Impact of top management team sociodemographic faultlines on speed of foreign direct investment expansion: An emerging market perspective

• Published date: 01 May 2019
• DOI: http://doi.org/10.1002/jsc.2261
• Date: 01 May 2019

RESEARCH ARTICLE

Impact of top management team sociodemographic faultlines

on speed of foreign direct investment expansion: An emerging

market perspective

*

Ankita Chhabra | Manish Popli

Department of Strategic Management,

Indian Institute of Management, Indore,

Madhya Pradesh, India

Correspondence

Manish Popli, Department of Strategic

Management, Indian Institute of Management,

Prabandh Shikhar, Rau Pithampur Road,

Indore, Madhya Pradesh 453556, India

Email: manishp@iimidr.ac.in

Abstract

In an emerging market context, the strength of sociodemographic faultlines of the

top management team (TMT) might negatively impact the speed of firm's foreign

direct investment (FDI) expansion. Building on upper echelon perspectives, the study

proposes testable propositions on the role of sociodemographic faultlines (based on

age, caste, and language) of the TMT on the speed of firm's FDI expansion. The role

of decision-making in TMT is crucial for embarking upon such strategic actions and

analyzing those that are pertinent for the international business scholarship. Further-

more, we propose that the degree of inward foreign competition faced by the firms

and the prior international experience of the TMT will moderate this relationship.

1|INTRODUCTION

Internationalization of emerging market (EM) firms at a rapid pace is a

well-observed phenomenon. EM multinational enterprises (MNEs)

carry out recursive cross-border mergers and acquisitions in order to

overcome their latecomer disadvantage and compete with interna-

tional players (Luo & Tung, 2007, 2018). Research has advanced the

argument that the internationalization pattern of EM MNEs does not

follow the traditional internationalization theories (Johanson &

Vahlne, 1977), which argues that firm's international expansion is a

gradual phenomenon using modes starting from exports, alliances,

joint ventures, and wholly owned subsidiaries. EM MNEs use outward

investments as a springboard to overcome their latecomer disadvan-

tages, seeking strategic assets from advanced countries (Luo & Tung,

2007; Mathews, 2006). As a result, the share of the global output

from the BRICS

1

nation has increased from 5.4% in 1990 to 22.2% in

2016 (UNCTAD, 2018a). Furthermore, the foreign direct investment

(FDI) outflow from India more than doubled to USD 11 billion for the

fiscal year 2017–2018 (UNCTAD, 2018b).

There has been significant research on a wide range of topics in the

context of internationalization of EM firms such as motives of interna-

tionalization (Aulakh, Rotate, & Teegen, 2000; Child & Rodrigues, 2005;

Deng, 2004; Luo & Tung, 2007), antecedents such as impact of

institutions, and home country networks on firm internationalization

(Deng, 2009; Stucchi, 2012; Yiu, Lau, & Bruton, 2007) and postmerger

performance (Aybar & Ficici, 2009; Gubbi, Aulakh, Ray, Sarkar, &

Chittoor, 2010). Using the metaphor of “springboarding,”Luo and Tung

(2007) explicated the overseas expansion trajectory of EM MNE firms as

path independent and nonevolutionary. Luo and Tung (2007) argued that

EM MNEs adopt a risk-taking approach in their trajectory of internation-

alization. However, there is little effort to examine the antecedents

and/or outcomes of the springboarding behavior (see Elango & Pattnaik,

2011 as an exception). The speed of FDI expansion is a critical issue for

a firm and its managers because international expansion through FDI is

riskierasitinvolves“liability of foreignness”(Hymer, 1976; Zaheer,

1995), “liability of expansion”(Cuervo-Cazurra, Maloney, & Manrakhan,

2007), “liability of emergingness”(Madhok & Keyhani, 2012), and so

forth. We submit that the global expansion does not happen in a vacuum

but is determined by top decision-makers. The role of top management

team (TMT) is critical for venturing into and managing international oper-

ations. Foreign entry by a firm involves most or all of the TMT members

(Barkema & Shvyrkov, 2007; Hambrick, Cho, & Chen, 1996). To mitigate

the risk due to information asymmetry, managers often imitate the deci-

sions of the prior international acquirers (Chhabra & Popli, 2018;

Malhotra, Morgan, & Zhu, 2018). Though the extant literature focuses

on the impact of CEO characteristics (Herrmann & Datta, 2002, 2006)

on firm internationalization, however, studies examining the impact of

TMT composition on internationalization remain scant (Nielsen &

*

JEL classification codes: D70, D91, F23.

DOI: 10.1002/jsc.2261

Strategic Change. 2019;28:209–215. wileyonlinelibrary.com/journal/jsc © 2019 John Wiley & Sons, Ltd. 209