What drives emerging multinationals? early stage internationalization and performance drivers of Indian IT firms

Abstract

Although emerging market multinational corporations (EMNCs) are growing at a rapid rate, little is known about their internationalization process and the impact it has on the firm performance. We adopt an institutional arrangement lens to investigate the internationalization drivers of EMNCs that act as a credible signaling mechanism to overcome the lack of credibility enhancing institutions within their home country environment. We examine cluster presence and quality certification as factors affecting EMNC internationalization, and their moderating effect on firm performance of internationalized firms. We analyze panel data from 174 Indian IT firms during 1997-2002 period to investigate how these EMNCs internationalized and what role did their cluster presence and quality certifications play in their internationalization. The results show that certification plays a positive role in internationalization, but negatively affects firm performance. Interestingly, it has a strong moderating effect on performance effects of internationalization. Further, although clustering is not associated with either internationalization or performance, it negatively moderates the internationalization effect on performance. Our findings advance the theory on internationalization of EMNC by proposing a larger role for certification as a signaling and an efficiency building mechanism.