Journal of International Business Studies

, Volume 41, Issue 3, pp 437–450

Does ownership structure of emerging-market firms affect their outward FDI? The case of the Indian automotive and pharmaceutical sectors

  • Sumon Kumar Bhaumik
  • Nigel Driffield
  • Sarmistha Pal
Article

Abstract

This paper examines the impact of ownership structures of emerging-market firms, which are shaped by local institutions, on the decision of these firms to undertake outward FDI. Our results suggest that family firms and firms with concentrated ownerships (both ubiquitous in emerging markets) are less likely to invest overseas, and that strategic equity holding by foreign investors facilitates outward FDI. We conclude that organisational forms such as family firms, which are optimal outcomes of institutions prevailing in emerging markets, may be suboptimal in a changing business environment in which outward FDI is necessary for access to resources and markets.

Keywords

institutions ownership/control structures family firms foreign investors outward FDI emerging-market MNEs 

References

  1. Amihud, Y., & Lev, B. 1981. Risk reduction as a managerial motive for conglomerate mergers. Bell Journal of Economics, 12 (2): 605–617.CrossRefGoogle Scholar
  2. Andres, C. 2008. Large shareholders and firm performance: An empirical examination of founding-family ownership. Journal of Corporate Finance, 14 (4): 431–445.CrossRefGoogle Scholar
  3. Athreye, S., & Godley, A. 2009. Internationalization and technological leapfrogging in the pharmaceutical industry. Industrial and Corporate Change, 18 (2): 295–323.CrossRefGoogle Scholar
  4. Athreye, S., & Kapur, S. 2009. Introduction: The internationalization of Chinese and Indian firms: Trends, motivation and strategy. Industrial and Corporate Change, 18 (2): 209–221.CrossRefGoogle Scholar
  5. Athukorala, P., Jayasuriya, S., & Oczkowski, E. 1995. Multinational firms and export performance in developing countries: Some analytical issues and new empirical evidence. Journal of Development Economics, 46 (1): 109–122.CrossRefGoogle Scholar
  6. Baek, J.-S., Kang, J. K., & Lee, I. 2006. Business groups and tunnelling: Evidence from private securities offerings by Korean Chaebols. Journal of Finance, 61 (5): 2415–2449.CrossRefGoogle Scholar
  7. Bajaj, M., Chan, Y.-S., & Dasgupta, S. 1998. The relationship between ownership, financing decisions and firm performance: A signalling model. International Economic Review, 39 (3): 723–744.CrossRefGoogle Scholar
  8. Banga, R. 2007. The export-diversifying impact of Japanese and US foreign direct investments in the Indian manufacturing sector. Journal of International Business Studies, 37 (4): 558–568.CrossRefGoogle Scholar
  9. Barney, J. 1986. Organizational culture: Can it be a source of sustained competitive advantage? Academy of Management Review, 11 (3): 656–665.CrossRefGoogle Scholar
  10. Barney, J. 1991. Firm resources and sustained competitive advantage. Journal of Management, 17 (1): 99–120.CrossRefGoogle Scholar
  11. Barney, J., Wright, M., & Ketchen, D. J. 2001. The resource-based view of the firm: Ten years after 1991. Journal of Management, 27 (6): 625–641.CrossRefGoogle Scholar
  12. Bertrand, M., Mehta, P., & Mullainathan, S. 2002. Ferreting out tunneling: An application to Indian business groups. Quarterly Journal of Economics, 117 (1): 121–148.CrossRefGoogle Scholar
  13. Buckley, P. J., & Casson, M. C. 1976. The future of the multinational enterprise. London: Macmillan.CrossRefGoogle Scholar
  14. Cho, M. H. 1998. Ownership structure, investment, and the corporate value: An empirical analysis. Journal of Financial Economics, 47 (1): 103–121.CrossRefGoogle Scholar
  15. Claessens, S., Djankov, S., Fan, J. P. H., & Lang, L. H. P. 2002. Disentangling the incentive and entrenchment effects of large shareholdings. Journal of Finance, 57 (6): 2471–2741.CrossRefGoogle Scholar
  16. Daily, C. M., & Dollinger, M. J. 1992. An empirical examination of ownership structure in family and professionally managed firms. Family Business Review, 5 (2): 117–136.CrossRefGoogle Scholar
  17. Dewatripont, M., & Tirole, J. 1994. A theory of debt and equity: Diversity of securities and manager-shareholder congruence. Quarterly Journal of Economics, 109 (4): 1027–1054.CrossRefGoogle Scholar
  18. Dixit, A. K., & Pindyck, R. S. 1994. Investment under uncertainty. Princeton, NJ: Princeton University Press.Google Scholar
  19. Donckels, R., & Fröhlich, E. 1991. Are family businesses really different? European experiences from STRATOS. Family Business Review, 4 (2): 149–160.CrossRefGoogle Scholar
