the challenges waged against the earlier, governingparadigms about international expansion, perhaps most comprehensively representedby the OLI paradigm (Dunning, 1988). Three of these are noteworthy in their efforts tobetter explain the internationalization patterns of EMMNCs (Mathews, 2002; Mathewsand Zander, 2007; Li, 2007). Inspired by the resource based view, Mathews’s (2002)work offers that EMMNCs are typically resource-poor and thus will engage in searchesto capture resources that can then be internalized and transformed into dynamiccapabilities essential for competing in demanding, technology-intensive markets. In hisview, internalization of dynamic capabilities, and thus effective internationalcompetition, will be a function of:

. linkages to generate resource acquisition opportunities for the EMMNC;

. leverages as means through which the EMMNC will be able to exploit theresource linkages established; and

. learning that will result as the outcome of repeated applications of linkage andleverage.

A key assumption of this LLL model is that resources are not typically secured fromopen-market transactions, but through firm-to-firm contractual connections; that is,through strategic networking, where BG affiliation can be a key resource. Thus, it is

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the EMMNC’s ability in multiplying linkages among firms in the interconnected worldeconomy, such as through cross-national supplier networks that provides it asustainable competitive advantage (see Figure 2). Second, Mathews and Zander (2007)argue that in new internationalizing firms, such as those from EMs, entrepreneurshipis a unique resource that can serve as a magnet for attracting foreign resources, and atool that drives discovery of new opportunities, deployment of resources in exploitingthose opportunities, and engagement with competitors through alliances andnetworks, again underscoring the importance that BG affiliation can provide an EMfirm in establishing global competitive advantage. Finally, Li (2007) offers that sinceneither the internationalization stages model ( Johanson and Vahlne, 2003) nor the OLImodel (Dunning, 1988) is sufficiently complete in explaining the internationalization ofDEMNCs and both are internally-focused, while the LLL model is ambiguous andexternally-focused, a synthesized model that incorporates the merits of each of thesewould best explain the international expansion patterns of EMMNCs. He proposes,specifically, that international evolution should best be viewed as a strategic choiceequation that involves the firm’s intent, its external and internal context and itsmarket-specific performance as well as its temporal patterns, sequential processes, andtempo. Li argues that his approach is valid as exemplified by the internationalizationprocesses of Haier, Lenovo and TCL.

Paralleling Li’s thinking and following the logic presented by Buckley et al. (2008),we suggest in this paper that an integrated view of the OLI theory and the LLLframework will better explain EM MNCs’ internationalization processes. We alsoexplain why BG affiliation might enhance or accelerate EM MNCs’ internationalexpansion.

Figure 2.Alternative views of EMBGs’ internationalization

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Why business group affiliation matters in the internationalization ofEMMNCsBuckley et al. (2008) offer five arguments about why EMMNCs expand internationallythat parallel our arguments presented above. They hold that EMMNCs hold uniqueownership advantages that they accumulate from their experience in, and knowledgeabout, operating in difficult, often turbulent home country economic and politicalconditions and based on this home country embeddedness, they argue that EMMNCswill be able to develop capabilities that developed country MNCs (DCMNCs) can notpossess nor acquire cost-effectively. As they also possess older technology that is moreappropriate in LDC environments, they will engage in labor-intensive manufacturingabroad inititally, followed by more-technology-intensive production next, which in turn,will be followed by innovation-intensive production. In line with the institutional and theRBV approaches we discussed above, we argue here that BGs typically are theorganizational forms that are the most embedded into their institutional contexts thatresemble, or at one time resembled, the market environments that lesser developed EMsexperience today, and typically possess the most productive combinations of local andforeign resources (technology, production and innovation) with which to expand abroad.Thus, affiliation with a BG network should give a component firm a competitiveadvantage over independent domestic or foreign firms in foreign expansion.

