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Prasad Oswal University of St. Gallen, Switzerland prasad.oswal@unisg.ch Winfried Ruigrok

ACQUIRING FIRM-SPECIFIC ADVANTAGES: ORGANIZATIONAL INNOVATION AND INTERNATIONALIZATION AT INDIAN MULTINATIONAL CORPORATIONS. Prasad Oswal University of St. Gallen, Switzerland prasad.oswal@unisg.ch Winfried Ruigrok University of St. Gallen, Switzerland winfried.ruigrok@unisg.ch N M Agrawal

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Prasad Oswal University of St. Gallen, Switzerland prasad.oswal@unisg.ch Winfried Ruigrok

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  1. ACQUIRING FIRM-SPECIFIC ADVANTAGES: ORGANIZATIONAL INNOVATION AND INTERNATIONALIZATION AT INDIAN MULTINATIONAL CORPORATIONS Prasad Oswal University of St. Gallen, Switzerland prasad.oswal@unisg.ch Winfried Ruigrok University of St. Gallen, Switzerland winfried.ruigrok@unisg.ch N M Agrawal Indian Institute of Management, Bangalore, India agrawal@iimb.ernet.in

  2. Introduction • This paper reports the findings of a survey focusing on organizational innovation across 26 organizational variables at Indian MNCs over 2003-2008 • We find that Indian firms have implemented organizational innovations across their: • Structures, • Processes, • HR policies, • Leadership, • Cultures • Respondents also ranked our conceptualized variables highly on their impact in facilitating international success

  3. Rise of EMFs • The 100 largest TNCs from developing and transition economies account for 32% of sales and assets and 56% of employees of all of the 100 largest TNCs worldwide (UNCTAD World Investment Report 2012) • Rise of globally-known Emerging Market Firms (EMFs) such as Embraer from Brazil, Lenovo from China and Infosys from India • Despite their growing importance, EMFs however remain under-researched academically (Contractor, 2013; Jormanainen and Koveshnokov, 2011; Peng, 2003)

  4. EMFs in the Literature Some prominent streams of EMF literature: • Applying classical theories of the internationalizing firm (e.g. Dunning’s OLI framework, 1988) to EMFs • Studies addressing the rise of EMFs’nascent advantages (e.g. the “international springboard” perspective of Luo and Tung, 2007 and the Link Leverage Learning perspective of Matthews, 2006) • Studies looking at specific emerging markets’ domestic institutional environments and the organisational, strategic and performance effects (e.g. Cheng and Yu, 2008; Contractor, 2013)

  5. Indian EMFs in the Literature Some prominent streams of the literature focusing on Indian EMFs: • Studying the issue of knowledge and learning in the context of firm internationalization (Chittoor, Sarkar, Ray and Aulakh, 2009; Kedia, Gaffney and Klampit, 2012) • Researching the influence of business group membership (Kumar, Gaur and Pattnaik, 2012; Vissa, Greve and Chen, 2010) • Looking at inclusion in global production or value chain networks (Kumaraswamy, Mudambi, Saranga and Tripathy, 2012) • Very few studies focusing on organizational innovation

  6. Organizational Transformation and Capabilities • Scholars have suggested that firms may build organizational configurations that can facilitate international success (Bartlett and Ghoshal, 1992; Getz, 2009; Teece, Pisano and Shuen, 1997) • Organizational capabilities are an important determining factor in firm performance (Cool and Schendel, 1988; Rumelt, 1991) • Well-known organizational models in this light include the “transnational” (Bartlett and Ghoshal, 1989), “multifocus” (Prahalad and Doz, 1987) and “heterarchy” (Hedlund, 1986)

  7. Key Organizational Features Studied • An exploratory review of the literature led to the identification of five organizational design categories that find consistent mention as important in the firm internationalization context • These are (following Bartlett and Ghoshal, 1989; Doz and Prahalad, 1984; Gibson, Ivancevich, and Donnelly, 1979; Pettigrew and Fenton, 2000): • Structure (4 variables) • Processes (9 variables) • HR policies (7 variables) • Leadership (2 variables) • Culture (4 variables)

  8. Methodology • We build on the survey methodology developed by Pettigrew and Fenton (2000) in their multi-country, multi-researcher INNFORM research project • Top-1000 Indian companies by level of foreign income surveyed in the year 2008 • Survey targeted at Chairpersons or Managing Directors of these companies • Sample size 76 • We asked respondents to compare the current (i.e. 2008) position on the organizational variables with that of five years previously, using a five-point Likert scale on the 26 variables • We also asked respondents to rate an abridged list of the variables on their importance in facilitating internationalization success

  9. Sample Summary • The sample covers a very broad scope of firms and includes some of India’s largest and best-known firms • The sample displays a wide variety of foreign sales percentages ranging from 96% to a low of 3%

  10. Main Results • Our findings indicate that the surveyed firms report to have implemented significant organizational innovations between 2003 and 2008 • Two sided t-test analysis suggests that the difference in variable ranks between the two time periods was significant at the 0.01% level in the case of all the variables • All our conceptualized organizational variables were ranked highly in their importance in facilitating internationalization success

  11. Top-5 Organizational Variables Self-Rated Highest in 2008

  12. Top-5 Largest Transformations in Organizational Variables 2003-08

  13. Variables Ranked Most Important in Facilitating International Success

  14. Discussion • This paper contributes to a research stream on the rise of EMFs’ firm-specific advantages (Lee and Rugman, 2012; Rugman, 1981) • We find that Indian firms appear especially confident in terms of their international leadership • We found no explicit evidence that Indian firms felt a competitive disadvantage as a result of their domestic institutional environment • Due to the limited sample size we are unable to make any inferences on the causality of the relationship between organizational innovation and internationalization

