What drives the boom in outward FDI from India?

Abstract

PurposeThe Indian economy has experienced a boom in outward FDI (OFDI) in 2006. The study aims at exploring the factors that drive the boom in OFDI of Indian firms.Design/methodology/approachThe participation of a firm in OFDI is a two-stage process -first, the decision to internationalization and second, how much to invest. We employ a two-stage model to decompose the effects on the decision to internationalization from effects on how much to invest. The two-stage model has the advantage of allowing us to estimate separately the probability of internationalization by a firm – Pr(OFDI > 0) – and the expected volume of investment, E(OFDI|OFDI > 0). The former is estimated by the probit model and the latter is estimated by the ordinary least square model.FindingsThe study finds that prior experience and institutional advantage can strongly drive the internationalization of Indian multinationals. The study also examines the relative importance of two aspects of prior knowledge – length of prior knowledge and depth of prior knowledge on OFDI of Indian firms. The study finds that the depth of prior knowledge is a must influential driver of OFDI in comparison to its length.Originality/valueThe present study is a novel attempt to investigate, ‘What drives the boom in OFDI from India?’

Strategic Corporate Sustainability in a Post-Acquisition Context

“…The blending of the conceptual arguments (Sections 2.1 and 2.2) and the findings from the analysis facilitated the understanding of the strategies relating to CS integration. The study highlighted the impact of the special context on CS and added to the existing knowledge about how EMNEs proceed when integrating complementary resources and capabilities of the acquired company, e.g., [57][58][59]. We contend the long-term perspective that the more partnering kind of soft approach to M&A integration with emphases on learning supported strategic CS integration as one of the key strategic resources.…”

“…From an RBV perspective, M&A deals allow companies to acquire resources, including knowledge and market-relevant advantages [40,41,43,45]. When considering the specificities of EMNEs' resources [51,56], this perspective explains why they approach internationalization differently than most of their advanced counterparts through springboard incentives and pursuing linkages, leveraging and learning [36][37][38]53,57,58]see also the study by Nayyar [59] for a comprehensive review. On the one hand, many of the traditional EMNEs are large, successful business groups that have accumulated substantial financial resources and are characterized by a greater propensity to ambidexterity, superior organizational resilience, and learning advantages of newness [53].…”

“…On the one hand, many of the traditional EMNEs are large, successful business groups that have accumulated substantial financial resources and are characterized by a greater propensity to ambidexterity, superior organizational resilience, and learning advantages of newness [53]. They also developed substantial relational capabilities and they are politically embedded [51,54,56,57,60,61]. On the other hand, EMNEs lack technology sophistication and experience in highly liberalized markets [62].…”

“…Business groups are often highly diversified [51,56,62,63] and pursue an efficient organization regarding knowledge transfer, which they expand through cross-border M&A. The achievement of so-called reverse spill-over effects, which refers to the learning of the parent company through knowledge transferred from the target [54,64], supports EMNEs also in overcoming the institutional void in their domestic market [42,57,59,63,65]. Khanna and Palepu [63] coined the term institutional void, which refers to the insufficient support provided by institutions in emerging markets.…”

“…While the EMNE has a generally hands-off approach to integration and only conducts minor changes in the daily business decisions [53] and the structure of the company, it establishes channels through which information and knowledge are shared [9]. This incites learning on both sides [36,43,57,59], and the EMNE and the target companies eventually assimilate their business practices by adopting the best-in-class solution [9,51]. Only some parts of the target's operations are integrated directly into the group's function, such as financial and the overall strategic planning, to ensure coherence within the group [9,51].…”