This article addresses the question of internationalization of emerging market multinationals (EMNEs) by focusing on how EMNEs’ level of innovation impacts their choice of entry mode into foreign markets. The growing numbers of EMNEs and the rising amount of foreign direct investments (F DI) from emerging countries illustrate the growing importance of EMNEs. At the same time, EMNEs meet a pressure to innovate; innovation is a substantial source of competitive advantage. Some EMNEs improve their innovation levels, but they suffer from latecomer disadvantages and the liability of emergingness. To compete with developed market firms (DMNEs) globally, EMNEs need to overcome these challenges. Thus, in an emerging market context, closing the gap with DMNEs is one motivation for EMNEs’ internationalization. We argue that this impacts their choice of entry mode. By focusing on firms from one emerging market, India, we studied the role of international strategic alliances (ISAs) compared to the one of acquisitions in their internationalization strategies. We looked at the foreign operations undertaken by 221 Indian firms over a ten year period. We found that firms’ innovation level has a positive impact on their ISA intensity, which shows that firms with higher levels of innovation enter more ISAs than acquisitions in foreign markets. In the case of acquisitions we find no significant results. These results suggest that Indian firms with higher level of innovation prefer internationalization through partnerships instead of acquisitions.
The increased importance of EMNEs and the fact that they rapidly catch-up with DMNEs do that we need to improve our knowledge about EMNEs’ behavior and international strategies. Indeed, it has been argued that more research is needed to understand how EMNEs overcome barriers to internationalization and to how they become global competitor. In this paper, we study how EMNEs’ level of innovation impacts their chosen foreign entry modes. To our knowledge, this has not previously been studied. With this research we hope to contribute to the knowledge of EMNEs’ internationalization strategies and entry modes, and then particularly of Indian firms.
