ParthasarathyMomayaJha InternationalizationofIndianfirms Apr2017

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Internationalization of Indian Firms: An Exploratory Study of Two Firms from

the Tyre Industry
Article in Journal of East-West Business · October 2016

DOI: 10.1080/10669868.2016.1215670
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A case of internationalization of Indian firms from the tyre industry

Internationalization of Indian firms: An
exploratory study of two firms from the tyre
industry *

Abstract:
The sustained internationalization of firms of Indian origin has held the attention of
academicians and practitioners alike. India’s place in the global tyres industry is far
from being a prominent one. Yet, two Indian firms have chosen radically different
paths to internationalize, as per the typology proposed in the article. This article takes
a case study methodology approach that brings to light the antecedents, motives and
behaviours of these two firms in their internationalization journey thus far. Findings
also indicate firms initially build a strong market position via delivery capabilities,
and thereafter turn to brand building, followed by the quest for input capabilities.
Keywords: Internationalization motives; entry mode; international

competitiveness; typology for internationalization.
INTRODUCTION
The rise of emerging market origin (EM-origin) firms in the international arena is a
phenomenon that is being rigourously researched by academicians across a variety of
diciplines, especially international business (IB), global strategy and international
entrepreneurship. The emergence of a wide variety of Indian firms on the
international arena has held the attention of academic scholars (Athreye and Kapur,
2009; Cappelli et al, 2010; Chittoor and Ray, 2007; Javalgi and Todd, 2011; Kothari,
Kotabe and Murphy, 2013; Kumar, 2008; Luo, Sun and Wang, 2011; Pradhan, 2004;
Ramamurti, 2012; Ramamurti and Singh, 2009; Rienda, Claver and Quer, 2013) as
well as writers in the business press (Kumar, 2009; Forbes, 2013; Forbes India, 2015;
The Economist, 2008 and 2014). While studying the internationalization of Indian
* NOTE: This is an earlier version of the final publication at the Journal of East-West Business : https://doi.org/10.1080/10669868.2016.1215670
Google Scholar citation: Parthasarathy, S., Momaya, K. S., & Jha, S. K. (2016). Internationalization of Indian Firms: An Exploratory Study of Two Firms from
the Tyre Industry. Journal of East-West Business, 22(4), 324-350.
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firms, we noticed that out of a small set of firms belonging to India’s tyre industry,
two firms (Apollo Tyres Limited – Apollo and Balkrishna Industries Limited - BKT),
showed distinctly high degrees of internationalization, based on their ratio of foreign
sales to total sales (FSTS). The two firms fell into the overall category of automotive
industry (one of the four sectors that showed high propensity towards FDI - foreign
direct investment - in the decade strtaing 2000 – see, Bhaumik, Driffield and Pal,
2010; Nayyar, 2008). Of these two firms, Apollo’s foreign reveues were significantly
driven by overseas subsidiary activities, while BKT was entirely dependent on Indian-
origin exports. However, both the firms were strongly oriented towards developed
region economies in their internationalization efforts. This stark contrast – and their
focus towards developed regions - makes us curious to address the questions, Why did
these two firms internationalise? and How did they internationalise? Using secondary
data from a few sources in the public domain, we try to answer these and a few related
questions that are brought up in the later part of our paper, with the aid of case study
methodology. Table 01 gives the listing of India’s top tyre manufacturers and their
size in terms of total revenue, FSTS and exports revenue.
==========================
Table 01 is placed around here
==========================
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THEORETICAL SETTING
While the attention to internationalization of EM-origin firms has been steadily rising
over the past ten years, Bartlett and Ghoshal (2000) were perhaps the earliest to write
about the “emerging multinationals” from “peripheral economies”. Van Agtmael
(2007) identified via case studies a set of EM-origin firms that he called “a new breed
of world class companies” that were superior to their domestic peers and were
challenging entrenched incumbent DMNEs (Developed Region Muntinational
Enterprises). Since 2009, Boston Consulting Group has been listing the “BCG 100
New Global Challengers” from rapidly developing economies (BCG, 2009; BCG,
2013, BCG, 2014), highlighting some of the distinct ways in which these firms were
building and exploiting their international competitiveness to break into the
international arena and sustain their play.
Ramamurti (2009a) made a compelling case why scholars must study emerging
market multinationals (EMNEs), by citing their FDI entry modes. In particular,
attention was being invited to understand the antecedents, strategic intents and
competitive advantages that drove “South-North FDI flow” and the impact of such
EMNE-internationalization could have on their respective indutries. Sinkovics et al
(2014) bring together some scholarly contributions that try to answer the questions
whether EMNEs are “rising powers” and are changing the “rules of the game?”.
Given that these firms were less endowed late-comers, the Dunning (1988a, 1988b
and 1995) Ownership-Location-Internalization (OLI) paradigm was found by some to
be adequate to understand their internationalization. On the other hand, Rugman
(2009) citing earlier work (Rugman, 1981 and 1996) found EMNEs to be significantly
dependent on the home-country specific advantages (H-CSAs) of their home-
country.The argument made is that for EMNEs to be able to give serious competition

