Small firms and Corporate Social Responsibility: comparing the social contract in Brazil, China and India

By Peter Knorringa and Khalid Nadvi 

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In a recent article published in the Journal of Business Ethics, Peter Knorringa and Khalid Nadvi compare the local institutional context for socially and environmentally sustainable behaviour in small firm clusters in Brazil, China and India. The paper points to a number of open questions around small firms and CSR in the Rising Powers.

Multinational companies have been adopting elaborate Corporate Social Responsibility (CSR) programmes at global level, but often face difficulties in implementing social and environmental standards throughout the supply chain - especially with many small suppliers located in emerging economies. To better understand how and when small firms are likely to improve their social and environmental performance, we propose to pay closer attention to the underlying social contract in these countries, including the formal and informal institutional context for CSR.

Important elements of such a social contract include both the national policy framework of labour and environmental regulation, as well as informal norms on ethical behaviour and traditions of compliance with formal rules that may exist in local industrial clusters. Hence, small firms that are located in industrial clusters in emerging economies and are supplying to multinationals not only face demands for compliance with global CSR standards from their international buyers, but they are also strongly influenced by the local context they operate in.

Nevertheless, we currently know very little about how these local and global forces interact. Do national labour laws and private social standards from MNCs complement each other in pushing for better working conditions in small firms? Are there informal ethical norms in local communities that small entrepreneurs belong to, which facilitate compliance with global CSR standards? Or, on the other hand, will small firms be less likely to comply with global social standards if they operate in a context where national labour laws are weakly enforced?

Comparing the social contracts in Brazil, China and India reveals differences in the local context for CSR, and in the ways in which these interact with global CSR standards:

In India, informal labour is common in small firms, which means that workers are not covered by formal labour laws. In addition, complex layers of subcontracting make it more difficult for international buyers to influence compliance with global CSR standards in suppliers. As a result, small firms in India face little pressure to improve social and environmental performance from the outside, and any willingness of entrepreneurs to engage in more social and environmentally sustainable production for ethical reasons is made more difficult by cut-throat competition in very price-sensitive markets.

In Brazil, on the contrary, there is relatively less informal employment. Labour laws in the formal sector are generally enforced, for example through a system of labour inspectors monitoring and facilitating compliance. Further, there is growing cooperation between the public and private sector around sustainability issues at national level which sets the scene for mutually reinforcing engagement including on global sustainability standards.

China is an intermediate case, where national labour and environmental laws have become stricter over the past decades, but the details of regulations and the effectiveness of enforcement differ across regions. Hence, the local institutional framework may be better positioned to accommodate global CSR demands than in India, but seems less conducive to effective enforcement of social and environmental standards than in Brazil.

Future research on CSR in emerging economy industrial clusters should explore in more detail the interactions between CSR pressures from global buyers and the localised social contract in which small firms operate. This requires paying attention to how public policies and informal norms at national and local level facilitate or hinder compliance with global social and environmental standards. In addition, it will be important to observe how the emergence of increasingly affluent middle classes in emerging economies such as China, India or Brazil influences the demand for social and environmentally sustainable goods in domestic markets. Potentially, such domestic sustainability standards in emerging economies may also begin to shape the formulation of global standards, as these countries increasingly engage in global governance fora.

For more details, please refer to:
Knorrigna, P. and Nadvi, K. (2014) 'Rising Power Clusters and the Challenges of Local and Global Standards', Journal of Business Ethics, September 2014.

Asian firms and the restructuring of global value chains

By Shamel Azmeh and Khalid Nadvi

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In their article on Asian firms and the restructuring of global value chains published in International Business Review, Shamel Azmeh and Khalid Nadvi analyse the roles of transnational Asian garment firms in shaping the global apparel industry. This post summarises some of their findings.

Global clothing brands such as Levi's, H&M, Marks & Spencer or JC Penney are well known players in the apparel industry. They have been shown to coordinate complex global value chains with supplier firms located in various countries. Less known are the strategic and pivotal roles that Asian transnational garment firms take on as first-tier suppliers to these brands. These new players, though largely unknown to most people, are crucial because they are increasingly able to reshape geographies and organizational processes within global value chains.

