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The tension between capability upgrading and gaining global reach forces the new MNEs to enter developed and developing countries simultaneously since the beginning of their international expansion. Entering developing countries helps them gain size, operational experience, and generate profits, while venturing into developed ones contributes primarily to the capability upgrading process. The new MNEs have certainly tended to expand into developing countries at the beginning of their international expansion and limit their presence in developed countries to only a few locations where they can build capabilities, either because they have a partner there or because they have acquired a local firm. As they catch up established MNEs, they begin to invest more in developed countries.

A fourth feature of the new MNEs is their preference for entry modes based on external growth. Global alliances (García-Canal et al., 2002) and acquisitions (Rui and Yip, 2008) are used by these firms to simultaneously overcome the liability of foreignness in the country of the partner/target and to gain access to their competitive advantages with the aim of upgrading their own resources and capabilities. When entering into global alliances, the new MNEs have used their home market position to facilitate the entry of their partners in exchange for reciprocal access to the partners’ home markets and/or technology. Besides the size of the domestic market, the stronger the position of new MNEs in it, the greater the bargaining power of the new MNEs to enter into these alliances. This fact is illustrated by the case of some new MNEs competing in the domestic appliances industry like China’s Haier, Mexico’s Mabe or Turkey’s Arcelik, whose international expansion was boosted by alliances with world leaders that allowed them to upgrade their technological competences (Bonaglia et al., 2007). Capability upgrading processes based on acquisitions have been possible in some cases due to the new MNEs’ privileged access to financial resources, because of government subsidies or capital market imperfections, as

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