to DMNEs – and impact the industry they are in – they must mature to a state where
their firm specific advantages (FSAs) are not tightly linked to their H-CSAs.
Ramamurti (2009b) calls EMNEs as “infant MNEs” (pp 420). Newer theories in IB
that aim to explain internationalization of EM-origin firms make the argument that the
quest for FSAs is central to the phenomenon and these firms adopt a link (with
knowledge sources) – learn – leverage mode (Mathews 2002, 2006) or acquire-learn-
exploit mode (Luo & Tung, 2007) to internationalize. Aharoni (2014 and 2015) made
the case for the need to develop a dynamic contigency theory in IB that can explain
the internationalization of EMNEs that are not only internationalizing in a context far
too different from the one in which DMNEs arose, but have much less in common
with one another.
Antecedents, motives and approach to internationalize
Internationalization of firms has been a study in the IB discipline for over six decades
now. An early stage-model of internationalization was proposed by Vernon (1966.
1971), which traced the stages of internationalization from low-commitment mode of
exporting to high-commitment mode FDI- based overseas production, along with the
associated factors, antecedents and motvations. The Dunning (ibid) OLI paradigm
explains the mechanism of FDI driven internationalization that was a part of the
above model. The other stage model was the Upsala model (Johanson and Vahlne,
1997 and 1990), that posited a commit-learn-commit approach to internationalization
implying that firms internationalizion progresses as firms step up commitment based
on learning. Buckley and Casson (2010) offered a prospective view on dealing with
entry-mode choices (between FDI and exports), given that such decsions must take
into account uncertainties. Ramamurti (2009b) put forth a stage theory of MNEs (pp
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420) that charts the journey of a firm from “infant” to “adolescent” to “mature”
stages with distinct changes in the dependence on H-CSAs, dependence on exports vs.
dependence on overseas subsidiaries, evolution of brand (going from local recognition
to global).
Exporting is considered to be the first step towards internationalization (Johanson and
Wiedersheim-Paul, 1975). A typology was proposed by Cavusgil (1984) for exporters
as experimental exporters, active exporters, and committed exporters, by studying a
cluster of firms for their degree of internationalization, measurable firm
characteristics, home-market environment, nature of involvement in international
business, aspects of marketing policy and export market research practices.
Paul and Mas (2016) find that Chinese companies export based on price
competitiveness based on low-cost manufacturing, while services exports
performance of Indian firms is driven by availability of high quality technical
manpower.
Aulakh, Kotabe and Teegen (2000) found that for EM-origin firms use cost-
competitiveness for their exports to developed country markets, but are seized of the
challenges of newness of foreign markets, lack of requisite levels of managerial,
financial, and technological skills vis-a-vis entrenched competitors in host markets,
negative brand and country-of-origin effects. Gven these challenges, the systematic
and diligent selection of export-markets is critical, especially for a small-to-medium
sized firm that may severely be limited in its appetite for risk-taking (Brouthers and
Nakos, 2005; Cavusgil and Godiwalla, 1982; Reid, 1981). EM-origin firms may have
to be even more serious about markets selection, given their various liabilities. The
COO effect for EM-origin firms that seek to export developed regions poses
significant challenges (Fan, 2008).

5

On the other hand, with the high commitment entry mode of FDI, EMNEs are
challenged with higher risks, often magnified by the liabilities such as those arising
from “foreignness” (Zaheer, 1995), “outsidership” (Johansson and Vahlne, 2009),
“origin” (Ramachandran and Pant, 2010) and “emergingness” (Madhok & Keyhani,
2012) . These challenges notwithstanding, EMNEs have shown the unmistakable
boldness and agility that Contractor (2013) characterizes as “punching above their
weight”. Particularly, the developed region bound FDI from EMNEs have caught
much attention so as to study antecedents, patterns, motives and outcomes (Aharoni,
2015; BCG, 2014; Buckley, Elia and Kafouros, 2014; Child and Rodrigues 2005;
Chittoor, Aulakh and Ray, 2015; Contractor, 2013; Gubbi et al, 2010; Kale, Singh and
Raman, 2009; Luo and Tung, 2007; Luo et al, 2011; Madhok and Keyhani, 2012;
Meyer and Thaijongrak, 2013; Moghaddam et al, 2014; Rabbiosi, Elia and Bertoni,
2012; Ramamurti, 2009b). According to Meyer (2015) EMNEs FDI towards
developed region is marked with quest for strategic assets that the firms are bereft of,
which assets are vital for the long term success in home-markets and elsewhere (pp.
58). Such an asset augmentation strategy (Bukley et al, 2015) brings to the fore the
question of location (i.e., what should be the FDI destination, given that prized assets
could be available only in develped regions), as highlighted by Benito (2015). Lastly,
many EMNEs may have factor in their embeddedness and position (with reference to
upstream / downstream value curve capabilities) in global value chains (GVCs) in
determining priority of FDI-destinations for internationalization (Giroud and Mirza,
2015; Pananond, 2015).
The above discourse raised further questions that we set out to address in our study.
What were the antecedent conditions, with respect to the firm- / industry/- and
destinations-contexts?
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What was the approach to internationalization – and why?What came first?
What followed?
What were the challenges? And what were the responses?
OVERVIEW TO THE GLOBAL TYRE INDUSTRY
The use of rubber tyres for the purposes of traction dates back to the 19th century (the
advent of solid tyres, soon after Charles Goodyear invented the vulcanization process;
the use of pnuematic tyres after John Boyd Dunlop’s invention in 1888). Today,
vehicle traction remains the largest application, of which nearly 87% (by value) is
towards its use in on-road applications (i.e., passenger vehicles and goods haulage
vehicles) and ca. 3% is taken up by two-wheelers. The remaining 10% of the market
(total value for 2015, ca. USD 220 bn) is taken up by off-highway tyres (OHTs) used
in traction applications in industries such as mining, construction, industrial, farming
and forestry.
Some typical industry features
Oligopoly: Globally, the industry is dominated by companies of traid-region origin.
As recently as in 2012, the top 10 companies (we call them tyre MNEs) by revenue
made up over 60% of the global sales. Researchers have also noticed oligopolistic
behaviours of the tyre MNEs, while observing their market participation, international
expansion and investment trends (Ito and Rose, 2002; McGovern, 2011; Nguyen, de
Vanssay and Parsons, 2015).
Raw material: It is worth noting that while the automotive industry has seen many
changes (in engines; in transmissions; in safety systems; in materials used; embedded
electronics) and continues to face some potentially disrupting developments (alternate
fuels; electric cars; driverless cars), the tyres made of rubber have remained a nearly
constant feature. Nearly 70% of the cost of production is towards raw materials of
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which a very large proportion is natural rubber. The continent of Asia holds nearly
80% of global natural rubber output.
After-market opportunity: The market for replacement tyres is over 65% of the total,
in value terms.
OEM sales: Though the market for sale of tyres to vehicle and machinery
manufacturers (OEMs) for first fit may be smaller in size, the tyre MNEs are a part of
GVCs orchestrated by OEMs. Staying deeply engaged with OEMs is vital for the long
term orientation and future success.
Distribution capabilty: Global leaders (and leaders in regional / domestic markets)
often invest in distribution capabilities, while smaller manufacturers, especially those
who are mainly focused on after-market opportunities, depend on independent
distributors who supply to dealers and retailers.
Design and testing capabilty: This is vital for engaging in deelopment efforts while
serving OEMs. The tyre MNEs invest continually in product development. Industry
leading Bridgestone (2014 revenues, ca. USD 33 bn) showed an average R&D
intensity of 2.5% for the recent three years.
Indian tyre industry – key details
Market size: The Automotive Tyre Manufacturers Association (ATMA) of India pegs
the total revenue estimates for 2014-15 at ca. USD 8.5 bn (up from USD 3.5 bn in
2006-07), with about 10% as exports. The average annual growth rate in value terms
was ca. 8% , however at present the volumes growth is mainly driven by the two- /
three-wheeler segment.
Market make-up: In the year 2014-15, the two- / three- wheeler tyres make up for
nearly 52% of the volumes, while the passenger and commercial vehicles make up for
8

