Organizational Factors Influencing Internationalization of Indian Manufacturing Companies: An Empirical Analysis.

AuthorRamamurthi, Ramakrishnan


The past two decades have seen most developing and emerging economies changing from a radical view of FDI and trade, towards a more friendly view, by using international expansion as strategies for positive spill overs and other inherent benefits, in their quest for development (Hennart, 1991). Many Indian manufacturing firms have also forayed into international markets through exports, overseas ventures, joint ventures and acquisitions. They have had different levels of success in their internationalization journeys and are looking at the possibilities of acquisition, production facilities and setting up of offices abroad. India as a nation has a huge opportunity in creating global Indian multinationals, but a vast majority of Indian companies are unable to make this significant leap.

There are many factors, both external and internal to the organization, which stimulate international activities of a firm. Andersson (2000) found that "the internal factors of an organization can be relatively easier to grasp and control than the external factors which are often very dynamic and hence hard for organizations and their chiefs to control the evolving circumstances." Motives for going international mainly depend on top management team, international resources and firm's specifics. However, there are no coherent frameworks that may help practitioners to gain a convergent understanding of the internationalization decisions of manufacturing companies. Although some scholars (Brouthers et al., 2000; Brouthers & Hennart, 2007) had developed the globalization model for manufacturing companies, those were not fully examined in the context of developing markets (Onafowora & Owoye, 2006). Additionally, it is hard to ignore the great differences between developed and developing economies; for example, many manufacturing companies in developed economies possess high technology and efficient processes, it is exactly the opposite case in many developing economies. However, as the forces of globalization drives firms to expand outside their home market, a primary issue of concern is in determining when and how to enter a foreign market. The research on international entry decision is important because setting the correct time and boundaries of the firm has significant performance implications (Brouthers et al., 2000). Although the literature on international markets is extensive, research studies related to international aspects of Indian companies are very limited (Rana et. al., 2018). Also, the actual approach taken by various Indian and emerging markets' companies in their multinational quest and the linkage between organizational factors and their impact on internationalization has not been studied adequately.

The main objective of this study is to identify the relevant organizational factors based on the extant literature and study their influence on the degree of internationalization of Indian manufacturing firms through an empirical analysis. To achieve this objective, 34 Indian manufacturing companies were selected through a sampling process and surveyed. The responses of the CEOs / CXOs of these companies were collected through a semi structured research instrument on the identified six organizational factors namely, leadership commitment, role of the board, team effectiveness, competitiveness, international acquisitions and organizational resources and further analyzed to see if the Indian manufacturing companies can leverage these organizational factors for success in their internationalization endeavors.

Review of Organizational Factors

There are numerous literatures on internationalization of firms where researchers have provided various perspectives on firms' internationalization. Most of them have studied the relationship between the firm's internationalization process or performance and its internal factors as well as external environments. We consider that the external environment is frequently dynamic, so it is hard for the companies to control the changing situation. However, some of the internal factors can be relatively easy to grasp and control. We listed the six relevant organizational factors namely leadership commitment, role of the board, team effectiveness, competitiveness, international acquisitions and organizational resources that have emerged from the literature reviewed. This was also validated through focus group discussions and expert opinion.

Leadership Commitment

Leadership commitment is defined as commitment to allocate resources and champion activities that lead to the development of new products, technologies, and processes consistent with marketplace opportunities (Cottam, Ensor & Band, 2001). Winsted and Patterson (1998) specifically pointed out that management commitment is an important motive to expand internationally. As stated by Cotae (2013) leadership is the primary factor capable of modifying different stages of internationalization, since it is responsible for allocating further resources or postponing further expansion.

He concluded that a firm's leadership is seen as charged with enabling the existence of an organization that has access to information based on either internal reports and market related data, which in turn would provide meaningful information for an informed decision making process with regard to strategy formulation and the undertaking of any additional globalization efforts and therefore internationalization and leadership are seen as the key components resulting in increased or positive firm performance. Thus, the strategic choice related to entering a foreign market or doing business internationally is set by the leadership of an organization, as the top management team stands at the apex of the organizational structure and is ultimately responsible for achieving the firm's objectives as suggested by Hambrick and Mason (1984).

Role of the Board

The board of directors, with their competence, experience and industry knowledge can provide valuable advice and counselling during the decision-making processes (Bezemer et al., 2007); thus, giving support to better internationalization decisions. Hence, the board of directors, may be considered as a bundle of strategic resources to be used by the company. Indeed, they can provide timely advice and counsel to the owner, the CEO and the management in areas where internal firm knowledge is limited or lacking. They can be a valuable source of competitive advantage through their professional and personal qualifications. The resource-based view considers the board as a firm-internal resource of competitive advantage as stated by Barney and Jay (1991). The board is seen as a strategic resource which enables a firm to craft and implement strategies thus improving its efficiency and effectiveness and exploiting opportunities or neutralizing threats in the competitive environment. Previous studies have also provided evidence that boards may help, by acquiring critical resources, to reduce uncertainty as a source of information (Huse, 2007). As stated by Gallo and Sveen (1991), the board advisory tasks can contribute to the internationalization strategy of the firm. Calabro et al. (2009) also suggest that the board is an important strategic resource contributing to their international expansion. Huse (2007) states that the boards of directors have received little attention and even less in relation to the internationalization of firms. Studies about the internationalization of firms have mostly used the management, senior managers, and top management teams, as main independent variables (Fernandez & Nieto, 2005). The impact of the board and its members as strategic resources in relation to internationalization of an organization, needs to be investigated.


Globalization has made available to any company the same competitive resources. Rendering the sources of advantage difficult to imitate. Cereceres (2007) notes that companies for their lack of competitiveness face very adverse scenarios in their internationalization. Olguin and Lerma (2014) agree that competitiveness is a major problem and a major challenge for their internationalization processes. Bloodgood et. al. (1996) found that firms were required to have international operations to remain competitive in the market as it allows access to international expertise, technologies and innovations. Hooley et al. (2000) pointed out that competition intensity has important influence on the performance of multinational companies, which have influenced the internationalization process of enterprises to some extent. As stated by Segura et al. (2016), competitive advantage can be given by several factors, both endogenous and exogenous, or a combination of both. Among the endogenous or specific advantages can be found in the technology control, management skills, marketing management, as distinctive elements that give the organization an advantage over other companies and, thus, it can exploit its output to it. Bugador (2015) states that the analysis of the competitive advantages of emerging multinational economies (EMNEs) remain to be an interesting topic in the international business literature. This is important because the competitiveness of EMNEs influence the performance and international transactions of different firms across borders. Today's Indian business system is impacted by rapid internationalization and the accelerating competitive environment in the economy. Thus, all types of businesses are getting affected and facing competition on a global scale (Sousa & Lages, 2011). Indian firms are today more international than ever before (Seshabalaya, 2005). According to Rana et al. (2018) international intentions characterize the organizational efficiency of a number of leading Indian firms and this orientation is an indicator of the growing competitiveness of manufacturing firms; services or resources such as capital and technology...

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