Competitive Advantages in a Hostile, Regulated Environment: Four Multinational Banks in India.

VerfasserCaussat, Paul

1 Introduction

In spite of the increasing centrality of service multinational enterprises (MNEs) in the world economy (Greenwood et al., 2010), international business theory has engaged with these actors to a lesser extent than with traditional manufacturing MNEs - in particular, their international expansion and the relevance of traditional competitive advantages to service MNEs (Bai et al., 2019; Chidlow et al., 2019). International business literature has historically been divided between scholars exploring the local obstacles foreign firms face (thereby overlooking foreign firms' capacity to deploy advantages locally) (Johanson & Vahlne, 2009; Wu & Salomon, 2017; Zaheer & Mosakowski, 1997) and those examining the internationalisation of firm-specific advantages (thereby overlooking the peculiarities of the local context in which foreign firms deploy their advantages) (Dunning, 1980; Nachum, 2003; Rugman & Verbeke, 1992). Scholars still do not completely understand the process by which foreign multinational banks (MNBs) develop competitive advantages in relation to the host environment (vis-a-vis domestic and other foreign firms), especially in a non-Western, emerging economy context characterised by both institutional voids (Khanna and Palepu, 2000) and hostile regulations. While a narrow economics-inspired literature stream tentatively addresses this topic (Berger et al., 2000; Jones, 1993; Williams, 1997; Yannopoulos, 1983), to the best of our knowledge no studies provide a comprehensive analysis and comparison of the variety of competitive advantages in a specific industry (here: Multinational banking) and host environment, and our article is aimed to fill this gap. Our research question, therefore, is as follows: What advantages do MNBs develop in a competitive and hostile environment?

To address this question, we conduct a multiple-case study of four MNB subsidiaries (British, French, Singaporean and South African) operating in India, using interviews with their chief executive officers (CEOs) and other stakeholders as well as archives and secondary data, to understand the nature of competitive advantages deployed by our sampled MNBs. The subsidiaries vary in terms of organisational characteristics (origin, age, local experience and/or knowledge and international presence), which allows us to pinpoint variations in the nature of competitive advantages developed in the host environment.

Building upon the work of Edman (2016), Sethi and Guisinger (2002), Sethi and Judge (2009), Shi and Hoskisson (2012) and Taussig (2017), our first contribution is to bridge the gap between the obstacle-oriented internationalisation literature (which focusses mainly on navigating local peculiarities) and the advantage-oriented literature (which focusses mainly on transferring homegrown advantages overseas), by including a comprehensive list of advantages relevant to multinational banking in relation to a specific host environment. Second, we link together the type of competitive advantages pursued and MNB subsidiaries' performance. To do so, we introduce the concepts of global anchoring and local anchoring, which encompass both the marketing and organisational dimensions of international strategy. Including both dimensions allows us to pool together the various competitive advantages developed by each MNB subsidiary. We then develop a qualitative measure of MNB subsidiaries' commercial and financial performance and evaluate the subsidiaries in relation to their global versus local anchoring strategies and competitive advantages pursued. Third, we develop a series of propositions to decipher the sources of competitive advantages, building on and assessing three theoretical lenses situated at the intersection of the obstacle-oriented and the advantages-oriented literatures: (1) institutional asymmetries (Fitzgerald, 2008; Mallon & Fainshmidt, 2017), (2) comparative capitalism (Cuervo-Cazurra et al., 2018; Whitley, 1999) and (3) first-mover advantage (Lieberman & Montgomery, 1998). Furthermore, we add insights to the (emerging economy MNE-focused) leapfrogging literature (Hennart, 2012; Luo & Tung, 2007; Meyer, 2018) by arguing that, more than an economic/rational process, competitive advantages are the result of a path-dependent process embedded with socio-political dynamics and historical ties and cannot be easily fast-tracked or leapfrogged.

