Multinationals in emerging markets: A test case of the banking industry in India

• Main Author: JOSHI, Havovi
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2017
• Subjects: Emerging markets; Banking; India; Multinationals; Internationalisation; Digital disruption; Asian Studies; International Business
• Online Access: https://ink.library.smu.edu.sg/etd_coll_all/45; https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=1048&context=etd_coll_all
• Institution: Singapore Management University

Multinational firms play a significant role in the world economy, accounting for over 30% of the world stock market value. In the past decade or two, these firms have demonstrated a renewed wave of interest in the Emerging Asian markets. This is not surprising, given the attractive demographics, growing middle class and leapfrogging technology of these markets. But the optimism of these western firms heading eastward often gets quickly subdued by the realisation that these emerging Asian markets are far more complex—or at the very least, different—than western ones. They are more volatile, there is frequently a lack of institutional frameworks, market awareness is low, customer preferences are not well-defined, and distribution channels are not well established. And today, with the world becoming flatter, increasing protectionist policies and business models facing huge digital disruption, established multinationals across many industries are facing significant competition from their domestic counterparts. Despite considerable research on internationalisation strategies, there are only a small number of studies that are focused on developing strategic direction in an emerging market context. Additionally, there is minimal in-depth research to examine the causes of under-performance of the global firm from the developed world in an emerging market as compared to its domestic counterparts, particularly when the industry it operates in is undergoing severe disruption. And yet, this trend of locals outperforming their multinational competitors has been observed to be particularly true in emerging markets. This research study aims to look deeper into this phenomenon, and understand the competitive advantages and disadvantages that foreign and domestic players experience. It focuses on the Banking Industry in India as a test case, where the new private domestic banks that started operations in the mid-90s have today captured over 20 percent of the country’s banking market share; while that of foreign banks has stagnated at around 5 percent. It delves into the activities and strategies undertaken by both sets of firms, and provides insights into the research question: “Why are the western multinational banks operating in India struggling to reach the growth performance of their domestic private counterparts?” The study used a discovery-oriented grounded theory approach that first identifies the key variables that contribute to the success of a banking institution. Thereafter it contextualises these variables specifically to the Indian market, and then delves deeper into understanding where the most significant gaps exist between the competitive advantages of foreign and domestic bank. On the basis of the overall empirical findings obtained, it develops a comprehensive conceptual framework for the firm-specific disadvantages that a foreign bank deals with in an emerging market such as India, and provides recommendations to enable successful growth performance. The research process followed comprises qualitative and quantitative methodology that includes in-depth interviews from the C-suite of foreign and domestic banks in India, along with a survey that was conducted across senior management in these banks. I believe this research would be of great managerial and academic significance as it takes place at a time when the winds of change are running countercyclical to the globalisation trend that had become the buzzword over the past two decades. It also sheds light on the inherent advantages that local businesses bring to the table, which should be useful in developing public policy papers that advocate protectionism. There are very few empirical studies on this subject, and to my knowledge, there has not been any research similar to this one. By developing a conceptual model that is based on an entire range of factors that are at interplay in the Indian banking industry, the findings from this research should add significantly to the literature on the theories of internationalisation and disruption. It would also enable practitioners across the globe to develop suitable go-to-market approaches that have a strong strategic fit with the ground realities in the emerging markets, thereby enabling the successful growth of multinationals in these markets.