Institutional distance, establishment mode choice and international experience: the case of Indian MNCs

Abstract

Purpose Focusing on the growing importance of Indian multinational corporations in the past decades, this paper aims to understand how establishment mode decisions in a foreign market can differ depending on a series of factors. Specifically, the authors examine how institutional distance, including cultural distance and political risk, could affect these decisions, and how international acquisition experience could moderate this relationship. Design/methodology/approach The authors test their hypotheses using data from 114 outward foreign direct investments between 2000 and 2010. Findings The findings suggest that experience in international acquisitions increases the likelihood of subsequent acquisitions in high-risk and culturally distant countries. Originality/value By considering that the country of origin also matters, some differences among emerging-market multinational corporations (MNCs) may arise. Besides, since empirical research focusing on emerging-market MNCs is scarce, more empirical studies are needed to analyze the influence of cultural distance and political risk on some decisions. In the case of India, there are also additional motivations for analyzing those institutional factors. First, since this is a country with significant linkages to Western countries, it is interesting to know if the influence of cultural distance is similar or not. Second, there is a lack of empirical evidence on the relationship between political risk and establishment mode choice in the case of Indian MNCs. To fill this gap, the first aim of this paper is to analyze how cultural distance and political risk affect the establishment mode choice of Indian MNCs. Moreover, recognizing international experience to be an important factor in explaining international expansion, we focus on international experience interactions with sources of uncertainty inherent in the host market.