So, you are a firm from an emerging market and ready to expand internationally? Think your success hinges solely on killer products and savvy marketing? Think again. Where you decide to invest abroad is deeply connected with the home country. Home country institutions, like legal systems, regulations, politics, and safety, have a large hand in shaping your firms’ decision where to go. The lack of rule of law, ineffective enforcement of contracts, high judiciary costs and delays, loose property rights and political instability can undermine your competitive position and potential for success. Given all this, how exactly does home country institutional weakness share firms’ international expansion?

 Ever wonder why some firms from emerging markets seem to stumble when entering developed markets? It is not just about competing with established brands. It is also about the baggage they carry from home – institutional weakness. Imagine trying to navigate international deals with a weak legal system and political instability constantly looming. This institutional weakness can act as an additional liability, hindering firms’ ability to compete effectively in developed markets with stronger institutional systems. These challenges create barriers for firms from emerging markets to enter developed markets or markets that are institutionally distant from their home country. Consequently, these firms are likely to choose institutionally similar countries as their foreign direct investment targets, to help them offset the additional liability they carry.

So, how can firms from emerging markets level the playing field? They often struggle to shake off home country issues, and this is where the concept of "nonmarket political strategy" comes in. This involves leveraging relationships with political actors in their home country to navigate institutional challenges in their foreign location choice. We suggest that a well-executed political strategy can help access diplomatic channels, secure government support for investment deals, and even influence policy decisions that favor their global ambitions. By strengthening ties with political actors at home, firms can potentially offset some of the barriers imposed by institutional weaknesses and gain access to developed markets or markets more institutionally distant from their home country.

Political strategies, however, are not a golden ticket. Savvy market selection and adaptability are also critical. This suggests that managers have skill sets quite different from the more conventional commercial ones. So, political strategies can help firms navigate home country institutional challenges, but a savvy market selection and adaptability are critical. Do not assume those connections alone will guarantee firms success in their decision where to go.

Autor: Cinara Gambirage – c.gambirage@rug.nl

Reference: Gambirage, C., Silva, J. C. da, Vasconcelos, F. C. de, & Parente, R. C. (2024). Home country institutions and nonmarket political strategy effects on EMNE foreign location choice. Long Range Planning, 57(6), 102477. https://doi.org/10.1016/J.LRP.2024.102477