Doing Business in Emerging Markets: Progress and Promises 9780367768836, 9781032057927, 9781003199168

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Doing Business in Emerging Markets

This volume presents a comprehensive analysis of the business, financial, and economic aspects of emerging markets. Using case studies from India, Turkey, Bangladesh, and Africa, it discusses themes such as megaprojects, infrastructure, and sustainability; cross-border mergers and acquisitions; a new paradigm for educational markets; export competitiveness; work engagement in the service sector; mobile banking and crowdfunding; and venture capital flow into emerging economies, to focus on the trade, foreign investment, financial, and social progress of these economies. The chapters review the current state, learnings, changing scenarios, business practices, and financial and economic perspectives across emerging markets while examining progression, challenges, and the way forward. With its rigorous approach and topical content, this book will be useful to scholars and researchers of management studies, business management, financial management, business economics, international business, finance and marketing, development studies, and economics. It will also interest policymakers and practitioners in the field. Sudhir Rana is Assistant Professor in the College of Healthcare Management and Economics at the Gulf Medical University, Ajman, UAE. Avinash K Shrivastava is Assistant Professor at the International Management Institute, Kolkata, West Bengal, India.

Advances in Emerging Markets and Business Operations Series Editors: Avinash K Shrivastava, International Management Institute, Kolkata, West Bengal, India, and Sudhir Rana, College of Healthcare Management and Economics, Gulf Medical University, Ajman, UAE This series hosts key debates on themes, issues, and advancements taking place in emerging markets and new ways of handling challenges in operating businesses in emerging markets. It explores doing business in emerging markets from multidisciplinary and multinational geographic perspectives based on fresh theoretical and empirical research, qualitative and quantitative reviews, data and case studies. The series aims to cover a wide range of aspects in business and operations, including opportunities and progress, with a focus on emerging markets and economies:

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Comparison of Traditional versus Modern Business Models used by firms from developed economies and emerging economies; entrepreneurial innovations; digitalization; technology and businesses strategies for sustainable development; service innovation and management; and mergers and acquisitions. Advancement in Business Practices including general practices within finance; human resource management; marketing; international business; information technology; operations; and specific practices such as product & service development; investments; governance and policies; and role of government. Doing Business in sectors such as manufacturing; services; retail; B2B; supply chain and distribution; transportation; cross-culture; consumer and market behaviour; automation and technology; retail and luxury; human capital; emerging brands; selecting and investing in emerging markets; benefits and challenges; foreign direct investment; and growing business sectors. Operational Aspects in supply and demand chain management and logistics; manufacturing processes optimization; project management and scheduling; total quality management; and transportation and logistics management. Methodological Progress in Research and Business Education such as industry disruptions and role of analytics; impact of analytics on culture and business environment; decision sciences; operations research; business intelligence tools and applications; multi-criteria decision-making; scientific and software-based research (big data, soft computing, artificial intelligence, neural networks, fuzzy logic, evolutionary algorithms); and business curriculum, pedagogy, and accreditations of business schools.

The series offers a comprehensive understanding of management and its allied domains within the context of emerging markets and economies, especially international business, economics, marketing, finance, operations and supply chain management, human resources and governance. It will be useful to both scholars and practitioners interested in interdisciplinary research on emerging markets, business analytics, business models, consultancy, and policy. Doing Business in Emerging Markets Progress and Promises Edited by Sudhir Rana and Avinash K Shrivastava For more information about this Series, please visit: www​.routledge​.com/

Doing Business in Emerging Markets Progress and Promises

Edited by Sudhir Rana and Avinash K. Shrivastava

First published 2022 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 605 Third Avenue, New York, NY 10158 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2022 selection and editorial matter, Sudhir Rana and Avinash K Shrivastava; individual chapters, the contributors The right of Sudhir Rana and Avinash K Shrivastava to be identified as the authors of the editorial material, and of the authors for their individual chapters, has been asserted in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data A catalog record has been requested for this book ISBN: 978-0-367-76883-6 (hbk) ISBN: 978-1-032-05792-7 (pbk) ISBN: 978-1-003-19916-8 (ebk) DOI: 10.4324/9781003199168 Typeset in Sabon by Deanta Global Publishing Services, Chennai, India

Contents

List of figures List of tables List of contributors

vii ix xi

Doing business in emerging markets: progress and promises: An introduction 1 SUDHIR RANA AND AVINASH K. SHRIVASTAVA

  1 Megaprojects, infrastructure, and sustainability in emerging markets 10 GERARDO DEL CERRO SANTAMARÍA

  2 Developing a conceptual framework for determinants of export competitiveness in emerging markets 31 RAHUL DHIMAN AND VIMAL SRIVASTAVA

  3 The Learning Organization for attaining inclusive growth: A new paradigm for the emerging educational market 54 TOMY K. KALLARAKAL, ANAND SHANKAR RAJA M., AND MUGDHA SHAILENDRA KULKARNI

  4 Investment motivations and institutional quality: Cross-border mergers and acquisitions by Turkish MNCs 79 AYŞE KAYACI AND AYLIN ATAAY

  5 Africa through times: Recent successes and lessons for emerging markets 97 LEMAYON LEMILIA MELYOKI AND BETTY JANE PUNNETT

vi Contents   6 Towards enhancing work engagement in the service sector in India: A conceptual model 118 AKANSHA MER AND PRIYANKA VIJAY

  7 Opportunities and challenges of sustainable marketing practices in emerging markets 136 SURABHI SINGH AND NASEEM ABIDI

  8 Indian–Russian bilateral relations: Two emerging giants and their business relationship 153 NARINA RINGO

  9 Mobile banking for financial inclusion in a developing economy: Evidence from Bangladesh 167 MD. NUR ALAM SIDDIK

10 Crowdfunding in the emerging markets 178 KHALIQ AHMAD, RIZAL MOHD. NOR, AND AIMADHUDDIN AHMAD KAMELY

11 Spillover effect of quantitative easing on venture capital flow into the emerging economies: A case of India 206 DIPESH KARKI, HARI GOPAL RISAL, AND SHIRSHAK DAHAL

Index

233

Figures

2.1 Diagram explaining Heckscher–Ohlin (H–O) theory 33 2.2 Proposed conceptual framework 36 5.1 Africa’s projected GDP growth for 50 years to 2060 110 6.1 Engagement level in developed and emerging market countries 119 6.2 Disengaged employees in India report more anger and stress 120 6.3 Revised JD-R model of work engagement 121 6.4 Conceptual model on work engagement in the service sector in India 124 7.1 Levels of sustainable marketing 138 7.2 Sustainable marketing framework 139 7.3 Sustainability performance strategy in an organization 140 7.4 CSR with different priorities in developed and developing countries141 7.5 Conceptual framework of sustainable marketing practices 148 A8.1 Changes in the structure of Indian export to Russia before the trade war (sanctions after the change in Crimea’s administration status) against the Russian Federation (made up from data on the government site of the Federal State Statistic Service 166 9.1 Impact of CLT on ACS 174 9.2 Impact of CLT on USE 174 9.3 Impact of CLT on DPT 175 10.1 First type of musyarakah crowdfunding model based on equity-in and equity-out 199 10.2 Second type of mudarabah crowdfunding model based on equity-in and equity-out 200

viii Figures A11.1 Total assets held by Federal Reserve A11.2 Comparison of net capital flows in the U.S.A. and foreign venture capitalist investment in India A11.3 Announcement details of QE made by the Fed through FOMC

230 230 231

Tables

3.1 Recent reviews of Learning Organizations 3.2 Variables repeat criteria on Learning Organization 4.1 Descriptive statistics and correlation matrix for the number of cross-border M&As of Turkish firms 4.2 Negative binomial regression results of the cross-border M&A motives of Turkish firms 5.1 Summary of eras and patterns of development 6.1 Percentage of employees engaged in India in various jobs 6.2 Job resources, personal resources, job demands, and outcomes of work engagement in the service sector 7.1 Summary of sustainable marketing practices in emerging markets 8.1 Calculation table for regression parameters 8.2 Regression analysis indexes A8.1 Political events affecting relations between India and Russia A8.2 The data of the Russian GDP level, the damage to Russian economics from sanctions, and Indian export to Russia, billion USD (100 crores USD) 9.1 Mobile financial services (MFS) of Bangladesh: a comparative summary 9.2 Variables, their measurement, legend, and data source A10.1 Issues, methodology, and results in recent literature 11.1 Description of study variables 11.2 Unit root test results 11.3 Johansen cointegration results 11.4 Granger causality results 11.5 ARDL model results 11.6 Results of heteroscedasticity 11.7 Autocorrelation results

59 70 87 89 108 120 129 147 159 159 165

165 170 173 205 212 216 217 218 219 220 220

x Tables 11.8 Results for long-run form and bounds testing 11.9 Short-run results A11.1 Time line for quantitative easing A11.2 Process chart used in bounds testing approach of cointegration in the ARDL framework

221 221 228 231

Contributors

Gerardo del Cerro Santamaría is a member of the European Union Expert Group in Regional Policy and a United States Fulbright Award Recipient in Urban Planning. Rahul Dhiman is Assistant Professor in the Department of Business Management, Dr. YS Parmar University of Horticulture and Forestry (State University), Solan, Himachal Pradesh, India. His research interest is international trade. Vimal Srivastava is Senior Manager Corporate Social Responsibility, Mahindra and Mahindra Ltd. His research interests include corporate social responsibility and strategic management. Tomy K. Kallarakal is Dean in the School of Commerce, Finance and Accountancy, Christ University, Bengaluru, India. He has a Ph.D. in Commerce from Christ University, Bengaluru. Anand Shankar Raja M. is Assistant Professor in the Department of Commerce, Christ University, Bengaluru, India. He holds a Ph.D. in Commerce from SRM University Chennai, Tamil Nadu. Mugdha Shailendra Kulkarni is at Symbiosis Centre for Information Technology, Hinjewadi, Pune, India. She completed her doctoral studies in Accounting from the University of Pune. Ayşe Kayacı is Assistant Professor at Dicle University Faculty of Economics and Administrative Sciences, Turkey. She has a Ph.D. in management and organization studies from Galatasaray University, Istanbul. Aylin Ataay is Professor of Management at Galatasaray University, Istanbul, Turkey. She received her Ph.D. in strategic management from the IAEParis 1 Panthéon-Sorbonne University and Istanbul University. Lemayon Lemilia Melyoki is Senior Lecturer at the University of Dar es Salaam, Tanzania. He researches and publishes in the fields of entrepreneurship, management (leadership), and corporate governance.

xii Contributors Betty Jane Punnett is Professor Emerita at the University of the West Indies, Barbados. She researches on culture and management and helped found the Leadership Effectiveness in Africa and the Diaspora (LEAD) research project. Akansha Mer is Assistant Professor at Banasthali Vidyapith, Rajasthan, India. Her areas of interest include work engagement, workplace spirituality, design thinking, unified theory of acceptance and use of technology (UTAUT). Priyanka Vijay is Assistant Professor at Banasthali Vidyapith, Rajasthan, India, and has academic experience of eight years. She has authored a book on Principles and Practices of Banking. She has also co-authored two books on different areas of management. Surabhi Singh is Associate Professor at the Institute of Management Studies (IMS) Ghaziabad, India. Her authored researches and cases in marketing have won her accolades at various national and international forums. Naseem Abidi is Professor at Skyline University College, University City of Sharjah, Sharjah. He has around 30 years of work experience as a teacher, researcher, academic administrator, and software professional. Narina Ringo is at Prestige Institute of Management and Research, Indore, India. Md. Nur Alam Siddik is Associate Professor at Begum Rokeya University, Rangpur, Bangladesh. He obtained his B.B.A. and M.B.A. from the University of Rajshahi, Bangladesh, and Ph.D. from Dongbei University of Finance and Economics, China. Khaliq Ahmad is Professor at Qassim University-AACSB Accredited College of Business and Economics (CBE), Burydah, KSA. He obtained his Ph.D. from AMU Aligarh and has been attached to IIUM since 1993 as Deputy Dean, RMC; Director of GSM (2005–2008); and Dean, KENMS and IIiBF (2008–2016). Rizal Mohd. Nor is at the Institute of Islamic Banking and Finance, International Islamic University Malaysia (IIUM), Jalan Gombak, Kuala Lumpur, Malaysia. Aimadhuddin Ahmad Kamely is at the Institute of Islamic Banking and Finance, International Islamic University Malaysia (IIUM), Jalan Gombak, Kuala Lumpur, Malaysia. A banking practitioner, he completed his M.Sc. (IBF) from the International Institute of Islamic Banking and Finance (IIiBF). Dipesh Karki is Assistant Professor of Economics at Kathmandu University School of Management (KUSOM), Nepal. His research area is climate finance, wealth management, and financial econometrics.

Contributors  xiii Hari Gopal Risal is Assistant Professor of Finance at Kathmandu University, Nepal. He is an alumnus of IIM-A and his research areas are risk management, investment, green and entrepreneurial finance. Shirshak Dahal is an alumnus of Kathmandu University School of Management, Nepal, and a scholar at the Indian Institute of Technology, Delhi, India. His research interests include monetary policy, wealth management, and behavioural economics.

