Skip to main content
SpringerLink
Log in

Strategic Response to Inward Foreign Direct Investment: A Study of Indian Family Firms

  • Research Article
  • Published:
Management International Review Aims and scope Submit manuscript

Abstract

International business scholarship suggests that inward FDI (IFDI) may elicit a wide variety of strategic response from host country firms. While few studies have examined emerging market firms’ outward FDI (OFDI) strategy as a response to IFDI by foreign MNCs, no study has examined if and how family firms—a common occurrence in emerging markets—initiate similar response. Drawing on three streams of literature (competitive dynamics of emerging market firms, institutional development, and family firms), this study empirically examines a sample of Indian family firms over a six-year time-period. Results suggest that family firms increase their existing OFDI in response to IFDI announcements by foreign MNCs. Results also demonstrate that the OFDI-growth response varies across firms and is shaped by heterogeneity in management type (professional/family-based), extent of foreign institutional ownership (high/low), and family CEO’s international experience (possessed/not possessed). These findings are new to the literature. The study concludes by discussing the theoretical and managerial implications of the findings, and highlighting fertile avenues of future research.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2
Fig. 3

Similar content being viewed by others

Notes

  1. In this study we focus on family firms and do not compare such firms with non-family firms in India. Question may arise if these two groups are different in OFDI behaviour. Our data base suggests that there are indeed differences across few key variables. We will be happy to share such information with interested readers. We thank an anonymous reviewer for directing our attention to this issue.

References

  • Arregle, J.-L., Naldi, L., Nordqvist, M., & Hitt, M. A. (2012). Internationalization of family-controlled firms: a study of the effects of external involvement in governance. Entrepreneurship Theory & Practice, 36(6), 1115–1143.

    Google Scholar 

  • Arregle, J.-L., Duran, P., Hitt, M. A., & van Essen, M. (2017). Why is family firms’ internationalization unique? A meta-analysis. Entrepreneurship Theory & Practice, 41(5), 801–831.

    Google Scholar 

  • Bahl, M., Lahiri, S., & Mukherjee, D. (2020). Managing internationalization and innovation tradeoffs in entrepreneurial firms: evidence from transition economies. Journal of World Business, 56(1), 101150.

    Google Scholar 

  • Bhaumik, S. K., Driffield, N., & Pal, S. (2010). Does ownership structure of emerging-market firms affect their outward FDI? The case of the Indian automotive and pharmaceutical sectors. Journal of International Business Studies, 41(3), 437–450.

    Google Scholar 

  • Bhaumik, S. K., Driffield, N., Gaur, A., Mickiewicz, T., & Vaaler, P. (2019). Corporate governance and MNE strategies in emerging economies. Journal of World Business, 54(4), 234–243.

    Google Scholar 

  • CapEx[Database]. https://capex.cmie.com. Accessed Apr 2019.

  • Carr, C., & Bateman, S. (2009). International strategy configurations of the world’s top family firms. Management International Review, 49(6), 733–758.

    Google Scholar 

  • Cesinger, B., Hughes, M., Mensching, H., Bouncken, R., Fredrich, V., & Kraus, S. (2016). A socioemotional wealth perspective on how collaboration intensity, trust, and international market knowledge affect family firms’ multinationality. Journal of World Business, 51(4), 586–599.

    Google Scholar 

  • Chang, S. J., & Xu, D. (2008). Spillovers and competition among foreign and local firms in China. Strategic Management Journal, 29(5), 495–518.

    Google Scholar 

  • Chari, M. D. (2013). Business groups and foreign direct investments by developing country firms: an empirical test in India. Journal of World Business, 48(3), 349–359.

    Google Scholar 

  • Chari, M. D., & Banalieva, E. R. (2015). How do pro-market reforms impact firm profitability? The case of India under reform. Journal of World Business, 50(2), 357–367.

    Google Scholar 

  • Chittoor, R., Sarkar, M. B., Ray, S., & Aulakh, P. S. (2009). Third-world copycats to emerging multinationals: Institutional changes and organizational transformation in the Indian pharmaceutical industry. Organization Science, 20(1), 187–205.

