Goldman Sachs assessed that by 2050 the Chinese and Indian economies will be correspondingly the second and third largest economies in the world. Already, companies from these countries are materializing as important players on the global scene.
The research examines key strategic issues involved in the internationalization process of Indian firms, the evidence of organizational alternation, and the emergence of newer organizational forms and potentials in this internationalization situation.
In the Indian situation, subject literature and reports in the media suggest an ongoing alternation in the economy and in Indian companies over the last few years, as India has opened itself to world markets.
This study inspect the literature on internationalization theory, organization theory, and the research on organizational alternation and capabilities, to identify what strategic issues and organizational design factors are suggested to be important in the internationalization situation. The focus is on the emerging economy situation in general and the Indian situation in particular.
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Main conclusions propose that concurrent to the opening up of the Indian economy to international markets; leading Indian companies have undergone significant alternation towards newer forms of organizing over the last 5 years. This alternation is seen across a range of organizational variables grouped under structure, processes, human resources, leadership, and culture. The study also finds evidence to support the hypotheses that such organizational alternations are associated with organizational performance. In addition, the findings shed light on key strategic issues such as internationalization-related modes, competitive drivers, geographical foci, and aspirations, as well as drivers of organizational alternation of internationalizing Indian companies. Finally, the study finds evidence of an inverted U-shaped relationship between growing internationalization and organizational performance in a large sample of Indian companies.
Given its extensive literature review and significant empirical findings, this study could be of particular value to practitioners including top managers of internationalizing companies, policy makers, and to the general academic field.
EMNC: Emerging Economy Multinational Corporation
FDI: Foreign Direct Investment
IT: Information Technology
M&A: Mergers and acquisitions
MNC: Multinational Corporation
p.a.: Per annum
RBV: Resource-based View
TQM: Total Quality Management
USD: United States Dollar
Organizational Alternation, Organizational Design, Structure, Process, Culture, Emerging Economy, Multinational Corporation, Innovative Forms of Organizing, Internationalization, Theory, Resource-Based View, Organizational Capabilities, India.
The setting of the present study in India offers a fascinating environment for research on organizational change. The Indian economy has undergone significant institutional alternation over the last 15-17 years. After following decades of socialist-tending policies, a decisive break came in 1992, when the then government led by Prime Minister and Finance Minister acted to contain a balance of payments and economic crisis facing the country, by making a radical shift to an economic regime that embraced market forces. This change in policy direction has continued more or less evenly since, and has paid off handsomely, with the Indian economy moving beyond its earlier orbit of 2-3% p.a. annual Gross Domestic Product (GDP) growth rates to a 6-9% p.a. growth range. In the process, India has come to be a favorite of the international business and investment communities.
At the same time, local Indian companies have taken advantage of the liberalized policy environment and their own entrepreneurial abilities, to face up to the challenges of competing in the global marketplace. Exports from the Indian economy have been growing at double-digit rates for the last several years, and recently there has been a very strong trend of outward foreign direct investment (FDI) and international merger and acquisition (M&A) activity by Indian companies.
In the course of their internationalization process, Indian companies appear to be moving beyond their reliance on traditional competitive advantages like lower labor and infrastructure costs and are rising up the value curve, by offering increasingly sophisticated products and services for international markets. At the same time Indian companies are also competing successfully internationally in areas like product and process design, marketing, branding.
International management literature suggests that the success of global firms depends on their ability to cope with heterogeneous institutional, cultural and competitive environments, to coordinate geographically dispersed resources, and to leverage resources across national borders. In striving for global success, organizational design and alternation therein is considered an important organizational capability leading to competitive advantage. However, while there is a fair amount of research on organizational alternation and capabilities in multinational companies from developed economies, studies focusing on these aspects in firms from emerging economies are still rare.
Always on Time
Marked to Standard
Several authors have suggested that for the theory of the firm to be complete, more research should be directed towards firms in planned economies in transition. The reason for this suggestion is that these economies have undertaken fundamental transitions towards becoming marketbased economies since the 1980's, and offer organizational researchers fascinating grounds to refine and test theories and develop new ones.
Other reasons mentioned in the literature for studying internationalizing firms from emerging economies separately from their counterparts in developed economies include the formers' idiosyncratic qualities such as:
There exists a capital gap between firms from emerging economies and those from developed economies.
The legal and institutional framework and factor markets necessary to develop organizational alternation have been slow to develop in emerging economies.
