The Role of Emerging Market Multinational Enterprises (EMNEs)

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Scott developed this theory in 1995. It suggests that the quality of institutions can be drawn from three factors which can also be the principal sources of institutional pressures to an organization. The three were the regulatory, normative, and cognitive pillars. The regulative component refers to the legal environment of the nation the company is set to operate in. The normative part refers to the acceptable norms within the society. The cognitive part refers to the cultural beliefs and social values that are acceptable within the organization. As EMNEs operate in different countries, there is bound to be different regulations, norms and cultural practices for each. The organization must take careful steps to avoid being misunderstood and also not alienating the people. As the legitimacy of the organization is built upon these three pillars, EMNEs take deliberate decisions not to be sucked into them as to avoid losing their organizational culture and values.

When EMNEs enter markets that do not have established institutions, they face various challenges such as inadequate information on the labor markets, weak regulations and legal system that obscures development and insufficient information available to customers. EMNEs have to make decisions based on these pillars in each of the foreign country they want to invest in (Zhou, Wu, and Luo, 2007, Pg.679-690). Their decisions to enter markets are usually grounded in whether their companies’ values are in line with the pillars in this theory.

Why an Emerging Market Firm May Decide to use Wholly Owned Subsidiaries instead of International Joint Ventures

Control. Wholly owned subsidiaries offer the parent company full control over the business. Therefore the Emerging Market Multinational Enterprise will be free to make fundamental decisions without limitations. Such choices include strategy and critical human resource. In a Joint Venture, the EMNE will only have control over fifty per cent of the business.

Brand. The firm will be able to use its brand to market the business. In a joint venture, this is not guaranteed as the partners may want to rebrand to reflect both of the firms.

Trade secrets. Since it is a joint venture, the company may be obligated to share some of its trade secrets and core competencies that may put the company in jeopardy.

When forming a subsidiary one will be able to coordinate the technology to be used at the facility. In the case of a joint venture, the firm will lose control over such decisions as the will have to be discussed by the two entities before they are implemented.


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January 19, 2024

Business Economics



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