Who are these 'strategic and pivotal' Asian firms and how do they function? 
Many of these first-tier suppliers come from Greater China, e.g. Hong Kong or Taiwan, and South Asia. While their headquarters are based in these home countries, they have evolved from simple producers supplying to Western brands into truly transnational companies, with subsidiaries and suppliers around the globe, including in Asia, Africa and Central America. Asian transnational garment firms now take on more and more functions in the apparel industry, such as logistics or research and design for the brands that buy from them. For example, some Asian firms use forecasting software that is directly fed with data on current sales in the stores of global brands, which allows them to predict demand and respond quickly with changes in production and delivery. While some of them are developing their own brands, many do not see this as a priority for their business.

Can they actually change the structure of global value chains in the apparel industry?
These Asian transnational garment firms have highly developed organisational capacities, which allow them to coordinate flows of products, but also flows of labour and capital, across various locations. In doing so, they not only need to engage with different cultural, political and regulatory contexts, but also monitor changes in trade rules or regulations that may affect garment production in a particular location. In fact, they are extremely flexible in reacting to such changes. They tend to avoid being too closely embedded in any particular country context, ready to leave when preferential trade rules are discontinued or when labour costs rise. This contributes to a very flexible model of globalisation, and the Asian 'strategic and pivotal' firms are the key players driving the decisions to change production locations.

The example of Jordan
Jordan illustrates these dynamics and the crucial roles of Asian firms. Without much history of a textile and apparel industry, and with high labour costs, Jordan did not appear to be a likely location for FDI in the sector in the early 1990s. However, in 1997 Jordan and the United States signed a preferential trade agreement, giving firms producing in a 'Qualifying Industrial Zone'(QIZ) in Jordan duty and quota free access to the US market. A condition was the use a minimum share of inputs from Israel, in an effort to promote the Middle East peace process. In addition to the preferential trade rules, a special labour regime was implemented in these zones allowing firms to bring migrant workers to their factories and also excluding these zones from the legal minimum wage in Jordan in recent years.

These two policies acted as a catalyst, attracting Asian multinational garment firms. Investment from these firms was the key driver for Jordan to become a garment exporting country. Within a few years, these Asian firms set up an almost entirely new industry in Jordan and integrated the country into the global value chain for apparel. As a result, exports to the US rose from USD 3 million in 1997 to USD 1.25 billion in 2006.

However, as described above, Asian firms did not embed deeply into the Jordanian economy. Flexible rules of origin attached to the preferential trade rules made the arrangement attractive for these firms, because they could use their existing supplier networks in third countries to source inputs such as yarn. In addition, the flexible labour regime allowed firms to bring in migrant workers from Asia, which make up 75-80% of workers in the garment factories in Jordan. Fitting with the trend of global locational flexibility, interviews with firms indicate that they are ready to go elsewhere, if either the trade preferences or the labour regulations should change.


For more details, please refer to: 
Azmeh, S. & Nadvi, K.(2014.) Asian firms and the restructuring of global value chains. International Business Review, 23(4), 708-717.
http://dx.doi.org/10.1016/j.ibusrev.2014.03.007

Low carbon standards made in China?

By Clara Brandi

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In a recent article on Low-Carbon Standards and Labels in China, published in Oxford Development Studies, Clara Brandi asks how Chinese actors respond to the proliferation of environmental sustainability standards and what this will mean for global sustainability. This post summarises some of the findings.

Environmental sustainability standards are increasingly used by multinational companies, and could be an important tool to address global challenges such as climate change. An example are low carbon standards and labels that measure the 'carbon footprint' of a product. In the UK, Tesco was using carbon labels on 500 of its products in 2012, informing customers about the amount of greenhouse gas emissions caused throughout different stages of producing, transporting and storing the product on its way to the final consumer.

How will actors in Rising Power countries, such as China, engage with these new standards? Considering the share of emerging economies in the global economy and in global carbon emissions, this question is crucial to understand whether low carbon standards will actually make a difference on climate change. China is a particularly interesting case, as a major emitter of greenhouse gases, as home to emerging multinationals, and as 'factory of the world' supplying Western multinationals. Emerging Chinese multinationals face pressures to comply with low carbon standards in countries abroad and from financial markets. Suppliers to Western multinationals are under pressure to measure their carbon emissions so that these lead firms are able to calculate the full carbon footprint of a product throughout the supply chain.

