Ebook Business Groups’ Outward FDI: A Managerial Resources Perspective
Foreign direct investment (FDI) originating from emerging economies raises new questions for international business research agendas (Luo and Tung, 2007; Gammeltoft, 2008; Athreye and Kapur 2009). In particular, these businesses appear to develop patterns of FDI that are different from multinationals from mature market economies (Matthew, 2006; Yiu, Lau and Bruton, 2007; Enright, 2007; Ramamurti and Singh, 2009; Yang et al., 2009.). This suggests reassessing the question of what determines the international scope of firms. In particular, how do resources available to businesses in emerging economies shape their path of internationalization?
Outward FDI is undertaken by firms aiming to exploit their resources and capabilities overseas (Dunning, 1993), or to acquire complementary resources (Lall 1983, Tolentino, 1993). The resources they can potentially exploit abroad depend on their own history of resource accumulation. Firms develop resources and capabilities in an evolutionary pattern conditioned by their context of operation (Nelson and Winter, 1992; Aldrich, 1999). Hence, the resources that firms can potentially exploit when investing abroad are an outcome of past interactions with their home context, especially in the case of firms originating from emerging economies (Yiu, Lau and Bruton, 2007; Elango and Pattnaik, 2007; Barnard, 2008). Hence, in this article, we argue that outward FDI from emerging economies ought to be explained by the resources of firms shaped by this environment.
In emerging economies, the home environment is typically characterized by comparatively weak human capital and by voids in the institutional environment (Khanna and Palepu, 2000; Peng, 2003; Gelbuda et al., 2007; Meyer et al., 2009a). These conditions shape not only domestic businesses, but also the pattern of outward FDI (Cuervo-Cazurra 2008; Yamakawa et al., 2008; Kumar and Chadha, 2009; Bhaumik et al., 2010). This has two consequences for this study. Firstly, home institutions shape the types of resources that firms develop, notably institutionally-bound resources such as local business networks (Peng et al., 2008). These types of resources may only be of limited use for business in other contexts, though they may facilitate operations in contexts sharing institutional similarities (Henisz, 2003; Cuervo-Cazurra and Genc, 2008).
Secondly, the institutional context of emerging economies induces business to develop organizational forms that facilitate the sharing of institutionally-bound resources and the internalization of inefficient markets. In consequence, business groups (BGs) have become the dominant organizational form in many emerging economies (Khanna and Palepu, 2000; Chung, 2001; Peng and Delios, 2006; Carney, 2008; Estrin et al., 2009). They share resources and thus are the relevant unit of analysis for this study. Earlier studies typically use firms as unit of analysis and use a dummy to control for group membership, or they test a direct effect of group membership on, e.g., performance (e.g. Khanna and Rivkin 2001; Khanna and Palepu, 2000; Nachum, 2004). This focus on member firms has advantages in terms of sample size and data availability, yet it limits generalizability and provides a very partial image of BGs (Khanna and Yafeh, 2007). We address this shortcoming in the literature by exploring the pattern of MNE from emerging economies from a group level perspective. Hence, we analyze, what determines the international scope of business groups?
We combine the institutional perspective with a resource-based perspective following a recent trend in emerging economy research (Filatotchev et al., 2003; Meyer et al., 2009a; Malik and Kotabe, 2009). The resource-based perspective suggests that unused firm-specific resources drive corporate growth (Penrose, 1959), and thus expansion into new product areas (Teece, 1982) and new countries (Johansen and Vahlne, 1977). Yet, businesses have to prioritize where they can grow most beneficially within their resource constraints, i.e. where their resources most likely generate new value for the firm.
The redeployability of resources to other industries or countries thus influences whether a firm grows domestically or internationally (Meyer, 2006; 2009) as well as their mode of their growth (Anand and Delios 2002; Meyer et al., 2009b). Penrose directs attention in particular to managerial resources that can be shared across old and new activities, and thus become both a source of growth and a binding constraint on expansion (Kor and Mahoney, 2000; Rugman and Verbeke, 2002; Mahoney, 2005).
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