Resource based view of internationalization: evidence from Indian commercial banks
| Pages | 41-60 |
| DOI | https://doi.org/10.1108/JABS-10-2014-0082 |
| Published date | 04 January 2016 |
| Date | 04 January 2016 |
| Author | Debadutta Panda,Sriharsha Reddy |
| Subject Matter | Strategy,International business |
Resource based view of
internationalization: evidence from
Indian commercial banks
Debadutta Panda and Sriharsha Reddy
Debadutta Panda
(Economics and Strategy)
is based at IMT
Hyderabad, Hyderabad,
India. Sriharsha Reddy is
based at IMT Hyderabad,
Hyderabad, India.
Abstract
Purpose –The purpose of this paper is to understand the influence of internal resource drivers on
internationalization of commercial banks.
Design/methodology/approach –Panel data on 46 Indian commercial banks from 2008 to 2012 were
collected from secondary sources to measure how assets size, human resources, branding and
advertising, ownership and age influence the international diversification of the commercial bank.
Internationalization of the commercial bank was measured in terms of international advances intensity,
international borrowing intensity and number of countries served. Regression models were designed
with controlled multicolinearity, heterogeneity and exogeneity.
Findings –Higher assets’ size, higher human resources, private ownership and higher organizational
age led to internationalization of Indian commercial banks. However, higher branding and
advertisement expenses and state ownership were found to be negatively related to international
diversification.
Originality/value –Internationalization is one of the growth strategies of a firm which cannot be unified
and generalized due to resource heterogeneity. So this necessitates a large number of studies
sector-wise, sub-sector-wise, product-wise, industry-wise and region-wise. There is a dearth of
literature on resource view of internationalization of commercial banks. So, this Indian study adds a new
finding on resource-based view of internationalization to the existing body of knowledge.
Keywords Internationalization, Commercial banks, Resource-based view of firm
Paper type Research paper
1. Introduction
1.1 Resource-based view of firm
Resource-based view of the firm is a significant contribution to the field of industrial
organization and strategic management in the neoclassical era (Conner, 1991). It was
conceptualized by Wernerfelt (1984) in his paper A Resource Based View of the Firm
published in the esteemed Strategic Management journal and awarded as the best paper.
Wernerfelt theorized firm resources as determinants and determinants of firm performance,
and products and resources of firm are two sides of the same coin (Priem and Butler, 2001).
Wernerfelt’s resource-based view (focusing on resource side than the product side) gives
an important foundation to body of knowledge of strategic management. He concluded:
Resource position barriers were defined as partially analogous to entry barrier [. . .] [. . .] [.. .]
[. . .] [. . .] [. . .] [. . .] [. . .] [. . .] [. . .]. This mechanism is again exploited in the
resource – product matrix, which is somewhat analogous to the growth –share matrix and allow
us to consider different growth paths(Wernerfelt, 1984).
The resource-based view of the firm illustrates that firm gains competitive advantage in
short run by firm’s resources which are rare, valuable and appropriable. This short-run
competitive advantage leads to long-run competitive advantage when a firm’s resources
Received 30 October 2014
Revised 3 April 2015
20 May 2015
Accepted 3 June 2015
DOI 10.1108/JABS-10-2014-0082 VOL. 10 NO. 1 2016, pp. 41-60, © Emerald Group Publishing Limited, ISSN 1558-7894 JOURNAL OF ASIA BUSINESS STUDIES PAGE 41
are inimitable, non-substitutable and mobile (Wade and Hulland, 2004). Hence, firm growth
depends upon clarity in identifying resources and ability to exploit those.
The history of resource-based view of firm can be traced from the theoretical work of
Robinson (1933) from his book on the economics of Imperfect Competition and Chamberlin
(1933) from his book on the theory monopolistic competition and Penrose (1959) from her
firm growth theory. Under firm theories, competency-based theory of firm has its root to the
resource-based theory (Freiling, 2004). Further, there is a logical link between
resource-based view and competitive advantage (Porter, 1985) and competitive strategy
(Porter, 1979,1980) for sustainability and growth of the firm. The resource-based view also
discussed in relation with customers where customer value greatly contributes to the key
tangible and intangible resources and competencies of firm (Clulow et al., 2007).
Wernerfelt’s resource-based view of firm encouraged many researchers to understand firm
resources and how it influences various firm outcomes. It remained as a framework to
understand firm competitive advantages and strategies. It helped scholars to understand
why firms are different and why a growth strategy of one firm may not be applicable to
another firm (Gibbert, 2006). Wernerfelt’s resource-based view may not be directly
explaining how firm resources contribute to internationalization, but he explained that the
resource barriers makes the diversifying entrants vulnerable (Wernerfelt, 1984). In other
words, we can say that the non-resourceful firms are vulnerable to internationalization. The
relationship between firm internationalization and firm resource can be established by the
resource based view of the firm (Barney, 1991a,1991b). Firm internationalization can be
indirectly derived from the firm growth theory propounded by Penrose (1959). Firm attains
growth through expansion of size and firm size expansion is done through international
expansion. Furthermore, the work of Peng (2001) contributed a linkage between
internationalization and the resource-based view of the firm.
1.2 Internationalization
Internationalization is a process of increasing international operations (Welch and
Loustarinen, 1988). It is considered as an expansion of firm through involvement of
international operations, especially crossing the domestic country borders (Kutschker and
Baurle, 1997). Firm internationalization is based on well-grounded theories like the Uppsala
model, the network theory of internationalization, the strategic behavior theory, the
international product life-cycle theory, the transaction cost theory, the eclectic theory, the
behaviorist internationalization theory and the “born global” theory (Jurek, 2012). A
generalized view on the factors concerning firm internationalization are related to the
external environment (business environment) and internal environment (Firm environment)
(Garvery and Brennan, 2006). However, we cannot ignore the prerequisites associated with
external environment, especially when the firm operates in the service sector (Roberts,
1999;Stare, 2002). Though accessing international market is a dominant expectation of
internationalization, it has some important prerequisites and those are financial resources
and management capacities, organization control system, competitive advantage,
entrepreneurial orientation, etc. Internationalization process can be seen from the Uppsala
Model theory where firms entering into new market evaluate risks and costs on new market
considering their firm resources in view (Johanson and Vahlne, 2009). Seifert and
Machado-da-silva (2007) have illustrated how internationalization process and firm
resources[1] are interlinked and they have explained that financial capital, physical capital,
human capital and organizational capital are contributory factors for internationalization
process.
So internationalization from resource-based view (to consider firm resources as a driver for
firm internationalization) is derived from multiple management theories, especially the
Uppsala theory of internationalization (Johanson and Vahlne, 1977), resource-based theory
of firm (Wernerfelt, 1984) and microeconomic foundation and theory of industrial
organization (Porter, 1980,1985). Discussion on a specific banking sector with respect to
PAGE 42 JOURNAL OF ASIA BUSINESS STUDIES VOL. 10 NO. 1 2016
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