Stylized firms in transition economies are mainly state-owned without complete discretion to acquire and allocate resources and with little experience and confidence to compete in a market-based economy.
Emerging economy firms might be burdened with mediocre assets and managers who lack the skills, resources and experience to manage firms in competitive global environments.
The magnitude of change in emerging economies in transition might overwhelm managers' and employees' cognitive abilities, and the differences in underlying institutional infrastructures between emerging and developed economies might affect managers' strategic orientations.
Managerial capabilities that were successful in stable and planned economies are no longer effective in more market-oriented economies, necessitating the acquisition of newer capabilities.
These factors mean that theories and frameworks applicable to MNCs from developed economies might have to be adapted to the special situation of emerging economies. Such research in the emerging economy situation has the potential of highlighting idiosyncratic developments in organizational forms as suggested by the structural contingency theory.
In addition, such a study could serve as a useful normative guide for companies from emerging economies with international aspirations. The present study takes on this research challenge of researching organizational strategies and alternation at internationalizing Indian companies.
2. Research problem
Emerging economies offer an interesting research opportunity as they undergo alternation to becoming important global players. In recent years, some research initiatives have started in the direction of understanding the response of firms from emerging economies to institutional transitions towards market-based economic systems.
Current firms in emerging economies respond to the exposure of their economies in a two-stage manner:
At first, firms adopt a network based strategy, leveraging managers' interpersonal ties and firms' interorganizational relationships and building on relationships with government authorities. In doing so, the firms do not actively initiate strategic alternations, but mainly react to the existing crisis, and hope to "muddle thorough" the transition with minimal changes.
With the passage of time, regulatory, normative and cognitive pressures push these firms to develop organizational capabilities and rely less on networks for competitive advantage. This push, also referred to as market-based strategy, concentrates on competitive resources and capabilities like quality, financing, marketing, etc, which are independent of the firm's networks, relationships and connections. The push for a market-based strategy leads firms to "unlearn" organizational routines. In addition, the success of domestic start-ups and foreign companies encourages some of the established incumbents to pursue capability-based strategies. Continuing in the tradition of this research stream, the present study will focus on two key research areas:
Understanding the strategic direction Indian firms are taking as they internationalize, e.g. what modes they are using, what their international aspirations are, which geographical regions they are targeting, and so on.
examining whether these firms are indeed moving towards newer, "marketbased", "excellent" or "efficient" organizational forms over the last few years (i.e. organizational forms suggested to be important or useful in facilitating internationalization success), detail the constituents of this alternation, and test whether there are any performance implications of this organizational alternation.
The present study has a strategic analysis aim. These are explained as follows:
The progress aim is to map the extent of organizational alternation towards newer forms of organizing in a large sample of internationalizing Indian firms.
The performance aim is to examine the performance implications of these newer forms of organizing.
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The procedure purpose is to study in detail the steps implicated in this alternation.
The analysis purpose is to understand fundamental internationalization related strategic alternatives, and the alleged importance of newer forms of organizing in the firm internationalization situation in India.
An "emerging economy" is a country that satisfies two criteria: a rapid pace of economic development and government policies favoring economic liberalization and the adoption of a free-market system.
Multinational Corporation (MNC)
A multinational corporation is a one that has substantial direct investment in foreign countries, actively manages those operations, and regards those operations as integral parts both strategically and organizationally.
Emerging Economy Multinational Corporation (EMNC)
An emerging economy multinational corporation (EMNC) is defined as a company from an emerging economy, which undertakes productive activities outside the home country.
3. The research objectives
4. The research model and hypotheses
Corporate Internal Environment
Corporate Internal Environment:
Low cost advantage
Product / Service Quality
Financial resources availability
Base upon the study of many literature reviews on emerging market firms in general and Indian firms in specific; about the factors that influences the decision of expanding operations internationally. and the depending on the questionnaire's data regression analysis which is developed corresponding to the research problem and objective; the research model will be tested.
The proposed research model studies the three factors affecting the decision for Indian firms to expand their operations internationally.
Firstly, the corporate internal environment; which consists of a variety of sub-factors. In the model we considered four of them, which are the organizational structure, the organizational culture, the organizational processes, and the human resources.
Secondly, the competitive advantage acquired by Indian firms. Taking into account for aspects, which are; the low cost advantage, product and/or service quality, the availability of financial capitals and resources, and the organizational skills.
Thirdly, the brand image of the Indian products and services produced and served by Indian firms, which holds the "Made in India" brand image.