Doing business in emerging markets: progress and promises An introduction Sudhir Rana and Avinash K. Shrivastava

Many companies need to engage in emerging markets more closely than they have chosen to. Since the beginning of the 1990s, emerging countries have been the fastest-growing markets in the world for products and services. Businesses can reduce costs by establishing production facilities and service stations in emerging markets, where qualified managers and experienced labour are relatively economic. Companies in Western countries that want to advance counter strategies must penetrate emerging markets, which encourage a more unconventional style of innovation than developed markets do (Khanna et al., 2005). For Western companies to remain competitive for much longer, they need to promote strategies for engaging, across the value chains, with emerging markets. For example, Apple’s largest manufacturing unit, Foxconn, invested $300 million in India to manufacture iPhones in India. This shift shows how Foxconn wanted to diversify production and utilize the locational benefits that India has to offer to Apple’s manufacturing in terms of infrastructure, innovation, tax and subsidy incentives, and eased trade negotiations. Such investments not only help manufacturing firms find a location which provides them with the required resources at cheaper costs, but also help the developing country to improve its position in the world market. India, after this investment, jumped from the 130th to the 77th place in the ranking by the World Bank for “ease of doing business” (Dahlhoff, 2019). Business and businesses in emerging economies are continuously responding to the changes taking place in the dynamic business environment. The past two decades have enabled emerging economies gather steam around their high potential and a high market share. Modernization, government initiatives, shifts in education management, and the revolution brought in by the young and the millennials have helped this change. Businesses and firms in the developed economies are cashing in on the opportunities in emerging markets and they, in turn, find advantages that can be garnered from the rest of the world. Rana et al. (2020) argue that the pace of growth has slowed in the developed economies and increased in the emerging markets which are low-income countries. Multinational enterprises like TCS, Huawei, AirAsia, and Embraer in emerging economies like China, DOI: 10.4324/9781003199168-101

2  Sudhir Rana and Avinash K. Shrivastava India, Malaysia, Vietnam, Turkey, and Brazil are reaping the benefits of market share across industries all over the world through innovation and technology (Rana et al., 2020). In order to ensure sustainable growth, the need to learn best practices from each other and to continuously evolve becomes even more relevant for multinationals in emerging economies in order to climb the ladder. The best strategy for an emerging market player would be to understand the needs of local consumers and evolve with them. For example, when Kellogg entered India in the mid-1990s the sales were unimpressive as Indian consumers either preferred a self-prepared breakfast or just some tea and biscuits. With the right realignment of marketing approach, Kellogg introduced a new range of breakfast biscuits to cater to the needs of the Indian market segment and generated volumes of sale (Dawar & Chattopadhyay, 2002). Generally, advanced economies have the resources and capacity to effectively enforce contracts and to season market intermediaries. But the same is not available in the developing economies, where the availability of skilled intermediaries and effective legal systems is not that sophisticated. To combat this issue, a successful company should develop a strategy that is specific to the country they are targeting and find innovative ways to implement those practices. While businesses cannot overlook the sustainability quotient, Hopwood et al. (2005) are of the view that sustainable development stands on the three pillars of the environment, society, and the economy, also known as the triple bottom line concept (Elkington, 1999). An important step to sustainable development is to bring innovation into the production and consumption of goods and services to promote more sustainable ones (WECD, 1987). This includes a wide range of strategic decision-making and implementation, such as green manufacturing, remanufacturing, supplier selection and so on (Kannan et al., 2014; Thanki et al., 2016; Xia et al., 2015). Businesses need to be more conscious of the ways and means by which they achieve business and economic goals. Zhao et al. (2013) say that these questions are relevant for government, industry, and urban stability. It is evident from the arguments that sustainable practices will drive the economic activity of infrastructure development and megaprojects. Sustainable management helps in the reduction of costs, effective use of organizational resources, and simplification of processes (Rodríguez-Antón et al., 2012). But achieving this sustainable consumption and production concept has emerged as a greater challenge in emerging markets (Tseng et al., 2013). More attention is needed to be paid to consumer perceptions in order to understand and assess the need for the developments to be undertaken to achieve sustainable consumption. Establishing trust between the re-manufacturers and supplychain management may help in the development of sustainable management policies and green marketing practices (Tseng et al., 2016). The businesses taking forward sustainable production could adopt innovative transportation, manufacturing, and infrastructural options to position themselves above the competitors in the market (Linand Tseng, 2016). For example,

Progress and promises  3 the global footwear industry contributes significantly to the carbon footprint through the production of footwear as companies burn energy and also transport their products, which utilizes petroleum. AllBirds Company brought about production sustainability by creating flip-flop sandals from sugarcane, which is a carbon-negative resource (Worland, 2018). With the increase in the awareness of customers, businesses, inventors, and manufacturers need to respond to the need for sustainable products. Emerging markets are the new customer and production bases where they can set up their units and expand their business. Globalization paved the way for cross-border trade relations and an opportunity for global firms to expand and penetrate emerging markets (Cavusgil et al., 2012). This has led to a lessening of the inequalities between the countries. Changing paradigms in education and the engagement of the workforce in the service sector have led to an increase in disposable incomes which in turn have revolutionized the financial space (Ozili, 2020) and paved the way for financial inclusion, which is an ever-growing practice in today’s world of technology and innovation (Donovan, 2012; Gabor & Brooks, 2017; Ozili, 2018, 2019). The emergence of competitive players such as Lenovo from China, the Tata Group from India, and many more global businesses, means that the weak competitiveness outlook of emerging market firms is challenged (Bonaglia et al., 2007). The expansion of emerging market firms globally is becoming a rapidly evolving phenomenon and of high interest to academicians, educationalists, business practitioners, policymakers, human resource management, marketers, and society at large (Jormanainen & Koveshnikov, 2012). Emerging market firms have multiple motives, such as small shares in home markets, access to cheaper raw material, lack of knowledge-based resources, and foreign direct investment (FDI) to overcome trade barriers (Deng, 2004). There has long been debate about whether globalization is good or bad for emerging markets. Despite it bringing innovation, technological advancement, and job opportunities, it is said that it also provides unsettling experiences for the residents of the developing countries and also is increasing inequality gaps within the countries (Gorodnichenko et al., 2010). Joyce & Nabar (2009) shares how financial globalization has increased the bank crises in emerging economies due to the increase in foreign debt liabilities. In their research, Koudal and Engel (2007) share the concept of “global optimization paradox”, stating that, even after globalization of companies, optimization is still most deep-rooted among locals. Therefore, it should be noted that opening borders for trade and investment from around the world brings opportunities and pressures for the home firms in emerging markets, which can turn into a benefit if there is innovation but can be disastrous if increased competition decreases the growth and share of the domestic firms (Gorodnichenko et al., 2009). Having beheld the exceptional evolution of information technology during the past 20 years helps us recognize some systemic innovations that have been triggered within business education. Everyone in the emerging

4  Sudhir Rana and Avinash K. Shrivastava economies has seen them in many forms, from asynchronous means such as online tutoring to self-taught web-based seminars and synchronous online classes via various online platforms like Google Meet, Zoom, etc.. The widening of higher education has been of great significance for the emerging markets and has led to rapid growth in management programmes and universities in developing nations. With globalization and technology currently playing an important role in the education sector, satellite campuses are being established to allow poor learners to enrol themselves into university education (Buchanan, 2014). With the growing demand, internationalization is also coming into the picture, with colleges from emerging nations attracting foreign students from developed nations, thus increasing institutional visibility. This allows the host nation to develop an international workforce. Standard ranking systems like Times Higher Education’s World University Ranking allow universities from developing nations to be measured at par with the universities of developed nations on the basis of pre-specified parameters such as academic scores, research scores, etc. (Lambrechts & Sinha, 2018). Augmented reality being used in teaching, training, and learning processes allows developing nations to build themselves up in terms of technology and to bring about innovation and competitiveness (British Council, 2012). Now a student sitting in India can study courses available online from Harvard University, allowing greater learning experiences and skills development. Emerging markets affect the global culture of businesses around the world. Multi-national corporations play a greater role in the dissemination of human resource management (HRM) policies and practices in emerging markets. The most apparent characteristics in emerging markets constitute wider cultural (social relations, paternalism, personal relationships) and institutional contexts (Brewster, 2015) which are reflected in workplace relations (Aycan, 2006). Enforcement of labour laws, administrative bureaucracy, and trade unions, too, may present as barriers in HRM practices in emerging economies (Gall, 2013). Emerging markets tend to have a larger informal sector compared to a formal sector, which directly hampers the enforcement of workforce management in an emerging economy, a lot different than in the case of a developed economy (Underhill, 2010). Despite the key differences, considerable research is focused on how multinational corporations (MNCs) are adapting local HRM practices by introducing successful HRM practices across national borders. HR managers are shifting HRM practices from the usual to the strategic and are innovating to stay competitive. The Society for Human Resource Management (SHRM) is growing the study of the subject’s importance in promoting effective communication and strategic and critical thinking. A direction for future investigation and research could be the role of regulatory agencies in the emerging markets as developing mechanisms in emerging economies rather than as the negative ones they are generally portrayed to be. Distinctive concepts have been developed through elaborate

Progress and promises  5 discussions by the authors via in-depth studies; however, the absence or the unreliability of sources of market information, uncertain regulatory environments, regulatory ties, and special interest groups, make the domain more challenging. Through this volume, Doing Business in Emerging Markets: Progress and Promises, we highlight the strategies adopted by business firms in the developed economies to exploit opportunities and the scope of expansion by leveraging on resources in the growing economies. The book comprises chapters which include business development practices such as engaging the workforce in the service sector, new paradigms for education, sustainable markets, financial inclusion, crowdfunding, and venture capital within the economy. Practices outside the economy will include bilateral relations, cross-border mergers and acquisitions, megaprojects and exports, to name a few. These practices are interesting as they have a futuristic approach to strengthening and developing emerging economies. The book has 11 chapters which cover these topics in detail with some relevant case studies for a better understanding of the subjects. A summary of the key themes and issues that have been discussed is as follows. In Chapter 1, “Megaprojects, infrastructure, and sustainability in emerging markets”, Gerardo del Cerro Santamaría advocates that there is no denying the fact that infrastructure has a major role to play in strengthening economic growth with sustainability. Globalization and liberalization also add to the advancement of megaprojects in urban development, prosperity, and the creation of wealth. The chapter also analyzes the case of the revitalization of the city of Istanbul, Turkey, and the environmental consequences of infrastructure in China. Strategic partnerships and growth coalitions to facilitate economic activity and growth spurts in the context of infrastructure megaprojects are highlighted. In Chapter 2, “Developing a conceptual framework for determinants of export competitiveness in emerging markets”, Rahul Dhimanand Vimal Srivastava shows that another important area of emerging markets is exports and achieving competitiveness through labour productivity, capital productivity, unit labour costs, and exchange rates. This chapter has a conceptual framework that highlights the vital variables for achieving export competitiveness (EC) combined with Heckscher–Ohlin (H–O) theory, and is an attempt to understand the definitions of EC in emerging markets. The literature in this chapter has implications for economies that are exploring opportunities for competitive advantage in global trade. In Chapter 3, “Learning Organization for attaining inclusive growth: a new paradigm for the emerging educational market” Tomy K. Kallarakal, Anand Shankar Raja M., and Mugdha Shailendra Kulkarni argues that education remains at the centre of any economy that wants to grow. Thus, a comprehensive and continuous change in education management is to be embraced. The authors have highlighted the formulation of the educational policies with the concept of the learning organization which aims to achieve

6  Sudhir Rana and Avinash K. Shrivastava team learning, shared vision, personal mastery, system thinking, and knowledge management. Chapter 4, “Investment motivations and institutional quality: cross-border mergers and acquisitions by Turkish MNCs” is by Ayşe Kayaci and Aylin Ataay. This chapter highlights the business development practices that need to be carried out beyond the home economy. A case study of Turkish firms and their preference for the large size of host countries’ markets, while considering mergers and acquisitions, have been highlighted. The authors emphasize the stronger institutional development of the host country and study checks where the ownership, location, and internalization (OLI) model is supported. Chapter 5, “Africa through times: recent successes and lessons for emerging markets”, by Lemayon Melyoki and Betty Jane Punnett, analyzes the situation of African countries with regard to macro-level factors, such as those of politics, economics, etc., the reforms of which have helped to structure how the countries shape their business reputations with increases in per-capita income, literacy levels, and increases in disposable incomes. Chapter 6 “Towards enhancing work engagement in the service sector in India: a conceptual model” by Akansha Mer and Priyanka Vijay focuses on how engaging the workforce in the service sector helps economies to strengthen the overall metrics. The authors recognize that there is a great need to address the challenges in the context of work engagement and propose the model job-demand resource (JD-R), highlighting the antecedents and consequences which are instrumental in enhancing engagement, thereby ensuring loyalty, satisfaction, and a low attrition rate. Chapter 7 “Opportunities and challenges of sustainable marketing practices in emerging markets” by Surabhi Singh and Naseem Abidi argues that business firms in the emerging markets need to ascertain the environmental consequences that get in the way of development. Development with sustainability is discussed, highlighting the opportunities and challenges adopted by companies. Chapter 8 “Indian–Russian bilateral relations: two emerging giants and their business relationship” by Narina Ringo highlights the effects of bilateral relations in the emergence of one economy and also the fading away of another due to international regulations and sanctions. The literature analyzes the correlation between trade sanctions imposed on Russia by other countries and the rise in Indian exports to Russia in 2014. Chapter 9 “Mobile banking for financial inclusion in a developing economy: evidence from Bangladesh” by Md. Nur Alam Siddiki states that the practice of financial inclusion facilitates businesses in the economy and builds scope for development and opportunities for a country. The case of Bangladesh, which is a developing nation, is studied in regard to mobile banking leading to financial inclusion in the emerging markets. Chapter 10 “Crowdfunding in the emerging markets” is by Khaliq Ahmad, Rizal Mohd. Nor, and Aimadhuddin Ahmad Kamely. The chapter discusses crowdfunding, which is a new form of both investment and source

Progress and promises  7 of capital and facilitates business firms in expanding and unlocking growth opportunities. This chapter covers a study of six methods of crowdfunding that are registered in the Securities Commission Malaysia and the Kapital Boost platform of Singapore and their mode of investment. Use of equityin and equity-out models has been made and findings suggest that equity crowdfunding, rather than debt, through the Islamic investment methods of musharakah and mudarabah, is a better option. Chapter 11 “Spillover effect of quantitative easing on venture capital flow into the emerging economies: a case of India” by Dipesh Karki, Hari Gopal Risal, and Shirshak Dahal, provides insights for policymakers and other stakeholders to anticipate the future spillover effect in the emerging markets. We are grateful to all the contributors to this volume, and its reviewers, and are hopeful that it will be useful in bringing different perspectives from emerging markets together. As the volume is intended to be cross-functional and with multi-disciplinary viewpoints, it will have multiple applications in classroom teaching, research work, and knowledge enhancement.

