The effect of institutions, organisational governance and managerial intentionality on the internationalisation of smaller Indian firms
thesisposted on 10.01.2017 by Bangara, Athena
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Emerging economies and the behaviour of firms domiciled in these markets is beginning to develop as a research area; yet little empirical work exists (Bruton, Ahlstrom, & Obloj, 2008; Hoskisson, Eden, Lau, & Wright, 2000; Meyer & Peng, 2005; Peng, Wang, & Jiang, 2008; Wright, Filatotchev, Hoskisson, & Peng, 2005). An extensive and critical review of the literature revealed that there was limited research that focused on the internationalisation of emerging economy firms to other emerging and developed economies. In order to address this clear gap in our understanding, the broad research problem that this thesis sets out to investigate is ‘how do institutions, organisational governance and managerial intentionality effect the internationalisation of smaller Indian firms’? It is argued that in order for research in strategy to make a lasting contribution, there is a need to contemplate whether the theories and methodologies developed in primarily mature and developed economies are applicable to the emerging economy context (Wright et al., 2005). In addressing this concern, this study draws on institutional theory, transaction cost theory, the resource-based view and aspects of the organisational capabilities perspective in order to understand the internationalisation of smaller Indian firms. In particular, the aim of this research was to understand the effect of institutions (Research Question One), organisational governance (Research Question Two) and the moderating effect of managerial intentionality (Research Question Three) on the internationalisation of smaller Indian firms. India was chosen as the context for the study due to its rapid growth in recent years which places it among the four big emerging economies of the world (Wilson & Purushothaman, 2003). The relatively recent liberalisation of the Indian economy in 1991 provides an interesting context within which to study the internationalisation behaviour of firms. Prior to its liberalisation India adopted what was known as an inward-focused, socialist-style, economic framework (Wilson & Keim, 2006). The liberalisation of the Indian economy has increased the country’s trade linkages with other emerging and developed countries, yet little research has been conducted on the internationalisation of Indian firms (Peng et al., 2008; Wright et al., 2005). Further, India’s linguistic distance but geographic closeness to emerging markets, yet western Commonwealth past and geographic distance to developed markets makes it a unique context. The research methodology adopted in this study entailed a qualitative design conducted through multiple case studies. The case study firms comprised four smaller manufacturing and four smaller service firms. Cases for the study were selected theoretically (Eisenhardt, 1989) using intensity sampling, snowball sampling, criterion sampling and opportunistic sampling techniques (Patton, 1990). To determine the size of the firms, the definition proposed by the Government of India was used. One key growth region in India was chosen due to the institutional diversity in India. Bangalore was chosen as it is considered a high growth region of the country that is well reputed for its service sector, as well as a competitive manufacturing sector (Ahya, Xie, Roach, Sheth, & Yam, 2006). The adoption of a multiple case study design facilitated an aggregated cross-case analysis. The data was collected through in-depth, semi-structured interviews with senior management in the selected case study firms. In addition, documentary evidence was collected through newspaper articles, information from trade journals and information from the company websites. The interviews were guided by an interview protocol and a case study database was created for each firm in order to increase the reliability and validity of the data. The data was coded using NVivo (version 7) and analysed using the ‘template approach’ (Crabtree & Miller, 1999). To date, literature originating out of mature markets has regarded institutions as background information due to the stability and maturity of institutions in these markets (Ingram & Silverman, 2002). However, when studied in an emerging market context, the role of institutions is argued to be pushed to the forefront of strategy research due to its relative underdevelopment (Meyer & Peng, 2005). This study used Scott’s (1995) three institutional pillars (regulative, normative and cognitive) to gain an institution-based view of the business strategies pursued by the smaller Indian firms (Peng et al., 2008). The findings highlighted regulatory institutional influences at the home country, host country and trade policy levels. The findings from this study shed light on the notion of institutional entrepreneurship, thereby extending institutional theory to take into account the strategic behaviour of firms. The findings further emphasised the need to gain legitimacy in international markets as a means to gain access to resources and overcome the liabilities of foreignness and newness. In doing so, the findings from this study extended Mathews’ (2006) ‘linkage, leverage and learning’ strategy to a ‘linkage, leverage, learning and legitimising’ strategy. Next, the findings from Research Question One extended the U-Model of internationalisation to highlight the importance of domestic market experience when gained in an institutionally complex market such as India. Finally, the findings highlighted the interaction between the path-dependent experience of the founders and the various dimensions of their managerial intentionality in managing the institutional influences on the firm. In studying organisational governance decisions (Research Question Two), transaction cost theory was used as the key conceptual perspective. This study used Williamson’s (1975) governance continuum to understand the organisational governance decisions of smaller Indian firms. Interestingly, the findings emphasised a move away from the narrow comparative-efficiency framework developed by Williamson (1975), towards a more eclectic understanding of the effect of transaction costs. The findings highlighted the choice of governance modes not as discrete designs, but as those that overlap as a result of being influenced by institutions, the experience of the firm with a particular mode, the propensity to trust, the constraints on firm behaviour, the managerial intentionality of the founders and the need to gain local knowledge from network partners. In adopting this broader perspective, the findings addressed the call by Madhok (1997) to understand the choice of governance modes from more than a cost minimisation perspective. Hutzschenreuter, Pedersen and Volberda (2007) suggested that the role of managerial discretion to date is downplayed in existing IB literature and hence called for research to focus on the role of managerial intent in the strategies of established multinationals rather than on the process of ‘becoming a multinational’. Research Question Three highlighted the moderating effect of managerial intentionality in managing the institutional influences and governance decisions of the firm. This study extended Hutzschenreuter et al.’s (2007) conceptualisation of managerial intentionality by emphasising the resilience as well as the reluctance of the founders (due to past experiences) as important in the emerging economy context. This study has practical implications for the case study firms as well as for potential entrants into India. Firstly, for the case study firms it is important to develop clear internationalisation strategies (as opposed to a reactive approach) due to the increasing competition both locally and internationally. Second, for the manufacturing firms, it is important to move beyond their pure low cost advantage. Partnering with other companies to leverage their resources and capabilities in international markets is one possibility. Third, for these firms to remain globally competitive, the sourcing of international talent is likely to increase their legitimacy and reduce their liability of foreignness. Finally, the continued liberalisation of the Indian economy has made it an attractive destination for foreign firms. While the case study companies have recognised the opportunities overseas, they should not ignore their domestic market where they enjoy a ‘home court advantage’. For potential entrants into India, it is important to recognise the potential competitive advantage that local incumbents have with regard to the environment. Second, foreign firms entering India and competing with smaller players need to understand the subtleties of the market and tailor their strategies to meet local needs. Finally, while this study has made contributions to the field, the findings must be interpreted in light of the limitations of the study. First, this study focused on one key big emerging market; India. Further, within India only one key region was examined. The findings reflect the business strategies by firms domiciled in Bangalore. Hence future studies could extend this research to other emerging markets and other regions of India to gain a more detailed perspective. Second, given the qualitative nature of the study, only analytical generalisations can be made. However, these insights can provide a basis for future researchers to develop quantitative measures to test the inferences drawn. Finally, this study was cross sectional in nature. In order to gain a more detailed analysis on the effect of institutions, future researchers may consider a longitudinal design to capture the institutional transitions over time.