Do Board Interlocks Affect Entry Mode Selection?

Abstract

In this study, we examine how board interlocks in firms from emerging markets can serve as conduits for vicarious learning in global markets. Based on the organizational learning perspective, we look at how a company's board of directors ties in with other companies that are already doing business in other countries. Driving from a proprietary dataset of 556 overseas market entries by Indian firms in knowledge-intensive industries, we find that firms with a higher degree of board interlock with internationalised firms are more likely to prefer acquisitions and alliances/joint ventures over greenfield initiatives. The fact that board interlocks have a significant impact on the decision to explore alliances/joint ventures rather than acquisition and vice versa is not conclusively established. Furthermore, we observed that other modes of vicarious learning, like foreign institutional investors, can be used to compensate for the absence of board interlocks. It is also possible to enhance the knowledge gathered through board interlocks with knowledge gained from the organisations' own global experience.