Basically, as proposed by Simon Zadek and his colleagues, Chinese firms and the Chinese government have four options how to respond to these international sustainability standards: a) ignore them (not do anything, as long as they do not affect the competitiveness of Chinese firms), b) mitigate them (try to minimize the harm caused to the competitiveness of Chinese firms), c) promote an existing standard (if this standard can be shaped in a way to give Chinese firms a competitive advantage) or d) leverage a new standard (if this would create a competitive advantage for Chinese firms).

Ignoring or minimizing the impact of carbon standards and labels will be difficult: So far, relatively few Chinese companies use carbon standards, but requirements to move to low carbon production processes filter directly down the supply chain as international buyers become more environmentally conscious. So doing nothing may hurt the international competitiveness of Chinese firms, which tend to have relatively high carbon emissions at present.

In terms of promoting existing standards, large Chinese companies have started reporting on their greenhouse gas emissions (70% out of the largest 100 listed companies do so). Examples of companies actively engaging with their carbon footprints are China Mobile signing a Green Action Plan to reduce emissions in its supplier firms, and Lenovo setting reduction targets for emissions in its supply chain. Nevertheless, it is too early to tell if this signals a general move towards adoption of international carbon standards in China. In particular, firms producing for the domestic market may prefer to use a new low-carbon product labelling scheme that is being developed by the Chinese Ministry of Environmental Protection, which will be cheaper than paying for certification under international labels.

Leveraging new low carbon standards appears the most promising option for Chinese actors. These could be standards developed in China, or standards that Chinese actors have shaped through their engagement in international standard-setting processes. China has been developing its own sustainability standards in a range of sectors, and is currently preparing a low-carbon product labelling scheme. The first voluntary low carbon labelling standard was released by the Ministry of Environmental Protection in 2010, and it differs from international standards by certifying a product as 'low carbon' if it meets certain emissions criteria, rather than indicating its quantitative carbon footprint. Recently, the first products have been certified. Chinese actors have also been actively involved in design of the ISO 26000 social responsibility guidelines, in contrast to their earlier reluctance to engage in international standard-setting fora. This shows a trend towards becoming standard-setter rather than standard-taker internationally.

Overall, dynamics around low carbon labels in China show that Rising Powers do not necessarily cause a race to the bottom on global sustainability standards. Rather, Chinese firms engage with international low carbon standards more widely than is often assumed. Chinese actors are also creating new domestic standards around carbon labelling, and are becoming increasingly active in international standard-setting processes. So low carbon standards are likely to be changed by Rising Powers such as China, but do not seem to become any less important in the future.

For more details, please refer to:
Brandi, C. (2014) Low-Carbon Standards and Labels in China, Oxford Development Studies, 42(2), pp. 172-189. http://dx.doi.org/10.1080/13600818.2014.885938

The state and the enforcement of labor laws in Brazil

By Salo Coslovsky

image by S. Coslovsky

In a recent article in Oxford Development Studies, Salo Coslovsky examines how labour inspectors and prosecutors have addressed enforcement of labour regulation in four critical sectors in Brazil. This post summarises some of the findings.

The last decades have seen a trend of economic liberalisation, combined with an increase in international trade and foreign direct investment in many countries, including in Latin America. One might expect this to go hand in hand with a 'race to the bottom' in labour regulation, as (developing) countries compete for investment. But contrary to such expectations, domestic labour laws have been upheld in many developing countries, due to a variety of factors. Some of the reasons for this include social clauses in international trade agreements, for example between the US and developing countries, as well as an increase in voluntary private regulation, such as codes of conduct in which multinational companies commit to improve working conditions in their supply chains. Less attention has been paid to the roles of developing country governments in enforcing labour laws and promoting improvements in labour practices, as these are often portrayed as too weak or corrupt to take on such tasks.

