Leveraging India: Global Interconnectedness and Locational Competitive Advantage

By Contractor, Farok J.; Kumar, Vikas et al. | Management International Review, March 2015 | Go to article overview

Leveraging India: Global Interconnectedness and Locational Competitive Advantage


Contractor, Farok J., Kumar, Vikas, Dhanaraj, Charles, Management International Review


Abstract This paper reviews India's place in the international economy by identifying areas of its comparative advantage, characteristics of the Indian market and institutional environment, capabilities of Indian companies as global players, India's human resource base and demographics, and industry and knowledge clusters which already are, or have the potential to become, globally competitive. Drawbacks, such as labor laws, inadequate infrastructure, and the less than complete participation of women, that currently constrain the development of the Indian market and companies in India, are also alluded to. A later section summarizes the other papers in this special issue. We conclude with recommendations for future economic policies in terms of which portions of the value chain India may emphasize, to best utilize its competitive strengths in international business.

Keywords India's competitiveness * India's human resource base and demographics * Indian multinationals * Institutional and regulatory constraints * Indian knowledge clusters * R&D centers in India * Analyzing value chains for competitive advantage

1 Introduction: India and its Global Connections

In a globally interconnected economy, how is location still a source of competitive advantage? Can a country confer firm specific advantages to firms located within its boundaries, which in turn become the drivers for the internationalization of its firms? These are the questions that underlie this special issue on India.

Our premise is that location and country characteristics matter in international business, not only to draw investment from multinational enterprises (MNEs) but also to drive internationalization of its firms (Cantwell 2009; Dunning 1998). Global interconnectedness does not necessarily diminish the unique characteristics that give a country its competitive advantage, nor does it necessarily "flatten" the economic landscape. On the contrary, greater international interconnectedness, as in the case of India, and the gradual opening of the country to foreign direct investment (FDI) and trade, have accentuated many of the country's locational advantages. Despite the ups and downs over the period between 2000 and 2013, FDI inflows into India, its merchandise exports, and its services exports grew at an impressive rate of 16.1, 16.2 and 18.6 % respectively, suggesting rapidly growing interconnectedness with the world economy (UNCTADstat 2014). India can thus be viewed as a natural experiment and example of an emerging nation's internationalization, to provide useful insights for the field of international business studies.

At the outset, we address two key questions that arise when one considers the internationalization of emerging market firms (EMFs), a subject which remains a hotly debated issue in many emerging markets. Because of fears of diversion of investment capital away from the domestic market and the government's desire to manage foreign exchange and interest rates, in many emerging markets, controls on capital outflows remain in place, despite liberalization of FDI inflow policies that have opened markets to foreign firms (Tseng and Cowen 2013). Second, for many scholars, a focus on emerging market firms then raises the question, "What is the special advantage, if any, that these EMFs have, that drive their internationalization?" especially if we assume that EMFs do not possess ownership advantages such as technology or global brands. We address this fundamental question that can be asked of all EMFs, with specific reference to India.

2 Why Should Indian Firms Internationalize?

International business research has highlighted several benefits of internationalization for emerging markets like India. We review four ways in which internationalization accentuates the locational advantages of these firms: 1

1. Highlighting natural endowments and comparative advantage,

2. …

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