A Framework for Understanding Institutional Factors Affecting the Success and Failure of Offshoring Models in India

Abstract

The objective of this paper is to identify and analyse the factors that influence offshore location decisions from an institutional theory perspective. In the years, emerging economies have shown great growth potential and have attracted significant foreign direct investment, especially from companies willing to set up operations. Despite such a seemingly favourable trade environment, not all companies that entered an emerging economy have been successful. Thus, there is a need to understand the factors that influence the success of any offshore location decision. It is also important to understand the relative importance of these factors, in order to develop novel insights useful to practitioners. There is a lack of literature addressing this issue, which this study aims to fill. We conducted a multi-case analysis with examples of European companies entering India. The findings indicate that successful companies employed locally focused business strategies that enabled them to acquire important relationships and knowledge, and also to adapt to formal institutions, including governmental and regulatory procedures. It was found that, irrespective of size, disregarding collaborative strategies was the main reason for exiting India. These findings are highly relevant for managers and policy makers.