However, the experience of Brazil shows that government actors in developing countries can play an important part in promoting labour standards in a context of economic liberalisation. Examples from four sectors in the Brazilian economy show how government officials have intervened successfully to improve working conditions, while preserving the economic competitiveness of companies. In all of these cases, labour inspectors and prosecutors have played key roles in monitoring, but also in promoting innovative solutions for compliance with national labour laws.

Charcoal production:
Slave-like working conditions were common among small charcoal producers in the Amazon that supplied larger iron smelters. These producers were difficult to grasp for labour inspectors because many were not officially registered as companies. Moreover, individual producer were under immense competitive pressure that made them unable to raise wages for workers.

In this context, labour inspectors and prosecutors found a creative solution, making use of the fact that the informal charcoal producers were supplying large iron smelters, and drawing on a provision in Brazilian law that made it possible to hold these to account for labour law violations in their supplier firms. As a result, iron smelters established long-term contracts with charcoal producers and created a separate organisation to monitor working conditions. Simultaneously, this resulted in improved outcomes for workers and in better quality of charcoal supplied to iron smelters.

image by S. Coslovsky

Sugarcane:
A similar situation with accusations of slave labour existed in the sugarcane industry. Harsh working conditions were particularly common in sugarcane harvest on small independent plantations, which relied on informal labour contractors to employ migrant workers during harvest times. As in the case of charcoal, labour inspectors made the larger sugar mills that bought sugarcane from these smaller producers legally responsible for violations of labour regulations in their supplier firms. This resulted in significant improvements in working conditions in the industry, even if some problems persist on small farms.

Short-term employment in agriculture:
Small farms producing a range of agricultural commodities throughout the country have a need for temporary workers during harvest season, but are unable to employ these on a permanent basis throughout the year. Again these farms often rely on labour contractors as intermediaries, who tend to disregard labour regulations to minimize costs.

An innovative way out of this dilemma was found through establishing employers' consortia among small farmers that would directly employ workers on a permanent basis. Labour inspectors played an important role in the emergence of these consortia, for example by convincing tax administrators not to prevent the economic feasibility of such arrangements by charging higher social security contributions to consortia than to individual farmers. Employed by various farmers collectively, these workers would switch workplaces across farms, but continued to have a stable contract in compliance with labour regulations throughout the year.

Firework production:
In the case of firework production, unsafe working practices were common and conditions worsened further as firework producers came under pressure from cheaper Chinese imports. In this case, labour inspectors and contractors enforced compliance by imposing fines, but government agencies also supported producers in upgrading to international quality standards. In addition, the government raised quality standards required in the Brazilian market for fireworks, which gave Brazilian producers temporary protection from Chinese imports unable to meet these technical standards. As a result, Brazilian fireworks producers improved both working conditions and quality of their products, resulting in higher export revenues.

Several insights emerge from these four case studies that may be relevant also for post-neoliberal states elsewhere that try to combine economic growth and export competitiveness with social welfare. First, outsourcing and subcontracting arrangements should be closely watched, as these often tend to be associated with circumventing or violating labour laws. Second, international pressures from buyers and governments in export markets are not the main drivers of improvements in working conditions, but they can nevertheless make important contributions to strengthening local efforts. Finally, labour inspectors and prosecutors, acting with a relatively high degree of autonomy and in cooperation with the judiciary, have made crucial contributions to the effective implementation of labour standards in Brazil. In doing so, they have combined threats of sanctions with support for innovative strategies to facilitate compliance for companies without putting them at a competitive disadvantage.

For more details, please refer to: 
Coslovsky, S.V. (2014) Flying Under the Radar? The State and the Enforcement of Labour Laws in Brazil, Oxford Development Studies, 42(2), pp. 190-216

http://dx.doi.org/10.1080/13600818.2013.875135

Rising Powers' FDI in Europe: a threat or an opportunity?

By Elisa Giuliani, Sara Gorgoni, Christina Günther and Roberta Rabellotti

image by Stuart Miles/
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In a recent paper in International Business Review, Elisa Giuliani, Sara Gorgoni, Christina Günther and Roberta Rabellotti explore the local impact of investment from Rising Power firms in Europe. This post summarises some of the findings.

