Time to take a closer look at ‘emerging market’ multinationals

Guest blog by Dr Saori Sugeno

We often hear that multinational corporations play an important role in improving corporate standards in emerging markets. This is true, and a standard reaction based on years of western companies’ business experiences in emerging markets, a topic further explored in cross-disciplinary academic research. 

But are large, well-established corporations with global reach the only kind of multinationals that contribute to the modernisation of emerging economies? 

It is time to focus on multinational corporations that are the products of emerging markets and global competition. How different are they from well-known ‘global’ companies? How powerful are they? Do they have the ability and motivation to transform the corporate cultures that they come from? 

Take the Chinese Alibaba Group or the Russian Gazprom; they may appear less diversified compared to western multinationals, but the geographical expansion of their operations and investments across countries and continents is impressive. Both companies are in the top 100 among the world’s largest companies and are of substantial economic significance – having a leading influence both on their peers in their respected countries and in emerging markets.

While emerging markets are on a mission to take on the world and obtain their share of the global market, multinational corporations and their top management often find they must follow the rulebooks of advanced countries. Companies listed in London, New York or Tokyo must comply with the rules of their requisite Stock Exchanges. This is where the ways of doing business are transformed; and equally importantly, it determines how emerging markets’ large corporations are run and governed. 

For instance, listing in the premium section of the main market of the London Stock Exchange requires the company to accept and comply with the UK Corporate Governance Code, which provides guidelines and assures the highest standards for corporate governance. Even if the company is not domiciled in the UK, it must comply with these rules; this practice also requires that the Code is observed across the entity, thus facilitating the ‘import’ of those rules or principles into emerging economies’ corporate cultures. 

Whether a modern era technology-based corporation like Alibaba or a ‘bricks and mortar’ (or rather, ‘oil and gas’) corporation like Gazprom, these corporations are sources of knowledge and conveyers of Western best corporate practices – as counterintuitive as that may sound.

Take for example the Polymetal International plc, a Russian company specialising in gold mining which celebrated its 10th listing anniversary on the London Stock Exchange last November. The company is listed in the main market premium section and is not only in the FTSE 100 but also in the Dow Jones Sustainability indices. What a contrast between the image of ‘old Russia’ business and the actual position of Polymetal International at the progressive edge of corporate governance! This was made possible by applying progressive rules to emerging markets’ multinationals seeking their place as equals amongst the worlds largest corporations.

The pressure from investors to move towards more progressive, transparent, and efficient corporate governance in emerging markets is hard to overstate. It is worth noting that the ‘maximising shareholder value’ approach to corporate governance is falling out of popularity in advanced economies amid a focus on a wider range of stakeholders and more sophisticated models of corporate governance. However, this approach could prove useful in stimulating changes in corporate governance in emerging markets. While it has its shortcomings, it might provide much-needed pressure from investors to speed up change to corporate governance practice in emerging markets.  

All in all, there are gaps among multinationals in large and ambitious emerging markets, their increasing role in changing corporate culture, and academic research on this phenomenon, which requires close attention and needs to be addressed.

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