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Houston startups planning to go global need to prioritize adaptability, researchers find

Firms looking to expand globally need to ensure that their organizational resources are adaptable to new markets. Getty Images

When foreigners invest in emerging markets, the prospect for those markets' local businesses looks bright. The payoffs for a country's companies can range from injections of foreign capital to better managerial talent, technological sophistication and international know-how. But does foreign investment ever push local firms to venture into international projects of their own?

Rice Business professor Haiyang Li looked closely at the ripple effects of foreign investments, and concluded it all depends on the local businesses' adaptability. That — and their appetite for risk.

Together with Xiwei Yi of Peking University and Geng Cui of Lingan University, Hong Kong, Li launched a large-scale study of Chinese manufacturers to better understand how multinational investment in domestic companies influences the global market.

The subject was ripe for analysis. Over the past decade, more and more companies in China and other emerging markets have been testing the waters of direct investment in other countries in sectors as varied as food and beverages, apparel, electronics and transportation equipment.

Li's team hypothesized that these emerging market companies were leveraging benefits that foreign investment had ferried into their home markets. This investment, the researchers theorized, had brought in useful resources and skills, which helped ease the local companies into international business markets.

To confirm this, the team needed to test whether the converse was true: Might information gained from foreign investors actually dull a local firm's interest in branching out overseas? Maybe the risks of that type of venture — which are higher for firms in emerging markets — would seem too stark.

To find out, the researchers first vetted the literature on inward and outward investment activities. How, they wanted to know, did domestic firms interact with foreign players in the technology or product importing process? In equipment manufacturing? In franchising and licensing, mergers and acquisitions and activities such as setting up subsidiaries?

Working with a global research company, Li and his colleagues next surveyed 1,500 Chinese businesses in the food, clothing, electronics and vehicle industries. (Firms in finance, banking, natural resources and business services were ruled out because of their government ties, and also because such organizations usually use fewer resources, which made them harder to evaluate.)

Each company that took part in the survey rated how much they engaged with foreign investors in activities such as importing products and services or forming joint ventures. They also indicated if dealing with foreign direct investment had brought them foreign capital, advanced manufacturing know-how, managerial experience or competitive insight into overseas business.

The researchers also measured the "fungibility" of these firms' resources — in other words, how easily could their organizational, cultural and technological resources be adapted to various geographical settings?

Finally, managers rated how risk-prone they thought their firms were.

After Li and his coauthors processed the answers, they found several links between foreign investment in domestic firms and local companies' internationalization efforts.

First, there was a positive relationship between the local gains from foreign investment and a firm's interest in internationalization projects. While this effect was indirect, it was amplified when foreign investment gave a firm new capabilities that made it more adaptable. In other words, the Chinese companies whose contact with foreign multinationals made them more adaptable in general were better positioned to prosper in ventures abroad.

This stands to reason, the researchers note. That's because by its very nature foreign investment sparks awareness of new opportunities: every business trip, plant visit or negotiation with foreign partners is a hands-on lesson in international trade.

But the researchers also uncovered a significant downside to foreign investment for local Chinese firms. When a project was considered high-risk, such as a merger or establishment of a wholly owned subsidiary, the local firms were less prone to venture abroad. This adverse effect was worse for firms that labeled themselves risk-averse, probably because exposure to foreign investors only made the risks of internationalizing clearer.

These findings add important detail to the way foreign investment can affect their local partners' own international plans — for good and ill. Already, businesses in emerging markets are used to optimizing resources, wrangling diverse idioms and artisans and adapting logistically to get their products to market. That nimbleness, Li and his colleagues propose, should also be seen as a globalization tool. For businesses in emerging markets, the researchers conclude, day-to-day technical ability is actually less important than cultural and organizational flexibility — and applying lessons learned from foreign investors to their own projects abroad.

In other words, for firms in emerging markets, globalization is not just a path to new markets. It's a way to study interactions with foreign firms while on their home turf – and learn how to apply those lessons abroad.

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This story originally ran on Rice Business Wisdom.

Haiyang Li is Area Coordinator and Professor of Strategic Management at Jones Graduate School of Business at Rice University.

A Houston-based team of scientists and students have developed a low-cost ventilator. Photo courtesy of Rice University

As the COVID-19 case numbers continue to grow, hospitals around the world are either experiencing or expecting a shortage of ventilation units. In Houston, a team of students and staff at Rice University have designed a solution.

Along with Canadian global health design firm, Metric Technologies, the Rice team has developed an automated bag valve mask ventilator that can be crafted for less than $300. Moreover, the team expects to share the designs so that these low-cost machines can be produced everywhere.

The project is being called Take a Breather and was inspired by an early prototype that a group of engineering seniors developed in 2019 at Rice's Brown School of Engineering's Oshman Engineering Design Kitchen, or OEDK. The idea was to take a bag valve mask, which medical professionals use manually by squeezing with their hands, and create a device that can instead compress the bag automatically.

The parts of the device are largely created via 3D printing and laser cut, according to a press release from Rice, and only took around a week to prototype. While the original project was created to help emergency medicine professionals using a manual ventilator, the device is very relevant in the current coronavirus crisis.

"The immediate goal is a device that works well enough to keep noncritical COVID-19 patients stable and frees up larger ventilators for more critical patients," says Amy Kavalewitz, executive director of the OEDK, in the release.

As principal at Metric Technologies, Dr. Rohith Malya, who is assistant professor of emergency medicine at Baylor College of Medicine and an adjunct assistant professor of bioengineering at Rice, saw the growing need for for automated ventilator masks in emergency medicine.

"This is a clinician-informed end-to-end design that repurposes the existing BVM global inventory toward widespread and safe access to mechanical ventilation," Malya says in the release.

According to Malya, more than 100 million bag valve masks are produced annually. The designed device, which can work with these bags, has been named the ApolloBVM — a nod to when President John F. Kennedy announced from the Rice campus that it was his mission to get America to the moon.

"This project appeals to our ingenuity, it's a Rice-based project and it's for all of humanity," he says in the release. "And we're on an urgent timescale. We decided to throw it all on the table and see how far we go."