    Google Scholar 

  • Chittoor, R., Aulakh, P. S., & Ray, S. (2015). What drives overseas acquisitions by Indian firms? A behavioral risk-taking perspective. Management International Review, 55(2), 255–275.

    Google Scholar 

  • Chua, J. H., Chrisman, J. J., Steier, L. P., & Rau, S. B. (2012). Sources of heterogeneity in family firms: an introduction. Entrepreneurship Theory and Practice, 36(6), 1103–1113.

    Google Scholar 

  • Cuervo-Cazurra, A., Luo, Y., Ramamurti, R., & Ang, S. H. (2018). The impact of the home country on internationalization. Journal of World Business, 53(5), 593–604.

    Google Scholar 

  • Cui, L., & Xu, Y. (2019). Outward FDI and profitability of emerging economy firms: diversifying from home resource dependence in early stage internationalization. Journal of World Business, 54(4), 372–386.

    Google Scholar 

  • Cui, L., Meyer, K. E., & Hu, H. W. (2014). What drives firms’ intent to seek strategic assets by foreign direct investment? A study of emerging economy firms. Journal of World Business, 49(4), 488–501.

    Google Scholar 

  • Cui, L., Li, Y., Meyer, K. E., & Li, Z. (2015). Leadership experience meets ownership structure: returnee managers and internationalization of emerging economy firms. Management International Review, 55(3), 355–387.

    Google Scholar 

  • D’Angelo, A., Majocchi, A., & Buck, T. (2016). External managers, family ownership and the scope of SME internationalization. Journal of World Business, 51(4), 534–547.

    Google Scholar 

  • Dau, L. A., Ayyagari, M., & Spencer, J. W. (2015). Strategic responses to FDI in emerging markets: are core members more responsive than peripheral members of business groups? Academy of Management Journal, 58(6), 1869–1894.

    Google Scholar 

  • Dau, L. A., Moore, E. M., & Kostova, T. (2020). The impact of market based institutional reforms on firm strategy and performance: review and extension. Journal of World Business, 55(4), 101073.

    Google Scholar 

  • Dawar, N., & Frost, T. (1999). Competing with giants: Survival strategies for local companies in emerging markets. Harvard Business Review, 77(2), 119–129.

    Google Scholar 

  • De Massis, A., Frattini, F., Majocchi, A., & Piscitello, L. (2018). Family firms in the global economy: toward a deeper understanding of internationalization determinants, processes, and outcomes. Global Strategy Journal, 8(1), 3–21.

    Google Scholar 

  • Del Bosco, B., & Bettinelli, C. (2020). How do family SMEs control their investments abroad? The role of distance and family control. Management International Review, 60(1), 1–35.

    Google Scholar 

  • 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.

    Google Scholar 

  • Duran, P., van Essen, M., Heugens, P. P., Kostova, T., & Peng, M. W. (2018). The impact of institutions on the competitive advantage of publicly listed family firms in emerging markets. Global Strategy Journal, 9(2), 243–274.

    Google Scholar 

  • Gaur, A. S., Ma, X., & Ding, Z. (2018). Home country supportiveness/unfavorableness and outward foreign direct investment from China. Journal of International Business Studies, 49(3), 324–345.

    Google Scholar 

  • Gómez-Mejía, L. R., Haynes, K. T., Nuñez-Nickel, M., Jacobson, K. J., & Moyano-Fuentes, J. (2007). Socioemotional wealth and business risks in family-controlled firms: evidence from Spanish olive oil mills. Administrative Science Quarterly, 52(1), 106–137.

    Google Scholar 

  • Gómez-Mejía, L. R., Makri, M., & Kintana, M. L. (2010). Diversification decisions in family controlled firms. Journal of Management Studies, 47(2), 223–252.

    Google Scholar 

  • Graves, C., & Thomas, J. (2008). Determinants of the internationalisation pathways of family firms: an examination of family influence. Family Business Review, 21(2), 151–167.

    Google Scholar 

  • Gu, Q., & Lu, J. (2011). Effects of inward investment on outward investment: the venture capital industry worldwide 1985–2007. Journal of International Business Studies, 42(2), 263–284.

    Google Scholar 

  • Gubbi, S. R., Aulakh, P. S., & Ray, S. (2015). International search behavior of business group affiliated firms: scope of institutional changes and intragroup heterogeneity. Organization Science, 26(5), 1485–1501.

