This brief is part of the Insights @ Center for Emerging Markets, a publication focused on cutting edge ideas and advice for global leaders about emerging markets.
By Ravi Ramamurti (Northeastern University) and Peter J. Williamson (University of Cambridge)
New Vs. Old Multinationals
New multinational corporations from emerging markets now offer stiff competition to the old multinationals from developed countries. Backed by local governments and utilizing low-cost production advantages, the new multinationals have sometimes successfully penetrated the developed markets of the US and Europe. Conversely, the old multinationals have found it difficult to beat the new multinationals in high-growth emerging markets, mainly because their products are too expensive or fail to appeal to the local populace.
Filling “Capability Holes”
New research provides interesting insights into the nature of competition between these two generations of multinationals. The study puts forth the notion of “capability holes,” which are competencies that a company needs, but lacks, to thrive in the high-growth markets of the future.
The new multinationals typically possess ultra-low-cost production advantages, insights into the needs of emerging-market consumers, and ability to handle volatility, but lag behind the old multinationals in technology, branding, marketing and international experience.
To fill these capability holes, the new multinationals must:
- Invest in R&D
- Acquire niche technologies
- Acquire foreign brands
- Hire foreign experts
- Leverage digitization
Similarly, the old multinationals enjoy first-mover advantages in relation to technology and international presence, but struggle with low-cost production, understanding the needs of emerging markets consumers, and dealing with the volatility of emerging markets.
To fill these capability holes, the old multinationals must:
- Engage deeply with emerging markets
- Empower leaders of subsidiaries in emerging markets
- Shift their value-chains to low-cost countries
- Pursue breakthrough “reverse innovations” led by local growth teams
Outlook for the Future
- The weaknesses of the old (Western) multinationals are often overlooked, sometimes even by the company's leaders but overcoming them is essential for winning the global learning race. Old multinationals may have the best technology and the largest scale, but the requirements to win in the future global economy are changing.
- Unless Western multinationals focus on plugging their critical capability holes, they risk losing out to their emerging-markets adversaries. The success of Chinese companies, such as Lenovo, Haier, ZTE and Huawei demonstrates why Western multinationals require a fundamental shift in their strategies.
R. Ramamurti & P. J. Williamson. 2019. Rivalry between emerging-market MNEs and developed-country MNEs: Capability holes and the race to the future. Business Horizons, 62(2): 157-169.
To learn more about this work, contact Professor Ramamurti.