Journal of International Business Studies

, Volume 39, Issue 6, pp 957–979 | Cite as

Transforming disadvantages into advantages: developing-country MNEs in the least developed countries

  • Alvaro Cuervo-CazurraEmail author
  • Mehmet Genc


We analyze the advantages and disadvantages of developing-country multinational enterprises (MNEs) in comparison with developed-country MNEs. Developing-country MNEs tend to be less competitive than their developed-country counterparts, partly because they suffer the disadvantage of operating in home countries with underdeveloped institutions. We argue that this disadvantage can become an advantage when both types of MNE operate in countries with “difficult” governance conditions, because developing-country MNEs are used to operating in such conditions. The empirical analysis shows that, although developing-country MNEs rarely appear among the largest MNEs in the world, they are more prevalent among the largest foreign firms in the least developed countries (LDCs), especially in LDCs with poorer regulatory quality and lower control of corruption.


institutions governance multinational enterprises competitive advantage competitive disadvantage least developed countries 



The comments of the Associate Editor Pankaj Ghemawat, anonymous reviewers, Jim Hagen, Tom Murtha, Steve Tallman and participants at the Strategic Management and Organization Seminar at the University of Minnesota and the Academy of International Business Annual Meeting helped us improve previous versions of the paper. The paper was developed while the first author was an Assistant Professor and the second author was a PhD student at the University of Minnesota. The first author would like to thank the University of Minnesota International Programs for financial support and the Applied Economics and Management Department at Cornell University for its hospitality during the revision of the manuscript. The second author would like to thank the Carlson School of Management Dissertation Fellowship for financial support. All errors remain ours.