    Google Scholar 

  • Hennart, J., Majocchi, A., & Forlani, E. (2019). The myth of the stay-at-home family firm: How family-managed SMEs can overcome their internationalization limitations. Journal of International Business Studies, 50(5), 758–782.

    Google Scholar 

  • Hertenstein, P., Sutherland, D., & Anderson, J. (2017). Internationalization within networks: exploring the relationship between inward and outward FDI in China’s auto components industry. Asia Pacific Journal of Management, 34(1), 69–96.

    Google Scholar 

  • Hsu, W. T., Chen, H. L., & Cheng, C. Y. (2013). Internationalization and firm performance of SMEs: the moderating effects of CEO attributes. Journal of World Business, 48(1), 1–12.

    Google Scholar 

  • Humphery-Jenner, M., & Suchard, J. A. (2013). Foreign venture capitalists and the internationalization of entrepreneurial companies: evidence from China. Journal of International Business Studies, 44(6), 607–621.

    Google Scholar 

  • Jormanainen, I., & Koveshnikov, A. (2012). International activities of emerging market firms. A Critical assessment of research in top international management journals. Management International Review, 52(5), 691–715.

    Google Scholar 

  • Kunisch, S., Menz, M., & Cannella, A. A. (2019). The CEO as a key microfoundation of global strategy: task demands, CEO origin, and the CEO’s international background. Global Strategy Journal, 9(1), 19–41.

    Google Scholar 

  • Lahiri, S., Elango, B., & Kundu, S. K. (2014). Cross-border acquisition in services: comparing ownership choice of developed and emerging economy MNEs in India. Journal of World Business, 49(3), 409–420.

    Google Scholar 

  • Lahiri, S., Mukherjee, D., & Peng, M. W. (2020). Behind the internationalization of family SMEs: a strategy tripod synthesis. Global Strategy Journal, 10(4), 813–838.

    Google Scholar 

  • Le, S., & Kroll, M. (2017). CEO international experience: effects on strategic change and firm performance. Journal of International Business Studies, 48(1), 573–595.

    Google Scholar 

  • Li, J., & Fleury, M. T. (2020). Overcoming the liability of outsidership for emerging market MNEs: a capability-building perspective. Journal of International Business Studies, 51(1), 23–37.

    Google Scholar 

  • Li, J., Li, Y., & Shapiro, D. (2012). Knowledge seeking and outward FDI of emerging market firms: the moderating effect of inward FDI. Global Strategy Journal, 2(4), 277–295.

    Google Scholar 

  • Li, H., Yi, X., & Cui, G. (2017). Emerging market firms’ internationalization: how do firms’ inward activities affect their outward activities? Strategic Management Journal, 38(13), 2704–2725.

    Google Scholar 

  • Liang, X., Wang, L., & Cui, Z. (2014). Chinese private firms and internationalization: effects of family involvement in management and family ownership. Family Business Review, 27(2), 126–141.

    Google Scholar 

  • Liu, X., Buck, T., & Shu, C. (2005). Chinese economic development, the next stage: outward FDI? International Business Review, 14(1), 97–115.

    Google Scholar 

  • López-Cózar-Navarro, C., Benito-Hernández, S., & Platero-Jaime, M. (2017). The influence of cooperative relations on geographical expansion and diversification strategies in family firms. International Business Review, 26(4), 764–773.

    Google Scholar 

  • Luo, Y., & Bu, J. (2018). Contextualizing international strategy by emerging market firms: a composition-based approach. Journal of World Business, 53(3), 337–355.

    Google Scholar 

  • Luo, Y., & Tung, R. L. (2007). International expansion of emerging market enterprises: a springboard perspective. Journal of International Business Studies, 38(4), 481–498.

    Google Scholar 

  • Luo, Y., & Wang, S. L. (2012). Foreign direct investment strategies by developing country multinationals: a diagnostic model for home country effects. Global Strategy Journal, 2(3), 244–261.

    Google Scholar 

  • Luo, Y., & Zhang, H. (2016). Emerging market MNEs: Qualitative review and theoretical directions. Journal of International Management, 22(4), 333–350.