  15. Implications • Our findings suggests that Indian EMFs, that earlier were associated with poor organizational features, are rapidly transforming their organizations • Indian executives are increasingly confident that they will be able to compete successfully on an international scale • This has important implications for other EMFs and DMFs • Our study could also serve as a potentially comprehensive guide to EMF managers looking at organizational innovation in the internationalization context

  16. Limitations • First, the size of the sample was relatively small at 76 • Second, the ratings on the organizational variables in this study are based on self-reporting, which can bring its own bias • Third, we had a sample bias in the sense – responding companies were significantly more international and larger than the sample and the entire universe of Indian firms

  17. Thank You! • Thank you for your kind attention. We value your feedback!

  18. Bibliography • Bartlett, C.A., Ghoshal, S., 1989. Managing Across Borders: The Transnational Solution, Harvard Business School Press, Boston, MA. • Bartlett, C.A., Ghoshal, S., 1992. Transnational Management: Text, Cases, and Readings in Cross-Border Management, (Eds.), second ed. Irwin, Boston, MA. • Cheng, H.L, Yu, C.M.J. 2008. Institutional pressures and initiation of internationalization: Evidence from Taiwanese small and medium-sized enterprises. International Business Review, 17: 331-348. • Chittoor, R., Sarkar, M.B., Ray, S., Aulakh, P.S., 2009. Third-world copycats to emerging multinationals: Institutional changes and organizational transformation in the Indian pharmaceutical industry. Organization Science, 20(1), 187–205. • Contractor, F.J., 2013. “Punching above their weight”: The sources of competitive advantage for emerging market multinationals. International Journal of Emerging Markets. 8(4), 304-328 • Doz, Y., Prahalad, C.K., 1984. Patterns of strategic control within multinational corporations. Journal of International Business Studies, Fall, (15), 55-72. • Dunning, J.H., 1988. The eclectic paradigm of international production: A restatement and some possible extensions. Journal of International Business Studies, 19(1), 1–31. • Getz, I., 2009. Liberating leadership: How the initiative-freeing radical organization form has been successfully adopted. California Management Review, 51(4), 32-58. • Gibson, J., Ivancevich, J., Donnelly, J., 1979. Organizations: Behaviour, Structure, Processes, Business Publications Inc, Dallas, Tx. • Hedlund, G., 1986. The Hypermodern MNC: A Heterarchy? Human Resource Management, 25, 1 • Jormanainen, I., Koveshnikov, A., 2012. International activities of emerging market firms: A critical assessment of research in top international management journals. Management International Review, 52(5), 691-725.

  19. Bibliography • Kedia, B., Gaffney, N., Clampit, J., 2012. EMNEs and Knowledge-seeking FDI. Management International Review, 52, 155–173. • Kumar, V., Gaur, A.S., Pattnaik, C., 2012. Product diversification and international expansion of business groups: Evidence from India. Management International Review, 52, 175–192. • Kumaraswamy, A., Mudambi, R., Saranga, H., Tripathy, A., 2012. Catch-up strategies in the Indian auto components industry: Domestic firms’ responses to market liberalization. Journal of International Business Studies, 43, 368–395. • Lee, I.H., Rugman, A.M., 2012. Firm-specific advantages, inward FDI origins, and performance of multinational enterprises. Journal of International Management, 18, 132-146. • Luo, Y., Tung R.l., 2007. International expansion of emerging market enterprises: A springboard perspective. Journal of International Business Studies, 38(4), 481-498. • Mathews, J., 2006. Dragon multinationals: New players in 2st century globalization. Asia Pacific Journal of Management, 23(1), 5-27. • Pettigrew, A., Fenton E., 2000. The innovating organization. London/Thousand Oaks: Sage. • Prahalad, C.K., Doz, Y., 1987. The Multinational Mission: Balancing Local Demands and Global Vision, Free Press, NY. • Rugman, A.M., 1981. Inside the multinationals: The economics of internal markets, University Press, Columbia, NY. • Teece, D., Pisano, G., Shuen, A., 1997. Dynamic capabilities and strategic management. Journal of Strategic Management, 509–533. • Vissa, B., Greve, H.R., Chen, W. 2010. Business group affiliation and firm search behavior in India: Responsiveness and focus of attention. Organization Science, 21(3), 696–712.

  20. Structure Variables • Decision-making decentralization to international operations and subsidiaries • Formalization of best practices and operating procedures • Professionalizationof workforce • Use of cross- functional/ divisional/geographical teams and collaboration

  21. Process Variables • Technological and operational competence vis-à-vis international competition • “World-class” quality of products and services • Innovation and learning at international operations and subsidiaries • Foreign market-entry and market-development skills • Recognition of brand in international markets • Level of employee entrepreneurship • Use of IT systemsfor worldwide information-sharing • Managerial rotation through international operations • Ability to quickly renew and readapt existing routines and practices

  22. HR Variables • Extent to which international experience is considered a selection criterion • Extent to which personality factorsare considered as selection criterion • Extent to which necessary job qualificationsare considered a selection criterion • Extent to which desire for foreign assignment is considered a selection criterion • Extent employees are given training in international management skills • Tailor-made employee appraisal and reward systems for international assignments • Strong international career planning process

  23. Leadership Variables • Role of leadership in providing vision and stretch-goals • Extent to which leadership brings international experience to the company

  24. Culture Variables • Employees' confidence in being able to successfully compete with the best in the world • Employees’ level of cross cultural competence • Unifying and binding effect of culture • Company as a sought-after workplace for international employees

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