How Do New Ventures in MNC Ecosystems Proactively Overcome Interﬁrm Asymmetries?

IIMB Management Review (2011) 23, 177e188 available at www.sciencedirect.com IIMB INDIAN INSTITUTE OF MANAGEMENT journal homepage: www.elsevier.com/locate/iimb BANGALORE ROUND TABLE How do new ventures in MNC ecosystems proactively overcome interfirm asymmetries? Shameen Prashantham a, K. Kumar b,* a Nottingham University Business School China, PR China b N.S. Raghavan Centre for Entrepreneurial Learning (NSRCEL), Indian Institute of Management Bangalore, India Available online 7 July 2011 Abstract Several contemporary large multinational corporations (MNCs) have developed interfirm ecosystems that are likely to attract a heterogeneous set of actors, including new ventures. New ventures are asymmetric vis-a-vis the focal MNC in terms of organisational size, structure and power which could be an impediment to the development of social capital between these sets of firms. And yet MNCs are potentially a source of novel information, opportunities and ideas. An interesting question to consider therefore is how new ventures overcome interfirm asymmetries to develop and leverage social capital with large MNCs. Our synthesis of the academic literature suggests that some new ventures are more adept than others at partnering with MNCs because they are more proactive in forming and leveraging interfirm ties with large MNCs. Insightful observations of four panellists shed light on how start- ups’ proactive behaviours can be vitally important in forming, consolidating and extending relationships with large MNCs. ª 2011 Indian Institute of Management Bangalore. All rights reserved. Academic perspective (Dhanaraj & Parkhe, 2006; Katila, Rosenberger, & Eisenhardt, 2008). Such networks are likely to attract Several contemporary large multinational corporations a heterogeneous set of actors, several of which are asym- (MNCs) have developed interfirm ecosystems as a basis for metric vis-a-vis the focal MNC in terms of organisational engagement among business units and external firms size, structure and power (Cao, 2006). A case in point is entrepreneurial new ventures that enter these networks. Particularly in technology-intensive sectors, such interfirm * Corresponding author. networks attract new ventures as participants. They are E-mail addresses: [email protected] attractive to MNCs chiefly on account of their innovative- (S. Prashantham), [email protected] (K. Kumar). ness. On their part, the new ventures often seek access to 0970-3896 ª 2011 Indian Institute of Management Bangalore. All valuable resources (Prashantham & Birkinshaw, 2008). rights reserved. Peer-review under responsibility of Indian Institute Little is known, however, from the perspective of new of Management Bangalore. ventures as to purposive actions that could enable them to doi:10.1016/j.iimb.2011.06.001 develop and leverage social capital with MNCs. Given that similarly sized firms are generally more likely to forge ties with each other (Cao, 2006), the sheer asymmetry between new ventures and MNCs in size, organisational structure and power could be an impediment to the 178 S. Prashantham, K. Kumar potential for social capital that could be developed and nurture interfirm ties (Prashantham & Birkinshaw, 2008). leveraged between these sets of firms. There are seldom More specifically, we build on Sarkar, Echambadi, and clear-cut role counterparts across these dissimilar organisa- Harrison (2001: 702) premise that ‘firms that are proactive tions (Doz, 1988). Also, new ventures tend to have a greater in forming alliances are likely to enjoy higher performance’. need for large established firms than vice versa and there is Our interest is therefore in exploring the role of proactive- a consequent imbalance in mutual dependence (Katila et al., ness over time. We encapsulate in Table 1 our con- 2008). Interfirm asymmetry reduces the odds of the paths of ceptualisation of this dimension of relational capability. these different firms crossing naturally, and increases the We adopt the premise that given technological distinc- odds of stringent, unfavourable terms and conditions being tiveness, a new venture’s ability to successfully cultivate and imposed on new ventures which dissuade them from engaging leverage a relationship with a large MNC stems from its rela- (Alvarez & Barney, 2001). Subsequently, interfirm asymmetry tional capabilities and entrepreneurial proclivity, which reduces the odds of interfirm routines and absorptive jointly indicate proactiveness in relationship-building. To capacity being developed owing to each actor’s distinct elaborate, we expect that some new ventures are more adept templates for organisational activity (Lane & Lubatkin, 1998). than others in proactively forging relationships with MNCs. Thus, asymmetric interfirm