    Google Scholar 

  • Luo, Y., Zhao, H., Wang, Y., & Xi, Y. (2011). Venturing abroad by emerging market enterprises. Management International Review, 51(4), 433–459.

    Google Scholar 

  • Luo, Y., Zhang, H., & Bu, J. (2019). Developed country MNEs investing in developing economies: progress and prospect. Journal of International Business Studies, 50(4), 633–667.

    Google Scholar 

  • Majocchi, A., D’Angelo, A., Forlani, E., & Buck, T. (2018). Bifurcation bias and exporting: can foreign work experience be an answer? Insight from European family SMEs. Journal of World Business, 53(2), 237–247.

    Google Scholar 

  • Meyer, K. E., Estrin, S., Bhaumik, S. K., & Peng, M. W. (2009). Institutions, resources, and entry strategies in emerging economies. Strategic Management Journal, 30(1), 61–80.

    Google Scholar 

  • Miller, D., Breton-Miller, I. L., & Scholnick, B. (2008). Stewardship vs. stagnation: an empirical comparison of small family and non-family businesses. Journal of Management Studies, 45(1), 51–78.

    Google Scholar 

  • Miller, D., Lee, J., Chang, S., & Breton-Miller, I. L. (2009). Filling the institutional void: the social behavior and performance of family vs non-family technology firms in emerging markets. Journal of International Business Studies, 40(5), 802–817.

    Google Scholar 

  • Miller, D., Breton-Miller, L., & Lester, R. H. (2011). Family and lone founder ownership and strategic behaviour: social context, identity, and institutional logics. Journal of Management Studies, 48(1), 1–25.

    Google Scholar 

  • Minichilli, A., Corbetta, G., & MacMillan, I. C. (2010). Top management teams in family controlled companies: ‘Familiness’, ‘faultlines’, and their impact on financial performance. Journal of Management Studies, 47(2), 205–222.

    Google Scholar 

  • Montgomery, C. A. (1982). The measurement of firm diversification: some new empirical evidence. Academy of Management Journal, 25(2), 299–308.

    Google Scholar 

  • North, D. C. (1991). Institutions. The Journal of Economic Perspectives, 5(1), 97–112.

    Google Scholar 

  • Nuruzzaman, N., Singh, D., & Pattnaik, C. (2019). Competing to be innovative: foreign competition and imitative innovation of emerging economy firms. International Business Review, 28(5), 101490.

    Google Scholar 

  • Nuruzzaman, N., Singh, D., & Gaur, A. S. (2020). Institutional support, hazards, and internationalization of emerging market firms. Global Strategy Journal, 10(2), 361–385.

    Google Scholar 

  • Pant, A., & Ramachandran, J. (2012). Legitimacy beyond borders: Indian software services firms in the United States, 1984 to 2004. Global Strategy Journal, 2(3), 224–243.

    Google Scholar 

  • Paul, J., & Feliciano-Cestero, M. M. (2020). Five decades of research on foreign direct investment by MNEs: an overview. Journal of Business Research. https://doi.org/10.1016/j.jbusres.2020.04.017. Accessed Apr 2019.

    Article  Google Scholar 

  • Peng, M. W., Wang, D. Y., & 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.

    Google Scholar 

  • Ray, S., Mondal, A., & Ramachandran, K. (2018). How does family involvement affect a firm’s internationalization? An investigation of Indian family firms. Global Strategy Journal, 8(1), 73–105.

    Google Scholar 

  • Sahay, R., & Goyal, R. (2006). Volatility and growth in Latin America: An episodic approach. Working paper no.06–287, International Monetary Fund, Washington, DC.

  • Sestu, M. C., & Majocchi, A. (2020). Family firms and the choice between wholly owned subsidiaries and joint ventures: a transaction costs perspective. Entrepreneurship Theory and Practice, 44(2), 211–232.

    Google Scholar 

  • Singla, C., Veliyath, R., & George, R. (2014). Family firms and internationalization-governance relationships: evidence of secondary agency issues. Strategic Management Journal, 35(4), 606–616.