As more and more firms from Rising Power countries invest in Europe, worries abound over the impact of such investment on the local economies. Some fear that Chinese, Indian or Brazilian companies will simply take over local companies, exploit their technology - and leave without creating lasting benefits for employment or economic growth in Europe. But are these concerns justified, or should foreign direct investment (FDI) from emerging economies be seen in a more positive light?

Looking at examples from Italy and Germany, we find that ‘predatory’ behaviour of Rising Power firms exists in some cases, but we also identify another type of FDI from these companies that creates mutual benefits for investors and for the economies they invest in. Moreover, multinational enterprises (MNEs) from emerging economies investing abroad are more likely to engage in local innovation networks and create win-win situations of mutual learning than MNEs from advanced economies.

Studying investment of emerging economy MNEs in Europe
The impact of investment from emerging economy MNEs in Europe is difficult to grasp within conventional analytical approaches in international business, which have focused on advanced economy MNEs investment in developing countries, assuming that multinationals investing abroad have superior technology. Therefore, the study develops a new typology of MNE subsidiaries, according to the direction of knowledge flows between headquarters and the subsidiary, and the extent to which subsidiaries participate in local innovation networks.

This typology is applied to 23 local subsidiaries of emerging economy MNEs in the industrial machinery and equipment sectors in Italy and Germany, comparing them to 24 subsidiaries of MNEs from advanced economies.

Three types of subsidiaries
Overall, we find that MNE subsidiaries can be divided into three main types, with significant differences between subsidiaries of advanced economy and emerging economy MNEs:

‘Passive subsidiaries’ of advanced economy MNEs 
‘Passive subsidiaries’ are mainly interested in accessing local markets. Decision-making tends to be centralized in the MNE’s headquarter and subsidiaries engage little in innovation activities. Within the sample studied, this category includes significantly more subsidiaries of advanced economy MNEs than subsidiaries of emerging economy MNEs.

‘Predatory subsidiaries’ vs. ‘dual subsidiaries’ of emerging economy MNEs
‘Predatory subsidiaries’ come close to the negative picture of emerging economy investment described earlier. Significantly more subsidiaries of emerging economy MNEs than advanced economy MNEs fall into this category. Put simply, they are seeking to acquire advanced technology by taking over companies in advanced economies, transferring knowledge to their headquarters without contributing much to innovation in the local economy. An important source of knowledge are local employees in the subsidiary, and learning takes place through personnel exchanges or joint product development projects between the subsidiary and the headquarter. While this seems to confirm some of the worries about Rising Powers’ investment in Europe, there is another type of FDI from emerging economies that has so far been overlooked in the debate.

‘Dual subsidiaries’ are similarly interested in acquiring advanced technology, and they are significantly more common among emerging economy MNEs than advanced economy MNEs. However, they differ from predatory subsidiaries because they actively engage in local innovation activities and cooperate in this with local firms and universities. These local networks allow mutual learning: On the one hand, local employees, supplier firms and universities are sources of knowledge for the MNE headquarters, but on the other hand, these local actors learn from new perspectives and experiences in emerging economy markets brought in by the investors. Hence, such cooperation is perceived as a win-win situation for the MNE and for local actors, rather than as an exploitation of local knowledge by the foreign investor in a ‘take and leave’ manner.

What impact does investment from Rising Powers' firms have?

To sum up, the results of the study show that FDI from emerging economy multinationals can be 'predatory', but it can equally have positive effects on the local economy, stimulating mutual knowledge exchange and local innovation. This sheds doubts on alarmist calls for caution about investors from these countries. To maximise benefits from emerging economy FDI, policy-makers in Europe should encourage networking among these investors and local actors involved in innovation, such as local companies and universities.

For more details, please see:
Giuliani, E., Gorgoni, S, Günther, C. & Rabellotti, R. (2014) Emerging versus advanced country MNEs investing in Europe: A typology of subsidiary global–local connections. International Business Review, 23(4), 680-691.
//dx.doi.org/10.1016/j.ibusrev.2013.06.002

Will consumers in the Rising Powers buy Fair Trade?