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1

Megaprojects, infrastructure, and sustainability in emerging markets Gerardo del Cerro Santamaría

Megaprojects – urban regeneration schemes, transport and energy infrastructure, industrial corridors, city clusters, new towns, innovation districts, science and technology parks, sports infrastructure – are reconfigured and reterritorialized spaces in which the role of the local, regional, and national elites, as well as the role of national and sometimes transnational capital, are usually prominent. Megaproject design and implementation often meet the need of bringing together and harmonizing several scales of power, not only because increased urban competitiveness and global visibility are perceived as essential outcomes in the development of these projects, but also because, in diverse socio-political contexts, the configuration of political power exhibits different and distinct relationships between the local, regional, national, and global domains of social action. It is important to note that, in a context of planetary urbanization (Brenner & Schmid, 2011), virtually all megaprojects are urban in nature and location or are built to have a direct effect on cities and the urbanization process, particularly urban development and competitiveness, because megaproject construction has been a major response to adapting to neoliberalism and globalization in the urban realm, as discussed below. In fact, megaprojects actively contribute to a situation of increased planetary urbanization. Hirschman (1967, vii, xi) calls megaprojects “privileged particles of the development process” and points out that often they are “trait making”, that is, they are designed to ambitiously change the structure of society, as opposed to smaller and more conventional projects that are “trait taking”, i.e. they fit into pre-existing structures and do not attempt to modify these. Urban megaprojects present themselves in many different packages and resist easy definitions, but the close link between megaprojects and development is evident. One could conceptualize UMPs as large-scale urban development projects that sometimes have an iconic design component, that usually aim at transforming, or have the potential to transform, a city’s, or parts of a city’s, image, and are often promoted and perceived by the urban elite as crucial catalysts for growth and even as linkages to the larger world economy. In an era marked by the shift in urban governance from managerialism to entrepreneurialism (Harvey, 1989), and one in which cities are DOI: 10.4324/9781003199168-1

Megaprojects in emerging markets  11 thought of as nodes in a global network of relationships, the urban elite often perceive linkages to the global economy as fundamental to ensuring sustained local economic development. Regaining global visibility (a concept discussed by Grubbauer, 2013) is not only a quintessential economic strategy; it also serves the purpose of symbolic or representational transformation, which is especially useful for regions and cities with distinct political identities. Both objectives – the material and the symbolic – are present in many cities’ recent, concerted attempts to regain status as globalizing metropolises through the use of urban megaprojects in urban revitalization (Bunnell, 2013). Revitalization itself is a political strategy that questions approaches stressing the exclusively economic and financial character of globalization. The causal context of megaprojects – the logic of development and competitiveness – has consequences for the planning and management of megaprojects. In order to meet their goals of contributing to urban and national growth and development, megaprojects need to be shaped as public–private institutional arrangements participated in by elites and coalitions, at various spatial scales, that are able to provide the necessary funding and expert knowledge to implement these complex structures. By “development” we mean both the infrastructural development epitomized by megaprojects as well as the neoliberal context of globalization (fostered by developmental states that have turned into entrepreneurial states) within which megaprojects take place and are implemented (Mazzucato, 2015 Castells & Himanen, 2015).

Background of the study Development and competitiveness In order to understand the links between megaprojects, development, and competitiveness we need to briefly discuss the processes of globalization and neoliberalism as causal contexts within which the recent wave of megaprojects came about. Megaprojects have arisen from a complex set of geographic, economic, and, above all, political processes of restructuring occurring throughout the world since the late 1970s and early 1980s. This period has seen the widespread ascendency of globalization, neoliberalism, and, as an urban manifestation of these processes, megaprojects, which are inherently tied to a global logic of development and competitiveness. Globalization and neoliberalism have manifested themselves in four global processes that motivate megaprojects: (1) city-based international competition; (2) the mobility and growth of knowledge economies; (3) the redirection of global investment from physical to human capital; and (4) the dominance of market-rule ideology and politics (Harris, 2017). Megaprojects are a product of political and economic changes rhetorically framed around a lesser state intervention. However, these projects are

12  Gerardo del Cerro Santamaría “clearly, and almost with no exception, led by the state and often financed by the state” (Moulaert et al., 2003, 551). This degree of state participation symbolizes the tension between the ideology and the practice of neoliberalism, which is crudely revealed in megaprojects. A complex reorganization of the relations between the state and the economy is generated under neoliberalism. The state actively enables and promotes market-based regulatory agreements that favour the private sector (often in the form of “public–private partnerships”), and so urbanization depends on this peculiar and perverted form of mobilization of state power to a greater degree than in previous stages (Brenner & Theodore, 2005). In a way, this is a clearly neoliberal version (the “entrepreneurial state”) of what was formerly called the “developmental state”, whose paradigmatic example is the Chinese government, controlled by the all-powerful Communist Party of the People’s Republic of China. The Chinese entrepreneurial state began to manifest itself when the teams of the Engineer Corps of the Chinese People’s Liberation Army started the construction of the Shenzhen Special Economic Zone (SEEZ), once they had concluded their work in the reconstruction of Tangshan after the 1976 earthquake. The first skyscraper in the SEEZ, the International Foreign Trade Centre, opened its doors in 1985, and it was, at that time, the tallest building in China. The IFTC was inspired by the Hopewell Center of Gordon Wu in Hong Kong and rapidly became a widely replicated type of building throughout China. From that skyscraper, Deng issued his historic call to the free market in January 1992. The rhetoric from megaproject protagonists will always embrace a globalization discourse in which international economic competitiveness is paramount for the prosperity of the city and the state. Both in times of genuine bust and in times of obvious boom, this rhetoric dominates public discourse, frames objectives, and guides decision-making processes, despite rarely being operationalized in official project-management processes. The structural change that these projects are aiming to bring about, who precisely stands to benefit, and, more importantly, what alternatives might be available all remain shrouded in a generic “glossy globalization” discourse that glorifies potential investment and growth while obscuring real urban displacement and socio-spatial polarization (Marcuse, 1997). In times of real failure, or times of evident boom, this global rhetoric dominates public discourse, frames objectives and guides decision-making processes, although it is rarely operationalized in official project management processes, which obey other types of priorities. Megaprojects represent a globally embedded approach to city-making, development, and competitiveness spanning cultural and geographical contexts. It has become the hegemonic approach to growth, development, competitiveness, wealth-creation, and prosperity advocated by urban pro-growth coalitions and elites.

Megaprojects in emerging markets  13 Megaprojects, megaregions, and competitiveness As the urbanization process develops relentlessly around the world and global city-regions become economic units of development and competitiveness in their own right, the role of megaprojects (particularly transport and energy infrastructure, innovation districts, industrial corridors, city clusters, new towns) in providing the infrastructure of development expands. These megaprojects, and the megaregions where they are built, obey a simultaneous logic of dispersion–concentration of economic activity. The combined action of technology and trade favour the global dispersion of economic activity. In turn, the benefits of mutual proximity of innovation activities and decision-making centres promote economic concentration in large megaregions, which thus exemplify the extension and intensification of the functional relationships of global cities in large megaregional spaces. Recently, 40 megaregions were identified around the world, representing 18% of the world’s population, two-thirds of the world’s economic activity, and 86% of patented innovations (Florida, 2007). From this point of view, megaregions are the new urban form of globalization (Harrison & Hoyler, 2015). In the United States there are several differentiated super-regions, defined by economics and demography: the northeast corridor, from Boston to Washington, D.C. (Bos–Wa); Northern California, around San Francisco; Southern California, around Los Angeles; the Great Lakes area, with Chicago as its epicentre; the Arizona Sun Corridor, from Phoenix to Tucson; the Front Range Corridor, from the city of Salt Lake to Denver and Albuquerque (New Mexico); the Cascadia Belt, from Vancouver to Seattle; the Piedmont Atlantic group, from Atlanta, Georgia, to Charlotte, in North Carolina; the Gulf Coast area, between Houston, Texas, and New Orleans; the Texas Triangle area, with Houston, Dallas, Austin, and San Antonio; and Florida, which includes Miami, Orlando, and Tampa. It is estimated that the aggregate population of these megaregions will reach 277 million people in 2025, equivalent to 80% of the projected U.S. population for that year. The total gross product of two of these regions (Bos–Wa and Southern California) is equivalent to one-third of the gross product of the United States. Federal policy can focus on helping these nascent archipelagos thrive and help others to emerge, in places like Minneapolis and Memphis, by collectively forming a grid of metropolitan productive regions efficiently connected through infrastructure megaprojects, better roads, railroads, and fibre-optic cables. Although the 50 states continue to be the basic organization of the political system, the country is reorganizing itself around regional infrastructure lines and metropolitan clusters that ignore state and even national borders (Khanna, 2016). These city-regions are more economically relevant than most American states, and the connectivity, through infrastructure

14  Gerardo del Cerro Santamaría megaprojects, of these urban groups determines the long-term economic viability of Americans to a greater extent than the state in which they live. In the coming decades, more than half of the population growth of the United States and almost two-thirds of the economic growth measured in terms of output, will take place in the U.S. megaregions. These demographic and economic concentrations will be increasingly connected by their economies, population patterns and land use, infrastructure systems, topography, environmental systems, and by a common culture and history. As they consolidate, they will experience great governance and decision-making challenges that cannot be resolved at the urban or metropolitan level. Bruce Katz, of the Brookings Institution, has pointed out that of the 350 major metropolitan areas in the United States, cities with more than three million people have recovered much better from the financial crisis (Katz, 2018). Meanwhile, smaller cities, such as Dayton, Ohio, are faltering and have been losing economic power, as have innumerable small disconnected towns across the country. The 50-state model means that federal and state resources are concentrated in a state capital – often a small isolated city – and assigned with little sense of the whole. The U.S. Congress was once a world leader in regional planning. The Louisiana Purchase, the Pacific Railroad Act (which funded Iowa’s railroad expansion to San Francisco with government bonds), and the Interstate Highway and Highway System are examples of the federal government’s action on economic development on a continental scale. The Tennessee Valley Authority was an agent for the renewal of post-Depression infrastructure, job creation, and industrial modernization across six states. What is needed, in some way, is a return to this way of thinking that is more flexible and has an overall vision. Efforts are already underway to coordinate metropolitan planning and investment in the United States, as Khanna reports. Quasi-governmental entities such as the Western High Speed Rail ​​ Alliance aim to link Phoenix, Denver, and Salt Lake City with next-generation trains and the industry. There are groups such as CG/LA Inc. that promote public–private investment in a new national infrastructure project. Regional cooperation and planning are major issues in the National Association of Governors. But Congress still thinks in terms of states (Khanna, 2016). To be sure, the challenge of megaregional governance presents no easy solution, due to the extreme complexity in the demands of changing geographical patterns coupled with the political challenges tied to interregional competitiveness and socio-spatial rescaling. The Trump administration, and those which follow it, must implement a serious policy of making use of new investments in infrastructure, and support the change towards a new urban political economy based on the construction of megaprojects in transport engineering, alternative energy, digital technology, and other advanced sectors. In any case, this is not a task only for federal policy, given the geographic size of the country, the

Megaprojects in emerging markets  15 decentralized nature of U.S. policy, and the multilevel power structures that are required to plan and implement complex projects at the regional level. States must also operate across borders and be able to replace the logic of competition (by attracting activity and employment to the detriment of neighbours) with another logic of coordination, planning, and supra-state cooperation. One can find transformations towards megaregionalization throughout the world. Despite the millenary history of its cultural and linguistic provinces, China is transcending its traditional internal borders to become an empire of 19 megacity groups with populations of up to 100 million inhabitants each. The three main Chinese megalopolises, centred around the Pearl River delta, the Yangtze River, and around Beijing (Jing Jin Ji), stand out for their huge scale (more than double the population of Tokyo, the largest megaregion today), massive development through numerous high-speed rail lines, and top-down and unopposed planning in an authoritarian political context. Despite the possible fragility of the Chinese model of massive investments in infrastructure (Ansar et al., 2016), these groups of cities, whose borders fluctuate in terms of population and economic growth, will be, over time, the nuclei around which the central government allocates subsidies, designs supply chains, and builds connections with the rest of the world (Wu, 2017).

Methodology: case studies, challenges, and obstacles Megaprojects have spread in urban areas around the world and have frequently caused the displacement of the original inhabitants of these areas and generated strong criticism from civil society. We are heirs to the globalized city, in which it is not possible to conceive anything but the regeneration of areas adjacent to rivers and bays, the recovery of zones previously dedicated to storage and manufacturing, the construction of new transportation infrastructures or the extension of existing ones, as well as the renewal of historical centres. However, the Manhattanization of the world – and the urban political economy that sustains it – also presents difficulties and can create several structural obstacles with direct consequences for the design and implementation of megaprojects in globalizing cities and regions. A case in point is Dubai, a megaproject put into crisis after the recession that started in 2008. After years in which one could regularly find news about the new architectural marvels of the world constructed in Dubai (including sets of artificial residential islands), the situation has become one of hypertrophy for this onetime urban vision. The bubble burst, and the model of Dubai became yesterday’s news. Beginning in September 2008, real estate prices fell, and those who had become accustomed to positive news about the Emirate were rubbing their eyes in disbelief. The glowing reviews about a permanent acceleration in megaproject construction – when Dubai was considered to be the dynamic and innovative centre of the

16  Gerardo del Cerro Santamaría Arabian Peninsula – had turned, first, into disbelief, and later into an admission of defeat not free of irony. The Emirate was bailed out by Abu-Dhabi, and the economic situation has improved in recent years, but a big weakness for Dubai remains: the city lacks a consistent concept of society, with more than 90% of its immigrants having very limited rights and unlikely to reside there permanently (Elsheshtawy, 2013). Economic recession is only one of many obstacles faced by megaproject construction. Another is of a political nature, in particular the lack of strong metropolitan governments provided with the necessary instruments to undertake big projects that can transform the urban image and the urban fabric. Such is the case of Mumbai, which is determined to “Shanghaize” itself, although major challenges loom. Unlike in China – where the redistribution of local, regional, and national power has not been a zero-sum game in which local governments have gained power at the expense of central governments – the deliberate “Shanghaization” of Mumbai has seen the competition between different scales of government result in the concentration of power and resources at the metropolitan level, creating a power gap for the development of urban megaprojects. In China, the redistribution of power has taken place between the different levels, enabling the country to proceed with UMP construction and generally to better adapt to the requirements of the global economy (Ye, 2017). The organizational obstacles in megaproject development are not minor. Bent Flyvbjerg (2003) already warned of these problems in Megaprojects and Risk with examples of big infrastructure projects in Europe. The development of an urban megaproject is usually completed in various phases, and therefore many rearrangements, corrections, additions, and errors occur, not to mention the usual inability of developers to limit the final expenses to the initial budget (so-called “cost overruns”), compounded by so-called “optimism bias” and “strategic misrepresentation” when presenting the projects. All this produces a lack of transparency that is increasingly difficult to support in view of the increasing activity of civil society which organizes itself to challenge the ambitions of political and economic elites. To cite some examples, megaprojects under construction in Budapest, New York, Paris, and Sao Paulo all illustrate the idea that, in the absence of clear and transparent planning, and although the state and the promoters try to explain the genesis and the impacts of the megaprojects, the whole process is perceived as dark and secret. Sometimes, this is used by the state to violate agreements and contracts of public interest and to reverse previous decisions. This is what happened in the case of the National Theatre of Budapest, according to Judit Bodnar and Judit Veres (2013). In the developing world, megaprojects have been and are being built at a rapid pace. As in other parts of the world, megaprojects in developing countries represent efforts to enhance global competitiveness and the ambitions of local economic and political elites to reposition their cities and countries in the context of a changing world economy. From a management

Megaprojects in emerging markets  17 viewpoint, these megaprojects also need to confront optimism bias, strategic misrepresentation, and cost overruns. In some cases, a shortage in high design and technical skills can compromise or make implementation goals hard to achieve. Some examples of recently completed or underconstruction megaprojects (as of Spring 2020) include the Delhi Mumbai Industrial Corridor (India), Konza Technology City (Kenya), Wedian (the proposed new capital of Egypt), Centenary City (Abuja, Nigeria), Bodha Island City (Karachi, Pakistan), Colombo Port City (Colombo, Ski Lanka), Lippo Cikarang Industrial Park (Jakarta, Indonesia), New Clark City (Philippines), Khazar Islands (Azerbaijan), King Abdullah Financial Center (Riyadh, Saudi Arabia). In this chapter we shall analyze case studies in two developing countries: Turkey and China.