    Google Scholar 

  • Spencer, J. W. (2008). The impact of multinational enterprise strategy on indigenous enterprises: horizontal spillovers and crowding out in developing countries. Academy of Management Review, 33(2), 341–361.

    Google Scholar 

  • Stoian, C. (2013). Extending Dunning’s investment development Path: the role of home country institutional determinants in explaining outward foreign direct investment. International Business Review, 22(3), 615–637.

    Google Scholar 

  • Stoian, C., & Mohr, A. (2016). Outward foreign direct investment from emerging economies: escaping home country regulative voids. International Business Review, 25(5), 1124–1135.

    Google Scholar 

  • Tan, D., & Meyer, K. (2010). Business groups’ outward FDI: a managerial resources perspective. Journal of International Management, 16(2), 154–164.

    Google Scholar 

  • Tang, Q., Gu, F. F., Xie, E., & Wu, Z. (2020). Exploratory and exploitative OFDI from emerging markets: impacts on firm performance. International Business Review, 29(2), 101661.

    Google Scholar 

  • Tihanyi, L., Johnson, R. A., Hoskisson, R. E., & Hitt, M. A. (2003). Institutional ownership differences and international diversification: the effects of boards of directors and technological opportunity. Academy of Management Journal, 46(2), 195–211.

    Google Scholar 

  • Tzeng, C. T. (2018). How domestic firms absorb spillovers: a routine-based model of absorptive capacity view. Management and Organization Review, 14(3), 543–576.

    Google Scholar 

  • Verbeke, A., Yuan, W., & Kano, L. (2019). A values-based analysis of bifurcation bias and its impact on family firm internationalization. Asia Pacific Journal of Management, 37(2), 449–477.

    Google Scholar 

  • Wang, C., Hong, J., Kafourors, M., & Boateng, A. (2012a). What drives outward FDI of Chinese firms? Testing the explanatory power of three theoretical frameworks. International Business Review, 21(3), 425–438.

    Google Scholar 

  • Wang, C., Hong, J., Kafouros, M., & Wright, M. (2012b). Exploring the role of government involvement in outward FDI from emerging economies. Journal of International Business Studies, 43(7), 655–676.

    Google Scholar 

  • Wiersema, M. F., & Bowen, H. P. (2008). Corporate diversification: the impact of foreign competition, industry globalization, and product diversification. Strategic Management Journal, 29(2), 115–132.

    Google Scholar 

  • Xia, J., Ma, X., Lu, J. W., & Yiu, D. W. (2014). Outward foreign direct investment by emerging market firms: a resource dependence logic. Strategic Management Journal, 35(9), 1343–1363.

    Google Scholar 

  • Yan, H., Wang, J., & Deng, P. (2018). Outbound linkage and inbound leverage for emerging multinationals: a signaling theory perspective. Asia Pacific Journal of Management, 35(3), 347–372.

    Google Scholar 

  • Yiu, D. W., Lau, C.-M., & Bruton, G. D. (2007). International venturing by emerging economy firms: the effects of firm capabilities, home country networks, and corporate entrepreneurship. Journal of International Business Studies, 38(4), 519–540.

    Google Scholar 

  • Zahra, S. A. (2003). International expansion of US manufacturing family businesses: the effect of ownership and involvement. Journal of Business Venturing, 18(4), 495–512.

    Google Scholar 

  • Zhao, J., Carney, M., Zhang, S., & Zhu, L. (2020). How does an intra-family succession effect strategic change and performance in China’s family firms? Asia Pacific Journal of Management, 37(3), 363–389.

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. XLRI-Xavier School of Management, Jamshedpur, India

    Arindam Mondal

  2. Illinois State University, Illinois, USA

    Somnath Lahiri

  3. Indian Institute of Management Calcutta, Kolkata, India

    Sougata Ray

Authors
  1. Arindam Mondal
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Somnath Lahiri
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Sougata Ray
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Somnath Lahiri.

Additional information

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Mondal, A., Lahiri, S. & Ray, S. Strategic Response to Inward Foreign Direct Investment: A Study of Indian Family Firms. Manag Int Rev 61, 207–233 (2021). https://doi.org/10.1007/s11575-021-00441-2

Download citation

  • Received:

  • Revised:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11575-021-00441-2

Keywords

Search

Navigation