Platform-Based Internationalization of Smaller Firms: The Role of Government Policy.

VerfasserSingh, Nitish

1 Introduction

E-commerce platforms (1) are increasingly facilitating small businesses' internationalization (Manyika et al., 2016; OECD, 2019). COVID-19 concerns are also leading businesses to embrace e-commerce platforms for the expeditious transition of offline undertakings to online activities (Chen, 2020). According to an industry report, online marketplaces generated $1.7 trillion in 2019, accounting for 50% of e-commerce sales worldwide (Merton, 2021). In response to this rapid rise of e-commerce platforms or marketplace operators, governments are crafting policies to ensure that these platforms provide safeguards against unfair trading practices and do not monopolize markets due to their network-effects (Nambisan et al., 2019). One of the main concerns of various governments is protecting marketplace sellers from anticompetitive practices on online platforms. For example, many smaller sellers on large e-commerce platforms face challenges such as listing visibility, customer review manipulations, competition from platforms own products/brands, platforms one-sided access to customers' and sellers' data, account suspensions, and black-hat tactics by other sellers (European Commission, 2020; McKnight, 2020). Indeed, these challenges are more pronounced for smaller firms, particularly in emerging economies, due to their weak resource endowments and limited negotiation power with the E-commerce platforms.

While policies are evolving to protect small sellers and regulating online marketplaces in economically advanced countries (e.g., Digital Single Market Initiative of the European Commission, 2020), it is salient for emerging economies too with a large base of smaller enterprises to update their institutional frameworks for managing platform-based economy's competitive dynamics. India has made an important step in this direction by proposing an E-commerce Policy (Government of India, 2019a) to strengthen its institutional environment. India's policy casts a wide net with measures covering competitive parity and mitigating large e-commerce platforms' coercive power, and concatenating steps focused on incentivizing, educating, and empowering small sellers to efficiently leverage e-commerce for their internationalization efforts.

With this backdrop, the current study aims to explore how government policies impact platforms-based internationalization of 'small and micro enterprises' or SMEs. It focuses on the Indian Policy context as India is one of the few emerging economies that has undertaken significant policy developments, addressing SMEs' internationalization via e-commerce platforms. With its proclaimed aim, this study contributes to this special issue on E-Commerce Policy and International Business" (Cummings et al., 2020) and the evolving body of literature that examines the role of institutions in promoting the firm's internationalization via e-commerce platforms.

There is a vast literature supporting institutions' role in firms' internationalization (Leonidou et al, 2011; Peng, 2003; Peng et al., 2009). Past studies in international business (IB) have also investigated e-business-related internationalization, the role of e-commerce in internationalization, and extended IB theories to explain the e-business internationalization phenomenon (e.g., Brouthers et al., 2016; Chen et al., 2019; Jean & Kim, 2020; Singh & Kundu, 2002; Zeng et al., 2019). However, there is a dearth of studies exploring internationalization at the intersection of institutions and e-business/e-commerce platforms.

Recent studies have started to investigate the role and importance of e-commerce platforms in the IB literature (e.g., Brouthers et al., 2016; Chen et al., 2019; Jean & Kim, 2020; Jean et al., 2020; Nambisan et al., 2019; Ojala et al., 2018; Stallkamp & Schotter, 2021; Zeng et al., 2019). However, most of these studies have focused on the internationalization of e-commerce platform firms and the associated value creation, strategic, and technical issues (Ojala et al., 2018; Stallkamp & Schotter., 2021; Zeng et al., 2019). This is particularly surprising because platform-based internationalization is increasingly gaining momentum. Simultaneously, policies are catching up to address associated challenges, but scholarly research has not kept pace with this growing phenomenon (Cummings et al., 2020; Jean & Kim, 2020).

To systematically analyze the role of policy and provide a relevant context for our analysis, we focus on Indian Governmental policy measures to enhance local SMEs platform-based internationalization efforts. We classify these policy measures based on the internationalization barriers they aim to mitigate. Consequently, we investigate home-market and industry-level barriers that are targeted in the Indian Government's policies in order to enhance Indian SMEs platform-based internationalization. Given the paucity of research in this area, we utilize a more nuanced epistemological approach based on case studies to help us identify context-rich insights to describe the impact of Indian Government policies on the platform-based internationalization of Indian SMEs.