Analysis, findings, and conclusions The controversial rebuilding of Istanbul When the Haliç, or Golden Horn, a major urban waterfront and the primary inlet of the Bosphorus in Istanbul, started to be developed, there were views that the project would not yield significant economic benefits nor improve the quality of life of the residents, but would rather create a risk of gentrification of the urban area. The emphasis on creating shopping malls, parks, luxurious hotels, and convention centres to attract tourists led to the demolition of housing and the displacement of local populations. The Fener and Balat Rehabilitation Project is a good example of this phenomenon. The aim of this project was to improve the housing quality of the residents in the Fener and Balat area by providing 225 buildings with basic levels of comfort over a four-year period. It was started in 1997 with a joint intervention by the Fatih District Municipality, UNESCO, and the European Union. Seventy per cent of the buildings needed to be demolished due to their physical condition, resulting in the removal of 900 families (Bezmez, 2008). Also, the development of extensive infrastructure increased the land market values of the surrounding areas, making the land unaffordable for the middle class. According to Gunay et al., an investigation of land market values in Beyoglu and Fatih Municipalities has proved that the value per square meter in Karaagac Street reached $2,200 in 2011, while it was $195 in 2009 and $120 in 2004. One square meter in the residential areas, toward the slope of the hill, has increased in value from $50 in 2009 to $800 in 2011. In commercial areas, the prices begin at $6,500 per square meter. A similar increase in the land values can be seen in the neighborhoods surrounding Kadir Has University, RahmiKoc Industrial Museum, and even in the renewal areas of Ayvansaray and Fener–Balat. For example, in the Leblebiciler and MurselPasa Streets of Ayvansaray, the value of one square meter of land is $900; in Balat’sVodina Street it is $620. The

18  Gerardo del Cerro Santamaría prices of historic buildings are between $162,000 and $650,000; and the rents for restored ones are between $970 and $2,600. (Gunay et al., 2012, 216) Resistance from the local population In the Fener Balat Rehabilitation Project, although there have been measures taken by the government to prevent gentrification, such as excluding buildings that were bought after 1997 from the rehabilitation project and preventing owners from selling their properties within five years of completion of the restorations, the measures were vague and hence the local community still voiced their dissatisfaction with the government. As Bezmez explains, there were several reasons for their protest. First, the idea that their houses were restored without any contribution from their part seemed unrealistic, making them fear that they were going to be gentrified and forced to cover the expenses. Second, most residents transformed the buildings such that a house could fit several families, therefore a return to the original building would provide them with much inconvenience. Third, a restriction that the residents could not sell their house in the next five years seemed impossible given their financial situation. Fourth, there were rumors that the project started with the intention to revive Istanbul’s non-Muslim past and not to improve the living standards of the residents. Due to opposition of the project, the rehabilitation was halted and delayed. (Bezmez, 2008, 823) Preservation of the Golden Horn identity The Golden Horn Cultural Valley Project has attracted significant tourism to the area. Miniaturk received 494,835 visitors in 2010, the Rahmi M. Koç Industrial Museum 134,000 visitors in 2011; the Feshane Exhibition Centre receives two million visitors per year and the Pierre Loti Hill has been receiving around 1,000 visitors per day. Although the development of green areas and tourism improved the quality of the area, there were also threats that the public area might eventually be privatized by the surrounding cultural complexes. The Rahmi M. Koç Museum expanded by purchasing Tekel land, and the Kadir Has University also started to occupy more public space, such as by changing the name of the street in front of the local university and closing it. The Fener–Balat renewal project has also been criticized as being a land development project rather than an identity-conservation project. A UNESCO/WHC committee also criticized the urban renewal projects as a potential threat to the Horn’s integrity. More than 600 historical factories

Megaprojects in emerging markets  19 and warehouses were demolished for reconstruction of larger complexes. In addition, the Golden Horn metro bridge involved the construction of two towers that looked like horns and obstructed views of the historical peninsula. Tellingly, the committee proposed the inclusion of the area on the “List of World Heritage in Danger” (Gunay et al., 2012; Seibert, 2011). According to Gunay et al.: Waterfronts are important resources for creating economic boosters such as tourism, business development and inward investment; and culture may provide a profitable and powerful instrument for city governments to acquire a competitive advantage in a world marked by globalization […]. However, culture-led approaches can act as a driving force within urban development agenda only if they are integrated with other urban policies […]. To maximize the benefits, there is a need to balance cultural production and consumption, to make culture accessible to the community and attractive to visitors, and to generate vibrancy to draw the interest of potential stakeholders. (Gunay et al, 2012, 45)

Public–private partnerships First, development of the private sector led to a cultural monopoly of the district. Despite efforts by private flagship projects to develop cultural icons on the Golden Horn, this is not reflected in the urban structure of the area; instead, the projects became cultural monopolies of their districts. For instance, despite the strong cultural infrastructure of Beyoglu, which is agglomerated mostly in the Galata and Taksim districts, RahmiKoc is still a cultural node in Beyoglu, shifting the cultural focus of other vibrant districts. The Rahmi M. Koç museum is the first major museum in Turkey dedicated to the history of transport, industry, and communications. The museum still stands as a monopoly in its district. This is because this flagship project serves as a symbolic landmark rather than a cultural institution for the inhabitants of the neighbourhood. For instance, while the inhabitants consider the Rahmi M. Koç Museum as a landmark, this feature did not go beyond merely describing the space in which they work. Local citizens have only visited the museum once or twice and never participated in the cultural activities, which are far from their interests. Second, the private sector acted as the dominant actor in the development of the Golden Horn. In the case of the Rahmi Koc museum, the ministry of culture wanted to privatize Lengerhand and Haskoy Shipyard but there wasn’t any specific function to put forward within the Golden Horn cultural valley

20  Gerardo del Cerro Santamaría concept. Yet after demands from the Rahmi Koc Foundation, the government adopted the demand and accepted the Rahmi Koc Foundation’s project. (Bakbasa et al., 2013, 526) Political confrontations When different mayors and parties were in charge of the Istanbul Metropolitan Municipality (IMM), the central government embraced different values and views towards the development of the Golden Horn, hence affecting the effectiveness and efficiency of development. During Mayor Dalan’s term, the Turkish Clothing Manufacturers Association was interested in Feshane, the historical site of a textile factory on the Golden Horn. The association was planning to use the building as an exhibition centre for the products of the association’s members and also to rent out to exhibition organizers. The IMM would retain ownership of the building and rent it to the association on a long lease, therefore enjoying part of the profit. Dalan approved this project hastily and even started restoration work before an initial agreement was signed. However, the social-democrat mayor Nurettin Sözen was elected before Dalan could sign an official contract with the association, even though the association had already incurred significant expenses. As a result, Sözen called the operation to a halt by delaying the project with “every possible obstacle”. At last, the association decided to give up on the project. In the 1990s, the Eczacibaşı Group, a Turkish industrial group, wanted to turn Feshane into Istanbul’s Museum of Modern Art. Similar to the Clothing Manufacturers Association, the Eczacibaşı Group was supposed to sign a long lease with the IMM and cover all the financial expenses of the redevelopment. Yet tension rose between the IMM and the industrial group after a plan including substantial expenses was put forward to restore Feshane. The project was abandoned (Bezmez, 2008, 830). Vision 2023: environmental issues In 2017, UNESCO declared Istanbul a “design city”, pursued by the Turkish government as part of their “Vision 2023”, which is aimed at the centennial of the proclamation of the Republic of Turkey. The threefold mega-development in Istanbul associated with the government’s “Vision 2023” defines a set of goals centred around the further economic growth of the city and its nomination as a global hub. The first part of this development is Istanbul’s Third Bridge in conjunction with the Northern Marmara Motorway. The second part consists of the Third airport situated in the North-West of the city, which is to become the world’s biggest airport. In the same part also falls a plan concerning the development of a new city near the airport including

Megaprojects in emerging markets  21 multiple facilities (e.g. hotels, retail and commercial office space and logistic centers), which is to be connected with the existing city via highspeed underground and aboveground fixed-track infrastructure. The third part is Kanal Istanbul, located west of the Bosporus Strait, providing an alternative passage for vessels. This canal essentially bisects the European side of Turkey and creates a new island between Asia and Europe. (Dogan & Stupar, 2017, 284) The above megaprojects represent serious challenges ranging from huge funding requirements, mostly undertaken by taxpayers, to significant impacts on urban structure, the natural environment, and the community. As far as impacts on urban structure are concerned, according to Dogan and Stupar, they are probable to be adverse by spoiling the visual and structural uniqueness of the city’s environment and intensifying urban activities, leading to a further rise of population as well as a shift in urban density. The latter is expected to have synergetic effects with the construction of the Third Bridge, concerning the exacerbation of traffic congestion caused by the promotion of private vehicles. (Dogan & Stupar, 2017, 286) Environmental issues are probably the biggest concern about this mega-development: The Third Bridge and its associated motorway pass through the northern border of the Belgrad Forest (adjacent to Istanbul) at the European side and the Bosporus Biodiversity Area, creating serious threats for a wide range of local habitats and intensifying the heat island effect. At the same time, noise and air pollution are expected to increase due to Istanbul New Airport (set to start in March, 2019 and with no official name yet due to political controversy), which is also to be placed on the migration routes of birds. The Kanal Istanbul is likely to trigger irreversible environmental disaster, taking into account the inversion of the hydrologic balance between the cold and fresh waters of the Black Sea and the warm and salty waters of Mediterranean Sea. Finally, the lack of community engagement as shown by the low level of public awareness of the above risks as well as the potential need for expropriations in order to empty lands for construction are characteristic of the impacts of this mega-development on the local community. (Dogan & Stupar, 2017, 287) Infrastructure and environmental challenges in China Infrastructure and megaprojects have opened the door to socio-economic development in China. While the socio-economic results are indisputable, China’s performance in the area of environmentally sustainable development

22  Gerardo del Cerro Santamaría leaves room for improvement. According to the PRC Ministry of Ecology and Environment (PRCMEE): two-thirds of China’s lakes have chemical deficiencies caused by pollution. As a result of pollution and increasing consumption, two-thirds of China’s cities are short of potable water. Air is heavily polluted across the northern heavy industry belt from Shanxi to Liaoning provinces and along the heavily industrialized east coast. Many polluted industrial sites will require extensive soil remediation before they will again be fit for human use. (PRCMEE, 2016) According to a New York Times report, China is responsible for 47% of the world’s coal-burning, which is more than all the other countries in the world combined. As a result, respiratory diseases that are directly related to air pollution are currently the leading cause of death in China, according to the World Wildlife Fund (WWF). In addition to some of the world’s worst air pollution, China also has many waterways that are highly polluted. According to the Economist, more than 50% of China’s surface water is not fit for human consumption, whereas approximately 60% of the groundwater under Chinese cities is considered to be severely polluted. (Watkins et al., 2018) Energy According to the World Bank, Electricity production in China doubles nearly every 10 years. China now generates 18 percent of all electricity globally, only slightly less power than the United States. China’s non-fossil fuel electrical power sources are still overwhelmingly nuclear and hydro (96 percent combined), according to the World Bank. The more difficult target to achieve will be 20 percent renewable power production by 2020. Despite rapid growth, wind and solar energy sources still make up less than one percentage point of total electricity production in China. Since solar power is still more expensive to produce than electricity from coal-fired turbines, the government offers subsidies either for capital investment or operations, but neither subsidy is sufficient to break-even under current conditions. (World Bank, 2018) In addition to renewable power generation, there is a growing market for energy service company (ESCO) projects, which can help to reduce energy consumption and greenhouse gas emissions. ESCO projects typically finance the purchase of new

Megaprojects in emerging markets  23 energy-efficient equipment through projected savings on future fuel bills in comparison with old or energy-hungry machinery. While the World Bank and many smaller “green funds” have already entered this market, many local investors are hesitant, since they find the five-to-10-year payback period too long. This is one factor contributing to opportunities for foreign energy savings companies with local partners. (Bachmann et al., 2012) Water and wastewater Future efforts to increase water-sector performance should adopt a more integrated approach. The different components of urban water systems—water, wastewater, and stormwater—are often handled by different government organizations with different, sometimes competing agendas. Integrated water resource management can be used to match water quality to water uses, improve treatment cost-effectiveness, and raise the quality of discharged water to environmentally safe levels. China’s water industry will open up for reverse osmosis, membranes, and other advanced treatment technologies that minimize energy inputs and simplify operations. (Southerland, 2017) Transportation Transit-oriented development (TOD) is key in the development of Chinese cities. To be sure, land use and density factors are not yet considered systematically during design. However, many cities retrofit their zoning codes after subway construction to allow development to cluster around transit stops. With the right land use mix, this offers the possibility of higher use of non-motorized transport. At least 13 Chinese cities currently have one or more subway lines under operation, 54 lines covering 1,700 km. Another 76 lines, or an additional 1,600 km, are under construction. The target is 40 subways systems by 2020 covering about 7,000 km. At this pace and scale, TOD is poised to make a big difference in the long-term sustainability of urban living. (Luo et al., 2017) Desertification According to Smith, China is also dealing with rampant soil erosion and desertification, which is a type of land degradation that is a result of previously fertile