  1. Aggarwal, R., & Agmon, T. 1990. The international success of developing country firms: Role of government-directed comparative advantage. Management International Review, 30 (2): 163–180.Google Scholar
  2. Amit, R., & Schoemaker, P. J. H. 1993. Strategic assets and organizational rents. Strategic Management Journal, 14 (1): 33–46.CrossRefGoogle Scholar
  3. Amsden, A. H. 2001. The rise of “the rest”: Challenges to the west from late-industrializing economies. New York: Oxford University Press.CrossRefGoogle Scholar
  4. Aulakh, P. S. 2007. Emerging multinationals from developing economies: Motivations, paths and performance. Journal of International Management, 13 (3): 235–240.CrossRefGoogle Scholar
  5. Aulakh, P. S., Kotabe, M., & Teegen, H. 2000. Export strategies and performance of firms from emerging economies: Evidence from Brazil, Chile and Mexico. Academy of Management Journal, 43 (3): 342–361.CrossRefGoogle Scholar
  6. Aykut, D., & Ratha, D. 2004. South–South FDI flows: How big are they? Transnational Corporations, 13 (1): 149–176.Google Scholar
  7. Barney, J. B. 1991. Firm resources and sustained competitive advantage. Journal of Management, 17 (1): 99–120.CrossRefGoogle Scholar
  8. Bartlett, C. A., & Ghoshal, S. 2000. Going global: Lessons from late movers. Harvard Business Review, 78 (2): 132–142.Google Scholar
  9. Bevan, A. A., Estrin, S., & Meyer, K. 2004. Foreign investment location and institutional development in transition economies. International Business Review, 13 (1): 43–64.CrossRefGoogle Scholar
  10. Bilkey, W. J., & Nes, E. 1982. Country-of-origin effects on product evaluations. Journal of International Business Studies, 13 (1): 89–99.CrossRefGoogle Scholar
  11. Booth, L., Aivazian, V., Demirguc-Kunt, A., & Maksimovic, V. 2001. Capital structures in developing countries. Journal of Finance, 56 (1): 87–130.CrossRefGoogle Scholar
  12. Brush, T., & Artz, K. 1999. Toward a contingent resource-based theory: The impact of information asymmetry on the value of capabilities in veterinary medicine. Strategic Management Journal, 20 (3): 223–250.CrossRefGoogle Scholar
  13. Buckley, P. J. 2002. Is the international business research agenda running out of steam? Journal of International Business Studies, 33 (2): 365–374.CrossRefGoogle Scholar
  14. CIA 2005. World factbook. Accessed 7 January 2005.
  15. Cuervo-Cazurra, A. 2006. Who cares about corruption? Journal of International Business Studies, 37 (6): 803–822.CrossRefGoogle Scholar
  16. Cuervo-Cazurra, A. 2007. Sequence of value-added activities in the multinationalization of developing country firms. Journal of International Management, 13 (3): 258–277.CrossRefGoogle Scholar
  17. Cuervo-Cazurra, A. 2008a. The internationalization of developing country MNEs: The case of Multilatinas. Journal of International Management, Forthcoming.Google Scholar
  18. Cuervo-Cazurra, A. 2008b. The effectiveness of laws against bribery abroad. Journal of International Business Studies, 39 (4): 634–651.CrossRefGoogle Scholar
  19. Cuervo-Cazurra, A., & Un, C. A. 2004a. Firm-specific and non-firm-specific sources of advantages in international competition. In A. Ariño, P. Ghemawat, & J. Ricart (Eds) Creating and appropriating value from global strategy: 78–94. New York: Palgrave Macmillan.Google Scholar
  20. Cuervo-Cazurra, A., & Un, C. A. 2004b. The bald eagle cannot find its way in the rainforest: Sources and solutions to the difficulties in the internationalization of developed country MNEs into developing countries. In S. B. Prasad & P. N. Gauri (Eds) Global firms and emerging markets in the age of anxiety: 13–36. Westport, CT: Praeger.Google Scholar
  21. Cuervo-Cazurra, A., Maloney, M., & Manrakhan, S. 2007. Causes of the difficulties in internationalization. Journal of International Business Studies, 38 (5): 709–725.CrossRefGoogle Scholar
  22. Dawar, N., & Frost, T. 1999. Competing with giants: Survival strategies for local companies in emerging markets. Harvard Business Review, 77 (2): 119–129.Google Scholar
  23. de Soto, H. D. 2000. The mystery of capital: Why capitalism triumphs in the West and fails everywhere else. New York: Basic Books.Google Scholar
