The Globalization of Indian Firms from Steel to Software
Chapter 2: Stages of Globalization: From Knowledge Transfer to Industrialized Innovation
This chapter presents a framework for understanding how ﬁrms in emerging economies develop and sustain new capabilities and explaining why some ﬁrms outperform others. It outlines the main thesis of this book that the international expansion of ﬁrms follows an evolutionary process and is an outcome of the development of new capabilities. The chapter discusses the nature and role of knowledge1 in creating capabilities, three distinct stages in the evolution of capabilities, and their accompanying modes of organization (see Figure 2.1). It concludes by suggesting how cross-border replication of knowledge can be accelerated. By synthesizing diﬀerent approaches to internationalization2 and drawing on a variety of theories of organization such as evolutionary and dynamic capabilities perspectives, real options theory, learning theory, and complexity theory it is possible to discern patterns that indicate the presence of distinct stages and organizational conﬁgurations as the ﬁrm globalizes. The delineation of capabilities into distinct stages is used to explicate a complex phenomenon: namely, the emergence and globalization of ﬁrms from a location designated as ‘developing’ instead of ‘at the technological frontier’ (Lall, 1987), rather than to suggest rigid or time-bound adherence to evolutionary processes.3 In the early stages of economic development, which is designated Stage I, capabilities are lacking in the domestic environment.4 Modernization requires investment in new industrial technologies in multiple sectors, yielding increasing returns (Arthur, 1989; Murphy, Schleifer and Vishny, 1989), and skilled labor to transform the economy by shifting the surplus from agriculture, the strongest sector, to technology and infrastructure...
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