the remaining. The OEM-sales for passenger cars and goods vehicle segments were
42% and 17%, respectively. The after-market market makeup for these two segments
were 45% and 78% respectocely.
About key players: The first four firms in Table 01 make up for nearly make up for
75% of the market in revenue terms. They are principally engaged in on road tyres
segment, with large dependence (nearly 70%) on after-market for revenues.
THE STUDY METHODOLOGY

The approach to a research study is determined by the underlying philosophy of
researchers (Creswell, 2013). This study is based on the philosophy that by
studying a varierty of data and information from diverse sources, EM-firms
internationalization can be better understood, by comprehending contextual
themes that address the research questions set out in the preceding section. Such
an exploratory study, essentially qualitative in nature, can be seen as a response
to call by Birkinshaw, Brannen and Tung (2011), that further research in IB is to
be encouraged so as to answer the how and why questions. A study like this,
where we look at the phenomenon of developed-region bound
internationalization of Indian firms (i.e., “What has happened?”) and attempts to
understand “Why / How it happened?”, calls for a descriptive, exploratory and
explanatory nature of inquiry, as of the case study method (Towne and
Shavelson, 2002). Further, case studies can help corroborate extant theories
(Flyvbjerg, 2006; Yin, 2011) and are useful in providing rich, contextual details
that can help enhance the understanding of extant theories. Therefore, analysing
our secondary data, the study takes an approach to help readers link the “what”,
with the “how” and “why” insights from the cases to extant theory. Case studies
9

also can be used to extend or build new theory (Eisenhardt, 1989; Eisenhardt
and Graebner, 2007).
Sampling method

Refering to table 01, given our approach of doing a qualitative study based on
secondary data, we restricted this list to “purposive sample” (Teddlie and Yu, 2007,
pp 80) of firms that were listed on the stock exchange, so as to avoid limitations of
non-availability of firm-specific data. Prevailing listing requirements mandate timely
and specific disclosures thereby making available reliable secondary data. We have
used quantitative data as above from firms’ annual reports to finally select our two
case firms - Apollo and BKT. Such mixing of methods at sample determination stage
of a study is not uncommon (Johnson, Onwuegbuzie and Turner, 2007). We have
also ascertained that both the firms are having significant – and controlling –
shareholding under the “Indian Promoters” category of shareholders, thereby making
them firms of Indian-origin.
Sources of data
The following were the sources for secondary data:
1. Company websites, including those of associate / subsidiary companies.
2. Investor presentations put out by the company.
3. Transcripts of analysts’ calls.
4. Annual Reports as made available in the public domain as per the listing
requirements.
5. Interviews given to business press and trade periodicals by the owners
and key officials of the case firms.
6. Analyst reports of reputed broking firms and equity research firms.
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7. Industry information as available in publications of industry bodies /
industry associations and in academic publications.
8. Interviews given to industry publications by industry experts.
Method of establishing findings

Following this, the content was coded and mapped (all manually) on to
fundamental themes – antecedents, motives, challenges, responses and
outcomes. The mapping was studied to interpret and explicate the findings. In
our attempt to understand findings, we also took support of relevant literature
so as to deduce our conclusions.
STUDY FINDINGS
In this section, we lay out our findings of our study. We start with a brief overview on
our two case firms (Apollo and BKT). Following this, we present our detailed findings
on the answers to our research questions.
Apollo Tyres Limited
The company was established in 1975. Until the turn of the century, the company was
strongly focused on tyres for on-highway commercial vehicles (heavy and light
commercial trucks) and emerged as one of the leading players in this segment – next
only to the marlet leader, MRF Limited. In the1980s, Apollo had technical licensing
agreemnts with General Tires (USA) and later with Continental AG (Germany). Since
the entry of many international passenger car OEMs into the Indian market starting in
the early 2000s, the market for tyres in this segment has been steadily growing.
Apollo today has a market mix 45% truck and bus; 36% passenger vehicle;11%
OHT; 6% light truck; and 2% others. In early 2016, Apollo entered the Indian two-
wheeler tyres market (ca. 85 mio. unis p.a., growing at 8.5%) by launching a limited
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range of products mainly for the after-market consumers. Apollo made two cross
border acquisitions, one in 2006 (Dunlop Tyres International, South Africa) and the
other in 2009 (Vredestein Banden B.V., Netherlands). In 2013, Apollo sold
substantial portion of its SA operations (mainly the car tyres mfg. assets) and the
“Dunlop” brand rights to Sumitomo, retaining the assets relating to commercial
vehicle tyres. This de-internationalization has meant de-growth in its international
revenues, which are now mainly being obtained through Vredestein’s operations. For
2014, Vredestien’s sales mix was 71% passenger vehicle; 25% agricultural and
industrial; and 4% others. The company has four manufacturing plants in India, two in
SA and one in Netherlands. It has two design and R&D units, one each in India and
Netherlands.
==========================
Chart 01 is placed around here
==========================
For the year ending in March 2015, the company declared its revenues to be 2.08 bn
USD. The geographical segmentation of revenues of Apollo has three principal
components: India – 65%; European subsidiary – 28%; SA subsidiary – 4%; others –
3%. The companies exports are mainly towards regional markets (SE Asia and
Middle east), with some low volumes coming through its European channels. Chart
01 privides some key details of Apollo’s milestones.
Balkrishna Industries Limited (BKT)
The company belongs to the family business group of the Siyaram’s. The first
generation of the family was mainly in the businesses of textiles and yarns. In 1988, a
tyre plant was set up for catering to the aftermarket consumers in two- / three-
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wheeled vehicle segment. However, the business unit struggled to gain a foot hold in
the competiitve and fragmented domestic market. Mandated by the family patrons to
seek more profitable avenues, the company identified off-highway tyres (OHTs) as a
potential opportunity. Given the small size (ca. 10% of the total global tyre market)
and geographically dispersed nature of the market, the tyre MNEs were not seriously
focused in this segment. Such a situation prompted BKT to look at this niche
opportunity and it started its journey as an exporter of OHTs in 1995. In 2015, the
company posted a turnover of ca. 700 MUSD with nearly 45% of its turnover coming
from exports to Europe, while exports to US and rest of the world (RoW) make up for
16% and 20% respectively.
==========================
Chart 02 is placed around here
==========================