  20. Doukas, J. A., & Lang, L. H. P. 2003. Foreign direct investment, diversification and firm performance. Journal of International Business Studies, 34 (2): 153–172.CrossRefGoogle Scholar
  21. Douma, S., George, R., & Kabir, R. 2006. Foreign and domestic ownership, business groups, and firm performance: Evidence from a large emerging market. Strategic Management Journal, 27 (7): 637–657.CrossRefGoogle Scholar
  22. Dreux, D. R. 1990. Financing family business: Alternatives to selling out or going public. Family Business Review, 3 (3): 225–243.CrossRefGoogle Scholar
  23. Driffield, N., & Munday, M. 2000. Industrial performance, agglomeration, and foreign manufacturing investment in the UK. Journal of International Business Studies, 31 (1): 21–37.CrossRefGoogle Scholar
  24. Driffield, N., Mahambare, V., & Pal, S. 2007. How does ownership structure affect capital structure and firm value? Recent evidence from East Asia. Economics of Transition, 15 (3): 535–573.CrossRefGoogle Scholar
  25. Dunning, J. H. 1986. The investment cycle revisited. Weltwirtschaftliches Archiv, 122 (4): 667–676.CrossRefGoogle Scholar
  26. Dunning, J. H. 1992. Multinational enterprises and the global economy. London: Prentice Hall.Google Scholar
  27. Dunning, J. H., & Lundan, S. M. 2008. Institutions and the OLI paradigm of the multinational enterprise. Asia Pacific Journal of Management, 25 (4): 373–393.CrossRefGoogle Scholar
  28. Elango, B., & Pattnaik, P. 2007. Building capabilities for international operations through networks: A study of Indian firms. Journal of International Business Studies, 38 (4): 541–555.CrossRefGoogle Scholar
  29. Gallo, M. A., & Sveen, J. 1991. Internationalizing the family business: Facilitating and restraining factors. Family Business Review, 4 (2): 181–190.CrossRefGoogle Scholar
  30. Garcia-Marco, T., & Robles-Fernandez, M. D. 2008. Risk taking behavior and ownership in the banking industry: The Spanish evidence. Journal of Economics and Business, 60 (4): 332–354.CrossRefGoogle Scholar
  31. Ge, G. L., & Ding, D. Z. 2008. A strategic analysis of surging Chinese manufacturers: The case of Galanz. Asia Pacific Journal of Management, 25 (4): 667–683.CrossRefGoogle Scholar
  32. Goffee, R., & Scase, R. 1985. Proprietorial control in family firms: Some functions of “quasi-organic” management systems. Journal of Management Studies, 22 (1): 53–68.CrossRefGoogle Scholar
  33. Government of India. 2006. Draft automotive mission plan. New Delhi: Ministry of Heavy Industries and Public Enterprises, Government of India.Google Scholar
  34. Grant, R. M. 1991. The resource-based theory of competitive advantage: Implications for strategy formulation. California Management Review, 33 (3): 114–135.CrossRefGoogle Scholar
  35. Greene, W. 2007. The emergence of India's pharmaceutical industry and implications for the US generic drugs market, Working paper no. 2007-05-A, Office of Economics, US International Trade Commission, Washington, DC.Google Scholar
  36. Habbershon, T. J., & Williams, M. L. 1999. A resource-based framework for assessing the strategic advantages of family firms. Family Business Review, 12 (1): 1–22.CrossRefGoogle Scholar
  37. Hennart, J.-F. 1982. A theory of multinational enterprise. Ann Arbor: University of Michigan Press.Google Scholar
  38. Heugens, P. P., van Essen, M., & van Oosterhout, J. H. 2009. Meta-analyzing ownership concentration and firm performance in Asia: Towards a more fine-grained understanding. Asia Pacific Journal of Management, 26(3): 481–512.Google Scholar
  39. Hill, C. W., & Snell, S. A. 1988. External control, corporate strategy, and firm performance in research-intensive industries. Strategic Management Journal, 9 (6): 577–590.CrossRefGoogle Scholar
  40. Johanson, J., & Vahlne, J. E. 1977. The internationalization process of the firm: A model of knowledge development and increasing market commitments. Journal of International Business Studies, 8 (1): 23–32.CrossRefGoogle Scholar
  41. Khanna, T., & Palepu, K. 1997. Why focused strategies might be wrong for emerging markets. Harvard Business Review, 75 (4): 41–51.Google Scholar
  42. KPMG. 2006. The Indian pharmaceutical industry: Collaboration for growth. London: KPMG.Google Scholar
  43. Lien, Y.-C., Piesse, J., Strange, R., & Filatotchev, I. 2005. The role of corporate governance in FDI decisions: Evidence from Taiwan. International Business Review, 14 (6): 739–763.CrossRefGoogle Scholar