24  Gerardo del Cerro Santamaría soil transforming into arid land due to poor agricultural practices and land management, as well as extreme climate change. Both desertification and soil erosion cause blinding dust storms and river-clogging mud that have battered Chinese cities located near the edge of the Gobi Desert. According to the WWF, desertification has already swept over 30% of China’s land mass. Since 1978, the Chinese has followed guidelines set by the Three-North Shelter Forest Program, otherwise known as the Great Green Wall, which involved the construction of what is now over 66 billion trees that are used to block the path of the Gobi’s storms. Despite this afforestation project, the desert’s expansion continues to affect various surrounding cities. (Smith, 2018) And Schwärzel argues that, As towns continue to get swept under sand as a result of these storms, the Chinese government is forced to move affected populations away from degraded lands. In fact, between 2003 and 2008, over 650,000 people who were previously living in China’s Inner Mongolia province were forced to resettle in other cities. An even more concerning fact is that these sand dunes are forming only about 44 miles away from Beijing at a pace of almost 2 miles each year. To prevent the capital city from being submerged in sand, the Chinese government must investigate new and creative ways in which natural ecosystems can be restored. (Schwärzel, 2017)

Implications of the study Governance of sustainable megaprojects As we have seen in our analysis of megaprojects, these megastructures have significant environmental impacts, and thus attaining acceptable levels of environmental sustainability needs to become a priority for planners, developers, and other stakeholders. However, the attainment of environmental sustainability does not in itself ensure megaproject sustainability, a goal that needs to be pursued holistically. One way to do it is to use the notion of “key or multiple success factors” (Grunert & Ellegaard, 1992). This notion is not new in the field of project management and, in fact, constitutes one of the topics most discussed by specialists. It is increasingly important “to evaluate projects and their impacts at different times and based on multiple criteria in order to fully evaluate their performance. Success is often driven by political and/or power-related factors” (Grunert & Ellegaard 1992). Due to the strongly political nature of the stakeholders throughout the supply chain and their different underlying objectives, the success factors which are usually considered no longer seem sufficient. This configuration requires innovative governance solutions that align the

Megaprojects in emerging markets  25 interests of the different stakeholders in a complex environment with a large number of key actors (Harris, 2017). By following the notion of “multiple success factors”, we contend that there are a number of requirements that need to be met in order to achieve sustainable megaprojects: environmental sustainability (sustainable infrastructure delivery and sustainable development zones); sustainability in design and planning; sustainability in megaproject management; institutional sustainability; and socio-economic sustainability. Thus, a megaproject can be defined as sustainable if it is planned and executed to account for the capacity, fitness, resilience, diversity, and balance of its urban ecosystem (del Cerro Santamaría, 2018). We take the view of sustainability as an organic process including environment, economy, and community: form and efficiency (environmental factors in design, architecture, engineering, and construction) as well as policy (urban plans and practices that explicitly aim at maintaining and improving the social and economic well-being of citizens). Sustainable infrastructure delivery Cities now have the opportunity to raise the bar of urban infrastructure delivery to safeguard the natural environment and open the door to the next phase of socio-economic development. As cities and countries climb the industrial value ladder and expand their service sector to cater to growing domestic demand, environmental quality will become central to achieving sustainable economic growth. Urban residents in the more sophisticated markets are already putting a substantial price premium on high-quality urban environment. To attract the right labor pool, cities will need to raise their game further. (World Bank, 2018) The backbone of the next phase of infrastructure development should be the “one-system” approach. Infrastructure planners need to consider the development of the entire city-wide infrastructure system, including its energy, transport, land, and water subsystems. Realizing the potential synergies between subsystems will require technology for real-time information, conservation pricing, and demand management. (Ness, 2018) Foreign infrastructure providers and experts with strong track records in these areas should be poised to make a major contribution to achieving higher infrastructure performance standards in the coming years. Government stimulus and financing will also be critical. Central governments can redouble its commitment to environmental sustainability

26  Gerardo del Cerro Santamaría by continuing to pursue aggressive resource conservation and economic productivity targets, and by backing those efforts up with funding for investment in infrastructure. (United Nations, 2016) Sustainable development zones Some countries, such as China, have taken steps to designate “sustainable development zones”. Earlier this year, the Chinese government approved three sustainable development zones, which will implement the United Nations 2030 Sustainable Development Goals: Shenzhen, Guilin, and Taiyuan. Shenzhen is China’s innovation engine. This zone will integrate technologies in sewage treatment, waste utilization, ecological restoration, and artificial intelligence to solve issues from resource management to pollution. Guilin will focus on innovations that tackle desertification, creating solutions that can be replicated by other regions facing the threat of encroaching deserts. In Taiyuan, targeting air and water pollution, this zone will foster innovative solutions that can be replicated by regions relying on resource extraction. (XinhuaNet, 2018) Sustainable planning and design The planning of megaprojects should be oriented towards socially progressive goals and ensure sustainable development rather than focus exclusively on growth and competition. The financial planning of megaprojects ought to avoid strategic misrepresentation of costs and benefits, and there should exist clauses ensuring a fair distribution of benefits for the community at large. In the design process of megaprojects, contextual elements such as history and local culture should be important factors to interpret the architecture and to assign a specific meaning (local, regional, national, global) to the architectural practices used to build megaprojects and make them visible (del Cerro Santamaría, 2013). Sustainable management The management of megaprojects ought to avoid the “exclusivity bias” between planners and managers, who tend to see their projects as unique, which prevents them from learning from other projects. Often there is an excessive commitment to a certain project concept at an early stage, resulting in a “block” or “capture”, which makes the analysis of alternatives unlikely and leads to ad hoc commitments in later stages. The achievement and delivery of the megaproject is

Megaprojects in emerging markets  27 a high risk stochastic activity, with overexposure to the so-called “black swans”, that is, extreme events with massively negative results. Managers should keep this in mind, instead of treating the projects as if they really existed in a deterministic Newtonian world of cause, effect, and control. Complexity and unplanned events need to be taken into account; budgets and time contingencies must adequately address them. (Flyvbjerg, 2014) Institutional sustainability When studying megaprojects in connection with urban growth coalitions, we can ask ourselves if the form of development represented by these large projects simply legitimizes growth machines and commercial interests or if this phenomenon can be analyzed from the prism of the role that actors and state agencies play in urban restructuring. Besides growth coalitions, the governance of megaprojects needs to take into account additional stakeholders in order to ensure institutional sustainability. There is no room in this chapter to adequately develop this argument, but I will simply mention the following aspects that would need to be taken into account: (1) the role of civil society; (2) the role of local context, history, and culture; (3) the importance of keeping urban variety and diversity; (4) the importance of megaproject local embeddedness; (5) the role of public space; (6) the role of urban design professionals. Socio-economic sustainability The embeddedness of the multiple scales of socio-economic action has paradoxically come along with a tendency towards providing megaprojects with their own strategic spatial planning tools that function independently of state and urban regulations. Thus, aligning the goals of megaprojects with regional and national policies has become an urgent necessity. New institutional arrangements between administrative levels, vital for implementing strategic policies, need to emerge, due to the negative results of separating the objectives of the megaprojects from regional and national policy goals. Therefore, megaprojects, which usually work as catalysts of urban development, should be used at the national level as tools to advance sustainability policy. The result can be an optimization of sustainable policy outcomes due to synergistic, multiplier effects. From this perspective, the key question for future research would be how to plan and build urban megaprojects that simultaneously foster both sustainability and competitiveness.

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2

Developing a conceptual framework for determinants of export competitiveness in emerging markets Rahul Dhiman and Vimal Srivastava

The concept of competitiveness has gained ground in academic, policy, and practitioner circles. In particular, export competitiveness has generated a large literature. Also, the degree to which manufacturing firms compete depends on a manifold set of factors. Export competitiveness (EC) is the ability of a nation to make and sell goods and services in overseas markets at prices and quality that certify long-term feasibility and sustainability. EC is also defined as the ability of a firm to deliver products and services at the desired location and in the form desired by overseas buyers at competitive prices as compared to other potential suppliers (Sharples & Milham, 1990). It can be concluded that all the definitions of competitiveness admit that productivity growth is a determinant of long-run competitiveness (Sharma & Dhiman, 2014; Sharma & Dhiman, 2016, Dhiman, forthcoming). Many emerging nations have relied on exports for their economic development. Nations such as Japan, Britain, Korea, and Taiwan have relied on textile and clothing exports for economic development. Textile and clothing exports jointly amount to 86% of Bangladesh’s total exports. This ratio is 80% for Cambodia, 73% for Pakistan, 58% for Mauritius, and 57% for Sri Lanka. Emerging nations such as Turkey and Bulgaria are reliant on textile and clothing exports in Europe. In the last decade, there has been a notable continuation of activity in the export competitiveness literature, which has led to a wide-ranging inventory of models that focus on the importance of various determinants of export competitiveness (Dhiman & Sharma, 2020; Rahman, Shahriar, & Kea, 2019). These models have focused on different variables, such as capital productivity, unit labour cost, real effective exchange rates, and export performance, to verify the hypothesis that these determinants impact export competitiveness. The factors of export competitiveness can be divided into factor-driven competitiveness, efficiency-driven competitiveness, and innovation-driven competitiveness, but in this chapter we focus only on factor-driven competitiveness. This chapter is an earnest effort to operationally define and propose a conceptual framework for the determinants of export competitiveness DOI: 10.4324/9781003199168-2

32  Rahul Dhiman and Vimal Srivastava (EC) such as labour productivity (LP), capital productivity (CP), exchange rate (ER), and unit labour cost (ULC) in emerging markets. This may be achieved by understanding various definitions, models, and theories specified by scientists, management thinkers, and researchers over a period of time. Literature is abundant with studies that identify the conceptual and theoretical mechanism on select variables. Previous studies have also made an attempt to examine the relationship between export competitiveness and productivity (Grossman & Helpman, 1991; Rivera-Batiz & Romer, 1991; Rana, Saikia, & Barai, 2018). Keeping the above discussion in mind, the chapter develops a conceptual framework along with a set of research propositions to analyze EC. There are six sections in this chapter: the first section offers an introduction; theoretical foundations of the framework are discussed in the second section; the third section highlights determinants of export competitiveness; the fourth section discusses previous studies conducted in emerging markets; the proposed conceptual framework and its components are presented in the fifth section; and the last section concludes the chapter while presenting managerial implications.

Theoretical foundations of the framework Countries engage freely in international trade because different nations are associated with different kinds of specializations (Dhiman et al., 2020a; Krugman & Obstfeld, 2003; Parlakgul & Goksen, 2018). The theory of absolute advantage provided by Adam Smith in 1876 supports this fact and states that a nation can improve its wealth if it is specialized in manufacturing products and services that have an absolute cost advantage as compared to other nations and should import those products and services that carry absolute cost disadvantage. This theory of absolute advantage had certain limitations because a country will not import any product or service if it carries an absolute advantage in all goods and services it produces. This limitation was overcome by the theory of comparative advantage advocated by Ricardo. The theory stated that a nation should specialize in goods which can be produced more economically than other nations. It means that despite absolute cost disadvantages in manufacturing the products and services, a nation can export products that carry the smallest absolute disadvantages and import goods carrying the largest absolute disadvantage. Hence competitiveness is an important factor for a country to survive in the international market. The comparative advantage gained by a nation depends upon various factors such as labour and capital, which are important determinants included in the present study. Heckscher–Ohlin (H–O) theory explained the reasons for comparative advantage differences among the various nations (Dhiman & Paul, 2021; Salvatore, 2002). According to H–O theory, different nations have different factor requirements in terms of labour and capital

Determinants of exports  33 which are used in manufacturing products and services (see Figure 2.1). This theory emphasized that a labour-intensive nation should focus on producing labour-intensive goods and a nation with higher capital-intensity should focus on producing capital-intensive goods. Previous studies have also focused on identifying the specialization of a country. Since the U.S.A. is a capital-intensive country, hence is likely to be an exporter of capitalintensive goods and an importer of those goods that require other factors, such as labour, which is scarce. However, the empirical findings were opposite to this (Leontief, 1953). Other foreign trade theories in the literature have focused on the competitiveness of a nation which is examined by the decrease in the ER (Boltho, 1996) and by minimizing ULC. Michael Porter, who leads the way for competitiveness theory points out productivity as the best method of examining EC. The above theories, as well as literature, have signified the importance of variables such as LP and CP. Growth in LP and CP results in an increase in EC (Kordalska & Olczyk, 2014). So, competitiveness, in terms of productivity parameters such as labour and capital needs, to be examined. Hence, taking into consideration the importance of these variables, it becomes imperative to study LP and CP. Another fact for including LP and CP as a determinant of EC is that any labour- and capital-intensive industry requires a large number of workers and updated technology is essential for production. ULC is most frequently used for examining the cost competitiveness of a nation and for this reason, is considered in the present study. ER is another key determinant identified in the present research and there is a need to identify the relationship between EC and ER as this relationship has not been comprehensively examined at the industry level (Ito & Shimizu, 2015). Hence it also becomes imperative to study both EC and ER. Also,

Figure 2.1 Diagram explaining Heckscher–Ohlin (H–O) theory Source: All figures are by the authors.

34  Rahul Dhiman and Vimal Srivastava the literature suggests that raw material is one of the major strengths of manufacturing industry, but raw material is out of the purview of the present research. This is because of the export-focused nature of the research. Including the aspects of raw material, availability would have added a production-oriented dimension, hence deviating from the main aspect of the study, i.e. exports.