The research is constructed to test three main hypotheses:
H1: A strong and stable corporate internal environment of Indian firms is the major pillar for internationalization decision of Indian firms to expand their operations internationally.
The research examines the relationship between making the decision to go internationally and expand operations globally, with high consideration of the firm's internal environment, such as the organizational structure of the firm, with all its forms, whether it is simple, functional, strategic business unit structure, centralized or decentralized divisional structure.
The organizational culture and the firm's core values which reflects the level of commitment of corporate members to the organization's norms and best practices, the level of equality between all members of the corporation, the level of power distance between the supervisors and the subordinates in the corporate. And the effect of all former aspects on the decision and the perceived anticipation of success when going internationally.
The organizational processes, which includes the procedures and policies conducted within the firms day to day operations, as well as the long term orientation of the corporate strategic thinking and future look. The aspects of technological and operational competencies acquired by the firm. Whether the company is considered a learning organization that create, use, acquire, and distribute knowledge between its members and into the society. And how much the company depends on research and development and innovation aspects to survive and to leverage its positioning as a perceived image of sustainability and durability. The strategies adopted by the firm for penetrating new markets and expanding its operations with horizontal and vertical integration. And the level of reliance on a fully integrated information technology systems and enterprise resource planning high technology system.
H2: An Indian firm with competitive advantage must expand internationally, and take the next step to internationalization.
The research inspects whether an Indian firm with a comparative advantage in overall cost in four dimensions of overall cost leadership, high product or service quality, strong and highly leveraged financial resources, and well organizational skills; should take the step into going international. Scrutinizing the adequacy of comparative advantage to depend on for decision making. Investigating the ability of the firm to compete globally and the probability to excel and position its image in the perception of customers as a multinational corporate. Many literature reviews consider the possibility of success and failure of companies having competitive advantage at home compared to expanding operations abroad.
H3: The "Made in India" label has a negative effect on the internationalization decision for Indian firms.
The research assess the global brand image of Indian product or services; whether it is perceived by the globe customers as high quality brand.
Weighing up the label of "Made in India" as a liability or a sort of leverage. Compared to Chinese products' image of being inferior goods and services. Is this the case for India? Does this liability of newness in the global market would affect the internationalization decision in a unhealthy manner.
It would be also be supplementary that the escalating number of booming Indian emigrants, particularly professional well-educated workers, in countries all over the world, should have a function to conduct in altering international perceived image of India as a source of leveraged quality human and other aptitude.
5. The research methodology
5.1 The research population and sample
5.2 Data collection methods
5.3 The research variables operational definition
5.4 Developing and administering the questionnaire
5.5 Statistical methods
6. Validity and reliability
7. Examining the regression assumptions
because R square is too positive but too low so there is a positive relationship between Y and X1 but it is weak
because P-Value is larger than Alpha 0.05 we accept the H1
Good relationship 40% of the changes in Y are explained by the changes in X2
strong relationship 57% of the changes in Y is explained by the change in X3
8. Analysis and findings
9. Results discussion
2. Introduction to the changing institutional situation in India
In the fifteenth century, India and China were two of the largest economies in the world, together accounting for about 50% of world GDP. Both countries subsequently went into an economic decline, only to come back in the last few of years as the centerpieces of global attention and as key drivers of current and future world economic growth. Other countries like Brazil and Russia are also today favorites of international investors after several decades of very poor economic growth. Goldman Sachs (2003) estimates that by 2050 the BRIC countries comprising Brazil, Russia, India and China will eclipse the current G6 in combined size of the economy, with China and India emerging as the 2nd and 3rd largest economies worldwide respectively behind the United States. Of these four BRIC countries, India has the potential for the highest growth rates of about 5% p.a. over the next 50 years, according to the report, and thus offers a fascinating backdrop for a study on internationalization and organizational alternation.
As mentioned earlier, the Indian economy went through a process of reforms and liberalization starting in 1992. This institutional alternation had some important implications for Indian companies, as with it, old sources of advantage including access to licenses and embeddedness in government networks became less important, and companies had to learn new capabilities like operational efficiency, marketing skills, etc. Several companies seem to have responded positively to these challenges by transforming themselves from formerly family or government-driven, and very often bureaucratic and inefficient organizations, to professionally managed and market-oriented entities, which have the self-confidence to compete in international markets. This alternation in the institutional and organizational environment in India is detailed in the next sub-sections.
2.1 The Indian economy a few years back
Academic scholars have suggested that market-unfriendly policies, red tape, and favoritism led generally to sub-optimum growth in the Indian economy around the pre-1992, preliberalization times.
