Emerging markets often experience instability due to rapid changes to the institutional environment, social changes like rapid urbanization, or even unrest. We argue that emerging market multinationals (EMNEs) manage such instability by constructing and changing locational portfolios, and qualitatively analyze six cases in South Africa over a period that included the entrenchment of Apartheid, increasing resistance to it, the immediate post-Apartheid era, and finally the period of state capture. The four periods of (in)stability – initial tenuous stability, extreme instability, comprehensive stability, and finally growing instability – differently affected EMNEs’ location choices. EMNEs went to proximate developing countries when the home country was relatively stable, but left for host countries in the developed world once the home country became unstable. Few EMNEs capitalized on their experience there once home-country stability returned, instead returning to emerging markets. These patterns are best explained by a portfolio logic that takes into account home-country environmental dynamism.
Most of the operations of emerging market multinational enterprises (EMNEs), as indeed for MNEs generally, take place in their home country (Banalieva and Santoro, 2009, Rugman, 2005). What are the implications of dramatic and sudden changes in the stability of EMNEs’ home countries for the host locations in which they operate? This paper provides evidence that EMNEs’ internationalization is affected by the (in)stability in their home country. EMNEs use a portfolio logic in making location choices, opting for ‘safe’, stable host locations when the home country is unstable, and for riskier, less stable host locations when the home country is stable. This finding addresses a gap in existing scholarship and suggests at least two novel contributions.
First, we contribute to the growing body of literature on how dynamic changes in the macro-environment shape firm behavior, especially in emerging markets (Banalieva et al., 2018, Klein et al., 2019). Our evidence suggests that the stability or not of home country conditions contributes to EMNEs’ location choices and we explain why that may be the case.
In this paper, we provide evidence that EMNEs use a portfolio logic in making location choices, opting for ‘safe’, stable host locations when the home country is unstable, and for riskier, less stable host locations when the home country is stable. We develop propositions that acknowledge the outsized influence of the home country, and in which the desire of the EMNE to construct a balanced locational portfolio has an important influence on where they locate.
Research within international business on Africa is still in its infancy and Africa is probably its least researched continent (Adeleye et al., 2020, Boso et al., 2019). If we are to seriously understand EMNEs, then Africa has to be part of that conversation. We therefore believe that our empirical focus is useful, although it is a limitation of our work that the South African context is so extreme in the frequency and extent of changes in (in)stability experienced. However, as Barnard, Cuervo-Cazurra and Manning (2017) point out, the extreme conditions in Africa are often useful to highlight the boundaries of extant theory. Moreover, the South African case is not unique: The fallout from Argentina’s dollarization experiment and subsequent debt default in 2001; Mexico’s peso (so-called tequila crisis) of 1994; the South-east Asian financial crisis of 1997; recent hyperinflation in Venezuela, and the Russia-Ukraine conflict are but some other examples of home country instability in emerging markets.