The mainstay of the company is sales of tyres for replacement market (85% of all
revenues), with a high focus in the agriculture tyres market (60% of all revenues). The
company is seized of the challenges and opportunities with regard to (a) improving
sales volumes to OEMs; (b) expanding sales in US/NA markets; (c) reducing
dependence on agri. sector by growing volumes in mining and industrial sectors.
Chart 02 privides some key details of BKT’s milestones.
On Antecedents, Motives, Moves and Outcomes
We now explicate in detail our findings with regard to the research questions set out
earlier.
Apollo
The company was sucessful in the domestic market to emerge as a strong player for
truck / bus tyres. The initial country conditions within India in the 1980s, wherein the
13

market for tyres for commercial vehicles was much larger than market for pasenger
car tyres, also meant that such focus on part of Apollo was appropriate. With the entry
of a slew of global passenger car OEMs in the 1990s, India’s passenger car market
was set to grow (the country today is the world’s fourth largest manufacturer of
passenger cars). Apollo has maintained a steady participation in this growing market
segment that was marked by rapid adoption of radial tyres (presently at 98%).
However, for the company, the OEM sales remained poor. Further, the entry of a few
other tyre MNEs (like Goodyear and Bridgestone), meant that Apollo will be
challenged. Further, for a long time, the company remianed a close follower to
market-leading MRF Tyres (a domestic peer). Apollo was seized of the situation that
called for, (a) rebalancing its portfolio between passenger vehicle and commercial
vehicle tyres and (b) finding growth avenues outside India. At the time when it made
its first overseas acquistion in 2006, though the company had a strong domestic
position (revenues of about 600 MUSD), it hardly had any international revenues of
significance. Liu and Buck (2009) have observed similar pattern of “domestic
accumulation” by EMNEs before they set to internationalize (also see Al-Kaabi,
Demirbag and Tatoglu, 2009; Khanna and Palepu, 2006). Its attempt to acquire South
Africa’s Dunlop can also be seen in the light of the Uppsala model (Johanson and
Vahlne, 1977; Amdam 2009) where psychic distance was of importance while
venturing overseas. We see South Africa to be psychically closer to India and
therefore it appears that Apollo was quite comfortable in making the acquisition.
Also, we note that one of Apollo’s independent directors on the board (a long time
industry veteran who worked many years at a global tyre MNE) has stayed on since
first appointed in 1999. Our conjecture is that such a long tenure of association may
have also helped in Apollo make an acquisition when it was hardly into exporting.
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Though the company management had spelled out acquisition rationale that talked of
benefits such as, enhancement of Apollo’s exports to SA, knowledge sharing between
the two entities and economies of scale in raw material purchasing, it appears that the
acquisition (and the subsequent capital investments made in SA) did not pay back.
Clearly, there seems to have been a gap between expectations and reality. The
company was quick to recognize the need for having superior capabilities if it was to
succeed in its internationalization and in its quest to rebalance its revenue portfolio
between commercial- and paseenger-vehicle tyres. Kim and Park (2014) highlight that
EMNEs from Asia look to build owership to specific assets in their efforts to
internationalize. Benito (2015) emphasises that location (or FDI destination) becomes
an important consideration for such motives. SA is not a market where Apollo could
have obtained a strategic asset that could have potential to shore up its long term
inetrnational competitiveness (Meyers, 2015). Therefore, for making its second cross
border acquisition (CBA), Apollo turned towards Europe, one of the three important
regions for global automobile industry (other two being Japan and USA). Vredestien
was purchased by Apollo from its Russian owner (a tyre company that was going
bankrupt). Though, a predominantly after-market dependent company, with nearly
60% of its revenue coming from Germany (a sophisticated marlet), Vredestein held
much promise for knowledge tranfer compared to Dunlop in SA. We see Apollo’s de-
internationalization to be a conscious strategy that is driven by lessons learned.
Vissak, Francioni and Musso (2012), while studying the “non-linear
internationalization” of an Italian MNE say that de-internationalzation experiences do
not to indicate failure, rather such experiences are of value to the firm. Ishida,
Machikita and Ueki (2013) studying internationalization of EM-oriting firms, say that
“foreign platforms in Europe and the USA can deliver knowledge about higher
15

quality products”. With Vredestien, Apollo now has a presence to such an appropriate
foreign platform. It is noteworthy that Apollo’s play in the domestic passenger cars
tyre market is showing improved results since 2009 (after Vredestein acquisition).
Also, the company is using organic growth strategy in European markets (via
Vredestein), while simultaneously deploying a regional strategy (Asia and Middle
East) for exports. Welch, Benito and Petersen (2007) draw the attentention of
reserachers to look for “mode thinking and analysis” in the longitudinal context
(similar to Apollo’s intial strategic-asset seeking FDI into Europe, that is followed by
green-field OFDI into Hungary). They also highlight the importance of “mode
flexibility”, akin to the simultaneous use for export-based internationalization by
Apollo for SE Asian and ME markets; the use of Vredestein to position Apollo brand
in Europe as a 2nd tier strategy, as well as penetrate US/NA markets (which the
company declares to be a vital for long term success).
The tyre industry is known for its focus on advertising and branding (O’Reilly and
Eckert, 2014). We observe that Apollo has focused on this. The ongoing Manchester
United sponsorship deal (now covering over 130 countries) and the relocation of all
its adverstisng and branding headquarters to London, signals the deep commitment
Apollo is making towards its stated strategy of establishing Apollo and Vredestein
brands in key markets. Having caught the attention of the industry and markets after
the Vredestein acquisition, the company appears to be stepping up its insidership by
way of high profile associations. Although such attempts can be seen as followers’
tactics, they help in dealing with liabilies ssociated with “foreigness” and “origin”.
One area where the company is lacking is sales to OEMs. It’s upcoming greenfield
plant in Hungary (as a Vredestien subsidiary) appears to be for bolstering its efforts to
16

