Sources of Business Unit Performance Heterogeneity in India: The Influence of Ownership

 -Vikalpa: The Journal for Decision Makers

One of the longstanding and important debates in strategy literature has been on the relative importance of the industry structure and the firm’s resources and capabilities in influencing firm performance (Hawawini, Subramanian, & Verdin, 2003Majumdar & Bhattacharjee, 2014Misangyi, Elms, Greckhamer, & Lepine, 2006Rumelt, 1991Schmalensee, 1985).

Researchers have found that the relative importance of industry, corporate, and business unit effects vary depending on the broad economic sector in which a company is participating, or the country in which the corporation is operating (Fitza, Matusik, & Mosakowski, 2009Makino, Isobe, & Chan, 2004McGahan & Porter, 1997McGahan & Victer, 2010Tong, Alessandri, Reuer, & Chintakananda, 2008). While this research has taken us a long way in understanding the effects of internal and external factors on performance variance of a firm, our understanding of how generalizable those findings are across various ownership categories are scarce.

We intend to fill this gap by situating our study on multibusiness firms from Indian corporate landscape, an important big emerging market that has embraced pro-market reforms recently and become an attractive battlefield for foreign multinationals (MNEs) and vibrant domestic firms.

Different categories of owners have diverse ‘objective functions’ and this diversity gives rise to variance in their competitiveness, strategic choices and performance outcomes (Anderson & Reeb, 2003Chacar & Vissa, 2005Douma, George, & Kabir, 2006Fitza et al., 2009Woidtke, 2002). The differences in identities and attributes of persons in control of the firm result in a variety of relationships, those between the organization and the external environment, as well as the intra-organizational relationships (Heugens, Van Essen, & van Oosterhout, 2009Pedersen & Thomsen, 2003). This also gives rise to differential resource endowments across organizations, intra-firm power relationships, and administrative structures that govern the intra-organizational relationships (Salancik & Pfeffer, 1980).

While MNE subsidiaries rely on resources such as new products, technologies and managerial talent imparted by the corporate parent to overcome liability of foreignness (Zaheer, 1995) in the host country, domestic firms seek advantages from their knowledge of the local institutions, customer insights, and managerial capabilities. In this study, we seek to examine how ownership—foreign or domestic—determine the varying degrees of parenting advantage that different organizations possess in an important emerging economy (EE) like India.

We chose India as it has emerged as one of the largest and fastest growing economies in the world. After the deregulation, privatization and economic liberalization in the nineties, it has become an attractive destination for foreign direct investments.

While diversity in knowledge sources, superior technology, and proven product-country image provide advantages to the MNEs; lack of local knowledge, networks and understanding of complex government, and native institutions create impediments to the survival and success of these multinationals.

The experience of a leading multinational consumer goods company illustrates the challenge: its revenue in India has grown by 7 percent compounded annually in the past seven years—almost twice the rate of the parent company in the same period. Nevertheless, the company’s growth rate in India is only about half that of the sector. (Choudhary, Kshirsagar, & Narayanan, 2012)

In the meanwhile, increasing competition in domestic markets (Dau, 2012) has motivated a great number of Indian domestic firms to transform themselves into emerging multinationals by successfully upgrading their skills and capabilities (Gubbi, Aulakh, Ray, Sarkar, & Chittoor, 2010). Therefore, studying the locus of performance bestows on us an understanding of how the differential resources and capabilities of the business unit, corporate parent, and industry factors contribute to the heterogeneity in firms. We believe that such an analysis would be an important addition to the strategic management literature.

We adopt the multilevel analysis to study the relative importance of the industry, corporate and business segments in explaining the variance in segment performance (Majumdar & Bhattacharjee, 2014). Multi-level analysis provides the advantages of using continuous variables even while teasing out the inherent multilevel or nested nature of business segment performance, without the disadvantages of the earlier techniques (Hough, 2006Misangyi et al., 2006).

We apply the multilevel analysis on a sample of 24,448 segment-year observations with varied number of segments both across time and corporates, spanning 2,121 corporations, and 72 industry classifications for the time period 2002–2013 to study impact of ownership on magnitudes and importance of various effects.

We find that across the various firms in India that report results for business segments, ownership of the firm is important in explaining firm performance heterogeneity. While the magnitude is lower than that of industry effects, the difference between the two is not significant.

Examining the relative importance of the various effects across Indian domestic firms and MNE affiliates, we find that the prominence of the corporate headquarters is not always true and is contingent upon the ownership of the firm. We find that the corporate effects are greater than industry effects in MNE affiliates, and they are not smaller than business unit effects, whereas business unit effects explain greater performance variance of domestic firms.

We argue that the degree to which the business unit sources its technologies, new products, and market information from the corporate headquarters and the external environment that it is situated in could contribute to the relative importance of corporate and business unit effects.





  1. This review examines the sources of business unit performance heterogeneity in India, with a specific focus on the influence of ownership structures. The study delves into the nuanced ways in which various forms of ownership, such as family-owned, publicly-traded, and multinational corporations, impact the performance of business units operating within the Indian market. By analyzing ownership-related factors, this research provides valuable insights into the diverse landscape of business performance in India and underscores the importance of considering ownership dynamics when evaluating organizational success. This study serves as a valuable contribution to the field of business research and offers practical implications for businesses operating in the Indian context.
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  2. Business unit performance heterogeneity in India can be attributed to various factors, with ownership structure playing a significant role. Ownership influences performance through governance mechanisms, strategic decision-making, and resource allocation. Different ownership types, such as family-owned businesses, multinational corporations, and state-owned enterprises, bring distinct management styles, objectives, and capabilities, contributing to performance variations among business units. Understanding the impact of ownership on performance can help businesses and policymakers devise effective strategies for fostering growth and competitiveness in the diverse Indian business landscape.
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