Three major reasons that stifled efficiency and growth in the 70's and 80's:
Widespread overbearing controls over production, investment and trade;
inward looking trade and foreign investment policies;
A substantial public sector, going well beyond the confines of public utilities and infrastructure.
McKinsey and Company (2009) adds that some of the organizational factors responsible for the low productivity of Indian companies included excess labor, poor organization of functions and tasks, lack of scale, and lack of viable assets. According to the report, poor organization of functions and tasks reflected:
Lack of multi-tasking: Indian companies followed "Taylorian" models of functional orientation and high task specialization leading to significant downtime.
Lack of centralization of common tasks: Common and repetitive tasks were often performed at different locations, each working below capacity.
Low workforce motivation: Poor management and lack of incentive payments reduced workers' motivation and hence productivity.
Poor managerial practices: These included insufficient planning, poor design and lack of delegation.
In the last few years, however, many constituents of the Indian economy seem to have overcome these shortcomings and achieved success both within and outside India. This move is described next.
2.2 Alternation in the Indian economy over the last few years
Business efficiency in India went up between 2001 and 2005 with the country rising from rank 42 to rank 23. IMD defines business efficiency as the "extent to which enterprises are performing in an innovative, profitable and responsible manner". In the Indian situation, stronger positive alternations in business efficiency were noticed in the labor market, management practices, and attitudes and values.
A similar restructuring was witnessed at Tata Steel, which was faced with a difficult domestic market situation because of lowering of tariffs following India's liberalization process. The company slashed its 78,000 workforce in half between 1995 and 2003, spent $ 1.8 billion on modernizing its plant and moved to higher value-added products like steel for manufacturing cars. As a result, productivity doubled and its exports stood at 15% of total revenues in 2003. More recently, even government-owned public sector companies have undergone alternation to emerge as globally competitive entities. Corporate India has aggressively restructured itself over the decade preceding 2005, making management more professional and increasing efficiencies, with the result that today Indian companies are globally competitive in a long list of sectors like telecom, auto and auto-parts manufacturing, pharmaceuticals and commodities like steel and aluminum. However, they are still suggested to lack the skills needed in overseas marketing and distribution.
Meanwhile, over the last years some Indian firms have also significantly increased their international presence. Examples include Reliance Industries Limited - India's largest private sector company. Just over 2005-08 foreign sales rose about 350% to reach USD 20 and in 2008 comprised over 60% of total sales. Infosys - one of India's largest IT companies - saw foreign sales rise 328% over the period 2003-08 with export revenues comprising 98.6% of total revenue in 2008. Indian business in general is seen going increasingly international, as indicated by the over 20% annual rise in India's exports over the last few years.
Outbound FDI from India has also increased significantly over the last few years. Recent high-profile acquisitions include Tata Steel's takeover of Corus for USD 13 , Tata Motors' takeover of Jaguar and Land Rover from Ford, and Hindalco's USD 6 takeover of aluminum major Novelis. Others include the takeover of German pharmaceutical manufacturer Betapharm by Dr. Reddy's for a consideration of over $ 500 million and several acquisitions made by companies like Bharat Forge, Reliance and the Tata group over the last years . This figure of outbound FDI reached USD 17 in 2007-08 according to figures quoted by the Reserve Bank of India. Amit Chandra, joint managing director for Merrill Lynch India is quoted as predicting, "the next three to five years will see the emergence of Indian multinationals".
One of the drivers of this increase in outbound FDI has been the easy availability of liquidity to Indian companies over the last few years. Ratan Tata, head of the Tata group of companies, suggests in an interview with the Financial Times that the ability of Indian businesses to innovate around the plentiful obstacles to business in India like poor infrastructure, red tape, etc gives companies like Tata Motors their business edge internationally. The Financial Times article opines that reasons for the recent international competitiveness of Indian companies include
Indian companies going abroad leverage low-cost labor in India by completing a bulk of their labor work in India;
some companies use international acquisitions to rise up the value chain;
skills developed in serving consumers at the bottom of the economic pyramid in India are then leveraged abroad;
Indian banks also have a competitive advantage in the fact that their cost per transaction is one tenth that at western banks on account of their use of the latest technology at a fraction of the cost of developed countries; and
The strong economic growth in India has also left the balance sheet of Indian companies in a very strong state - this allows them to leverage to raise equity and debt for international acquisitions.
