Exam (elaborations)
International Marketing
- Institution
- The University Of Strathclyde (UOS)
Contemporary Trends and Issues in International Business Past Papers 19/20
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Ciara Deeny 20168596MG419 Open-Book Exam
Section 1
1. Use theories and concepts introduced in class to critically discuss (i) why multinational
enterprises (MNEs) from developed countries (Triad countries) expand into emerging
economies (25 marks) and (ii) Using examples of your choice identify what potential threats
these triad MNEs face when doing business there (25 marks)
Word Count: 1,218
Introduction
The CAGE Framework (2010) highlights barriers and risks existent when MNE’s look to execute an
international expansion strategy. This paper will evidence reasons why MNE’s commonly expand into
emerging economies, including advantages derived from firm-specific, home-specific and
development-related-specific reasons. Alongside this, barriers detailed within the CAGE Framework
will be discussed in relation to an MNE’s expansion strategy, regarding an emerging economy.
Emerging Economies
An emerging economy can be recognised as an economy with low income and rapid growth, utilising
economic liberalisation as their primary engine of growth (Hoskisson et al., 2000). The main
characteristics of an emerging economy include resilient economies, sustained growth, significant
excited prospects, rising disposable incomes and access to innovative technologies. Emerging market
economies concern a subset of former developing countries that have gained considerable
industrialisation, improved living standards, modernisation and significant economic growth.
Countries falling within this bracket include India, Russia and Brazil. Investing in an emerging
economy offers mass opportunities for business, however, such economies also have high volatility.
In essence, they offer rich opportunities, but also have high risks due to the unstable nature of the
economy.
Moreover, Ghemawat’s CAGE Framework (2010) depicts the world is not flat, but it is ‘semi-
globalized.’ The framework evidences ‘distance’ and difference, between countries, are still important
factors and impact on global strategy. MNE’s expanding into emerging economies that do not
consider these specific differences between international location are less likely to succeed upon
entry, when compared to MNE’s who take into account these specific differences. The CAGE
framework depicts the key barriers, risks and costs that MNE’s must overcome regarding
implementing an international expansion strategy. Furthermore, the framework analyses differences
between countries in terms of four ‘types’ of distance, namely, cultural, administrative, geographic
and economic (CAGE). Therefore, the CAGE framework aims to illustrate that distance matters in a
variety of ways, mainly in the design and execution of global strategy. Companies commonly over-
, estimate attractiveness of foreign markets, mostly through focusing solely on market potential factors
such as population, per capita income, levels of consumer wealth, propensity to consume. Figure 1.1
illustrates a detailed depiction of the CAGE Framework (Bartlett & Beamish, 2010).
Figure 1.1
Reasons for Investing in Emerging Economy
An emerging economy offers numerous positive opportunities for investment from Triad firms.
Advantages for investing in emerging economies are derived from firm-specific, home-country-
specific and development related-specific. Firm-specific advantages consider specific assets,
particularly intangible assets, and capabilities which bring a superior competitive advantage position
to the possessing firm (Siripaisalpipat & Hoshino, 2000). Aspects within this concept relate to
production and service capability, expertise and technology, business models and forms of
governance. Production and service capability can be seen in practice through organisations such as
Acer and LG shifting production of their products to locations, such as India, which offered low-cost,
high-quality manufacturing.
Home-country-specific advantages refer to the ability of an individual, company or economy to
conduct an activity better than another for reasons pertaining to location, arguably due to access to
natural resources (Zhou et al., 2016). Aspects of this form of advantage relates to access to resources
and activities, access to created resources, kinship and cultural affinity. This advantage can be seen in
Acer’s access to well-advanced skills and production base in Taiwan. Moreover, Korea’s low-cost
skilled labour pool was attractive to electronic industry leaders, resulted in Korea as an export-
oriented offshore manufacturing base, then causing a knowledge spill over, which they could later
capitalise on.
Development-related-specific advantages regard the developmental state that grants the organisation
the ability to utilise the country’s assets in a way that benefits both parties. Aspects of this include
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