build OEM relationships. Though Vredestein now belongs to an EMNE (Apollo), the
Hungary investment plan can be explained by the Dunning (ibid) “OLI” paradigm.
OEMs in the automotive industry are orchestrators of GVCs in which suppliers vie for
share, by giving due importance to location and capabilities. Mathews (2002, 2006)
highlighted the OEM-linkage to be vital for internationalization of EM-origin firms.
Pananond (2015) and Giroud and Mirza (2015) underscore the importance of GVC-
embeddedness as a factor for internationalization. OEM relationships are vital to tap
opportunities for developing long term international competitiveness, that may not be
present (or may be available only after a significant lag of time) in after market space.
Awate et al (2012), underscore the importance for EM-origin firms to develop “input
capabilities” that lead to innovation. Staying engaged with OEMs brings such
opportunities – and brings them faster. We observe that Apollo, after stepping up its
focus on advertising and branding, has now turned its attention to stepping up its
spend on R&D efforts. The R&D-intensity (R&D expenses as a % of sales) has risen
from 0.28% in 2010 to ca. 2% in 2015. Meyers (2015) finds it hard to pinpoint
evidence of reverse knowledge transfer (RKT) from the acquired target in developed
region to the parent EMNEs. Nair, Demirebag and Mellahi (2015) studying Indian
MNEs find that “perceived subsidiary capability, knowledge relevance, and
absorptive capacity positively influence reverse knowledge transfer.” Barnard (2011)
underscores the “role of headquarter recognition” that RKT is of strategic importance
in building international competitive advantage. Paul and Gupta (2014, pp 601) say,
“internationalization can be considered as a process in which knowledge and
learning are critical”. We therefore see the company’s move to have the MD directly
supervise the engineering centers in Europe and India to be a strong signal towards
the importance of RKT and tapping of synergies (collaborative development) and

17

harness the learning efforts across the two units.
BKT
BKT’s foray started with the identification of a niche. Bartlett and Ghoshal (2000)
and Aharoni (2014) have observed how EM-origin firms use niche opportunities to
internationalize. The company’s exports started only after seven years since the
setting up of its tyre manufacturing plant. It may be inaccurate to call BKT an
international new venture (McDougall, Shane and Oviatt, 1994; Oviatt and
McDougall, 1994) or a born global (Knight and Cavusgil,1996; Madsen, Rasmussen
and Servais, 2000; Madsen and Servais, 1997; Rennie, 1993) or a born-again global
(Bell, McNaughton and Young, 2001). We observe that the company can be seen as a
“international firm” (Masden, Rasmussen and Servais, 2000) and is close to the
coinage of being “Entreprenerial with cost leadership”, as proposed by Knight and
Cavusgil (2005). Entrepreneurial skills contributing to the success of EM-origin firms
is also highlighted by Paul and Mas (2016).
BKT’s competitiveness arises from the cost asymmetries that exist between
developing and developed regions (Paul and Mas, 2016). Specifically, BKT’s labour
costs were typically between 3-5% of sales, as opposed to its developed region
competititors who incurred between 25%-30%.
Even though it started its exports first by going to US markets, there seems to have
been a deliberate strategy to focus more on European markets thereafter. Further, it
appears that the company chose agricultural markets to be the beach head within
Europe. Globally, US and Europe lead in terms of farm mechanization (ca. 95%),
while the share of agriculture (as a % of GDP) in Europe is greater (ca. 4%) than in
18

the US (ca. 1%). Within Europe, the firm stepped up its focus on Italy, which is
known for exports of quality agriculture produce.
We also notice that the company lays significant emphasis on relationship with
channel partners (their tagline “Growing Together” is stated to be a reflection of this
ethos). It may not be out of place to mention here that the company belongs to a
family business that was into textiles (a business that sells through dealer channels).
The company is seen to be emphasising its character of being a “family business” in
striking a favourble cord with dealers and distributors who are also mostly family-
owned. Such a mindset of building trust with dealers may have come handy in its
international venture. Moini, Kalouda and Tesar (2008), while studying Czech.
exporters saw the firms as being challenged in understanding the foreign marketing
practices and being able to locate prospective clients/customers. We posit that BKT
works on developing their social capital with dealers. Suseno and Ratten (2007)
identify the importance of social capital for knowledge flows to happen. It appears
that BKT’s sustained exports have become possible due to the knowledge flows from
its overseas channel partners about markets, products and customers. Finally, dealers
are the face of a company in the market. If dealer trusts the manufacturer (owing to
high social capital), it can blut the country-of-origin effects to some extent.
In building its exports business the company has laid emphasis on three aspects –
costs compettiveness; quality standards and building a repertoire of SKUs. The third
aspect is important when an exporter aims to service agglomorated market demad
across many countries, thereby bringing with it the challenges that arise from
proliferation of SKUs. Such an objective (of building SKUs and having the required
production flexibility for fast turnaround), often conflicts with the concurrent goal of
19