There has been an institutional shift in the Indian economy towards a market-based system and greater openness to the outside world over the last few years. The review also reveals instances of Indian companies that have responded to this institutional shift with a move towards greater organizational effectiveness and to a significantly higher international presence and posture.
3. Internationalization issues encountering firms
3.1 How and why do firms go international?
International management research suggests that organizations increasingly depend for their long-term success and survival on a strong international presence. The benefits of such internationalization range from leveraging of R&D and knowledge across countries and responding to foreign competitors in their domestic strongholds; increasing the range of cultures, customers and competitors. International diversification is known to lead to better performance. The positive effects arise from market opportunities, stabilization of returns, market power and return to intangible assets.
Academicians however caution that there are also risks associated with going international, in terms of dealing with unfamiliar business, legal and cultural environments and operating in markets where the firm is relatively unknown. Especially, products and services from emerging economies are suggested to suffer from a "liability of origin", as they are often perceived to be of poorer quality than comparable products and services from developed countries. In the Indian situation, Bartlett and Ghoshal (2008) call this bias the "liability of Indianness".
International management theory also sheds light on the question of what drives firms to go international and how they do so. Some of the early research in international management includes the works of Hymer (1976) and Vernon (1966). Vernon's Product Life Cycle theory explains the life cycle of an innovative product from its initial manufacturing in a developed country like the USA to being eventually produced in developing countries. According to this theory, product innovation typically takes place in developed countries in the early stages of the product life cycle. As the product matures, mass production techniques are employed and international demand for the product arises leading to its export. Finally, as the product gets standardardized, companies start to manufacture in low-cost locations and developing countries, bringing production closer to the point of consumption.
Oftentimes, the product is then exported from these foreign locations back to the home country. Vernon's theory has applicability to the situation of emerging economies, because many of these economies including India are developing into low-cost manufacturing locations for the export of goods to developed countries. Meanwhile, Hymer (1976) building on his 1960 doctoral dissertation suggested that firms went international to leverage "special advantages" including product market power, superior production techniques, imperfections in input markets, and first-mover advantages. Possessing such special advantages, a national firm could be profitable outside the home country despite the higher costs resulting from its relative ignorance of local conditions abroad.
Prominent research that followed these earlier works includes Knickerbocker's strategic behavior approach (1973), which explained internationalization as the behavior of firms copying the actions of competitors in the course of oligopolistic competition by matching each other's investments in foreign markets. Williamson's transaction cost analysis (1985) meanwhile approached internationalization through the lens of transaction costs, wherein the firm had to make a decision between using the market as a mechanism to export goods, and internalizing these activities in order to minimize the costs of doing so. Dunning (1988) brought many of these earlier theories of internationalization together in his eclectic paradigm, which identifies three major advantages that multinational companies possess:
Ownership specific advantages (O) including property rights and/or intangible asset advantages and advantages of common governance;
Location-specific advantages (L);
Internalization-incentive advantages (I).
3.2 How do firms organize their international conducts?
In their seminal article on organizational forms for multinational businesses, Stopford and Wells (1972) argue that international expansion adds complexities to the management task, as the organization must learn and develop different skills and procedures before merging the new activities into the overall system. The organizational development as companies increase their international presence is suggested to proceed along the following phases:
In the first phase, foreign subsidiaries are established and tied to the parent firm through loose financial ties in the manner of a holding company.
Subsequently, organizational consolidation takes place and an international division is developed. This division is typically considered an independent part of the organization and not subject to the same strategic planning applicable to domestic activities.
In the third phase, strategic planning is carried out on a consistent and worldwide basis and the structure of the foreign activities is altered to provide closer links with the rest of the structure.
This may take the form of a global product structure, wherein product divisions have worldwide responsibility, or area structures, wherein each division is responsible for one geographical division in the world market, or a mix of the two, wherein some product lines are managed on a worldwide basis and others managed by area divisions. Some firms, however, feeling that none of the three global structures are entirely satisfactory, create staff groups or management committees with responsibilities that cut across formal boundaries of the organization - a sort of a grid (or matrix) structure.
Four organizational structures for international organizations:
The first is the mother-daughter structure wherein headquarters or the CEO is personally in charge of each foreign unit, which serves its own market and is largely permitted to run its business fairly independently. This structure is mostly used by smaller MNCs in the beginning of their internationalization.
The second is the international division wherein all international units are lumped together in one unit. This structure facilitates the creation of a strong management team with deep international experience and vision.
