Scholarly article on topic 'How do New Ventures in MNC Ecosystems Proactively Overcome Interfirm Asymmetries?'

How do New Ventures in MNC Ecosystems Proactively Overcome Interfirm Asymmetries? Academic research paper on "Economics and business"

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IIMB Management Review
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Academic research paper on topic "How do New Ventures in MNC Ecosystems Proactively Overcome Interfirm Asymmetries?"

Synopses

AN EXPLORATION INTO THE HOME FIELD, GLOBAL ADVANTAGE AND LIABILITY OF UNFAMILIARNESS HYPOTHESES IN MULTINATIONAL BANKING

Fadzlan SUFIAN

The paper seeks to expand the efficiency paradigm of the eclectic theory in multinational banking within the context of a developing country banking sector. We employ the Data Envelopment Analysis (DEA) method to examine the efficiency of multinational banks operating in the Malaysian banking sector from 1995 to 2007. By employing the panel regression analysis, we then examine the impact of origins on bank efficiency, while controlling for other internal and external factors. The DEA results indicate that the dominant source of cost inefficiency is technical rather than allocative, implying that the managers of Malaysian banks have been efficient at

choosing the proper input mix given the prices, but have been relatively inefficient at utilising all factor inputs. During the period under study, we find that the foreign banks have been relatively more cost efficient compared to their domestic bank peers attributed to superior technical efficiency levels. On the other hand, the domestic banks have been more allocatively efficient compared to their foreign bank counterparts. The results seem to suggest that the impact of banking sector regulation is more pronounced on the foreign banks compared to their domestic bank peers. The results from the panel regression analysis suggest that non-interest income,

capitalisation, and bank size are positively associated with bank efficiency, while branch network, credit risk, and overhead expenses exert negative impacts. However, the impacts are not uniform across the different types of efficiency measures estimated. We find that the multinational banks have been relatively more cost and technically efficient compared to their domestic bank counterparts. Within the context of the Malaysian banking sector, the empirical findings from this study provide support to the 'limited form' of the global advantage hypothesis. On the other hand, the liability of unfamiliarness and home field advantage hypotheses are rejected.

INTERVIEW

NON-LINEAR GROWTH: THE ROAD AHEAD FOR INDIAN IT OUTSOURCING COMPANIES

THE COGNIZANT EXPERIENCE: IN CONVERSATION WITH R CHANDRASEKARAN, PRESIDENT AND MD,

GLOBAL DELIVERY, COGNIZANT

Y.L.R. MOORTHI

Indian IT outsourcing companies (major among them being the SWITCH companies -Satyam, Wipro, Infosys, TCS, Cognizant and HCL) have grown in the past through 'incremental' initiatives such as increasing their head count and earning proportional revenues. But the future may perhaps lie in the realm of 'disruptive' initiatives and nonlinear growth.

This paper first outlines the disruptive and the incremental initiatives of the SWITCH companies and then follows up with an interview with R Chandrasekaran, President and MD, Global Delivery, Cognizant.

Some of the mechanisms of incremental growth adopted by SWITCH companies include rapid growth - assisted by an English speaking and relatively low wage

force, technical education and a proactive government policy, the spotting of potential and quickly building on the outsourcing market; policies to attract, train and retain manpower; increasing the depth of engagement with existing customers; using solution accelerators or re-usable components, developing standardised templates; training employees on new requirements such as consulting; cloud computing; providing higher end of the spectrum of services; using nuanced and intelligent pricing; and building in flexibility to execute the same strategy differently.

The more difficult 'disruptive' initiatives include branding, focusing on product IP, acquiring the deep domain knowledge required for end-to-end business consulting,

and expanding their geographical spread and skill base through acquisitions. Sharing the Cognizant growth story with YLR Moorthi, R Chandrasekaran, President and MD, Global Delivery, Cognizant, spoke about Cognizant's key operating principles, which include customer-centricity and their unique Two-in-a-Box operating model where two people, one onsite and another offshore, are made jointly responsible in a client engagement. He also spoke of the company's successful non-linear initiatives such as service oriented architecture (SOA), cloud architecture, consulting and 'tuck-under' acquisitions. The challenges to the organisation include tapping into the talent pool outside India and bringing in global skills and managing the scale of the growing organisation while retaining its culture.

ROUND TABLE

HOW DO NEW VENTURES IN MNC ECOSYSTEMS PROACTIVELY OVERCOME INTERFIRM ASYMMETRIES? Shameen PRASHANTHAM and K. KUMAR

Several contemporary large multinational corporations (MNCs) have developed interfirm ecosystems that are likely to attract a heterogeneous set of actors,

including new ventures. New ventures are asymmetric vis-a-vis the focal MNC in terms of organisational size, structure and power which could be an impediment to the

development of social capital between these sets of firms. And yet MNCs are potentially a source of novel information, opportunities and ideas.

Synopses

An interesting question to consider therefore is how new ventures overcome interflrm asymmetries to develop and leverage social capital with large MNCs. Our synthesis of the academic literature suggests that some new ventures are more adept than others at partnering with MNCs because they are more proactive in forming and leveraging interflrm ties with large MNCs. However there is scope to improve extant understanding of these proactive behaviours.

IIMB Management Review invited a panel of four panellists associated with ventures that have successfully engaged with large multinationals to shed useful light on how new ventures' proactive behaviours can be vitally important in relationships with large MNCs.

Mr Sunil Maheshwari, Co-founder, Mango Technologies suggested that the start-up must be unequivocal on the business impact of its offering on the MNC and also convey why building a similar solution inhouse or doing without it would not be as rewarding. It must target the right organisation and the right people within it. Cultivating an internal champion within the multinational can help overcome many obstacles. Startups should show broad global vision, which

is critical for the MNC's growth ladder, and proactively create multiple contacts across hierarchy and geography. Furthermore, they should continuously communicate to decision makers in MNCs that they are dependable and agile. Mr Srini Rajam, Chairman and CEO, Ittiam Systems identified three important factors that start-ups must take into account: technology performance, which is a differentiating factor; the business model because large companies have certain ways of doing things and they like certain types of partners; and market selection which in itself goes a long way in bringing the right type of partners. New ventures need to align with the well-established working models of MNCs. They need to be able to respond to such models with competent people and should be able to work with the right global locations of MNCs where key decisions are made.

Mr Sanjay Shah, Managing Director, Invensys Skelta commented that new ventures should communicate regularly with the large multinational on their performance and on areas that require mediation. This behaviour builds the credibility of the new venture and leads to a better relationship. While it is sometimes desirable for a start-

up to be acquired by a gorilla, this is not always feasible and a revised strategy may be required to target alternative acquirers whose technology is closely aligned with its own. It is important to 'appear big' through marketing savvy, especially in terms of its website, and through recognition (e.g. industry awards).

DrT.K. Srikanth, Vice President, Sasken Communication Technologies, reflecting on his company's two decades of operations, noted that while there is much in common to all MNCs, there are different modes of engagement with MNCs. With MNCs who are direct customers, a start-up would seek to proactively get a larger share of their wallet. With MNCs that constitute a channel or a reseller, proactive efforts may focus on expanding the market. With MNCs that are strategic partners, a venture could proactively seek opportunities to service their customers or suppliers and to reach other MNCs in the network. Ventures must invest in the engagement, ensuring that delivery is beyond the expectations of the partner.

In sum, collaborating with a multinational is challenging for new ventures and requires proactive behaviours in order to reap the potential benefits.