A Network Approach to Understanding Internationalization of Business Group-affiliated Firms

Abstract

We explain internationalization of business group (BG) affiliated firms with the help of social capital theory with a focus on the networks within and outside BGs. We argue that affiliated firms develop Internal Network Configuration (INC) through the combined effect of (i) available network density and (ii) position in network hierarchy within the BG and create greater internationalization opportunities. Affiliated firms also develop External Network Relation (ENR) through the combined effect of (i) trust or confidence in foreign technology exporters and (ii) identification in host financial markets to gain access to international markets. Data from 3203 Indian BG firms over a nine years period is used to test hypothesized relationships. Results show that diversity within a BG is mostly detrimental for internationalization whereas both internal and external network dimensions of social capital facilitates internationalization of BG affiliated firms.