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date: 17 November 2019

Abstract and Keywords

This article examines how firm-level capabilities relate to competitive outcomes between multinational companies (MNCs) from advanced economies and challengers from emerging economies. It examines John Sutton’s theory of the “capability window” in light of new empirical evidence on competition in particular between MNCs and Chinese firms inside China. Market share leadership by MNCs in China is found to be positively related to industry R and D- and advertising-intensities; and where leadership varies by segment, MNCs tend to lead in high-end segments and Chinese firms in low-end segments. The empirical research provides support for Sutton’s model but also suggests a set of extensions to it—most significantly, the incorporation of horizontal distance alongside the vertical distance emphasized in his baseline model. And since dealing with both kinds of distance requires firms to do things that they have not done before, dynamic capabilities are essential to success in this context.

Keywords: capabilities, emerging markets, emerging multinationals, Sutton, capability window, China, CAGE Distance Framework, AAA strategies

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