Assessing the needs of international markets against an emerging market company's capabilities: A tool for internationalization

• Author: Maria A. De Villa,Carlos E. Piedrahita
• Published date: 01 November 2019
• Date: 01 November 2019
• DOI: http://doi.org/10.1002/tie.22069

VIEW FROM PRACTICE

Assessing the needs of international markets against

an emerging market company's capabilities:

A tool for internationalization

Carlos E. Piedrahita

†

| Maria A. De Villa

Alta Dirección, School of Management,

Universidad EAFIT, Medellin, Colombia

Correspondence

Maria A. De Villa, Alta Dirección, School of

Management, Universidad EAFIT, Cra 49 No

7sur 50, Medellin 3300, Colombia.

Email: mdevilla@eafit.edu.co

Abstract

Senior managers in emerging markets often strive to ensure that their companies develop

sufficient capabilities to confront the needs they encounter in international markets.

However, extant research and practice remain unclear as to how senior managers in

emerging market companies can approach assessing the needs of their international mar-

kets against their own company's capabilities, to aim for a balance between both. This

article offers an innovative approach for assessing the needs of international markets

against an emerging market company's capabilities. Based on the assessments of

100 senior managers leading emerging market companies, we explain how this approach

can provide two key insights. First, evidence of a balance between the needs of interna-

tional markets and an emerging market company's capabilities, that indicates the com-

pany's competitive position is focused; or evidence of an imbalance between the needs of

international markets and an emerging market company's capabilities, that indicates the

company's competitive position is either vulnerable or overqualified. Second, an under-

standing of where the gaps between the needs of international markets and an emerging

market company's capabilities are, that enables improving the company'scompetitiveposi-

tion by closing these gaps. Drawing on this approach, we offer an open access tool that

allows senior managers in emerging markets to identify and improve their own company's

competitive position for internationalization. Using this tool, senior managers can lead their

emerging market companies toward a focused competitive position in international mar-

kets, providing better chances of successfully capturing potential benefits.

KEYWORDS

capabilities, competitive position, emerging market companies, internationalization, tool

1|THE NEEDS OF INTERNATIONAL

MARKETS AND AN EMERGING MARKET

COMPANY'S CAPABILITIES: AIMING FOR A

BALANCE

Emerging market companies have come to account for 26% of the

companies in the Fortune Global 500 ranking (Kotabe & Kothari,

2016). This has resulted in a plethora of publications that discuss how

emerging market companies have become global players, such as the

Mexican bakery Bimbo, the Indian conglomerate Tata Group, and the

South African brewer SABMiller. However, the operational challenges

that emerging market companies confront during their internationalization

process and potential solutions for how to overcome these challenges,

have received less attention (Akbar & Samii, 2005; Cuervo-Cazurra,

Newburry, & Park, 2016; Teagarden, 2012). As emerging market

†

Deceased.

DOI: 10.1002/tie.22069

Thunderbird Int. Bus. Rev. 2019;61:879–896. wileyonlinelibrary.com/journal/tie © 2019 Wiley Periodicals, Inc. 879

companies advance from exporting—at an early stage of

internationalization—to pursuing acquisitions or greenfield foreign direct

investments—at a later stage—one of the most important operational

challenges their senior managers face is ensuring the development of suf-

ficient capabilities to confront the needs they encounter in international

markets (Helfat et al., 2007; Johanson & Vahlne, 1977, 2009; Teece,

2007; Teece, Pisano, & Shuen, 1997). Nevertheless, extant research and

practice remain unclear as to how senior managers in emerging market

companies can approach assessing the needs of their international mar-

kets against their own company's capabilities, to aim for a balance

between both.

Reaching a balance between the needs of international markets and

an emerging market company's capabilities, denotes that the company

has been effectively led toward a focused competitive position. This posi-

tion provides better chances of successfully capturing potential benefits

from international markets (Barney, 1995; Penrose, 1959). In contrast,

when the needs of international markets outgrow an emerging market

company's capabilities, this imbalance can lead the company toward a vul-

nerable competitive position. Such a position can expose the company to

failures, or at least, to capturing only in part potential benefits from inter-

national markets. Alternatively, when an emerging market company's

capabilities exceed the needs of international markets, this imbalance indi-

cates an overqualified competitive position. This position demonstrates

that the company has incurred high or unnecessary costs. An example

can be the case of an emerging market company that establishes an over-

dimensioned structure for manufacturing or sales in a new host market.

