Abstract
Do emerging market multinational enterprises (EMNEs) from the Asia–Pacific region experience cultural distance in the same way that developed economy firms do? In swapping the focal home country position from developed economies to emerging economies, we examine whether the ‘illusion of symmetry’ of the cultural distance construct prevails. When EMNEs make strategic decisions about cross-border equity ownership, they are driven by the critical need for learning. We study the internationalization of Asia–Pacific EMNEs and explore how the organizational form of the business group (BG) influences the learning behavior of EMNEs while they navigate cultural distance. We perform a multilevel analysis of 400 acquisitions made by Indian firms across several industries into 38 host countries between 1990 and 2015. We find that the BG organizational form provides structural and contextual antecedents to strategic ambidexterity by leveraging the absorptive capacity and cross-cultural experience of the BG through simultaneous exploratory learning (entailing lesser control) and exploitative learning (entailing greater control). Our results hold good for other group-affiliated EMNEs from the Asia–Pacific region as well and contribute to multiple streams of literature.
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Notes
Shenkar (2012: 4) provides the example that the cultural distance that a Dutch firm investing in China experiences is different from what the Chinese firm would face while investing in the Netherlands.
Prior research examined the impact of ownership structure—i.e., family control (which often coincides with BG affiliation) and concentrated ownership—in emerging markets on outward FDI (Bhaumik et al., 2010).
We referred to the World Economic Outlook (International Monetary Fund, September 2011) list of large developing and emerging economies from Asia (including ASEAN) based on real GDP growth values.
We had included time dummies for the phases of liberalization (early phase, start-up phase, or take-off phase), but we dropped these from the regressions once we included the year of the decision, which is a more fine-grained variable compared to the phase of liberalization.
Alternatively, we could have also used fixed effects Tobit with clustering, as pointed out by one of the reviewers. Hence we have made robustness checks using this alternate procedure.
This level was used only in the samples that contained BG-affiliated firms; in other samples, this level was skipped.
The results for both fixed effects Tobit with clustering and marginal effects of the interactions in Table 4 have not been reported here due to space constraints, but are available upon request.
At one point, recognizing the benefits of the Tata brand and the support provided by the group and the affiliate network, the Tata Group had decided to charge a fee from its affiliate companies.
We could not analyze Pakistan, Sri Lanka, and Vietnam separately because there were very few observations.
The detailed results of each of the multilevel Tobit models for these countries are not included due to considerations of space. These results are available on request.
We thank an anonymous reviewer for directing our attention to this possibility.
We could not examine all possible interactions of the variables to confirm this due to multicollinearity issues in the models.
One of the arguments for acquiring a minority stake is the high cost or inefficiency related to combining internal capital markets between the acquirer firm and the target firm (Ouimet, 2013). BG-affiliated EMNEs are able to manage this cost while managing the entry costs and investment risks.
Raisch and Birkinshaw (2008) cite studies that examined various aspects of the top management team’s composition—such as the members’ prior company affiliations or a mix between ‘newcomers’ and ‘old timers’—as important antecedents of ambidextrous behavior. They refer to Lubatkin, Simsek, Ling, and Veiga (2006), who described ‘behavioral integration’ as the degree of the senior management team’s wholeness and unity of effort, the level of the team’s collaborative behavior, the quantity and quality of information exchanged, and the emphasis on joint decision-making.
For instance, Tata Chemicals currently has a revenue of 100 billion Indian rupees and a cash reserve of more than 60 billion Indian rupees (~ 9.3 USD billion) (Tata Chemicals: 2015–16 Annual Report, 2016). Similarly, Bajaj Auto has a revenue of 200 billion rupees and has a cash reserve of 120 billion rupees (~ 18.7 USD billion) (Bajaj Auto: 2016–17 Annual Report, 2017). Hence, these organizations are likely to regularly face pressure from investors to deploy the excess cash productively.
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Acknowledgements
Professor Rejie George for meticulous reviews and tremendous support far beyond the thesis-supervisory role from inception until final rounds of the manuscript.
Professors Rejie George and Amit Baran Chakrabarti for contributions to a very early version of the manuscript that was presented at the Academy of Management Annual Meeting, 2018 held at Chicago, USA.
Dr. Narayan Chandra Ghosh (and Ayan Panja) in coordination with Dr. Rama Seth (and Reena Gupta) of IIMB Library for access to the ORBIS database.
Ashish Kaushal of Moody’s South Asia, for timely access to BVD databases.
Professor Gijo EV of ISI Bangalore for generous guidance on advanced statistical methods.
Anila Varghese for diligent copy editing.
Professors Anju Seth, Saptarshi Purkayastha, Sathyajit Gubbi and Sougata Ray for several constructive suggestions.
Last but not the least, Professor Roger Strange for his immense support and understanding in constructively enabling the contributions of this manuscript at every step.
Gratitude to the diligent reviewers who helped strengthen the manuscript through several rounds of review.
Funding
This work was supported by Indian Institute of Management Calcutta, Category I research project, with work order ID: RP:ACDBCBBGAOEIA/3717/2017–18.
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Venkateswaran, R.T. Is there an illusion of symmetry in cultural distance from Asia–pacific Emnes? the role of business groups in navigating cultural distance through ambidextrous learning. Asia Pac J Manag 40, 1169–1215 (2023). https://doi.org/10.1007/s10490-022-09811-2
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DOI: https://doi.org/10.1007/s10490-022-09811-2