Overview of determinants of export competitiveness Before moving further into developing a conceptual framework for export competitiveness in emerging markets, it is important to provide a brief overview of variables of export competitiveness. Hence, this section makes an attempt to give an overview of determinants of export competitiveness. The literature emphasises ER, LP, CP, and ULC as the critical determinants of competitiveness and suggests the importance of these variables to remaining in the global competitive market. LP is another important determinant of export competitiveness chosen in this study since the industry is labour intensive. The growth in LP results in an increase in export competitiveness. The ER is another determinant identified and the previous study also indicates the need to identify the relationship between export competitiveness and the exchange rate as this relationship has not been comprehensively examined at the industry level (Ito & Shimizu, 2015). The variations in the exchange rate results in fluctuations in the demand for textile exports. A depreciation of the currency makes textile products cheaper; as a result, the demand for the product increases, which further leads to a rise in exports. The literature also highlights labour cost as another determinant affecting textile exports among developing Asian countries. The increase in labour costs gives rise to poor export performance. So, minimizing ULC is a challenge to industry, in order to ensure efficient working of the business enterprise.

Previous studies conducted in emerging markets Dhiman (2018), Dhiman and Sharma (2019), Mittal, Dhiman, and Lamba (2019), Dhiman, Chand, and Gupta (2018), Rana, Parashar, Barai, and Hamid (2020, forthcoming) highlight the process of conducting the review and reveal that an important aspect before conducting the review is to finalize the method of selecting the research papers, time frame, and domain of research. In order to conduct a systematic review, the author has made use of a variety of scholarly journals in the field of manufacturing exports from reputed publishing houses. The platforms for accessing papers are EBSCO and ProQuest. The author uses the relevant literature published between 1991 and 2018. Previous studies conducted by various authors over a period of time in emerging markets are presented in this section. The table depicts that EC

Determinants of exports  35 has been measured for manufacturing and service industries; chemicals, metal products, general machinery, electrical machinery, transport equipment, etc. in several emerging nations such as Czech Republic, Hungary, Indonesia, Korea, Mexico, Poland, South Africa, Thailand, and Turkey, ASEAN countries, and other nations such as Ghana, the U.S.A., Singapore, Japan, and India. A few studies conducted on export performance and its determinants in emerging markets are discussed in the next section. Several authors in the past attempted to examine the determinants of EC in the Indian textile industry at the disaggregate level and found that exchange rates and real effective exchange rates (REERs) are significant determinants of EC (Sharma & Dhiman, 2014; Dhiman & Sharma, 2017b; Sharma & Dhiman, 2016). A similar finding was reported by Sunny and Sund (2014) over the time period 2008–2009 to 2011–2012. However, the author studied the Indian toy industry. It can be concluded that the export performance of Indian firms responds asymmetrically to exchange rates. The Indian firms that have smaller export shares tend to have a stronger response to both REER change and volatility (Cheung & Sengupta, 2013). Another study conducted by Chan, Au, and Sarkar (2008) and Prusty (2008) over the time periods 1985–2005 and 1995–2006 respectively also indicates that the devaluation of the Indian rupee boosted textile exports due to the fact that buyers would enjoy a cheaper textile product. A few studies conducted on ASEAN nations such as Thailand, Malaysia, Indonesia, and Singapore revealed strong evidence of causality by exchange rate. Abeysinghe and Yeok (1998) over the period 1980–1995; Fang and Miller (2007) from 1979 to 2002 and Caporale, Spagnolo, and Spagnolo (2018) from 2003 to 2014 conducted studies in manufacturing and service firms of ASEAN nations and the evidence shows that depreciation does not significantly improve exports. In sum, the effect of exchange rate depreciation on exports is positive but insignificant. The higher the imported input content, the less the impact of exchange rate changes on exports. In addition, authors also examined the determinants of EC in Japan, Korea, U.S.A., U.K., Canada, and Japan (Athukorala, 1991; Athukorala & Menon, 1994; Shane et al., 2008; Mougoue & Aggarwal, 2011). The findings revealed that labour productivity, capital productivity, labour costs, and exchange rate are vital to achieve export competitiveness in emerging nations. High productivity in the manufacturing industry facilitates the sustainable growth and economic development of a nation. This, as a result, stimulates export growth (Thangavelu & Owyong, 2003). A study confirms that the international competitiveness of industries in developing economies is still dependent on the comparative advantage gained in terms of labour cost. From the above discussion, it can be concluded that in emerging nations such as India, U.S.A., U.K., Canada, Singapore, Thailand, Indonesia, Japan,

36  Rahul Dhiman and Vimal Srivastava Korea, etc., the vital determinants of EC are labour and capital productivity, labour costs, and exchange rate.

Proposing a conceptual framework From the theoretical foundations, as discussed in the above section, it gets clear that LP, CP, ULC, and ER can be taken as determinants of EC. Hence, in this section, an effort has been made to draw some conclusions on the basis of views expressed by previous researchers. The definitions provided by previous researchers on the select variables are discussed in this chapter. The interrelationships among these variables and various theories have also been discussed.  Export competitiveness EC is considered the most popular tool for the measurement of country competitiveness (Kordalska & Olczyk, 2014). There are several definitions of EC provided by previous researchers on the basis of the level and the purpose of analysis. EC is the ability of the nation to make and sell goods and services in overseas markets at prices and quality that certify long-term feasibility and sustainability. EC is also defined as the ability of a firm to deliver products and services at the desired location and in the form as desired by overseas buyers at competitive prices as compared to other potential suppliers (Sharples & Milham, 1990). Some researchers have defined competitiveness in relation to productivity which in turn is a function of several factors such as cost. So, competitiveness can also be defined in terms of LP, CP, and ULC. High rates of productivity growth are often regarded as a way of strengthening

Labour Productivity Capital Productivity

Unit Labour Cost

Exchange Rate

Figure 2.2 Proposed conceptual framework

Export Competitiveness

Determinants of exports  37 competitiveness. Competitiveness can also be defined in relation to the sales, i.e. as a larger export share in the world market. It can be concluded that all the definitions of competitiveness admit that productivity growth and capital formation as determinants of long-run competitiveness. Countries engage freely in international trade because different nations are associated with different kinds of specializations (Krugman & Obstfeld, 2003). The reasons for such comparative advantage gained by a nation also depend upon various factors such as labour and capital which are important determinants included in the present study. Heckscher–Ohlin theory explained the reasons for comparative advantage differences between various nations (Salvatore, 2002). As per Heckscher–Ohlin theory, different nations require different factor requirements in terms of the labour and capital which are used in manufacturing products and services. Since the U.S.A. is a capital-intensive country, hence is likely to be an exporter of capital-intensive goods and an importer of those goods that require other factors, such as labour, which is scarce (Leontief, 1953). Other foreign trade theories in the literature have focussed on the competitiveness of the nation which is examined by the decrease in the real exchange rate (Boltho, 1996) and by minimizing the ULC. Michael Porter, who leads the way for competitiveness theory points out productivity as the best method of examining the EC. Previous researchers have made an attempt to examine the competitiveness at various levels, such as Jones (1994) on the country level; Uysal et al. (2000) on the regional level; Roth and Morrison (1992), Mitchell et al. (1993), Koc (2009) on the industry level; Srivastava (2006) on the firm level. In the existing body of knowledge, it is found that countries can never be competitive as a whole. Some industries can be more export competitive in comparison to others. It becomes essential to consider the competitiveness of particular industries. Moreover, there are a number of factors such as labour and CP that impact export competitiveness, thus it is important for an industry to study and identify those factors and formulate appropriate strategies for improving competitiveness. So, competitiveness in terms of productivity parameters such as labour and capital also needs to be examined. In order to understand the influence of select variables on EC, the share of an industry’s exports in its total output can be taken, which is, relatively, a better indicator and reveals the competence of the nation to export products or services out of its domestic production. Labour productivity LP is a primary indicator of business performance and is also a significant indicator of the economic growth of a nation. In the existing body of knowledge, the importance of continuous productivity growth to survival in the competitive market is widely acknowledged (Joshi & Singh, 2010; Dhiman & Sharma, 2016). An increase in LP translates completely into growth in

38  Rahul Dhiman and Vimal Srivastava EC. Therefore, studying LP becomes essential in theoretical and in applicative terms. Research to examine LP in the manufacturing industries is an area of interest to both economists and policymakers. Several authors have indicated the importance of LP to ensure the competitiveness of the manufacturing industry in the world market (Palel et al., 2016; Ma, Liu, & Mills, 2016). High LP in the manufacturing industry facilitates the sustainable growth and economic development of a nation. This, as a result, stimulates export growth (Sahar, 2002; Thangavelu & Owyong, 2003; Dhiman & Sharma, 2017a; Dhiman & Sharma, 2017b). A few authors have also focussed on the quality of labour and its influence on technical progress; this, in turn, helps in achieving the higher LP growth (Simonova, 2008; Fox & Smeets, 2011). In addition to the quality of labour, the synergetic effect on labour can also help to achieve higher productivity rates (Devaro, 2008). There are several definitions of LP in the literature, but many of them are complex in nature. Due to complex definitions of LP, different models and points of view have been developed at different levels. Measuring productivity by index-number is one approach and is widely used. This method of calculating productivity makes use of dividing an output quantity index by an input quantity index in order to get an index of productivity (Caves et al., 1982). LP has been defined in several ways, such as the value of gross output per worker (Taymaz, 2002). One definition of LP in the literature is the output and input ratio, which has been used as a measurement tool to examine LP (Ma, Liu, & Mills, 2016). This approach has been applied by several other studies on the manufacturing industry in India (Joshi & Singh, 2010). The empirical calculation of productivity was initially carried out by Stigler (1947). Stigler defined productivity as the ratio of output and the sum of labour input. LP is reflected as total product output and total input ratio at the industry level from an economic viewpoint (Hanna et al., 2005). In the background of this description, LP indicates the quantity of output produced per unit of labour and time. There are several measures to calculate labour input. Some measures found in the literature are in terms of the total number of man-hours and the total number of employees. The biggest shortcoming for man-hours is the unavailability of such data and, moreover, personnel departments may not be in a position to have authentic data for the number of man-hours. Due to such shortcomings, several authors have used the total number of employees as labour input to calculate the LP (Nayyar, 1973; Hanna et al., 2005; Subrahmanya, 2006; Velucchi & Viviani, 2011; Palel et al., 2016; Dhiman & Sharma, 2019). The gross value added (GVA) of the production per employee over a certain time period is also used to reflect the LP (Ma, Liu, & Mills, 2016). The National Productivity Council also uses gross value added and the number of employees involved as the method of calculating the LP. The total number of employees in manufacturing is considered as labour input. Shah, Syed, and Shaikh (2013) also define LP as value-added per worker.

Determinants of exports  39 The production of a good requires different inputs in terms of labour, capital, energy, and materials, so it is essential to examine the productivity trends of such inputs. Productivity may be regarded differently by different people. To workers, productivity means accelerating their work pattern. To union leaders productivity is perceived as an occasion to negotiate for better wages. For consumers, productivity is better goods at lower costs. However, productivity in terms of labour can be defined as the ratio of output to one or more inputs utilized in the manufacturing process. In a country like India in which the majority of industries are still labour intensive, so it becomes very critical to study the trends in the LP, which can be defined as the output to input ratio (Palel et al., 2016; Velucchi and Viviani, 2011). The input in terms of labour can be calculated by using the data related to the number of employees engaged (Subrahmanya, 2006; European Commission, 2009). The most important factor impacting the competitiveness of an industry is productivity trends and growth. One such significant variable of productivity can be LP (Sunny & Sund, 2014). Growth in LP results in an increase in EC (Kordalska & Olczyk, 2014). Therefore, rising productivity indicates rising competence of a variety of resources of manufacturing or improved results with smaller effort. However, in the existing body of knowledge, it is found that India is far behind in terms of LP as compared to nations such as China, Taiwan, South Korea, etc. For illustration, in the case of men’s shirts, the LP for India is the smallest at 9.1 pieces per machine per day, as compared to China’s productivity level of 14.0 (Rangarajan, 2005). So, for a labour-intensive industry, it becomes important to achieve higher productivity levels to continue in the competitive world market. An improvement in productivity not only adds to competitiveness but also encourages growth in the economy. The explanations, as discussed above, present the conceptual foundations for the relationship between exports and productivity. Capital productivity There was a time when LP was considered to be one of the major drivers of productivity, especially in labour-intensive industries. But with the passage of time and the subsequent liberalization of trade, the technology transfer has meant that CP can be considered as another determinant of improving competitiveness in the world market. Many of the developed nations have achieved higher levels of CP. So, investment in capital becomes important in order for an organization to stay competitive in the international market. The state of affairs in the domestic sector was worse, as only 9% of plants were advanced by Indian standards, and none of them had plants in line with global standards. This has seriously affected the productivity of capital. Improvement in capital minimizes the use of manual labour as CP also improves productivity trends in labour. So CP has a vital role to play in the examination of the productivity of a nation. As already highlighted, earlier researchers had to deal with labour productivities, but now a day’s

40  Rahul Dhiman and Vimal Srivastava productivity analysis is often supplemented by examining the trends in CP as well. CP explains how well the resources of a business are being used to produce input. After examining trends in productivity, these can be used for planning, monitoring, and improving a firm’s performance. While examining the relationship between exports and productivity, the hypotheses can be that firms with higher productivity are more likely to perform better in competitive world markets. This is in line with the conclusion drawn from international trade theory, which says that firms select their own entry into export markets (Roberts & Tybout, 1997; Clerides et al., 1998). In addition, this kind of justification is also in line with the traditional Hecksher–Ohlin notions which suggest that improved factor endowments and production technologies impact the trends of trade of specific products (Pugel, 2004). In line with the Hecksher–Ohlin argument, exporting firms in Europe, such as in Germany, were found to be exporting more capital-intensive goods; this indicates the positive impact of CP on export performance. Many previous studies conducted on Indian exporting firms also indicate the importance of CP on export performance (Pant, 1993). It can be hypothesized that CP has a positive impact on export performance. The explanations, as discussed above, present the conceptual foundations for the relationship between exports and productivity. CP can be measured as output divided by capital input (Thor, 1986). CP examines the output produced per unit of capital. Gross fixed capital formation (GFCF) can be used as the measure for examining capital input. CP can be measured as the ratio of gross value added to gross fixed capital. The increase in CP indicates that with the passage of time more output can be produced with a decrease in the amounts of inputs required or with the same inputs or the same output with lesser inputs. The industry’s production process is regarded as highly efficient if an industry has high productivity; this is because the industry can generate more output with the same level of input compared to its competitors (Coelli et al., 2005). The National Productivity Council of the Government of India examines CP by dividing GVA at constant prices by the estimated fixed capital. It has been found that CP is a significant factor in promoting export growth. Enhancement of CP does not mean that few workers are required in a firm. The increase in CP at the firm or industry level indicates that with the introduction of new technology fewer workers are needed to meet production goals (Singh, 2010). Capitalistic nations always focus on the efficiency of so-called factors of production. Such factors of production are used as inputs to the process of production. In the conventional neo-classical growth model, both labour and capital are regarded as the main dependencies. The competitiveness of a firm can be enhanced by improving the efficiency of a key input factor, such as capital. The return on invested capital is very important in order for a firm to be regarded as successful in the economic sense. CP can be defined as the ratio of output to capital input and indicates value added per unit of capital (Subrahmanya, 2006).

