Academic journal article Indian Journal of Industrial Relations

The Theoretical Value of Studying Indian Multinationals

Academic journal article Indian Journal of Industrial Relations

The Theoretical Value of Studying Indian Multinationals

Article excerpt

Research on Internationalization of Indian Firms

Research on India's emerging multinational enterprises (MNEs) may be intrinsically rewarding for India specialists, but to interest the broader community of international business (IB) scholars, it must contribute to IB theory more generally. In this essay, I will suggest a few ways in which such a contribution might be made. My argument, quite simply, is that the extant IB literature on how firms become multinationals is rather limited and that research on the internationalization of Indian firms provides an opportunity to broaden and deepen that literature.

The limitations of extant IB theory on internationalization arise partly from the circumstances under which the IB field was born: its birthplace was the United States and the time was the late 1950s through late 1960s, when the Academy of International Business was created (1959) and its official research organ, the Journal of International Business Studies, was first published (1970).

As such, it was natural for the intellectual pioneers of the field to focus on US multinationals or to extend their perspective at most to European multinationals. By this time, as shown in Table 1, European firms had built extensive networks of foreign subsidiaries, although a good part of it was in shambles after WW II, and US firms had built their own international networks, as seen in the increase in US share of the world's stock of outward FDI from only 6 percent in 1914 to fully 55 percent in 1969.

In other words, when the IB field was born in the United States, many American and European firms had already established vast international networks and foreign operations. In the 1970s, these MNEs faced challenges such as how to manage their vast networks or how to expand them at the margin into new host countries--not how to take the baby steps of internationalization, which is the challenge facing many Indian firms today. Only business historians, such as Mira Wilkins or Geoffrey Jones, paid attention to how U.S. or European firms became multinationals in the first place; most others took the extensive internationalization of Western US firms for granted and focused on the challenges that followed. The rise of new multinationals in countries like India thus provides an opportunity to revisit and carefully construct models and theories of early-stage internationalization. Because this process is unfolding before our eyes, it might be easier to glean insights about causation that would be missed in retrospective historical research, but it also means that conclusions about the effectiveness of evolving internationalization strategies may have to be very tentative.

Stage of Internationalization

This brings me to the first two limitations of extant IB theory from an Indian point of view: it is not just overly influenced by the US or Western European experience--a point frequently noted by emerging-market IB scholars--but also by the study of "mature MNEs"--a point that is generally less widely recognized (Ramamurti 2009b). I will deal later with the Western-bias in IB theory and how research on Indian firms can help remedy the problem, but for now will focus on the role of MNE's "stage of evolution."

As shown in Table 2, one can think of a firm evolving in three stages from a pure domestic player to a mature MNE like GE, Unilever, or Toyota. In Stage 1 (infant MNE), the firm's competitive advantages are still deeply rooted in the home market, it lacks cutting-edge technologies, relies more on exports than overseas production, has subsidiaries in a few foreign countries, is focused typically on markets within its home region, and possesses no global brands. Such a firm is sometimes referred to as the "international firm" rather than the "multinational firm," because it has limited investments in overseas subsidiaries. Most Indian MNEs today would fall into this category. …

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