Another alternative includes the global product division, which gives power to product divisions over foreign sales and operations as well as over worldwide product development and is introduced with the intention of strengthening global coordination and facilitating the transfer of know-how between regions.
Finally, the matrix structure attempts to gain advantages of both product and geographical integrations. A common version is a product/regional matrix with strategic and long-term responsibilities assigned to the product dimension while operational responsibilities are placed with the regional or country organization.
3.3 The entry mode assessment
International management literature has focused much attention to the question of how internationalizing firms make an entry into new markets, i.e. the entry mode decision. One theoretical lens to look at foreign entry mode is transaction cost economics, which explains the decision as a consideration of the costs of internalizing transactions against the costs of routing them through the market. Hence, if it costs less to use the market mechanism, firms would predominantly export. However if it more profitable to internalize the transactions along the value chain, firms would prefer modes such as direct investment.
Another theoretical lens looks at the foreign market-entry mode decision as being influenced by cultural and national factors. Researchers in this area suggested that firms would choose less risky entry modes in cases where the cultural distance between host and home countries was high. A third approach, which drew insights from the behavioral theory of the firm, was developed at the Uppasala University by Johanson and Wiedersheim-Paul (1975) and Johanson and Vahlne (1977, 1990). These authors proposed the stages model of internationalization, which suggests that firms undertake the internationalization effort in a stage-wise, planned manner. Internationalization is suggested to start with nearby and similar countries with a lower "psychic distance" to the home market, and then move towards other unfamiliar markets using the learning from this process. According to Johanson and Wiedersheim-Paul (1975), internationalization typically consists of four steps:
No regular export
Export through representative agent
Sales auxiliary overseas
A fourth approach is proposed by the innovation-related which also describe a step-by-step approach to internationalization and exports. In these models, the internationalization decision is considered to be an innovation for the firm. While there are differences between the models, the steps can be generally summarized as following the below-described sequence:
In the beginning, the firm is not exporting but getting aware of the international possibilities
Next, the firm starts to gather information related to exporting and to entertain unsolicited orders
In this stage, the firm starts to export on an experiential basis to some psychologically close country
The firms becomes an active exporter and exports account for an increasing proportion of total sales
Finally, management starts looking at the option of exporting to more psychologically distant countries and makes choices in allocating limited resources between domestic and foreign markets
Companies can use the following modes to expand internationally: exporting, foreign direct investment and alliances. Exporting has traditionally been regarded as the first step to entering international markets, and serving as a platform for future international expansions. This strategy is particularly useful to small and medium enterprises, as they frequently lack the resources, financial and otherwise, for foreign direct investment.
However, according to Lu and Beamish, while exporting is an internationalization mode which involves less risk in terms of capital investment, in cases where a firm's assets are proprietary, such as brand equity, trademarks or patents, exporting can expose the firm to the risk of distributor opportunism or asset appropriation and devaluation. Foreign direct investment (FDI) is a more preferable option in such cases, as it allows the internalization of markets for proprietary asset exchange. FDI also allows a firm to leverage location based advantages such as lower labor costs; to have access to critical resources; and to develop new knowledge and capabilities that enhance international competitiveness.
Lu and Beamish suggest that the FDI mode however brings with it the disadvantage that it calls for greater resource commitment and is a less flexible investment, once made. Since many small and medium companies might not have the resources to go in for FDI, alliances have been suggested as one important way to overcome resource and capability deficiencies and enhance the likelihood of success for internationalizing firms.
According to Lu and Beamish, prior research suggests that benefits of alliances include minimization of transaction costs, higher market power, shared risks and better access to capital and information.
Meanwhile, for small and medium enterprises one of the most important benefits that alliances can bring is access to partners' resources or "network resources" according to Lu and Beamish. Other benefits that alliance partners can bring, according to the authors, include helping small and medium enterprises overcome shortages of capital, equipment and other tangible assets and helping small and medium enterprises acquire host country knowledge and capabilities to operate successfully in the foreign environment. On the flip side however, alliances can bring about potential problems such as goal conflicts, lack of trust and understanding, cultural differences and disputes over control.
More recent research meanwhile suggests that in contrast to some of these earlier models, which suggested a step-by-step approach to internationalization, in the last years many firms are rapidly going international right from the time of founding using an eclectic combination of internationalization modes and governance structures.
At the same time, many established firms are also rapidly transforming themselves from a domestic orientation to a strong international focus. This new accelerated orientation to internationalization has been suggested to be a response to the rapid globalization of the world economy.
