**2. The reshaped anatomy of the MNC**

The starting point for answering the question whether foreign-invested firms should stay invested or pull out of emerging markets is a discourse of their major reasons to go abroad [1]. The fundamental questions of why MNCs exist and which strategies they pursue lie in the heart of IB strategy and the theory of the MNC [2–4]. An exploration of these motives is crucial for any remain/exit decision.

### **2.1 The changing contour of IB strategy**

The MNC traditionally refers to any corporation that is registered, owns and manages entities in more than one country [5]. These organisations undertake FDI and possess or, to a certain degree, control value-added activities in several countries. The ACRONYM MNC is often synonymously applied for multinational enterprise or multinational company. Recently, foreign-invested firms have sought to become more socially embedded in their local contexts [6, 7] as boundaries between the firms and the environment have become loose [8]. Likewise, digital technologies have fundamentally reshaped the understanding of the MNC. Technology-enabled actors, also described as 'digital MNCs', do not necessarily have to employ productive assets and staff in subsidiaries abroad. By utilising for instance cloud-based platforms and business ecosystems [9], these largely virtual ventures tend to operate outside of the traditional importexport/FDI continuum. Referred to as 'born-globals' [10], these firms do not expand gradually but go global from day one. While technology can fundamentally change business models, the debate to remain in, or withdraw from, emerging markets is applicable to firms irrespectively of their degree of digitalisation. It is a matter of systemic understanding of the emerging market context, not a matter of technology. Reverting to the definition of the overarching subject, modern strategy is for the most part footed on the long-standing notion by the Harvard professors C. Roland Christensen and Kenneth R. Andrews [11] that refers to strategy as a concept that explores an organisation's internal capabilities versus the competitive environment. Correspondingly, the field of IB strategy refers to effectively and efficiently matching of an MNCs internal strengths and weaknesses (compared to rivals) with the external opportunities and threats [12] in geographically dispersed environments [13]. As such, IB strategy seeks to explain how firms generate and utilise competitive supremacy so to yield superior performance in their product-market domains [14]. It assesses the configuration, strategic orientation and leadership of cross-border enterprises and the corresponding effects on microand macroeconomic performance (e.g. economic expansion, productivity, workforce utilisation). Taken together, the literature on IB strategy focusses on MNCs and uses developing markets as research background to conceptualise theory [15, 16].

### **2.2 The enduring motives of the MNC**

As outlined, MNCs play a pivotal role in IB strategy and global economic governance. There have been several explanations for their origins and existence, all offering different angles with respect to the rationales underlying international business proceedings. Major proponents include the theory of trade [17], the theory of monopolistic advantage [4, 18], the theory of transaction cost [19, 20], the theory of product life cycle [21, 22], the stage approach [7, 23–25], theory of network [26, 27] and the OLI-model refereeing to the ownership-location-internalisation triplet [3, 28–30]. The OLI framework, also called 'eclectic paradigm', presumes that

### *MNC Strategy in Contested Environments: Stay Put or Stay Foot? DOI: http://dx.doi.org/10.5772/intechopen.112687*

production in different countries necessitates an ownership-based advantage [30]. This kind of competitive edge can have various incarnations, however, it is often manifested in the proprietary technology applications of the MNC. While the various theoretical strands are helpful in studying the roots of the foreign-invested firm, ultimately, the major reasons for exploring foreign markets refer to the accessibility of inexpensive natural resources as well as a high-skills low-cost workforce ('Ricardian' [17] argument) and economies of scale (EOS) as well as product differentiation ('Krugmanian' [31] argument). Based on these dimensions, Dunning [3] formulated several classifications of MNC motives. (1) Resource-seeking: These MNCs aim to establish access to resources like raw materials, human capital or other input factors, e.g., a UK firm sets up shop in Mainland China to manufacture and ship back to the UK and other markets. This can also entail the insurance of a stable supply of raw materials (backward or 'upstream' integration) or of product quality (forward or 'downstream' integration). (2) Market-seeking: These MNCs aim to spot and utilise additional markets for a company's goods and services. For example, in order to use excess capacity, MNCs seek to increase world market share by moving into emerging markets. It is important to consider that for specific categories of products and services, the creation and dissemination have to be simultaneous, hence, market-seeking goes hand-in-hand with other motives. (3) Efficiency-seeking: These MNCs strive to reshuffle their extant assets in order to optimise their worldwide footprints. This can entail cross-border specialisation by tapping into disparities in factor costs, to manage dependencies or to mitigate risks, as well as world-wide procurement practices to save resources and enhance cost-effectiveness by streamlining their global operations. (4) Strategic assets-/capabilities-seeking: These MNCs aim to establish a strategic presence in a foreign market in order to shield or enhance their global competitive positioning. This can entail an inorganic growth strategy based on corporate mergers/ amalgamations and acquisitions (M&A) or taking control of domestic assets including research and development (R&D), expertise and staff. It can also include preemptive measures to prevent competitors from entering the market or acquiring local strategic assets/capabilities. The above outline shows that varied reasons have been proposed in the literature on internationalisation. These argumentations seam to be logical and have been supported by rigorous research in emerging markets. Dunning [32, 33] showed that the impetus of foreign-invested firms to operate abroad can seamlessly transform from market-seeking and resource-seeking (to utilise the extant edge over competitors) towards developing strategic assets (to defend and improve the current competitive differentiation). Notwithstanding, efficiency-seeking drivers are widely acknowledged to constitute the dominant forces of cross-border integration in the context of IB and MNC strategy. An increased focus on global sourcing has been identified by Zaheer and Manrakhan [34] as well Kotabe and Murray [35]. In contrast, Cypher and Dietz [36] see an emergence of fully aligned manufacturing networks and business models. The preceding discussion shows that MNCs are in emerging markets for motives relating to efficiency, resources, markets and strategic assets. However, these motives are subject to constant shifts and disruptions in the competitive industry, firm resources constellations and institutional environments, both in the host country and home country. In particular, the efficiency-seeking motive needs to be reviewed for its ongoing validity. In this context, MNC have been keen to maintain their ability to engage in regime arbitrage [37], a corporate practice of tapping into more favourable conditions in one jurisdiction to circumvent less favourable ones elsewhere. For instance, the controversial practice of transfer pricing poses an ongoing concern. Non-governmental organisations such as the OECD and G20 have

coined these tactics as 'base erosion profit shifting' (BEPS). This criticism is echoed by the State Administration of Taxation (STA) of China which has called out the tax avoidance schemes by MNCs. Despite the institutional crackdown and public scrutiny, MNCs may not abstain from such practices anytime soon as these regimes are closely linked to the major motives to operate there in the first place.