Buckley et al. (2008) also argue that EMMNCs serve as intermediaries in transferringtechnology from the developed to the developing countries, typically countries lessadvanced than they are, through business and industrial networks of buyers andsuppliers with whom they are connected, exploiting their relational capital forcompetitive advantage. In line with the institutional and the RBV discussions above, weargue that BG affiliation can give a firm a competitive advantage in this context also,since BGs create value for their affiliates through their intermediation role in capital,product, and labor markets, even though this role carries managerial complexities andcosts (Khanna and Palepu, 1999). BGs create additional value for their affiliates throughleveraging the relational capital invested into their networks with not only suppliers anddistributors, but also with government agencies. This type of advantage is typically notavailable to firms operating independently, whether domestic or foreign.

Buckley et al. (2008) also contend that EMMNCs are likely to follow the incrementalinternationalization process model to some degree as they will tend to initially invest incountries that are typically culturally similar to them since local market knowledgewill be more readily available in these cases (Tatoglu and Glaister, 1998). As the firm’sinternational experience and internationalization competencies grow, however, itscommitment to more distant and more developed markets will also grow. Thoughsomewhat challenged by the more recent literature, here, too, we contend thatsequential market entry by a BG affiliate firm will be made easier, if any componentfirm has already entered foreign markets, especially those that are culturally andphysically close to them. In line with the LLL model we discussed above, we contendthat group affiliated firms’ linkages to and leveraging learning from members of BGs’affiliates’ networks will give a competitive advantage to component firms overindependent firms, whether domestic or foreign.

Buckley et al. (2008) also argue that EMMNCs will often prefer to expand intoforeign markets by engaging in joint ventures and other forms of alliances as this willhelp reduce entry costs and increase their opportunities for learning from their

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partners. As their managerial competencies, confidence, and accumulated experiencegrows, they will move toward investment modes that afford them greater ownershipadvantages, such as the ability to protect intellectual property and other proprietaryassets abroad. Again, in line with the LLL theory, we propose that BG affiliates canshare in the involvement experiences of their sister component firms and gain cost anddifferentiation advantages in doing so.

Buckley et al.’s (2008) final argument relates to the role national governments playin EMMNCs’ internationalization process as they both somewhat restrict, but alsofoster, the outbound expansion of their firms through incentives and other supportmechanisms to help them overcome certain ownership and location disadvantages.This type of support is thought to have moved South Korean chaebols abroad far morerapidly in a wider range of industries than would have otherwise been the case. Hereagain, we argue that in line with the institutional and RBV approaches we discussedabove, BG affiliation, as in being a member of a chaebol, will allow affiliated firms tomove abroad more rapidly, with a wider range of markets, and through a greater arrayof entry modes when compared to independently structured firms. As the BG literaturewould suggest, the state is likely to push affiliate firms toward internationalization,sometimes even before they have achieved sufficient readiness, and would aid in theirinternationalization processes later through incentives. Hence, we would argue that BGaffiliation can be a source of competitive advantage when competing againstindependent firms, whether foreign or domestic.

In summary then, the EMMNC literature appears to support the literature on BGsfocusing primarily on the institutional setting, market-centered factors, andresource-based considerations as important ingredients in the internationalizationprocesses of EMMNCs, underscoring the merits of viewing their internationalization inan integrated fashion. In the next section, we validate our arguments and discussionthroughout the paper with examples from the internationalization experiences ofTurkish BGs.

Examples of Turkish business groups’ internationalizationAs theory would suggest, Turkish BGs’ diversification and internationalization strategieshave been influenced by their parallel evolution with their unique institutional, market,and resource-based environments (Karademir, 2004). While some BG-affiliated firms,such as Beko-Arcelik of the Koc Group, have become more internationally involved andexperienced, many still lack the global presence of some other EM BGs, such as Samsung(South Korea), Tata (India), and Haier (China). This is a function, at least partially, ofseveral periods of uncertainty and turbulence in the economic and political environmentin which they have evolved, but also a function of over-diversification and over-protectionthey have enjoyed for a long period of time. In this context, while the government has,with fidelity, encouraged even fostered, the development and improved performance ofthese BGs through various incentive programs, these measures have sometimes distortedthe very market mechanisms they were created to ease, and generated the basis forcontinued rent-seeking opportunities for BGs (Karademir et al., 2005). Thus, it was onlynatural for Turkish BGs to diversify their risks through unrelated diversification in theirhome market initially, but also to expand abroad later.