When this occurs, excessive capabilities unnecessarily raise the breakeven

point of the international operation, affecting the likelihood that it will

achieve a profit and a return on investment.

Evidently, during internationalization, senior managers in emerging

markets aim to avoid leading their companies toward the extremes of

a vulnerable or an overqualified competitive position. Rather, they tar-

get a focused competitive position, by ensuring that their companies

develop sufficient capabilities to confront the needs they encounter

in international markets (Collis, 2014; Lessard, Lucea, & Vives, 2013).

The choice of targeting a focused competitive position, denotes the

prominence of a market logic (Thornton & Ocasio, 2008). Under a

market logic, senior managers allocate their attention to maximizing

profit and return on investment (Ocasio, 1997; Thornton, 2002). Con-

sequently, they direct their efforts toward achieving a focused com-

petitive position, as this position provides better chances of

successfully capturing potential benefits.

At first sight, achieving and sustaining a focused competitive posi-

tion in international markets may appear to be simple. Yet, in practice,

most senior managers in emerging market companies recognize that

they often strive in doing so. Building on the extant literature, the per-

spectives from scholars and executives who are experts in emerging

markets, and our own executive engagement, we developed a tool to

help seniormanagers in emerging marketcompanies approach assessing

the needs of their international markets against their own company's

capabilities. Our aim is to enable senior managers in emerging markets

to identify and improve their own company's competitive position for

internationalization, by answeringtwo crucial questions:

1. Are the company's current capabilities unbalanced or balanced

against the needs of its international markets?

2. Where are the gaps between the needs of the company's interna-

tional markets and the company's current capabilities?

In the sections that follow, we offer a roadmap to answering these

two crucial questions. We elaborate an innovative approach for assessing

the needs of international markets against an emerging market company's

capabilities. Then, based on the assessments of 100 senior managers

leading emerging market companies, we explain how this approach can

answer the prior crucial questions by providing two key insights. First, evi-

dence of a balance between the needs of international markets and an

emerging market company's capabilities, that indicates the company's

competitive position is focused; or evidence of an imbalance between the

needs of international markets and an emerging market company's capa-

bilities, that indicates the company's competitive position is either vulner-

able or overqualified. Second, an understanding of where the gaps

between the needs of international markets and an emerging market

company's capabilities are, that enables improving the company's compet-

itive position by closing these gaps. Finally, drawing on this approach, we

offer an open access tool that can help senior managers in emerging mar-

kets to identify and improve their own company's competitive position

for internationalization. Using this tool, senior managers can lead their

emerging market companies toward a focused competitive position in

international markets, providing better chances of successfully capturing

potential benefits.

2|CONCEPTUALIZING AND MEASURING

THE NEEDS OF INTERNATIONAL MARKETS

ANDANEMERGINGMARKETCOMPANY'S

CAPABILITIES

Based on extensive research and the approach discussed by Javidan

and Teagarden (2011), we operationalized how to assess the needs of

international markets against an emerging market company's capabili-

ties. We accomplished the conceptualization of both constructs,

(a) the needs of international markets and (b) an emerging market

company's capabilities, by two activities. First, we conducted an in-

depth literature review of the international business and strategic

management literatures. Second, we conducted open-ended inter-

views with an expert panel of 15 international business scholars who

teach, research, and offer consultancy services in emerging markets

and around the world. Our aim was to integrate the findings from our

literature review with the content analysis from the expert panel

interviews, to identify common dimensions and elements that

described each construct. As shown in Table 1, based on the literature

and the data generated by the interviews, we identified three theoreti-

cally derived dimensions to comprise the needs of international markets,

four theoretically derived dimensions to comprise an emerging market

company's capabilities, and 36 elements to describe both constructs.

From our review of the international business literature, we also

uncovered two sets of approaches developed to assess other

880 PIEDRAHITA AND DE VILLA