Internationalization of business group affiliated firms: Network based explanation

Abstract

This study attempts to explain the internationalization of business group (BG) affiliated firm with the help of network-based arguments. Considering that both costs and benefits are differentially associated with the characteristics of a BG, we propose that group level diversification has a U-shaped relationship with affiliated-firms’ levels of internationalization. We introduce two affiliate level contingent factors – market knowledge and technology knowledge. Our empirical analyses of 3,204 Indian BG affiliated firms (16,110 firm-years) for the period 2006–2014 lends support to the U-shaped direct effect, with an observed flattening effect of market knowledge, but the expected moderating effect of technology knowledge shows no evidence in our data. From our arguments and findings, we provide both a theoretical extension to the BG literature and connect to managerial implications relevant to the internationalization of BG-affiliated firms.