Rising to the global challenge: Strategies for firms in emerging markets

This article addresses the under-researched issue of how local firms in merging markets can counter the threat posed by the entry of multinational corporations (MNCs). Prior literature on this topic argues that the appropriate strategy for a local firm is dependent on its industry characteristics (global or otherwise) and the nature of its competitive advantage, specifically whether it is transferable to other geographic markets. We extend these arguments by hypothesizing performance differences across the different strategy types, and by arguing for size as a moderating variable for the relationship between strategy and performance. Our analysis is based on primary and secondary data about 155 listed Chinese firms in four industries - cosmetics, automobiles, computers and food - applying the widely used Return on Assets performance measure. Our analysis broadly supports the following arguments: local firms exhibit positive ROA even in the face of MNC entry; performance levels depend on the strategy adopted by the firm, with internationally-oriented strategies resulting in better performance; and large size helps performance for most strategy types. We identify the implications of our findings for the managers of local firms in emerging markets.