Determinants of exports  41 A number of previous studies have made attempts to examine the productivity trends of India’s manufacturing industry (Ahluwalia, 1991; Srivastava, 1996; Unel, 2003). Some research has established that economic reform had a positive influence on the growth of productivity in manufacturing industries (Majumdar, 1996; Krishna & Mitra, 1998; Unel, 2003; Pattnayak & Thangaveu, 2005). However, a few studies found that economic reforms have negatively influenced productivity growth in India (Goldar & Kumar, 2003). A number of productivity measures have been proposed over the years, depending on the inputs and outputs used. Among them, CP is a widely used measure (Sumanth, 1984). The fall in CP is of serious concern because the world market is becoming more and more competitive and in order to survive in this highly competitive market, CP needs to be improved. The improvement of CP will enable the industry to tap the growing domestic market and also to increase its share in the world market. So, it becomes important to study the CP of an industry; for this reason, CP can be taken as another determinant of EC. Unit labour cost In any labour-intensive industry, unit labour cost (ULC) is one of the crucial variables for production. ULC is the most frequently used variable for examining the cost competitiveness of a nation. For example, the textile and clothing industry is a labour-intensive industry and requires a large number of workers to manufacture its products. In a highly competitive world market, exports of labour-intensive products will lose their place in comparison with those of other nations which have a competitive advantage in terms of labour cost (Thornhill, 1988). Therefore, it is important for any country to possess labour-cost competitiveness advantages, especially in labour-intensive industries. Labour cost is a significant constituent of the overall manufacturing cost, which can make up for the unpleasant influence of any other macroeconomic imbalances, including ER, other foreign trade policies, etc. It is assumed that exporting firms depend more on labour-cost-cutting methods in order to achieve competitiveness. Therefore, the firms that decide to export rely on labour cost as a vital factor for decision-making. Firms that have low labour costs are more likely to become exporters compared to firms that are unable to manufacture at low labour costs. The Heckscher– Ohlin model becomes the basis for this argument of comparative advantage gained due to low factor costs. A nation can gain a comparative advantage if it produces goods more cheaply compared to other suppliers in the market. Theoretically, the competitiveness of exports increases with a decrease in ULC and vice versa. A country having higher labour costs is expected to be less attractive as a supplier. Therefore, ULC should have a negative influence on exports (Tsang & Au, 2008). As highlighted by Kannapiran and Fleming (1999), a nation has a comparative advantage over others if it can produce at a lower cost. Considering the costs involved is used as an

42  Rahul Dhiman and Vimal Srivastava approach in the estimation of competitiveness, assuming that the changes in price levels are determined largely by the intensity of the manufacturing costs involved, mainly labour costs (Peter, 2010). So, ULCs are also considered in examining competitiveness in the present study. The international competitiveness of industries in developing economies is still dependent on the comparative advantage gained in terms of labour costs. One of the reasons for such dependency can be attributed to these nations’ lack of technological development. ULC can be measured as a ratio of the employment costs to the valueadded of manufacturing industries, using data obtained from the Annual Survey of Industries (ASI). Theoretically, an increase in ULCs results in the reduction of exports by increasing the relative prices in the domestic market of a country. The advantage of taking ULCs as a determinant of export competitiveness is that ULCs enable the researcher to calculate the influence of variations in the production costs on export competitiveness (Ito & Shimizu, 2015). It is a well-known fact that with an increase in the scale of manufacturing, the mean costs are likely to decrease, hence the export competitiveness of the firm increases. The countries with higher labour costs will be ranked last in terms of priority as suppliers of products. Several nations have achieved competitiveness by minimizing their labour costs. Developing nations acquire cheap and skilful labour; this is one of the competitive advantages of developing nations over developed ones in manufacturing industries (Tsang & Au, 2008). Hence, developing nations have a comparative advantage in terms of exports compared to other countries. A study conducted by the National Productivity Council (NPC), New Delhi, in 2010, highlights that India is far ahead in terms of labour costs per hour compared to other developed countries. The analysis reveals that India’s labour costs per hour in 2004 are US$ 0.6 in comparison to other developed nations such as the U.S.A. with US$ 15.1 and industrialized economies such as Taiwan with US$ 7.1, South Korea with US$ 5.7, Hong Kong having US$ 5.1, and China US$ 0.9. Previous studies indicate that India has a comparative advantage in terms of labour costs compared to developed countries, but labour costs in other competing countries are much lower in comparison to India. So, it can be concluded that low labour costs are not sufficient to achieve a competitive advantage in the manufacturing industries (Kathuria, 2013). This cost disadvantage is due to major factors such as higher labour costs and declining trends in labour and CP in comparison to competitors. Although India and China do not gain labour cost competitiveness, China’s share in the global garments trade nevertheless improved in 2008 to more than 33%. However, India, despite having lower wage rates in comparison to those of China, is not able to achieve the two-digit mark, which is a serious problem. Vietnam also achieved competitiveness in the textile and garments trade due to lower labour costs. As a result, Vietnam is now the fifth largest supplier of clothing products to the U.S.A.

Determinants of exports  43 (Tsang & Au, 2008). The major determinant for this higher growth is low labour costs. Vietnam, Cambodia, and Pakistan are other garments exporters, in addition to Bangladesh, reaping the benefits of low labour costs at 33, 37, and 38 cents per hour respectively (Kathuria, 2013). Total labour costs can be examined by taking the total compensation to employees, which includes wages and salaries, as well as other benefits in cash. A study conducted by Tsang and Au (2008) also examined labour costs by dividing the wages and salaries by the number of employees during the selected years. ULC represents the average wage per industry worker. Indian labour costs are among the lowest compared with other parts of the world; however, these are balanced by higher prices for other inputs and as a result, LP also declines. However, it must be noted that cheap labour, in terms of a low wage per employee, alone does not lead to a gain in comparative cost advantage, and that low wages in terms of LP are more important. A study conducted by the McKinsey Global Institute (MGI) (2004) indicated that the productivity of Indian exporters was only 35% as compared to U.S. levels. However, the neighbouring country of China was at 55%. A study conducted by Ito and Shimizu (2015) also confirms the importance of productivity; the study highlighted the fact that India’s labour costs are 30% lower compared to China but its productivity is less than half of China’s in some product categories. In the clothing industry, the per-hour cost of labour in Indonesia, India, and China ranges from US$ 0.24 to 0.62. However, in the European Union, the hourly labour costs range from US$ 4.5 in Portugal to US$ 23 in Denmark. These European nations may possess this competitive disadvantage in labour costs, but these are to a degree offset by higher levels of labour productivity, which is expressed as value added per employee. It can be noted that the impact of appreciation and depreciation of ER can also be reduced if labour costs are lower in comparison to other countries. The considerable appreciation of the ER will not drastically decrease Chinese competitiveness because of low costs and an increase in labour. So, labour costs are always the centre of attraction in any labour-intensive industry, provided they are productive as well. This has an impact on creating a demand for the product in world markets. So, it becomes very important to examine the ULCs. Considering the importance of ULC in the existing body of knowledge, it becomes very important to include ULC as a determinant of EC. The explanations as discussed above present the conceptual foundations for the relationship between exports competitiveness and ULC. Exchange rate In addition to the above-discussed variables, ER is another important determinant of the competitiveness of the industry (Sunny & Sund, 2014; Islam & Rana, 2019). Policymakers have, over a long period of time, been worried

44  Rahul Dhiman and Vimal Srivastava by the impact of variations in the ER on the growth of the economy and on competitiveness. The survey of published literature in the field of variations of ER throws up some interesting viewpoints. The Mundell–Fleming model theory highlights the fact that appreciation in the ER damages exports and supports imports for small open economies. This theory and its recommendations suppose that markets are perfect and the prices of commodities are set by global markets. Athukorala and Menon (1994) argue that, in changing levels, exporters sustain competitiveness in global markets by reducing their profit margins in the face of an appreciating currency. A study by Banik (2008) also indicates that EC is primarily a function of variables such as the ER. In an export-oriented industry, the fluctuations in the ER are very important. FICCI (2014) also highlighted that the volatility in the currency market hinders export growth. The ER can be defined as the rate at which one currency can be exchanged for another currency. This is extracted from various issues of the International Financial Statistics of the IMF and the Handbook of Statistics on Indian Economy. The ER is also defined as the number of units of domestic currency per unit of foreign currency (Taymaz, 2002) and in terms of home currency worth per unit of overseas currency, which is used in the present study for the analysis. Reforms in the ER played a vital part in promoting Indian exports, back in July 1991 when India devalued its currency by almost 19%. Such reforms in the ER resulted in a positive export growth. The exports grew from −1.1% in 1991–1992 to 20.2% in 1993–1994, further increasing to 20.7% in 1995–1996 as a result of reforms (Banik, 2008). The changes in the ER of countries across the world have influenced the price of their exports in global markets and, as a result, have impacted EC (Ito & Shimizu, 2015). Theoretically, ER depreciation encourages exports and limit imports, while appreciation of the ER is unfavourable to exports and supports imports. Evidence in previous studies reveals that depreciation in the ER has a positive effect on exports; this is what macroeconomic theories suggest. The depreciation in the rupee will make exports cheaper and hence this will increase the demand for exported goods in the world market. Jaussaud and Rey (2012) investigated the impact of the ER on Japan’s exports to China and the U.S.A. The period of analysis was from 1971 to 2007. The findings of the analysis, using the vector error correction model (VECM), highlighted the fact that appreciation of the yen and a rise in ER volatility diminished Japanese exports. The nominal ER is extremely important in all international trading transactions; nations with undervalued currencies facilitate overseas buyers to use their relatively overvalued currency to “buy “cheap” in the domestic market. However, there is a lack of agreement on the subject of the influence of appreciation or depreciation in the ER on economic determinants such as exports. A few studies in this regard are found in the literature which indicate that the ER does not have a major influence on Indian exports (Srinivasan,

Determinants of exports  45 1998). Some studies established a significant relationship between export performance and ER (Sarkar, 1997). The Indian currency fluctuated against the US dollar in 2008; this negatively impacted the Indian trade performance. In the year 2007–2008, the appreciation in the Indian rupee against the US dollar resulted in lower export growth for the Indian textiles and clothing industry. Similar findings were also reported by Taymaz in 2002. It is also observed that ER alone does not influence export growth, but demand for a quality product is another vital factor. During the post-reform regime, exports were not only led by appreciation or depreciation in the ER but the demand for the commodity also played a key role in explaining export performance at a disaggregate level during 1960–1999. In the existing body of knowledge there is research exploring the influence of the ER on exports. A few studies present positive effects of the depreciation of the home currency, while some present negative effects and other studies present no effect of a rise in the ER on exports. So, the mixed impacts of the ER can be seen in the literature. Kenen and Rodrik (1986), Cushman (1988), Thursby and Thursby (1987), and Bahmani-Oskooee (1996) established a negative effect of the ER on exports. One possible reason for this negative influence might be that whenever there is a depreciation of the rupee against key destination countries, confidence in the economy also decreases. This, as a result, may lead investors to pull out, in turn, decreasing the levels of output and exports from India. However, Hooper and Kohlhagen (1978), Gotur (1985), Koray and Lastrapes (1989), and Lee (1999) discover no significant impact. In spite of the inconsistent results in the literature, firms strongly believe that changes in the ER have real effects. In fact, firms repeatedly spend time and resources hedging against the risk associated with the ER. Consensus on the impact of the ER on EC is absent in the literature. Some of the contradictory studies are discussed in this section of the chapter. Previous research examining the impact of the ER on EC in different nations has been carried out by Sukar (1998), Kemal and Qadir (2005), Fountas and Aristotelous (2005), Fang and Miller (2007), Shane et al. (2008), Caglayan and Demir (2013), Cheung and Sengupta (2013), and Hooy et al. (2015). However, there is no agreement in previous studies concerning the findings of the study. Previous studies carried out by Caglayan and Demir (2013) and Hooy et al. (2015) indicate the positive influence of the ER on exports. However, other researchers found the negative impact of the ER on exports (Kemal & Qadir, 2005; Marquez & Schindler, 2007; Shane et al., 2008; and Cheung & Sengupta, 2013). Some of the previous studies concluded that there was no impact of the ER on exports in the long term (Fang & Miller, 2007). From the above discussion, it can be found that since the ER is among the major determinants of exports, so a change in the ER impacts the export sector. The explanations, as discussed above, present the conceptual foundations for the relationship between EC and the ER. It would be interesting to

46  Rahul Dhiman and Vimal Srivastava study the part played by ER fluctuations in the competitiveness of exports. It would be worth testing, through empirical investigation, whether, and to what degree, the variations in the ER affect the EC of any nation.

