Tapping into emerging markets: EMNEs' strategies for innovation capability building

Abstract Research Summary This article explores EMNEs' innovation capability building in emerging markets. The paper provides a longitudinal account of how the Brazilian cosmetics firm Natura transitioned from scant to ample innovation resources and processes. Building on the institution‐based view and the resource‐based view, we explain how EMNEs' innovation capability building is anchored in open innovation and collaborative nonmarket strategies. The paper reveals a unique pattern of innovation capability building based on a combination of local and global open innovation processes and harnessing the country characteristics over time. It is shown how combining open innovation and collaborative nonmarket strategies can help mitigate weak formal and informal institutions in emerging markets. The study offers an integrated framework explaining innovation capability building and the effects on the institutional setting. Managerial Summary The increase of well‐known EMNEs has raised interest in understanding how these firms build sustainable innovation capabilities. Based on a longitudinal study of the Brazilian‐based cosmetics firm Natura, this paper shows how an open innovation strategy can be used to tap into home‐market natural resources and connect to the global setting. This innovation capability process involves traditional market‐based strategies like inter‐organizational collaborations but also nonmarket strategies, such as developing local relationships, supporting socio‐biodiversity, and contributing to local society. The findings point at the importance of developing an overall innovation strategy, directing attention to innovation processes, engaging in recursive practice in innovation projects, responding to the market and nonmarket environments, and linking the emerging market institutional setting and the global market context.