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FreeDigitalPhotos.net

By Alejandro Guarín and Peter Knorringa

In their recent article in Oxford Development Studies, Vol. 42, No. 2, Alejandro Guarín and Peter Knorringa ask how new middle-class consumers in the Rising Powers will influence ethical consumption patterns and private standards on socially and environmentally responsible production.

Responsible consumption—in other words the demand for products that are good for the environment and for workers, such as fair trade or organic— is booming in Western countries. As global demand shifts to new consumer groups in emerging economies, will these look out for similar social and environmental product labels?

This depends, first of all, on how we define these new middle class consumers. There is no universal definition of the new middle classes, but the income range of 10 to 100 US dollars per day is often used. In developing countries this is a heterogeneous group of people, and it includes many that are relatively poor by Western standards. Many of these so-called middle class consumers are barely not poor, and risk falling back into poverty in times of economic crisis. Nevertheless, examples from countries such as China, India and Brazil show that, even at low income levels, these consumers make sophisticated decisions about how to spend their discretionary income. They’re not just fulfilling basic necessities.

However, it’s not clear that this ability for discretionary spending will translate into responsible consumption. It has frequently been assumed that responsible consumption is a luxury that only wealthy consumers can afford. It makes intuitive sense to think that you must first secure basic needs like food or shelter before worrying about the environment or social justice. But reality is more complicated. First, social and environmental concerns do not belong exclusively to the wealthy; many poor people in developing countries know and care about these issues too. Second, having those concerns is no guarantee that you’ll act on them. There is a big gap between what people say and what they do. The point is, we don’t know enough about the preferences and behaviours of consumers in the developing world. And to assume that they will simply mirror those of Western consumers is simply wrong.

How, then, to study this relationship between income, consumer preferences and their social and environmental implications? Looking at standards can help. Standards refer simply to the rules that govern what is produced in an economy, and how. Usually governments set the standards—for example with regard to health or to pollution—but in many cases companies set their own, voluntary standards. These private standards (such as “Fair trade”) are very important because it is what firms use to differentiate their products from others. Through their purchases, customers play an important part in shaping what standards appear and which are successful. But is this true in rising powers too?

In the article we propose a simple model (illustrated below) to analyse these relationships. On the vertical axis is people’s ability to pay for responsibly consumption, in other words their income. On the horizontal axis is their inclination or desire to consume responsibly, in other words their preferences.

Most of what we know tends to concentrate on relatively wealthy people, that is, around the top part of this diagram. Where purchasing ability meets high demand for social and environmentally responsible products (quadrant III), firms will tend to differentiate their products through private standards. Mandatory public and private standards on minimum product quality apply at lower levels of ethical demand (quadrant II), with less scope for product differentiation based on voluntary private standards.

We know little about what happens in the lower part of the diagram. Generally, no formal standards would be expected if low desire for responsible consumption coincides with low incomes (quadrant I); here informality prevails and seller’s reputation is established by personal interactions. If consumers are concerned about ethical issues but lack the means to afford higher priced, ethically certified products, government regulation may come in to ensure a minimum level of socially responsible firm behaviour.

The new middle classes in Rising Powers are located in the inner circle, moving between these different quadrants. A big question mark represents the need for further research about what roles private and public standards are likely play in the future. We could expect public standards to be more prominent if consumers are very sensitive to price, and voluntary private standards to play a greater role if consumers have a strong desire for responsible consumption as well as the financial means to afford a higher price for ethical products. But, as we have seen, we don’t know enough about the motivations and behaviours of consumers in developing countries to test whether this is the case or not.

In Western countries civil society has been a major force putting pressure on companies to adopt voluntary social and environmental standards. Society’s mobilization has often been needed for governments to set the public standards needed to protect consumers. Can we expect similar movements and organisations by consumers in Rising Powers? Or will there be other drivers of responsible production and consumption? The landscape is varied. Civil society mobilization in China looks very different to what it does in Brazil or in India, and the outcomes are not likely to converge.

Rising incomes among the new middle classes have the potential to stimulate new demands for socially and environmentally responsible consumption. However, there is no reason to assume that these will result in the same kinds of consumption patterns and the same kinds of social and environmental standards that we have seen in the West. How companies, states and consumers will respond to these trends present an exciting and largely unexplored field of research.