  24. del Sol, P., & Kogan, J. 2007. Regional competitive advantage based on pioneering economic reforms: The case of Chilean FDI. Journal of International Business Studies, 38 (6): 901–927.CrossRefGoogle Scholar
  25. Dunning, J. H. 1977. Trade, location of economic activity and the MNE: A search for an eclectic approach. In B. Ohlin, P. O. Hesselborn, & P. M. Wijkman (Eds) The international allocation of economic activity: 395–418. London: Macmillan.CrossRefGoogle Scholar
  26. Dunning, J. H., Van Hoesel, R., & Narula, R. 1998. Third world multinationals revisited: New developments and theoretical implications. In J. H. Dunning (Ed.) Globalization, trade and foreign direct investment: 255–295. Oxford: Elsevier.Google Scholar
  27. Economist 2000. Foreign direct investment: Goodnight, Vietnam. 8 January: 65–66.Google Scholar
  28. Economist 2005a. Business in Argentina: Getting serious. 21 May: 76.Google Scholar
  29. Economist 2005b. The Khodorkovsky case: The tycoon and the president. 21 May: 24.Google Scholar
  30. Eden, L., & Miller, S.R. 2004. Distance matters: Liability of foreignness, institutional distance and ownership. Advances in International Management, 16: 187–221.CrossRefGoogle Scholar
  31. Encyclopedia Britannica 2005. Accessed 15 January 2005.
  32. Eriksson, K., Johanson, J., Majkgard, A., & Sharma, D. D. 1997. Experiential knowledge and cost in the internationalization process. Journal of International Business Studies, 28 (2): 337–360.CrossRefGoogle Scholar
  33. Fisman, R., & Khanna, T. 2004. Facilitating development: The role of business groups. World Development, 32 (4): 609–628.CrossRefGoogle Scholar
  34. Fitzpatrick, M. 1983. The definition and assessment of political risk in international business: A review of the literature. Academy of Management Review, 8 (2): 249–255.Google Scholar
  35. Fortune, 1991–1994a. Fortune Global Industrial 500. Accessed 1 May 2004.
  36. Fortune, 1991–1994b. Fortune Global Service 500. Accessed 1 May 2004.
  37. Fortune, 1995–2004. Fortune Global 500. Accessed 1 May 2004.
  38. Ghemawat, P. 2001. Distance still matters. Harvard Business Review, 79 (8): 137–145.Google Scholar
  39. Ghemawat, P., & Khanna, T. 1998. The nature of diversified business groups: A research design and two case studies. Journal of Industrial Economics, 46 (1): 35–61.CrossRefGoogle Scholar
  40. Goldstein, A. 2004. Regional integration, FDI, and competitiveness in Southern Africa. Paris: OECD.CrossRefGoogle Scholar
  41. Henisz, W. J. 2000. The institutional environment for multinational investment. Journal of Law, Economics and Organization, 6 (2): 334–364.CrossRefGoogle Scholar
  42. Henisz, W. J., & Williamson, O. E. 1999. Comparative economic organization – within and between countries. Business and Politics, 1 (3): 261–276.CrossRefGoogle Scholar
  43. Hitt, M. A., Hoskisson, R. E., & Kim, H. 1997. International diversification: Effects on innovation and firm performance in product-diversified firms. Academy of Management Journal, 40 (4): 767–798.CrossRefGoogle Scholar
  44. Hofstede, G. 1980. Culture's consequences: International differences in work-related values. Beverly Hills, CA: Sage.Google Scholar
  45. Hoskisson, R. E., Eden, L., Lau, C. M., & Wright, M. 2000. Strategy in emerging economies. Academy of Management Journal, 43 (3): 249–267.CrossRefGoogle Scholar
  46. Hu, Y. S. 1995. The international transferability of the firm's advantages. California Management Review, 37 (4): 73–88.CrossRefGoogle Scholar
  47. Hymer, S. 1976. The international operations of national firms: A study of direct investment. Cambridge, MA: MIT Press.Google Scholar
  48. Johanson, J., & Vahlne, J. E. 1977. The internationalization process of the firm: A model of knowledge development and increasing foreign market commitments. Journal of International Business Studies, 8 (1): 23–32.CrossRefGoogle Scholar
  49. Johanson, J., & Wiedersheim-Paul, F. 1975. The internationalization of the firm: Four Swedish cases. Journal of Management Studies, 12 (3): 305–322.CrossRefGoogle Scholar
  50. Kaufmann, D., Kraay, A., & Zoido-Lobaton, P. 1999. Governance matters. Working Paper 2196, World Bank, Washington, DC.Google Scholar