The remainder of the article is organised as follows. The next section presents a review of the various internationalisation theories and how they fit into the internationalisation of multinational banking activities, followed by a discussion of literature that focusses on the various (multinational banking-specific) 'competitive advantages' within the host environment. The following section contains a description of the context of the study and the methodology applied. We then present empirical results, structured around the four categories of competitive advantages identified in the literature, and an analysis of subsidiary performance. A discussion of these findings follows in which we introduce three theoretical lenses through which to examine the sources of competitive advantages in our sample and then present a series of propositions. We conclude with a discussion of our contributions, the limitations of this research and potential avenues for future research.

2 Theoretical Background

2.1 Multinational Banks: A Central Yet Convoluted Actor in International Business

Most international business studies have historically focussed on 'traditional' manufacturing firms and their overseas expansion; thus, there have been debates as to whether traditional international business theory can explain the internationalisation of service MNEs with accuracy (Bai et al., 2019; Boddewyn et al., 1986; Williams, 2002). Service MNEs bear several distinctive characteristics that crease unique internationalisation challenges: intangibility (leading to high transaction costs when transferring across borders), inseparability (proximity to customers is required as production and consumption take place simultaneously) and heterogeneity (because each customer interaction is unique, a high degree of customisation is required) (Bai et al., 2019; Chidlow et al., 2019). However, even within the category of service MNEs, significant industry-level differences are present, which makes it difficult to consider service MNEs as a whole (Boddewyn et al., 1986). Venzin et al. (2008) differentiate hard service MNEs (production and consumption can be separated) and soft services MNEs (inseparability of production and consumption). They argue for instance that retail banking is mostly a soft service industry although there are elements of hard service too (i.e., some banking activities or products can be centralised in one location to a certain extent, depending on host-country regulations). Further to this, Bai et al. (2019) distinguish process-oriented service industries (more capital-intensive industries that require technical skills; e.g., the information technology industry), which can incorporate elements of standardisation, from content-oriented service industries (more labour-intensive industries that involve high consumer involvement; e.g., the hospitality industry), which are by nature much more localised. In this article, we focus on a specific type of process-oriented services: multinational banking activities.

As a specific type of professional service, multinational banking encompasses a set of heterogenous yet interrelated financial intermediation activities (Casson, 1990), and while some international banking activities can (to certain extent) be performed at home, a distinct characteristic of multinational banking is that the bank owns and controls banking activities in at least two countries (Casson, 1990). A bank is not an ordinary firm (Wilkins, 1990), and in this respect, MNBs represent a very specific type of MNE. Williams (2002) argues that foreign direct investment (FDI) in the banking industry cannot be explained with the same arguments used for other industries (Williams, 2002). A thriving accounting and organisational literature explores the management of professional service firms such as accounting, law and management consulting firms (Boussebaa, 2009; Morgan & Quack, 2005; Muzio & Faulconbridge, 2013), less so when it comes to multinational banking. A few scholars have made important contributions in the international business field (Aliber, 1984; Boddewyn et al., 1986; Casson, 1990; Sabi, 1988; Williams, 1997, 2002), but these studies are rather dated often embrace an economic perspective on the MNB. Interest has recently been renewed in the study of multinational banking using primarily a socio-political and/or (neo-)institutional lens (Caussat et al., 2019; Edman, 2015, 2016; Wu & Salomon, 2017), but overall, there remains important questions to be addressed regarding the internationalisation motivations and pattern of service MNEs, including MNBs (Bai et al., 2019).

This is surprising considering some of these corporations tend to display higher levels of internationalisation (Greenwood et al., 2010) and have long been central actors in the world economy. The pre-eminence of some of the largest MNBs goes back to the nineteenth century, when they acted as a primary economic conduit of colonial domination (Bonin & Valerio 2018; Jones, 1993). Their continued expansion throughout the twentieth century has enabled them to become highly international (Boussebaa & Faulconbridge, 2019). Today, MNB subsidiaries in host countries might often be relatively small in size (as an example, foreign MNBs represent 7% of assets across the Indian banking sector), mainly (but not always) catering to the lucrative foreign and large domestic corporate lending segment, yet they perform critical roles in the host country: to connect it to the world economy, provide funding and technology...

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