Summing up the above, some of the potential market entry modes include exporting, alliances and foreign direct investment, or a combination of these. For purposes of research in the present study, alliances are further differentiated as licensing and international joint ventures. While the former is understood to involve allocation of rights to a rent-producing asset like a proprietary technology in return for a fee, an international joint venture is understood to cover a higher-commitment association between two distinct entities in a business venture. This addition of the licensing mode is made to examine whether firms from high-technology areas such as IT and pharmaceuticals are leveraging their intellectual assets via the licensing mode.
4. Internationalization and organizational alternation
4.1 What drives organizational alternation?
Organizational alternation theories have routinely separated themselves into two distinct theoretical camps. The first camp comprises of those whose efforts use an adaptational mechanism of organizational change and include contingency theory; resource dependence theory; institutional theory; and transaction cost economics. The second camp centers on a selectional mechanism of organizational change and assumes that individual organizations cannot change easily and quickly, and when they do change, the change entails great risk. According to this theory, when technologies or environments change, some existing organizations fail, while new ones also come into existence. Theories falling into this camp include organizational ecology, and on some occasions, evolutionary theory.
Contemporary research strongly supports the view that organizational change is produced by a combination of the following factors: ecological processes (particularly competition); governmental policies; and the institutional process of legitimization of new organizational forms. These external drivers of change are brought into the organization and change takes place primarily at the initiative and decisions made at the management level. Decisions made in this manner are not necessarily rational. Additionally, organizational change can be either purposeful or blind- according to this perspective "purposeful variations occur as an intentional response, when environmental pressures cause selection or adaptations. Blind variations are those that occur independent of environmental or selection pressures; they are not the result of an intentional response to adaptation pressures but rather occur by accident or chance. Organizational analysts are split on the extent to which variations are blind or purposeful, but evidence suggests at least a moderate degree of purposefulness.
4.2 Organizational alternation as competitive advantage
The resource-based view of the firm (RBV) views firms as bundles of unique capabilities, which lead to competitive advantage. The study of firm heterogeneity as a source of competitive advantage goes back over several decades however came to be seen as a separate organizational theory of the firm starting with an initially suggested that "resources and products are two sides of the same coin". The firms could earn aboveaverage rents if they are able to acquire factor market resources at a price below the actual discounted value of this factor to the firm's activities. Those critical resources are accumulated rather than acquired and that the sustainability of a firm's asset position is dependent on how easily assets can be substituted or imitated. In the view of these authors, for an asset to be considered strategic, it must be nontradeable, nonimitable and nonsubstitutable. In order to bestow sustained competitive advantage, a firm's resources need to be valuable, rare, imperfectly imitable and imperfectly substitutable, which became popular as the VRIO framework. Building on this existing work, Peteraf (1993) suggested that competitive advantage was built on four conditions, all of which need to be met: superior resources (heterogeneity within industry), ex post limits to competition, imperfect resource mobility, and ex ante limits to competition.
4.3 Internationalization and organizational success aspects
The process of internationalization appears to add to the challenges of creating efficient organizational design. greater competition, especially when competition is multidimensional, poses a major problem of coping with uncertainty ,which in turn makes planning of operations difficult and organizations thus have to consider uncertainty reduction mechanisms. To reduce uncertainties, regional decentralization of operations might be necessary, complemented by specialized units to monitor the external environment. The organization has to also become increasingly capable at acquiring information, processing it, and generally has to be quick at learning and adapting. Further, there is a need for differentiation within the decision structure of the organization, to cope with the numerous contingencies arising out of the competitive environment. In turn, differentiation needs to be offset by a greater use of integrative mechanisms, including core values, professionalism and participatory, consensus-seeking decision making. Further, there is evidence that synchronized deployment of uncertainty reduction, differentiation and integration mechanisms, as a response to environmental uncertainty, is associated with organizational performance.
4.4 The Ideal MNC form
Malnight (2008) summarizes the literature on "ideal type" multinational organizations. According to him, such organizations are characterized by:
complicated , internally distinguished structures
global dispersion of operations, interdependence and tight coupling of subunits, and
A highlighting on cross unit learning and structural elasticity.
Characteristics of "ideal-type" MNCs (Ghoshal and Westney (1993) -Ideal type)
Dispersion: MNCs have subunits in many countries and the capacity to innovate and to exploit innovations is dispersed
Interdependence: subunits and headquarters are linked to each other through cross-flows of people, technology and products so that key activities are performed in the location with the locational or organizational advantage.
