Mexican Multinationals: Insights from CEMEX

27 Pages Posted: 28 Oct 2008

See all articles by Donald R. Lessard

Donald R. Lessard

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Rafael Lucea

George Washington University - George Washington School of Business

Date Written: October 24, 2008

Abstract

Since Vernon's seminal work (Vernon 1966; Vernon 1971), international firm expansion has been predominantly portrayed as a phenomenon led by firms located in economically and technologically developed countries in search for new markets, natural resources, knowledge leverage, and/or risk diversification. While venturing abroad was not devoid of obstacles (Hymer 1960; Zaheer 1995; Zaheer and Mosakowski 1997), the general view has been that developed country multinationals (DMNEs) were able to overcome these hurdles as a result of possessing better technologies, superior organizational processes, more financial power, or sounder home country institutions than their host country counterparts.

The emergence of multinational firms from emerging economies (EMNEs) challenges classic theories of the international firm that attempt to explain why multinational enterprises actually exist. In response to this puzzle, a number of studies, including those in this book, have pointed at a combination of environmental and organizational factors that help understand why EMNCs might enjoy a competitive advantage over DMNEs even when competing with these firms in developed markets - labeled up-market FDI by Ramamurti and Singh (2008, Chapter 1, Figure 1.1). Nevertheless, most of these competitive advantages appear to be temporary in nature and only provide plausible explanations as to how these EMNEs are able to take their first steps into the international competitive arena. However, they are significantly silent when it comes to explaining if and how they can sustain their competitive edge. And, yet, a small but growing number of EMNEs has been able to not only sustain their initial competitive position vis-a-vis DMNEs but significantly improve it over time. How this has happened and what it implies for current theories of international business is the subject of this chapter.

In this essay we propose a co-evolutionary model of international firm expansion and learning that explains why EMNEs are able to achieve and sustain their global competitive position even in the face of limited or waning home country-specific advantages. Our model posits that the idiosyncratic institutional and competitive conditions faced by emerging market firms strongly influence the shape and nature of the initial capability-set developed by these organizations. Under certain conditions, these capabilities may result in a source of international competitive advantage, making geographic expansion into more developed countries a possibility. Namely, they need to pass what we call the RATs Test (Relevance-Appropriability-Transferability). That is, their capabilities need to be relevant to customers in the foreign market, they need to be transferable internationally, and the rents they generate need to be appropriable by the firm.

Keywords: multination firms, developing economies

Suggested Citation

Lessard, Donald R. and Lucea, Rafael, Mexican Multinationals: Insights from CEMEX (October 24, 2008). MIT Sloan Research Paper No. 4721-08, Available at SSRN: https://ssrn.com/abstract=1289439 or http://dx.doi.org/10.2139/ssrn.1289439

Donald R. Lessard (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-460
Cambridge, MA 02142
United States
617-253-6688 (Phone)
617-258-6617 (Fax)

Rafael Lucea

George Washington University - George Washington School of Business ( email )

Washington, DC 20052
United States

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