ties seem unlikely to form and e if Furthermore, consistent with Prashantham and they do form e to be effective (Cao, 2006). Birkinshaw’s (2008) notion of ‘dancing with gorillas’, we And yet MNCs are potentially a source of bridging social take this relationship-building and e leveraging process to capital to new ventures in that they can be a source of novel be a process over time rather than a one-shot affair. information, opportunities and ideas; furthermore, they are Proactiveness in forging ties with MNCs may enable new less likely to suffer from the information redundancy of ventures to forge ties with MNCs in the first place and bonding social capital (Prashantham, 2008). New ventures are subsequently to span boundaries within the MNC to extend more likely to seek out and utilise such social capital when the scope of the relationship over time. However there is they are oriented towards innovation and internationalisa- still scope to explore proactiveness more fully, and other tion. But of course such an orientation does not guarantee relational capabilities, that enable new ventures to that fruitful relationships will ensue. Preliminary research overcome asymmetry whilst partnering with MNCs. suggests that the manner in which new ventures and MNCs Finally, it is worth highlighting the growing relevance of interact, for instance, in everyday settings over a period of these issues in the Indian context where MNC subsidiaries time has a bearing on how effectively social capital is devel- play a prominent role in economic development (Kumar, oped amongst them (Prashantham & McNaughton, 2006). 2009). Relationships between new ventures and large An interesting question to consider therefore is how new MNCs are particularly salient for both sets of actors when ventures overcome interfirm asymmetries to develop and the former develop distinctive intellectual property (IP). leverage social capital with large MNCs. Some new ventures Even though power asymmetries may to some extent be are more adept than others at partnering with MNCs because assuaged by a new venture’s technological distinctiveness, of their relational capabilities i.e. their capacity to form and there remain organisational asymmetries and concerns Table 1 Proactiveness of new ventures in forming alliances over time. Forming Consolidating Extending Nature of proactiveness in Identifying and availing of Using ecosystem events to Arbitraging goodwill relationship-building formalised network entry cultivate informal everyday across boundaries to points into the MNC interaction with key increase MNC unit/partner ecosystem individuals to begin joint nodes activity Underlying knowledge-base Understanding the management Identifying key individuals Comprehending the roles to enact this dimension innovation(s) of the MNC who can act as ‘interpreters’ and priorities of units and of proactiveness vis-a-vis partnering of the MNC’s culture, systems partners in the (e.g. partner programmes) and rituals differentiated MNC network How it overcomes Provides institutionalised Enables joint activity despite Helps in navigating the asymmetry mechanisms to address the divergent traditions of organisational complexity lack of role counterparts organisational routines of large MNCs (Dhanaraj & (Ring & Van de Ven, 1994) (Doz, 1988) Parkhe, 2006) How this is distinct Not the same as proactive Not the same as proactive Not the same as linear from symmetric ties frontal initiation of ties bonding and coordination increase in relationship scope Consequences for interfirm Fosters structural embeddedness Fosters relational and cognitive Fresh cycles of structural, ties between new (interactions) embeddedness (trust and relational and cognitive ventures and the MNC Initially likely to begin as a shared narratives/goals) embeddedness. many/one relationship as the Relationship evolves into more Relationship later incorporates MNC has multiple simultaneous of a one/one relationship as ties to multiple MNC units for ties through a partner traction develops with the MNC a one/many relationship. programme New ventures in MNC ecosystems 179 about value appropriation to contend with (Cao, 2006; K Kumar Prashantham & Birkinshaw, 2008). Historically, IP creation by innovative new ventures is a well-established phenom- I have great pleasure in introducing the panellists for enon, albeit one primarily associated with advanced econ- today. Our first panellist is Mr Sunil Maheshwari who is omies. However the growing potential for new ventures in a co-founder of Mango Technologies, which was incubated emerging economies such as India indicates both the scope at NSRCEL at IIMB and has been one of NSRCEL’s significant for and the ambition of (Kumar, 2009; Kumar & Krishnan, success stories. Mango Technologies

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