  44. Lippman, S. A., & Rumelt, R. P. 1982. Uncertain imitability: An analysis of interfirm differences in efficiency under competition. Bell Journal of Economics, 13 (2): 418–438.CrossRefGoogle Scholar
  45. Mathews, J. A. 2006. Dragon multinationals: New players in 21st century globalisation. Asia Pacific Journal of Management, 23 (1): 5–27.CrossRefGoogle Scholar
  46. Meyer, K. M., Estrin, S., Bhaumik, S. K., & Peng, M. 2009. Institutions, resources, and entry strategies in emerging economies. Strategic Management Journal, 30 (1): 61–80.CrossRefGoogle Scholar
  47. Myers, S. C. 1984. The capital structure puzzle. Journal of Finance, 39 (3): 575–592.CrossRefGoogle Scholar
  48. Nayyar, D. 2008. The internationalization of firms from India: Investment, mergers and acquisitions. Oxford Development Studies, 36 (1): 111–131.CrossRefGoogle Scholar
  49. North, D. C. 2005. Understanding the process of economic change. Princeton, NJ: Princeton University Press.CrossRefGoogle Scholar
  50. Peng, M. W., Wang, D. Y. L., & Jiang, Y. 2008. An institution-based view of international business strategy: A focus on emerging economies. Journal of International Business Studies, 39 (5): 920–936.CrossRefGoogle Scholar
  51. Poza, E. J., Alfred, T., & Maheshwari, A. 1997. Stakeholder perceptions of culture and management practices in family and family firms: A preliminary report. Family Business Review, 10 (2): 135–155.CrossRefGoogle Scholar
  52. Pradhan, J. P. P., & Singh, N. 2008. Outward FDI and knowledge flows: A study of the Indian automotive sector, MPRA paper no. 12325, University of Munich.Google Scholar
  53. Ramamurti, R. 2009. What have we learned about EMNEs? In R. Ramamurti & J. V. Singh (Eds), Emerging multinationals from emerging markets. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
  54. Ramamurti, R., & Singh, J. V. 2009. Indian multinationals: Generic internationalization strategies. In R. Ramamurti & J. V. Singh (Eds), Emerging multinationals from emerging markets. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
  55. Ramaswamy, K., Li, M., & Veliyath, R. 2002. Variations in ownership behaviour and propensity to diversify: A study of the Indian corporate context. Strategic Management Journal, 23 (4): 345–358.CrossRefGoogle Scholar
  56. Rugman, A. M. 1981. Inside the multinationals: The economics of internal markets. New York: Columbia University Press.Google Scholar
  57. Sarkar, J., & Sarkar, S. 2000. Large shareholder activism in corporate governance in developing countries: Evidence from India. International Review of Finance, 1 (3): 161–194.CrossRefGoogle Scholar
  58. Smith, R. J., & Blundell, R. W. 1986. An exogeneity test for a simultaneous equation Tobit model with an application to labor supply. Econometrica, 54 (3): 679–685.CrossRefGoogle Scholar
  59. Tsang, E. W. K. 2001. Internationalizing the family firm: A case study of a Chinese family business. Journal of Small Business Management, 39 (1): 88–94.CrossRefGoogle Scholar
  60. Villalonga, B., & Amit, R. 2006. How do family ownership, control and management affect firm value? Journal of Financial Economics, 80 (2): 385–417.CrossRefGoogle Scholar
  61. Yamakawa, Y., Peng, M. W., & Deeds, D. L. 2008. What drives new ventures to internationalize from emerging to developed economies? Entrepreneurship Theory and Practice, 32 (1): 59–82.CrossRefGoogle Scholar
  62. Yang, X., Jiang, Y., Kang, R., & Ke, Y. 2009. A comparative analysis of the internationalization of Chinese and Japanese firms. Asia Pacific Journal of Management, 26 (1): 141–162.CrossRefGoogle Scholar
  63. Yoshikawa, T., & McGuire, J. 2008. Change and continuity in Japanese corporate governance. Asia Pacific Journal of Management, 25 (1): 5–24.CrossRefGoogle Scholar
  64. Young, M. N., Peng, M. W., Ahlstrom, D., Bruton, G. D., & Jiang, Y. 2008. Corporate governance in emerging economies: A review of the principal-principal perspective. Journal of Management Studies, 45 (1): 196–220.CrossRefGoogle Scholar
  65. Zahra, S. A. 2003. Entrepreneurial risk taking in family firms. Family Business Review, 18 (1): 23–40.CrossRefGoogle Scholar
  66. Zhang, J., & Ma, H. 2009. Adoption of professional management in Chinese family business: A multilevel analysis of impetuses and impediments. Asia Pacific Journal of Management, 26 (1): 119–139.CrossRefGoogle Scholar

Copyright information

© Academy of International Business 2009

Authors and Affiliations

  • Sumon Kumar Bhaumik
    • 2
  • Nigel Driffield
    • 1
  • Sarmistha Pal
    • 2
  1. 1.Aston Business School, Aston UniversityUK
  2. 2.School of Social Sciences, Brunel UniversityUK

Personalised recommendations