cost competitiveness. It is here that BKT has again leveraged the country-specific
advantages of availability of local engineering talent (Paul and Mas, 2016), as well as
the knowledge diffusion that occurs owing to the growth of India’s tyre industry.
Agnihotri (2014) highlights how low cost innovation and value innovation (for niche
products) can help EM-origin firms compete. Athreye and Kapur (2009) observe
frugal engineering to be common with EM-origin manufacturers who internationalize.
Kumar and Puranam (2012) note that Indian firms focus on process innovations as
opposed to product innovations. We see that BKT has consistently used these
approaches to grow as a major exporter from India (nearly accounts for 80% of all of
India’s tyre exports) by positioning its products in developed markets as 2nd tier
product with the quality that is very close to tier-1 brands. The firm’s growth in
international markets reinforces the case Luo (2000) made that for a firm’s
internationalization“dynamic capability— capability possession (distinctive
resources), capability deployment (resource allocation), and capability upgrading
(dynamic learning)” is of importance.
There are similarities between Apollo and BKT’s journey. For one, BKT too has
shown a similar propensity of investing in advertising / branding first, followed by an
increase in R&D spends (eventhough, the increasing trend R&D intensity in recent
years is nowhere close to Apollo’s).
Akin to Apollo, BKT is also seized with the objectives of (a) expanding in the US; (b)
improving OEM-sales, again for reasons menationed earlier. In addition, BKT must
establish itself in the unchartered territory of mining equipment tyres (which is
perhaps the most lucrative and sophisticated of OHT markets).
20

DISCUSSION AND CONCLUSIONS
We see that two different companies from the same industry, belonging to the same
country, have chosen markedly different strategies to internationalise, as graphically
summarized by us in figures 01A and 01B.
==========================
Figures 01A and 01B are placed around here
==========================
Apollo and BKT had very different starting points in terms of their inception as well
as their entry in to the tyres industry. While the genesis of Apollo dates back to the
times when India was counted amongst the “third world”, BKT’s entry was just three
years prior to the start of the country economic liberalization. Consequently, Apollo’s
internationalization began after is established itself deeply in the domestic market.
Paul and Gupta (2014), while studying the internationalzation of India’s information
technology firms foud that while “younger IT firms” internationalize relatively at
much higher pace as compared to older firms, by taking the advantage of the
developments that occur and conditions that prevail.
India’s The two firms have preference for entry modes for internationalization that are
polar in nature (i.e., Apollo’s FDI propensity vs. BKT’s preference to remain an
exporter). Using the two distinct entry modes, we propose a typology for
internationalization by further taking into account the nature of foreign revenue (i.e.,
exports-dependent or via overseas subsidiary activity). We graphically represent in
Figure 02 the five different types of EM-firms as High-commitment
internationalizers; Aspiring internationalizers; Heavy exporters; Light
exporters;Opportunistic exporters.
21

==========================
Figure 02 is placed around here
==========================
We offer the follwing definitions and explanations to our typology:
• High-commitment internationalizers are EM-firms that have foreign sales-to-
total sales (FSTS) ratio in excess of 0.5, while their export sales-to-total sales
(ESTS) ratio is under 0.5. Such firms will have significant share of revenues
from overseas subsidiary activities and assets, with negligible dependence on
home-market origin exports. Their focus on domestic market will be limited or
selective. India’s Tata Motors, Hindalco and Motherson Sumi are typical
examples. These firms demonstrate a high commitment to developing, often
showing the behaviour of strategic-asset FDI for acquiring and sustaining
international competitiveness across a variety of value chain activities, even as
they are seized of the challenges that come with multiple embeddedness across
different destinations.
• Aspiring internationalizers are EM-firms with FSTS less than 0.5 and their
ESTS is under 0.5. We see Apollo in this category. These types of firms are
significantly focused on domestic markets, even as they aspire to
internationalize. However, they could be simultaneously resorting to distinctly
different entry modes of exports and OFDI.
• Heavy exporters are EM-firms that have foreign sales-to-total sales (FSTS)
ratio in excess of 0.5 and their export sales-to-total sales (ESTS) ratio is also
over 0.5. Such firms will show a propensity to deploy FSAs that are tightly
linked to H-CSAs. They too could use multiple entry modes, where FDI
orientation will be selective and limited to overcoming market-related
22

challenges, to aid their exports penetration. We see BKT in this category.
Also, in this category are India’s information technology giants (like Infosys,
TCS and Wipro) and pharma companies (like Dr. Reddy’s Laboratories, Cipla
and Wockhardt).
• Light exporters are EM-firms that have foreign sales-to-total sales (FSTS)
ratio in under 0.5 and their export sales-to-total sales (ESTS) ratio is in excess
of 0.5. Such firms can be seen as primarily committed to domestic market,
with a deliberate strategy towards selective exports. Ceat and JK Tyre from
our table 01 fall under this type.
• Opportunistic exporters are EM-firms that have foreign sales-to-total sales
(FSTS) ratio in under 0.5 and their export sales-to-total sales (ESTS) ratio is
also less than 0.5. MRF Tyre from our table 01 falls under this type. Such
firms have an unwavering commitment to domestic market, and are often
deeply entrenched players. They are opportunistic about exports and
consciously choose not to step up their outward internationalization, even as
they use inward internationalization to compete effectively in domestic
markets.
We are mindful that the typology proposed is a snap-shot view, based on the annual
revenues at a given instance. However, the graphical representation serves well to
study temporal patterns of internationalization of a given firm. For example, prior to
the Dunlop SA acquisition in 2006, Apollo had negligible exports and we see them to
have been in the opportunitic exporter category. The firm’s stated future plans (see
chart 01 – Apollo milestones) convey a desire to become a high-commitment
internationalizer. The firm’s stated goal to seek entry and growth in the US/NA
23

markets and in the OEM sales testifies to such a desire. Had the CBA of Cooper Tires
of USA gone through successfully in 2014, the firm would have come closer to these
objectives. In a global industry that is dominated by oligopolistic tyre MNEs, the
firm’s ambitious goals to deeply internationalize may well be a lofty one to achieve.
For BKT to achieve its vision, the development of its innovation capabilities are vital
and it will have to move up the ladder of international competitiveness beyond its
low-cost advantage. USA’s Titan, a tyre MNE that is focused solely on OHT segment,
has a stated strategy of growth through acquisitions. We expect BKT to make FDI-led
acquisitions in the future, although there is no information to this effect in the public
domain. We offer such a conjecture based on Bhasin and Paul (2016) positing that in
the long run, an exporter will turn to OFDI. Low cost manufacture as a H-CSA is
rarely lasting one. It is well known China’s cost-competitiveness for exports has
eroded in recent times, leading to shifting of manufacturing activities to other
countries in SE Asia region.
IMPLICATIONS
We acknowledge that our study has limitations. Though we used pusposive sampling,
it includes India’s top tyre companies that account for signifcant combined market
share of the domestic market, as well as the largest exporter. However, all our data
sources are secondary. Also, there may be more room to link extant literature to
explicate our findings. Yet, we profer that our study holds potential implications for
researchers who are seeking to understand antecedents, motives, challenges and
modes when EM-firms internationalize. Our study brings together the confluence of
firm-, industry-, home country- and destinations-contexts and its implications for
24