While it is possible that various mechanisms, such as the IMF-imposed stabilizationprograms, the maturing of the capital markets, the improving regulatory environment,

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and the freer access to the flow of information created a positive institutional andmarket context for inward internationalization of these BGs during the 1980s, theirinitial outward internationalization which began in the 1960s and 1970s was mostlikely a function of market opportunities abroad when compared to the Turkisheconomy, government incentives that encouraged Turkish firms’ internationalinvolvement abroad, and sourcing opportunities in foreign markets. Their outwardinternationalization which came in the 1990s and 2000s was mostly a function of thepolitical and economic instability and saturation in the domestic market, increasinglabor and other production costs, increasing market opportunities in the rapidlyemerging markets, such as Russia and the former Soviet bloc, Eastern and WesternEurope, and North Africa, desire to utilize assets more effectively, and counteringforeign competition in the Turkish market. The continued opportunity to participate ingovernment privatization programs and high-growth promising industries that openedup after economic liberalization (tourism, retailing, food, high technology, finance)might have delayed BGs’ outward internationalization while simultaneouslyfacilitating their inward internationalization during the 1980s and 1990s (Karademiret al., 2005).

Most Turkish BGs have tended to inward-internationalize by serving as alliancepartners with foreign firms in the Turkish market during the 1960s through the 1990s.Examples of these include Sabanci Group’s alliance relationship with Toyota in autos,with Carrefour in food retailing, and Citibank in commercial banking; the Koc Group’spartnership with Ford Motor Company in autos, UniCredito in commercial banking,and Migros in food retailing; the Anadolu Group’s partnership with Isuzu in autos; andthe Alarko Group’s alliance with Carrier in heating and cooling. Some Turkish firmsthat are affiliates of BGs have met success in outward-internationalization by takingdomestic brands abroad starting with the 1990s and accelerating during this decade.Examples of these include the Koc Group’s Beko and Tat brands in many markets inWestern and Eastern Europe; the Zorlu Group’s Vestel brand in Western Europe; theSabanci Group’s Kordsa’s industrial nylons in North Africa, North America, and LatinAmerica; and the Ulker Group’s many brands in North America and in Western andEastern Europe. Others have outward-internationalized through mergers andacquisitions in an effort to gain access to, and internalize, resources. Examples ofthese include the Koc group’s acquisition of Trolia of Australia, SC Arctic of Romania,Leisure and Flavel of England, and Grundig of Germany; the Sabanci Group’s eventualacquisition of Dusa, its joint venture with DuPont; the Ulker Group’s acquisition ofGodiva of Belgium; the Zorlu Group’s acquisition of Kozhukho of Russia; Turkcell’sacquisition of Belarusian Telecommunications of Belarus; the Anadolu Group’sacquisition of Lomisi of Georgia; the Eczabibasi Group’s acquisition of Engers andVilleroy&Bosch AG, both of Germany; and the Dogan Group’s acquisition of TraderMedia East of Russia. Although Turkish BGs have not yet matched the outwardinternationalization success of Tata (India) in turning EM engineering into globalinnovation or of Samsung (South Korea) in assuming global category leadership, oreven of Haier and Lenovo (China) in rolling out emerging business models to multiplemarkets abroad (Boston Consulting Group, 2007), some have succeeded intransforming EM natural resources in foreign markets, such as the Enka Group’stransformation of its construction materials used in civil engineering services inEastern Europe, the Middle East, and Russia (Boston Consulting Group, 2007, Erdilek,

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2008). While a few have followed the paths of born globals (Knight and Cavusgil, 2004,Coviello, 2006), others have gained international competencies through theiraffiliations with foreign firms as they moved into the Turkish market. Still otherssought foreign partnerships as they moved abroad to gain access to, internalize, andappropriate technology and managerial competencies, while trading these for scaleeconomies sourced from low-cost manufacturing (Erdilek, 2008).

