Multinationals’ Value Chain Configuration for Product Diversification in Emerging Markets: Western Firms in China

Sarah Franz, Axele Giroud, Inge Ivarsson

Research output: Contribution to journalArticlepeer-review

Abstract

Purpose – This study aims to analyse how MNCs organise value chain activities to penetrate new market segments. It contributes by expanding traditional decisions regarding the vertical fine-slicing of value chain activities (whether performed internally or externally) and the consideration of resource sharing decisions (integration or separation) for each value chain function.
Design/methodology/approach – We draw on primary data collected from two case study firms operating in the large emerging Chinese market: Volvo Construction Equipment AB and Epiroc AB. In depth cases illustrate how foreign MNCs expand into new market segments and simultaneously target both the lower-priced mid-market and the premium segments in the Chinese mining and construction industry.
Findings – The results reveal that product diversification creates challenges for managers who must oversee new (vertical) value chains, often simultaneously. Beyond geography and modes of governance, managers must decide whether to integrate or separate value chain activities for the new product lines. The study identifies four main strategic options for firms to address this complexity, focusing on the decision to internalise or externalise (i.e. within or across organisational boundaries) and integrate or separate value chain activities between different product lines.
Originality/value – This study builds upon the Internalisation theory and recent IB contributions that focus on value chain configurations to explain MNCs’ product diversification as a growth strategy in a host emerging market. It also sheds light on the choice of conducting new activities in-house or externally and elucidates firms’ managerial decisions to operationally integrate or separate individual value chain activities. The study provides insights into the drivers explaining managerial decisions to configure value chain activities across product lines and contributes to the growing body of literature on MNC activities in emerging economies by highlighting that product diversification impacts entry mode diversity and resource sharing across units.
Original languageEnglish
JournalMultinational Business Review
DOIs
Publication statusPublished - 7 Nov 2023

Keywords

  • Multinational Corporations (MNCs)
  • Product diversification
  • Value Chain Configuration
  • Internalisation
  • Externalisation
  • Integration
  • Separation
  • Market Expansion
  • Entry Mode
  • Emerging Markets
  • China

Fingerprint

Dive into the research topics of 'Multinationals’ Value Chain Configuration for Product Diversification in Emerging Markets: Western Firms in China'. Together they form a unique fingerprint.

Cite this