The role of springboarding in economic catch-up: A theoretical perspective

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Abstract

This paper offers a taxonomic examination of the springboard perspective, outlining three upgrading paths pursued by emerging market firms – path following, path creating and path compressing. The choice of the upgrading path is determined primarily by home-country conditions including market size and growth, innovative capability, government intervention, and market and institutional imperfections. We find that “springboarding” is a strategy most likely to be adopted by path-compressing firms and least likely to be observed among path-creating firms.

Introduction

The growth of emerging market multinationals (EMNEs) has been a key development in the global economy over the past decade (Deng, 2012; Luo and Zhang, 2016). While there is little dispute regarding the rapid internationalization of emerging market firms, explaining the phenomenon has been more problematic (Luo and Tung, 2018; Narula, 2012; Williamson and Wan, 2018). The common element in attempts to explain EMNE internationalization is the belief that such firms are engaged in catch-up, that is, they are seeking to achieve technological and competitive parity with comparable developed market multinationals (DMNEs) (Lee, 2005; Meyer, 2018).

Catch-up is based on the fundamental assumption that there exists a group of aspiring MNEs, within which EMNEs dominate, that are industry laggards and whose internationalization behaviour is driven by the need to catch up with industry leaders. These firms suffer latecomer disadvantages that are apparent in their weaker ownership advantages, the institutional and market constraints they face at home, and a lack of international business experience (Hennart, 2018; Ramamurti, 2012). While such a view seems consistent with the behaviour of many EMNEs, it fails to explain differences in relative rates of catch-up with some firms, industries, and countries, achieving faster catch-up. Here springboard theory is useful, suggesting that EMNEs will engage in a systematic strategy of asset-seeking internationalization to accelerate catch-up (Luo and Tung, 2007, Luo and Tung, 2018).

However, recent reviews (Luo and Tung, 2018; Luo and Zhang, 2016) have called for a better understanding of differences between EMNEs that springboard, and those that do not. Firms within these two categories are likely to experience diverse market and institutional conditions, to rely on contrasting degrees on government support, and to display different forms of advantage (Hennart, 2018; Ramamurti, 2012).

This paper addresses such understanding by developing theoretical arguments that distinguish between firms and sectors where catch-up and springboarding are likely, and where it is less likely to be observed. This latter group, termed ‘path-creating firms’, are able to create industry leading positions, at least in their home market, positions that could provide the foundation for subsequent internationalization. Specifically, the paper offers a taxonomic extension encompassing emerging market firms that may be engaged in catch-up, in springboarding, or in neither of these, because of their industry- or firm positioning in terms of technology, business models, or a combination of the two. To perfect these distinctions, we draw on the interaction of country- and firm-specific factors that help explain differing rates and levels of firm internationalization (Rugman, 2010).

Section snippets

The limitations of catch-up theorizing

Catch-up theory assumes a fixed and unidirectional process of cumulative knowledge building emphasizing the importance of home country conditions in determining catch-up rates (Lee, 2005). However, more recent work has highlighted a tactic available to EMNEs for overcoming home country development constraints through springboarding, a deliberate strategy to accelerate firm growth and competitive capability through recurrent and revolving international activities. Aggressive springboarding

The influence of home market conditions on emerging market firm development

The development of all firms is heavily influenced by the home market conditions they face including market size, growth rates, and reliance on market processes, institutional support, and openness. Home market conditions determine the quantity, quality, and cost of resources available to the firm (Cuervo-Cazurra et al., 2018). Emerging markets are characterized by several key features including resource deficiencies, particularly with regard to advanced technologies and management skills (

From country specific advantages to firm specific advantages: firm upgrading paths

Our approach to explaining firm upgrading and the likelihood of springboarding behaviour is outlined in Table 1 that sets out three upgrading paths that emerging market firms might adopt (Lee and Lim, 2001). The first two- path-following and path-compressing - are both catch-up strategies. Where they differ is in the rate and form of catch-up. While both might involve springboarding, this is particularly likely within a path-compressing strategy where fast catch-up is attempted. The third

A theoretical evaluation of upgrading paths

This paper argues that a number of underlying determinants will dictate the feasibility and outcome of upgrading paths. These factors operate across all emerging economies but are more salient and prevalent in some rather than others. The degree of state ownership varies markedly across these economies and the policy environment differs, as do scale, level of development, natural resource endowments, and technological and innovation systems. The key determinants of upgrading paths are: (1) the

Conclusions

This paper is a response to calls for the need to refine models of EMNE internationalization, and in particular, the role of springboarding in the upgrading of emerging market firms. We have proposed a conceptual framework comparing the role of springboarding along three commonly adopted upgrading paths: path-following, path-compressing, and path-creating. Acknowledging that not all EMNEs can be modeled as latecomers relying on asset-seeking in overseas markets, opens up what has long been

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