Discussion and suggestions for future researchBusiness groups have inspired a large body of literature during the past two decades orso (Khanna and Yafeh, 2007). As part of this literature, a number of theories wereproposed to explain why BGs form and how they function and evolve in emergingmarkets. Included among these are the institutional perspective, the market-basedexplanations, and the resource-based view. Yet, none of these theories spoke, in depth,to the role BG might play in internationalization. A recent stream of research onemerging market multinationals’ expansion from their home bases has opened theopportunity to address this issue by challenging the assumptions of the extant theoryon internationalization, primarily arguing that while that theory may sufficientlyexplain the internationalization process of developed world multinationals, it isinadequate in explaining that behavior for developing country firms. In this paper, weaimed to extend this discussion by offering an integrated survey of:

. the institutional, market-centered, and the resource-based views of BG behavior;and

. the growing literature on the internationalization of emerging marketmultinationals with the hope that this integration might provide a lensthrough which we might observe how BGs or BG affiliated firms mightinternationalize, both inward and outward, from EMs.

To underscore the validity of the arguments presented, we offered examples from theinternationalization of Turkish BGs.

Our work shows that BG behavior needs to be studied under the conjoint lens ofinstitutional, market-centered, and resource-based perspectives to be more fullyunderstood. We also believe that internationalization of EMMNCs should be viewedthrough an integration of the merits of the developed world conceptualizations, such asthe Incrementalization and the OLI models, and the newly emerging LLL paradigm, aconstruct that promises to be more appropriate for emerging markets. We agree withLi (2007) that given the current ambiguity in the conceptualization of the LLLparadigm, this integration is difficult at this time, but we concur that the external, assetexploration character of the LLL model and the internal, asset exploitation nature ofthe OLI paradigm provide the opportunity to view internationalization through stereovision, and thus offer the prospect for a deeper understanding of theinternationalization process of firms from EMs. Our work also shows that BGs ortheir affiliated firms do internationalize by following an integrated framework, asexemplified by Turkish BGs’ internationalization.

Our work also offers some avenues for future study. First, we need to develop amore comprehensive understanding of the role of co-evolution in the growth andexpansion of BG affiliates from EMs. While there is a growing body of literature on theco-evolution of environmental contexts and firm behavior (see for example, Hoskisson

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et al., 2000, Carney and Gedajlovic, 2002; Rodrigues and Child, 2003; Dieleman andSachs;, 2006, 2008), we do not yet have a clear understanding of how this co-evolutionmight affect internationalization. Second, we need to develop a better understanding ofhow international involvement might affect the financial and market performance ofEMMNCs. For instance, will the firm’s performance, financial and otherwise, show acontinuously increasing pattern, increasing then decreasing, an S-shaped, or someother pattern as the EM firm increasingly internationalizes? Third, we need toinvestigate the relative importance attached to the roles played by social ties,partnership orientation and experience, and corporate culture in enhancing theinternationalization process strength and international performance. For example,what is the extent to which social ties might outflank partnership orientation orexperience during internationalization? Are social relationships more important incertain phases of the firm’s internationalization trajectory? What are the ingredientsthat are most relevant in initial, secondary, and final-phase involvement? Fourth, weneed to develop a better understanding of the nature, type, and depth of roles played byEMMNCs in fostering developed country MNCs’ entry, local market expansion, andoutward expansion from the Turkish market. Finally, a wider range of manyinteresting questions can also be answered. For instance, is it better for EM BGs to gointernational? Will their globalness breed improved performance at home and abroad?When they engage in internationalization, what scale and scope goals should theypursue? How and when along the partnership curve will their bargaining advantageschange? How can these be resolved? What tradeoff portfolios (market access v.learning opportunities v. technology transfer v. capability development, etc) shouldthey pursue? How will the interface with their institutional environment affect theirinternationalization growth in the future? What institutional transformations willtrigger which type of international involvement and in what kinds of markets? Theseexemplify the many fascinating questions that remain unanswered in our knowledgeabout BGs in EMs. We hope that our work will inspire new research on these andrelated questions about BGs in EMs.

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Further reading

Cuervo-Cazurra, A. (2007), “Sequence of value-added activities in the multinationalization ofdeveloping country firms”, Journal of International Management, Vol. 13 No. 3, pp. 258-77.

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Peng, M.W. (2006), Global Strategy, South-Western Thomson, Cincinnati, OH.

Corresponding authorAttila Yaprak can be contacted at: attila.yaprak@wayne.edu

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