firm’s choices for internationalization. The priorities that follow are important for in
their understanding and tackling lies a firm’s internationalization success.
For practicing managers, our study holds some practical insights on how the two firms
took to internationalization and tackled some associated challenges. Our typology and
the matrix can be used to chart firm strategy.
FUTURE DIRECTIONS OF RESEARCH
One possibility we have identified is to use the typology and the matrix to carry out
case studies of other Indian firms that have internationalized. The other area is to
study how EM-firms set up processes and routines for reverse knowledge transfer
after they make strategic asset seeking acquisitions in developed regions (Meyers,
2015). It may also be useful to study why exporters choose stay away from acquiring
strategic assets and how they overcome challenges, especially those related to
developing innovation capabilities.
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33

TABLE 01
Yr %
#
Company Name End Sales* FSTS** Exp
Sep-
1 MRF Limited 14 146 8% 8%
Mar-
2 Apollo Tyres Limited 15 128 35% 11%
Mar-
3 JK Tyre and Industries Limited 15 74 17% 11%
Mar-
4 CEAT Limited 15 58 21% 17%
Mar-
5 Balkrishna Industries Limited 15 38 84% 84%
Mar-
6 TVS Srichakra Limited 15 19 11% 11%
Notes:
* Sales in billion (INR) Indian Rupees (66 INR = 1 USD)
** FSTS – Ratio of foreign sales to total sales
#
Exp - Export revenue as a % of total sales.
34

CHART 01
APOLLO TYRES MILESTONES
1975 Establishment of company with one mfg. unit.

1981 Technology license from General Tires, USA.
1988 Second manufacturing unit.
1989 Entered pass. car tyres (radials) and premuim bus/truck tyres mkt.
1991 Export of commercial vehicle and agriculture tyres.
1993 Plants modernization and expansions.
1994 Launch of truck radials. Apollo sells at over 2400 outlets across India.
1995 Acquires India’s Premier Tyres.
1996 Market leader in domestic truck and bus segment- 23% MS.
1997 Starts setting up co. owned showrooms.
2004 Enters Truck/Bus Radials (TBR) mkt.
Sets goal for 2010 = USD 2 bn sales (up from 400 MUSD in 2004).
2006 Acquires Dunlop Tyres International Ltd. (South Africa). Adds 4 mfg.
plants in Africa – one in SA; two in Zimbabwe
2009 Acquires Verderstein Banden BV, Netherlands
2010 Adds fourth domestic manufacturing location in India.
2011 Nearly 40% of consolidated revenue from outside India
Declares Dubai as a regional hub.
2012 Ranks # 17th (just below India’s MRF) in world rankings by revenue size.
Company announces a targets 60% annual revenues outside India and be
top-10 ranking globally by 2017.
Heads of engineering centers in Europe and India will directly report to
the MD.
2013 Significant assets sale from SA operations to Sumitomo Rubber
Industries.
Declares Thailand to be a regional hub.
Starts Manchester United sponsorship.
Vredestein brand premium tyres for passenger cars launched in India.
Unsuccessful at an attempt to buy-out USA’s Cooper Tire.
2014 Achieves 1 mio. units p.a. sales of Apollo branded tyres in Europe.
Announces first overseas greenfield venture in Hungary announced
as a subsidiary of Verdestein (USD 540 mn. capex).
Regional expansion in ME – enters Qatar.
2015 Acquires Germany’s Reifen.com GmbH for tyres distribution and sales.
Announces OEM (agri. and pass. cars) strategy for Europe.
Announces Vredestein’s plans to focus in US markets, starting with agri.
tyres.
2016 Re-states goal to be in top-10 ranking by 2017.
35

CHART 02
BKT MILESTONES
1988 Starts with 2-/3-/ 4-wheeler tyres for domestic market.

1992 Produces light-truck tyres.
1995 Starts off-highway tyres for exports.
1996 Early success in NA markets tiggers massive expansion plans.
2000 500 SKUs developed since 1996.
2001 Expanding product range and mfg. capacities
2002 Doubling of capacity, with focus on agri. tyres.
2003 Earth-mover, ATV, lawn-and-garden tyres.
2004 Dedicated, in-house mold plant.
First in India to launch agri. radials.
60000 MTPA total capacity; 80 MUSD sales.
2005 95% export revenue; 65% in Europe – mainly Ag
1500 SKUs (3kg/12 in./10 USD; 7 feet/2.5 kUSD)
Production flexibility = 25 mould changes / day (5x over competition).
Plans capacity increase to 100000 MTPA.
Vision to be #1 globally for OHTs.
2006 New plant comes on-stream.
Opens office in Italy.
2007 Capacity expanded to 100000 MTPA.
Next generation of the family takes charge.
2008 Opens office in USA – focus on agri. and mining/construction markets.
2009 Obtains REACH compliance.
US sales over 40 MUSD
2010 Capacity: 145000 MTPA;
1800 SKUs; 150 new SKUs every year; 8-10 weeks turnaround.
Ca. 300 MUSD revenues; European sales 50% US sales 13%; Agri. =
60% of total revenues.
200 distributors; 100 countries
Global product standards: ETRTO, T&RA; JATMA; ETTAC
VISION: 10% OHT mkt. share by 2015.
2011 600 MUSD revenues with1800 SKUs.
Sales: 43% to European markets, 19% US, and 24% RoW
80% Replacement mkt.; 15% OEM; 5% jobwork Ag. 66%; OTR 29% ;
others 5%;
2012 1900 SKUs; 41st rank globally by revenues.
2014 Sponsors “Monster Jam” event across three cities in Europe.
2015 Sponsors “Monster Jam” event across 100 cities in USA.
Ca. 700 MUSD revenues. 3% global MS.
Key recruitments of sales personnel in USA.
Starts up latest plant at Bhuj (India), with field testing infrastructure
Total capacity = 275000 MTPA.
States plans for penetrating US / NA markets further.
Highlights OEM strategy and its importance.
VISION: 5% global MS by 2020.
36

