Intensifying Export Performance Through Planned Capacity Building: A Study of the Indian Apparel Sector

Abstract

The process of firms making sequential foreign direct investments have been an area of interest and research for long in the field of International Business. International trade literature is wrought with indebtedness towards FDI as a policy for economic development, especially while tracing the growth path of tiger economies in South East Asia. However, little has been revealed on the subject of OFDI [outward foreign direct investment] in the context of Indian or South East Asian companies. OFDI is better understood as Indian firms investing abroad through various methods like: marketing and sales subsidiaries, production facilities, global brand management, takeovers, acquisitions and wholly owned subsidiaries This becomes not only a method of entering a foreign market but also the process of increasing foreign commitments in host countries. This draws attention to the process of internationalization followed by these countries so as to capture overseas markets and improve the volume of international trade. Much of the early literature on internationalization behaviour concludes that the process involves a series of incremental ‘stages’ whereby firms gradually become involved in exporting and other forms of international business. As they do so, they commit greater resources to foreign markets and target countries that are increasingly ‘psychically’ distant (Johanson and Vahlne, 1977). This by far is the best study on methodology of internationalization prior to the path breaking research of Sea Jin Chang in 1992 when the process of sequential entry by Japanese firms into US had been analysed and documented for developing country references. This became the source and inspiration of this study. It was deemed that a background as rich and endowed as India’s history of foreign trade, should naturally lead to rapid internationalisation in the modern era. The theoretical framework for the study has been drawn from Duning’s OLI Paradigm which relates various forms of International production to the three core advantages owned by the company – ownership, location and internalization. Therefore the OFDI becomes a function of capacity built along these lines. The four significant areas of capacity building at a micro level emerges as: skilled workforce; information technology; marketing network and cumulative learning. After identifying these areas, the major difficulty faced by the researcher was in terms of lack of availability of a research instrument to collect empirical data to study these areas of capacity building and level of internationalisation. The next important task therefore became to develop a reliable and validated questionnaire which can be used in data collection for multivariate data analysis. This led to development of a summated rating scale through factor analysis and reliability testing in a pilot study conducted amongst exporters of Delhi /NCR. It was a tedious and cumbersome process working on so many dependent and independent variables together. The principal component analysis significantly reduced the complexity of this task by grouping interdependent variables into independent factors which were further used in intensive data collection and inferential studies. The research instrument is one of the important contributions from this study and detailed heavily in the paper. To further cement the relationship between the variables a functional concept is desired in the form of discriminant analysis. As is known discriminant analysis is used primarily to predict membership in two or more mutually exclusive groups. For instance, group of exporters who built capacity during internationalization and the group which did not. These are two discrete groups that can be identified using sufficient information from level of investments made in significant areas like – Information Technology; marketing network; cumulative overseas experience and skilled workforce as the independent variable used in the study. From these variables it is endeavoured to create a formula that differentiates or discriminates between the two groups. This newly found formula – if it discriminates successfully could be used to analyse the liklehood of future prospects in capacity building. The last section in Results and Discussion states the important factors which influence mature internationalization and therefore rightful nodes for planned capacity building. It was seen that Organisation, systems, commercial and operational capacity building are best identified as investment areas for mature internationalization. Any company having varied levels of investments in select areas of capacity building can eventually predict its grouping in high or low degree of internationalization-the ultimate objective of business modeling.. It is the researcher’s earnest hope and desire to satisfy the superior intellect of the reader and at the same time maintain a realistic estimate of the variables on ground while unfolding the given framework.