Research Question-1: What is the impact of the Indian Government policies on mitigating home country-level market barriers to SME internationalization using e-commerce platforms?

Research Question-2: What is the impact of the Indian Government policies on mitigating industry-level market barriers to SME internationalization using e-commerce platforms?

2 E-Commerce Platforms and the Institution-Based View

In the IB literature, digital platforms have been generally conceptualized as being multi-sided in nature and thus mediating between different user groups (Brouthers et al., 2016; Zeng et al., 2019). IB researchers have also emphasized platforms' unique capabilities of aggregation, network externalities, shared platform resources, complementation, modularity, governance, and value creation (Brouthers et al., 2016; Jean & Kim, 2020; Nambisan et al., 2019; Zeng et al., 2019). In this study, we conceptualize the role of the e-commerce platform as the facilitator of SME internationalization. Thus, we emphasize the platforms' multi-sided nature of connecting buyers and sellers from different countries. Hence, we define e-commerce platforms as "online marketplace operators bringing together many buyers and sellers by leveraging information, technology, governance mechanisms, and complementors to enable exchange and value creation in a global arena."

Studying SMEs' internationalization via e-commerce platforms without considering the institutional forces impacting these online marketplaces may not fully explain the underlying dynamics of internationalization in this context. Ultimately, SMEs owners' decisions to leverage e-commerce platforms for internationalization is not only the result of the entrepreneurs' decision-making but is also influenced by various policies and actions by governments. Admittedly, according to Clegg (2019), all modalities and outcomes explored in IB result from private decisionmaking and policy actions. Indeed, researchers have called for the exploration of country-specific institutions' role in shaping the dynamics of global competition and internationalization resulting from the proliferation of electronic markets (Grewal et al., 2001; Nambisan et al., 2019). Furthermore, the network effects associated with large platform companies such as Amazon and eBay are compounding the winner-take-all economy, resulting in regulatory responses to curb the rise of such monopolistic advantages (Nambisan et al., 2019). Therefore, it is no surprise to see the rise of policy initiatives worldwide attuned to regulating e-commerce platforms and associated ecosystems of buyers, sellers, and complementers. Policies are also being fashioned to enable SMEs to participate in the global digital economy. For example, India's Digital MSME (Micro, Small, and Medium Enterprises) guidelines empower and educate businesses to use online technology to access national and international markets. Therefore, this study considers the role of government policy and actions to be an essential catalyst for SMEs' internationalization via e-commerce platforms. Hence, we lean on the institution-based view for understanding government actions and platform-actors' interaction and the resulting strategic outcomes of such interaction.

Past studies have emphasized the role of institutions in constraining, facilitating, or supporting firms' growth and internationalization (Kahiya, 2018; Scott, 2001). Dimaggio and Powell (1983) argue that institutions exert isomorphic pressures on organizations by prescribing what actions are acceptable and not, which shapes a firm's behavior and structure. This view of the institutional theory perceives firms as passive receivers, reacting to the evolutions in the given institutional environment and surviving by legitimizing their actions. However, scholars (Cantwell et al., 2010; McGaughey et al., 2016) argue that institutions also co-evolve with the firm's evolution. Such institutional evolution is often triggered by changes in prevailing industry dynamics, technology, and novel business models. Peng et al. (2017) emphasize that both firms and governments need to encourage institutional change in response to this age of accelerated growth, trade, and technological discontinuity. The resulting institutional transitions in the formal and informal rules governing the interactions of governments and organizations (Peng, 2003) reduce uncertainty and lead to institutional development for higher economic growth (Peng et al., 2017).

This dynamism in the institutional evolution has been articulated by Clegg (2019, p. 113), wherein he argues that "while in many ways formal institutions reflect a sense of stability and permanence [to provide durable social structures as articulated by (Scott, 2001)], part of their purpose is also to respond...

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