Fig. 01 A: Interna5onaliza5on of Apollo
2010

2003
Deepening
Pre-1999 interna5onaliza5on
•  Invest, then divest SA
CBA triggered •  European Focus
interna5onaliza5on •  Ramping up exports
Home-market •  Invest in global branding
success •  Failed Michelin JV •  In global top 20
•  Africa CBA •  Aborted US CBA
•  Leading in CV 5res •  European CBA •  Hungary greenﬁeld
•  Emerging opp. In •  Focus on exports •  India play
PV 5res •  Launch Vredes5en brand
•  No intl. focus •  Car radials mkt. share
•  Enters 2-wheeler mkt.
Focusing on Inward Focusing on input capabili5es

output capabili5es interna5onaliza5on Reverse KT
OEM business
“OLI” – org. growth from CBAs
Fig. 01 B: Interna5onaliza5on of BKT

2010
2000
Deepening
Pre-1993 interna5onaliza5on
•  Strong in Europe for agri.
Exports based •  Global branding
interna5onaliza5on •  In top 50
Finding a niche •  Stepping up US focus
to be “interna'onal” •  Steady Europe
•  Mtkg. / branding
and agri focus
•  Local sales talent
•  Exits 2 wheeler 5res (repl. + OEMs)
•  Starts with Europe •  Online sales
•  Building SKU
•  Agri 5res •  Warehousing
“repertoire”
•  Learning channel •  Heavy-duty mkt.
•  Quality focus
•  rela5onships •  OEMs
•  Thickening the
•  management •  Regional focus
“ Opex“ advantage
•  Bhuj plant
Focusing on Inward Focusing on
output capabili5es Interna5onaliza5on input capabili5es -
of output capabili5es Designing; Tes5ng
37

FIGURE 02:
INTERNATIONALIZATION
TYPOLOGY FOR EM-FIRMS
INCREASING DOMESTIC MARKET FOCUS
E ESTS/FSTS
LIGHT EXPORTERS HEAVY EXPORTERS
X > 0.5
P F
O D
OPPORTUNISTIC
R I
EXPORTERS
T ESTS/FSTS HIGH-COMMITMENT
OR
S </= 0.5 INTERNATIONALIZERS
ASPIRING
INTERNATIONALIZERS
FSTS < 0.5 FSTS > 0.5

INCREASING INTERNATIONALIZATION FOCUS
38
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Internationalization of Indian Firms: An Exploratory Study of Two Firms from

Article in Journal of East-West Business · October 2016

Sundar Parthasarathy Kirankumar S. Momaya

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Shishir Kumar Jha

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Keywords: Internationalization motives; entry mode; international

phenomenon that is being rigourously researched by academicians across a variety of

diciplines, especially international business (IB), global strategy and international

entrepreneurship. The emergence of a wide variety of Indian firms on the

showed distinctly high degrees of internationalization, based on their ratio of foreign

size in terms of total revenue, FSTS and exports revenue.

about the “emerging multinationals” from “peripheral economies”. Van Agtmael

challenging entrenched incumbent DMNEs (Developed Region Muntinational

building and exploiting their international competitiveness to break into the

international arena and sustain their play.

market multinationals (EMNEs), by citing their FDI entry modes. In particular,

EMNE-internationalization could have on their respective indutries. Sinkovics et al

and 1995) Ownership-Location-Internalization (OLI) paradigm was found by some to

be adequate to understand their internationalization. On the other hand, Rugman

dependent on the home-country specific advantages (H-CSAs) of their home-

knowledge sources) – learn – leverage mode (Mathews 2002, 2006) or acquire-learn-

with one another.

Antecedents, motives and approach to internationalize

now. An early stage-model of internationalization was proposed by Vernon (1966.

1971), which traced the stages of internationalization from low-commitment mode of

1997 and 1990), that posited a commit-learn-commit approach to internationalization

implying that firms internationalizion progresses as firms step up commitment based

dependence on overseas subsidiaries, evolution of brand (going from local recognition

Exporting is considered to be the first step towards internationalization (Johanson and

Wiedersheim-Paul, 1975). A typology was proposed by Cavusgil (1984) for exporters

as experimental exporters, active exporters, and committed exporters, by studying a

cluster of firms for their degree of internationalization, measurable firm

characteristics, home-market environment, nature of involvement in international

business, aspects of marketing policy and export market research practices.

competitiveness based on low-cost manufacturing, while services exports

performance of Indian firms is driven by availability of high quality technical

challenges of newness of foreign markets, lack of requisite levels of managerial,

financial, and technological skills vis-a-vis entrenched competitors in host markets,

and diligent selection of export-markets is critical, especially for a small-to-medium

significant challenges (Fan, 2008).

from “foreignness” (Zaheer, 1995), “outsidership” (Johansson and Vahlne, 2009),

2012) . These challenges notwithstanding, EMNEs have shown the unmistakable

much attention so as to study antecedents, patterns, motives and outcomes (Aharoni,

2012; Ramamurti, 2009b). According to Meyer (2015) EMNEs FDI towards

could be available only in develped regions), as highlighted by Benito (2015). Lastly,

upstream / downstream value curve capabilities) in global value chains (GVCs) in

determining priority of FDI-destinations for internationalization (Giroud and Mirza,

2015; Pananond, 2015).

What were the challenges? And what were the responses?

OVERVIEW TO THE GLOBAL TYRE INDUSTRY

in traction applications in industries such as mining, construction, industrial, farming

Some typical industry features

Oligopoly: Globally, the industry is dominated by companies of traid-region origin.

Vanssay and Parsons, 2015).

changes (in engines; in transmissions; in safety systems; in materials used; embedded

electronics) and continues to face some potentially disrupting developments (alternate

80% of global natural rubber output.

term orientation and future success.