The questions addressed above are explored more in detail in Guarín, A. and P. Knorringa (2014), New Middle-Class Consumers in Rising Powers: Responsible Consumption and Private Standards, Oxford Development Studies, Vol. 42, No. 2, pp. 151-171.

Are Rising Power Firms changing the rules of international business?

By Rudolf Sinkovics, Mo Yamin, Khalid Nadvi and Yingying Zhang

image by sheelamohan/FreeDigitalPhotos.net

A special section in International Business Review, Volume 23, Issue 4, features 'Rising Powers from Emerging Markets – The Changing Face of International Business'. In their editorial, Rudolf Sinkovics, Mo Yamin, Khalid Nadvi and Yingying Zhang ask whether MNEs from emerging economies are Rising Powers that will change the way 
international business works.

Within broader discussions around the geopolitical and economic rise of large emerging economies, an International Business perspective allows a closer look at the role of new multinational enterprises (MNEs) from these countries, such as Huawei, Tata Motors or Petrobras. These companies are clearly rising and going international: smartphones made by Huawei from China can now be found in countries around the world, Tata Motors from India took over Jaguar Land Rover in the UK, and examples can be continued.

But are these emerging multinationals rising powers in the world of international business? A key question is whether emerging MNEs are simply imitating and catching up with MNEs from more advanced economies, or whether they should be seen as Rising Powers in the sense of challenging established business models and ways of competing in the international markets.

While much of this debate in international business sees emerging MNEs merely as 'copycats' following established international business strategies, more and more findings are calling for a rethink. An example of how emerging MNEs may fundamentally challenge the rules of how companies become successful internationally is the 'fight for the middle'. Companies increasingly compete for large numbers of customers with medium or low income in emerging markets. To be successful in these markets, it may not be necessary - or even be counterproductive - for companies to imitate leading Western MNEs and strive to upgrade production capabilities to compete with high-end products. New business models may be needed to win the fight for the middle - and MNEs from emerging markets may have a leading edge here over their established competitors from advanced economies. In their home markets, many of these new players have become successful with new products that are functional and affordable, even if they may not have all the latest features fashionable in high-end markets. This experience can be a huge advantage in middle and low income markets internationally. In contrast, MNEs from advanced economies would actually need to downgrade their ususal products to appeal to this customer range - which has been observed only rarely so far. Hence, new successful business strategies might be dominated by rising powers from emerging markets.

The contributions to the special section of International Business Review highlight different ways in which emerging MNEs and their business models potentially challenge the rules of international business. For instance, FDI strategies pursued by MNEs from emerging economies investing in Europe can make a stronger contribution to local innovation than FDI from advanced economies, as shown by Giuliani et al. Further, Sinkovics et al explore business formation at the bottom of the pyramid in rural India and draw potential lessons for business models of MNEs entering bottom of the pyramid markets in emerging economies. Other contributions investigate the changing roles of emerging economy firms in global value chains and global production networks: Azmeh and Nadvi find that large Asian manufacturers gain power in global apparel value chains; Liu and Zhang analyse learning processes that enable Taiwanese technology firms to take on different positions in global production networks; and Jean examine factors contributing to functional upgrading of Chinese technology firms in global value chains. Focusing on Chinese outward FDI, Kubny and Voss find differences in the local impact FDI between Chinese firms and MNEs from advanced economies in Vietnam; while Wei Hu and Cui identify corporate governance factors within large Chinese firms that influence their FDI decisions. Taken together, the articles in this special issue point towards a number of ways in which emerging economy MNEs may be changing the face of international business.

For more details, please refer to:
Sinkovics, Rudolf R., Mo Yamin, Khalid Nadvi, and Yingying Zhang Zhang (2014), "Rising powers from emerging markets—the changing face of international business," International Business Review, 23 (4), 675-679. (DOI: 10.1016/j.ibusrev.2014.04.001).
http://dx.doi.org/10.1016/j.ibusrev.2014.04.001

Direct links to individual articles in the special section can be found at the publisher's website or on the Rising Powers and Interdependent Futures website.