  51. Kaufmann, D., Kraay, A., & Mastruzzi, M. 2003. Governance matters III: Governance indicators 1996–2002. Working Paper 3106, World Bank, Washington, DC.Google Scholar
  52. Khanna, T., & Palepu, K. 1997. Why focused strategies may be wrong for emerging markets. Harvard Business Review, 75 (4): 41–51.Google Scholar
  53. Khanna, T., & Palepu, K. 2000. The future of business groups in emerging markets: Long-run evidence from Chile. Academy of Management Journal, 43 (3): 268–285.CrossRefGoogle Scholar
  54. Kobrin, S. J. 1979. Political risk: A review and reconsideration. Journal of International Business Studies, 10 (1): 67–80.CrossRefGoogle Scholar
  55. Kumar, K., & McLeod, M. G. (Eds) 1981. Multinationals from developing countries. Lexington, MA: Lexington Books.Google Scholar
  56. Laffont, J. J., & Tirole, J. 1995. A theory of incentives in procurement and regulation. Cambridge, MA: MIT Press.Google Scholar
  57. Lall, S. 1983. The new multinationals: The spread of third world enterprises. New York: Wiley.Google Scholar
  58. La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. W. 1998. Law and finance. Journal of Political Economy, 106 (6): 1113–1155.CrossRefGoogle Scholar
  59. Lecraw, D. 1977. Direct investment by firms from less developed countries. Oxford Economic Papers, 29 (3): 445–457.Google Scholar
  60. Lecraw, D. J. 1993. Outward direct investment by Indonesian firms: Motivation and effects. Journal of International Business Studies, 24 (3): 589–600.CrossRefGoogle Scholar
  61. Leonard-Barton, D. 1992. Core capabilities and core rigidities: A paradox in managing new product development. Strategic Management Journal, 13 (5): 111–126.CrossRefGoogle Scholar
  62. Luo, Y., & Tung, R. L. 2007. International expansion of emerging market enterprises: A springboard perspective. Journal of International Business Studies, 38 (4): 481–498.CrossRefGoogle Scholar
  63. Maddala, G. S. 1983. Limited-dependent and qualitative variables in econometrics. New York: Cambridge University Press.CrossRefGoogle Scholar
  64. Munir, M. 2002. Survey – Turkey: Infrastructure & investment: Builder of troublesome projects in difficult places. Financial Times, 26 March: 2.Google Scholar
  65. North, D. C. 1990. Institutions, institutional change, and economic performance. New York: Cambridge University Press.CrossRefGoogle Scholar
  66. Perlmutter, H. 1969. The tortuous evolution of the multinational corporation. Columbia Journal of World Business, 4 (1): 8–18.Google Scholar
  67. Peteraf, M. A. 1993. The cornerstones of competitive advantage: A resource-based view. Strategic Management Journal, 14 (3): 179–191.CrossRefGoogle Scholar
  68. Prahalad, C. K. 2004. The fortune at the bottom of the pyramid: Eradicating poverty through profits. Philadelphia, PA: Wharton School Publishing.Google Scholar
  69. Prahalad, C. K., & Hammond, A. 2002. Serving the world's poor, profitably. Harvard Business Review, 80 (9): 4–11.Google Scholar
  70. Prahalad, C. K., & Lieberthal, K. 1998. The end of corporate imperialism. Harvard Business Review, 76 (4): 68–78.Google Scholar
  71. Rangan, S., & Drummond, A. 2004. Explaining outcomes in competition among foreign multinationals in a focal host market. Strategic Management Journal, 25 (3): 285–293.CrossRefGoogle Scholar
  72. Rodriguez, P., Uhlenbruck, K., & Eden, L. 2005. Government corruption and the entry strategies of multinationals. Academy of Management Review, 30 (2): 383–396.CrossRefGoogle Scholar
  73. Rugman, A. M., & Verbeke, A. 1992. A note on the transnational solution and the transaction cost theory of multinational strategic management. Journal of International Business Studies, 23 (4): 761–771.CrossRefGoogle Scholar
  74. Shenkar, O. 2001. Cultural distance revisited: Towards a more rigorous conceptualization and measurement of cultural differences. Journal of International Business Studies, 32 (3): 519–535.CrossRefGoogle Scholar
  75. Shleifer, A., & Vishny, R. W. 1993. Corruption. Quarterly Journal of Economics, 108 (3): 599–617.CrossRefGoogle Scholar
  76. Smarzynska, B. K., & Wei, S. J. 2000. Corruption and composition of foreign direct investment: Firm-level evidence. NBER Working Papers 7969, National Bureau of Economic Research, Cambridge, MA.Google Scholar