Tight coupling of subunits: Each part of the MNC responds quickly to stimuli encountered in another part.
Cross-unit learning: Ability to transfer innovations originating in one part of the system to other subunits and to adapt and improve them (Bartlett and Ghoshal, 1989)
Structural flexibility: organizational process is more important than any particular organizational structure. Processes need to be adaptable. Also important are shared values and perspectives
4.5 The Learning organizations
The behavioral approach to organizational analysis studies human behavior and seeks to identify ways to channelize it for greater personal and organizational effectiveness. One of the most-recognized scholars in this field, Chris Argyris proposed that individuals have two types of theories of action. One is the theory they espouse, which is usually expressed in terms of their stated values and beliefs. The other one is the theory that they actually use.
Research shows that most individuals hold the same theories-in-use, referred to as Model I by the author. Model I however discourages learning, leads to misunderstanding and to self-fulfilling and self-sealing processes. In order to overcome this, Argyris suggests Model II behavior. These models are presented in the following table:
4.6 How much organizational alternation has actually had effect?
Several scholars have questioned the actual extent of the move towards "ideal" and "high performance" organizational types such as those elaborated in the previous sub-sections, and wondered whether these moves, if any, are idiosyncratic in different institutional situations.
The actual extent to which MNCs are moving towards the "ideal type" is being debated in the field of international management. The incidence and international diffusion of these new organizational forms or new modes of organizing have yet to be established. Decentralization, investments in IT infrastructure, increased use of horizontal linkages, and greater use of new human resource practices such as team building, internal labor markets and corporate mission building.
4.7 Performance implications of organizational alternation
One key aim of this thesis is to examine, in the firm internationalization situation, the performance implications of organizational alternation towards newer forms or organizing. The literature review of this Section 4 makes a case for expecting such performance implications. For instance, the Process school makes several normative recommendations on the usefulness of certain forms of organizing in the firm internationalization situation. The resource based view and the literature on organizational capabilities suggest that organizational design can be a source of competitive advantage with performance implications. The subsequent discussion on organizational success factors, "ideal type MNCs", "excellent" organization types and "learning" organizations, all point to certain organizational qualities that can be effective in achieving higher firm performance in the firm internationalization situation.
The present study will thus examine the implications of alternation in a number of organizational variables (to be conceptualized in the following Section 5) on firm performance in general and firm internationalization performance in particular. In doing so, the methodological route would be to identify the combined and complementary effect of changes in a number of key variables on performance.
Simultaneous organizational alternation in several variables has performance outcomes that outweigh piecemeal changes in fewer or single organizational variables. The notion of complementarities as follows: "Overall, complementarity theory proposes both that high performing firms are likely to be combining a number of practices at the same time and that the give backs, to a full system of practices, are greater than the sum of its parts, some of which taken on their own might even have negative effects.
With increasing internationalization, performance at the company's first increases at a decreasing rate, then tops off and starts to eventually decline. Any further increase thus seems to add to performance up to a point, after which diseconomies of scale are higher than the economies leading to a fall in performance. Managers should watch closely to the marginal benefits of increasing internationalization if they seek to maximize performance.
Key findings are summarized next.
6.1 Key results
The present study sought to understand key strategic imperatives before internationalizing companies from India and examine whether there had been organizational alternation in these companies, the extent of this alternation, and the performance implications of the same. There has been a significant organizational alternation in the companies studied over the last 5 years. This alternation occurred simultaneously in a wide range of organizational variables, and was in the direction of more "efficient" forms of organizing.
Other important finding includes that with increasing internationalization, performance increases at a decreasing rate before starting to fall.
A) The findings of this study offer support to the resource based view that organizational capabilities can be a source of competitive advantage and lead to performance. They also add support to the concept of "complementarities" in performance.
C) The present study extensively maps the alternation towards newer and more "efficient" organizational forms in the sample of MNCs from India. In doing so, it offers a road map for other current and aspiring multinational corporations from India and to some extent from other emerging economies. The wide-scope of the organizational factors considered in this study could also serve as a starting point for other researchers studying internationalizing firms from emerging economies.
D) The lesson for practitioners that emerges from this study is they might be advised to proceed cautiously on organizational alternation in the firm internationalization situation, and within this situation perhaps focus more on processes and HR policies. Also, firms may be advised to regularly evaluate the marginal benefits of increasing their international presence, since with growing internationalization, the diseconomies of scale arising out of complexities of doing business abroad, the liabilities of origin, etc can negatively affect performance to varying degrees.