  77. StataCorp 2001. Stata Statistical Software: Release 7.0. College Station, TX: Stata Corporation.Google Scholar
  78. Stonebraker, R. J. 1979. Turnover and mobility among the 100 largest firms: An update. American Economic Review, 69 (5): 968–973.Google Scholar
  79. Stopford, J., & Strange, S. 1992. Rival states, rival firms: Competition for world market shares. Cambridge: Cambridge University Press.Google Scholar
  80. Tallman, S. B. 1991. Strategic management models and resource-based strategies among MNEs in a host market. Strategic Management Journal, 12 (4): 69–82.CrossRefGoogle Scholar
  81. Tallman, S. B. 1992. A strategic management perspective on host country structure of multinational enterprises. Journal of Management, 18 (3): 455–471.CrossRefGoogle Scholar
  82. Tobin, J. 1958. Estimation of relationships for limited dependent variables. Econometrica, 26 (1): 24–36.CrossRefGoogle Scholar
  83. UNCTAD 1992–2005. World investment report. New York: United Nations.Google Scholar
  84. UNCTAD 2001a. FDI in the least developed countries at a glance. New York: United Nations.Google Scholar
  85. UNCTAD 2001b. Statistical profile of the least developed countries at a glance. New York: United Nations.Google Scholar
  86. UNCTAD 2002. FDI in the least developed countries at a glance. New York: United Nations.Google Scholar
  87. UNCTAD 2004. The least developed countries report. New York: United Nations.Google Scholar
  88. Vernon, R. 1977. Storm over the multinationals: The real issues. Boston, MA: Harvard University Press.CrossRefGoogle Scholar
  89. Wei, S. J. 2000. How taxing is corruption on international investors? The Review of Economic and Statistics, 82 (1): 1–11.CrossRefGoogle Scholar
  90. Wells, L. T. 1983. Third world multinationals. Cambridge, MA: MIT Press.Google Scholar
  91. Wells, L. T. 1998. Multinationals and the developing countries. Journal of International Business Studies, 29 (1): 101–114.CrossRefGoogle Scholar
  92. White, D. 2003. How Africa joined the new wireless world. Financial Times, 23 November: 8.Google Scholar
  93. Wright, M., Filatotchev, I., Hoskisson, R. E., & Peng, M. W. 2005. Strategy research in emerging economies: Challenging the conventional wisdom. Journal of Management Studies, 42 (1): 1–33.CrossRefGoogle Scholar
  94. World Bank 2002. World development report: Institutions for markets. New York: Oxford University Press.Google Scholar
  95. World Bank 2004. World development indicators. Accessed 7 December 2004.
  96. World Bank 2005. Global development finance: Mobilizing finance and managing vulnerability. Washington, DC: World Bank.Google Scholar
  97. Yeung, H. W. C. 1994. Third World multinationals revisited: A research critique and future agenda. Third World Quarterly, 15 (2): 297–317.CrossRefGoogle Scholar
  98. Yeung, H. W. C. 1999. Competing in the global economy: The globalization of business firms from emerging economies. In H. W. C. Yeung (Ed.) The globalization of business firms from emerging economies: xiii–xlvi. Cheltenham: Edward Elgar.Google Scholar
  99. Young, S., Huang, C. H., & McDermott, M. 1996. Internationalization and competitive catch-up processes: Case study evidence on Chinese multinational enterprises. Management International Review, 36 (4): 295–314.Google Scholar
  100. Yunus, M. 1999. Banker to the poor: Micro-lending and the battle against world poverty. New York: Public Affairs.Google Scholar
  101. Zaheer, S. 1995. Overcoming the liability of foreignness. Academy of Management Journal, 38 (2): 341–363.CrossRefGoogle Scholar
  102. Zaheer, S., & Mosakowski, E. 1997. The dynamics of the liability of foreignness: A global study of survival in financial services. Strategic Management Journal, 18 (6): 439–453.CrossRefGoogle Scholar

Copyright information

© Academy of International Business 2008

Authors and Affiliations

  1. 1.Sonoco International Business DepartmentMoore School of Business, University of South CarolinaColumbiaUSA
  2. 2.Department of ManagementBaruch College, City University of New YorkNew YorkUSA

Personalised recommendations