Conclusion and discussion The chapter presents a conceptual framework to assess EC in emerging markets. It can be concluded that the literature is abundant with studies that identify the conceptual and theoretical mechanism on selected variables. The theoretical background is based on Heckscher–Ohlin (H–O) theory that suggests that the competitiveness gained by a nation depends upon various factors, such as labour and capital, which are important determinants included in the present study. Heckscher–Ohlin (H–O) theory explains the reasons for comparative advantage differences between various nations (Salvatore, 2002). As per H–O theory, different nations require different factor requirements in terms of the labour and capital used in manufacturing products and services. The above discussion reveals that the most important determinant of competitiveness is productivity. The industry must make significant efforts to increase productivity levels in order to increase EC. Higher productivity trends and lower labour costs will definitely determine which countries win or lose in the global market. However, previous productivity studies also indicate that the productivity of Indian firms has decreased due to lack of advanced technology, less investment per machine, fewer number of machines per firm, and poor infrastructure (Joshi & Singh, 2010; Rangarajan, 2005). In addition to this, the interrelationship between the ULC and the ER is also found with EC. The previous studies by Bernard and Jensen (1999) on the United States have all examined the exports–productivity linkage and find that productivity trends in an industry impact export competitiveness. The rise in ULC and appreciation of the domestic currency decrease exports by increasing relative prices in the domestic country. Exchange-rate depreciation encourages exports but the exchange-rate risk plays an important role in impacting export price competitiveness; this results in the sluggish growth of exports. It is evident that there are a number of studies that investigate the relationship between exports and productivity. Previous studies have also made an attempt to examine the relationship between export competitiveness and its determinants, such as labour and CP, that impact export competitiveness; thus it is important for an industry to critically examine these factors and formulate appropriate strategies for improving competitiveness. The arguments provided by previous studies and theories can be beneficial in the formulation of hypotheses. In line with Heckscher–Ohlin theory, the requirements of nations differ in terms of the labour and capital which are used in manufacturing products and services. This theory emphasizes

Determinants of exports  47 that a labour-intensive nation should focus on producing labour-intensive goods and a nation with higher capital intensity should focus on producing capital-intensive goods. In any export-oriented industry, it becomes pertinent to understand whether the industry is productive in terms of labour and capital. Moreover, the impact of labour and capital productivity on EC needs to be determined. The literature also reveals that ULC is most frequently used for examining the cost competitiveness of a nation and may impact the competitiveness of exports. Similarly, ER and EC are other key variables identified and a previous study by Ito and Shimizu (2015) also emphasizes the need to identify the relationship between EC, ER, and ER. Thus, it is quite evident that all the select determinants have an impact on EC for an industry in an emerging market.

Managerial and academic implications The findings documented in this chapter have many important policy and trading implications. For example, establishing a significant causal and long-running relationship between determinants of export competitiveness may be of interest to policymakers as they can decide on how to increase the export competitiveness of various firms in emerging economies. In addition, the exchange rate may not be directly controllable on the part of various exporters, so policymakers need to formulate various strategies to increase the export competitiveness of the industry. Also, researchers in this field would get comprehensive insight into the various determinants of export competitiveness.

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3

The Learning Organization for attaining inclusive growth A new paradigm for the emerging educational market Tomy K. Kallarakal, Anand Shankar Raja M., and Mugdha Shailendra Kulkarni

Peter Senge, the author of the authoritative work, The Fifth Discipline, coined the concept of the Learning Organization or LO. The idea has been actively adopted by businesses, to keep the fire of competitiveness burning in the business environment. The LO concept has been widely accepted by management practitioners across the world, according to Agryris (1996). Organizations have started to use the concept of the LO to achieve their strategic objectives and strive towards excellence. The concept of LO has gained more importance over the last few years, admits (Choppin, 1997). In this regard, an organization’s learning capacity is directly linked to its sources of competitive advantage (Garvin, Edmondson, & Gino, 2008). The survival of an organization in an era of competition depends mostly on its ability to adapt to changes in a competitive environment (Watkins & Marsick, 1993). Therefore, investment in knowledge assets and intellectual capital plays a vital role in creating a competitive advantage (Berzkalne, 2014), consequently, management has to give importance to knowledge assets rather than traditional factors of production, says (Khamis, 2011). Expanding their way of thinking is one strategy that people use in LOs to achieve the desired results says (Rogers, 2012). An LO nurtures the thoughts of its members, says Peter Senge. Hence, collectivism is a critical factor, which enables organizations to enrich their knowledge assets and support team learning (Cooper, 2011). People who are part of LOs continuously look for learning opportunities to learn together (Stinson, Pearson, & Lucas, 2006). The model of a LO is not confined to a particular sector or industry, but is a tool that leaders use to integrate human resources to clinch collective learning (Polsani, 2003). Peter Senge has mentioned five main learning disciplines in his book, namely: personal mastery, mental models, shared vision, team learning, and system thinking, which are considered to be the cornerstones of this concept (Roth & Senge, 1996). As indicated by Bak (2012), each suggested discipline is essential and has its own importance and role in building a LO. An organization can prove itself to be successful only if it adopts and recognizes itself as an LO. Corporates use the learning function to explore new DOI: 10.4324/9781003199168-3

The Learning Organization   55 knowledge, which will help in improving the corporates’ efficiency and maintaining a competitive advantage (Neo, 2017). Learning is a broad role, which involves teamwork, the creation of a solution for various business issues, and the setting of strong and measurable organizational strategies (Lee, Gillespie, & Mann, 2010). Only corporates which are bound together with a mix of multiple cultural values, intend to create learning opportunities for employees, motivate continuous learning involvement, and enhance knowledge-sharing to align with competitiveness (Kerka, 1995). A firm’s competitiveness is its ability to compete in a given environment. Organizations need to look at a new model, which would promote learning at different levels in the organization (Levitt & March, 1988). The new model should address competencies such as communication, teamwork, problem-solving, interpersonal skills, learning methods, instructional design, professionalism, virtual learning capacity, leadership ethics, etc. Organizations will have to address problems such as talent, skill-gaps, learning plans, continuous performance evaluation, increased productivity, and the drive to change (Moran, &Brightman, 2001). Corporate education is a strategic function, which intends to retain employees if they make the effort to learn continuously (Peter Okey Ejikeme, 2014). Peter Senge advocates that personal and collective aspirations are essential because small efforts can make a significant difference. At the same time, the various factors which lead to organizational failures, such as the inability to promote individual growth, lack of learning from experiences, and rational individuals being isolated, should be avoided (Geise, 2008). This is one of the reasons why the concept of the LO has to be implemented by the Higher Education Institutes (HEIs) which will motivate the associated stakeholders to join hands to contribute to the betterment of the society. Leadership, institutions, and potential human capabilities can contribute to the expansion of the knowledge economy (Powell & Snellman, 2004), and can lead to economic advancement (Mina, Elif Bascavusoglu, & Hughes, 2014). The main aim of this chapter is to investigate the literature reviews to find the most promising variables to frame an exclusive variable matrix, which can be used as a guiding principle by the HEIs and called an LO. The term Learning Organization can be conceptualized as follows: the group efforts taken by all the associated stakeholders of a Higher Educational Institution to provide better services to society to build the best and most progressive knowledge economy. The Learning Organization in the service sector as a whole was explored by (Budhiraja, Malhotra, & Kaushik, 2015) where they mention that the service industry gives importance to two main aspects, known as strategic thinking and system connectedness. These two variables indirectly help in the creation of a knowledge economy, which has the ability to build a cognitive culture. Moreover if educational institutions develop a work culture to be cognitively strong it will motivate all the employees to contribute to the success of quality education. To fill this gap, in the research in this chapter we have built a framework and a variable matrix which can be exclusively used by HEIs. Indian Higher

56  Tomy K. Kallarakal et al. Educational Institutions are of good repute as the Government of India takes initiatives to improve the quality of the educational system. However, there is a need to suggest a yardstick which can be commonly used by every HEI in India to improve and register success. This will ensure that uniformity is maintained, quality standards are retained, that ethical practices are followed, and that intellectual human assets are developed to prepare future generations to face stiff competition (Malhotra, 2002). There are some who have criticized the LO concept whereas some have encouraged the implementation of LO elements for building a sustainable and a viable system (Grieves, 2008). However, we feel that Learning Organization strategies, if implemented in educational institutions, will bring about change and will help in developing society as a whole (Laubie Li, Fischer, 2015).

Research methodology This chapter highlights and draws from archival research where data pertaining to the Learning Organization has been scrutinized from various databases. Inclusion and exclusion criteria were used to select the best articles for the literature review. The aim of this research is to conduct a literature review in an in-depth fashion and summarize an understanding of the contributions of various researchers. To facilitate this process, qualitative software called Dedoose has been used. Recently, there has been an increase in the use of qualitative tools and methodologies in Social Science research. Qualitative data analysis techniques (QDATs) are now being used in various domains by researchers (Pengfei Zhao, Peiwei Li, Karen Ross, & Barbara Dennis, 2016). Dedoode and Nvivo are two of the tools which have been used to analyze the qualitative data and hence qualitative data analysis software (QDAS) has influenced the methodological process and facilitated the statistical analysis (Barry Christine, 1998). Learning is a continuous activity which occurs based on the capacity of an individual and related to the expectations of an organization. Therefore the learning process, style, culture, and outcome differs based on various aspects. To perform a thorough content analysis and identify the most promising variable associated with the concept of the Learning Organization, Dedoose, a qualitative software, has been used in this research. The sequence of conducting a qualitative analysis has been presented below.

Code co-occurrence Code co-occurrence is mostly concerned with coding the same code, coding the part of the specified code in a diagrammatic representation, creating a comfort zone for the reader for easy understanding. Code co-occurrence will help the researcher know how many times the same variable has been repeated in most of the research articles which have been intensively

The Learning Organization   57 reviewed. There are certain steps which have to be followed by the researcher for the code co-occurrence which is mentioned below. Step 1: Selecting the literature resources based on the availability of the data from various data sources. Step 2: Exporting the same documents with Dedoose software by “creating new projects”. Step 3: Understanding how the variables have to be coded considering the parent-and-child relationship Step 4: Understanding the concepts and the personal associations between various concepts, which highlights the importance of the ideas through critical contexts which the researchers are dealing with using semantic proximity. In this research, the idea which is being explored is “Learning Organization”, and this concept is understood by the context of the five elements delivered by Peter Senge. Step 5: Clubbing together the child code with the parent code with an appropriate tag name and representing it in the form of a matrix to explain the association and relationship between them.

Research questions Research questions will provide an opportunity for researchers to work on new assumptions, which will further create a path to explore and provide apt solutions for the given problems. The focus of this research chapter was only to find the generic outcome and implications of an educational institution becoming a Learning Organization. In this regard, research questions act as a guide and help in maintaining focus. Following are a few research questions raised for this research. We all know that the concept of the Learning Organization is 30 years old; however, there are different problems in the present educational industry which have to be addressed for which there is a need to frame suitable research questions. RQ1: Can the concept of the Learning Organization help the institutions achieve strategic excellence? RQ2: Will the Learning Organization help the institutions to build intellectual capital resources and contribute to the knowledge economy? RQ3: Will the Learning Organization create a professional learning community fostering collaborative learning? RQ4: How can Higher Educational Institutions as Learning Organizations contribute to economic development? RQ5: How can Learning Organizations help the Higher Educational Institutions in establishing a knowledge market? RQ6: What will be the problems faced by educational institutions in the process of becoming a Learning Organization?

58  Tomy K. Kallarakal et al. RQ7: Should organizations practice the ambidexterity principle to become a Learning Organization? RQ8: What will be the economic development implications if every educational institution becomes a Learning Organization? RQ9: How should an organization check and validate whether it has attained the Learning Organization position? RQ10: Can organizations fail after becoming Learning Organizations?

Recent reviews on the Learning Organization The concept of the Learning Organization has been explored and implemented in various perspectives. In the corporate world, learning is seen as a return on investment and with regard to Higher Educational Institutions (HEIs) Learning Organization is seen as a tool to connect a larger social consciousness, extending the service to all concerned stakeholders. Since the original five pillars of Learning Organization given by Peter Senge, modern research work and perspectives have changed drastically. In a period of 30 years, the concept of the Learning Organization has taken on a new shape, bringing in new factors contained under the five pillars. Through this chapter, we have also traced the various perspectives of different authors on the theme “Learning Organization” and, for this purpose, we have used inclusion and exclusion criteria. Articles published in the Journal of Learning Organization have been considered. The mode of arrangement is year-wise to capture variables and new perspectives. Table 3.1 can be referred to as a review of literature as it has extensively considered the most relevant articles in the area. From the following reviews, we will be able to identify the recent perspectives of various authors on the theme of the Learning Organization.  A literature review involves a survey of all relevant published information from various sources, to find research gaps and areas explored earlier within the scope of the study. It also helps identify variables mentioned and aspects that earlier researchers have explored. For this research work, it is necessary to analyze the fundamental importance accorded to the five elements that Peter Senge mentions in his book The Fifth Discipline. To show the scholarly work of researchers, literature reviews are important. An intensive screening of earlier research work will help researchers, and those in the future to understand how the research questions have been framed to address issues and articulate the statement of the problem. It will also give a broad perspective to understand how the research work will contribute to benefit stakeholders. Personal mastery, the “self-improvement approach” Thelin (2018) says that in order for HEIs to transform themselves into LOs only a few elements, such as good communication and a shared vision, with an aspiration to grow and to be creative in research, are important. This

The Learning Organization   59 Table 3.1 Recent reviews of Learning Organizations Authors/year

Discussion

Senior Professor Robin Snell speaks of a step towards day-today managerial learning. As an outcome of this research, the authors mention that there are a few factors such as employee building, sustainable approach, empowerment, transparency that are all considered to be seduction traps. Research was conducted to evaluate the components of (Kazem Kazemi, Learning Organizations. The authors conclude that certain Mohammad factors such as culture and social characteristics have to Amini, & be included in the Learning Organization, which will help Assadollah policymakers in drafting suitable policies for the development Babaeifard, of the country. Moreover, educational institutions should 2020) ensure that they provide the best training and development to enhance innovative thinking and creativity. This study has highlighted very important aspects of the (Cuel, 2020) Learning Organization. Learning Organizations have to be socially accepted, for which it is important to place the focus on actions, coordination, and change. (George Oppong Transformational leadership and knowledge management Appiagyei capabilities play a very important role if the organization of Ampong, 2020) an educational institution is to be innovative and creative. Managers of Higher Educational Institutions should focus on becoming a Learning Organization. Thus, LO is one of the factors for successful transformational leadership. (Reese, 2021) This study has made efforts to explore the Learning Organization concept much beyond the level of the organization. In an interview with Dr Peter Senge, Reese (2020) concludes that an organization has to genuinely make an effort and overcome hurdles to be called a Learning Organization. (Rupcic, 2019) According to Rupčić, the concept of the Learning Organization is rightly compared to the quest for the Holy Grail, mentioning the philosophy of Peter Senge. However, it could be understood that the thirst for learning, and the quenching of that thirst, is not only for the development of the institution but also for the development of the economy. Social endeavours and the concerns of all connected stakeholders have to be taken into consideration. The concept of the Learning Organization also unites humanistic values, mutual gain, and spiritual integration. Promoting teams in institutions is very important, as it will help (Rebelo, Teresa, practitioners to develop a team. Peter Senge’s philosophy 2019) is that team learning is a skill, which has to be mastered and will lead to organizational learning. Building a team, collaborating with technology, should have a purpose and the organization should be able to achieve its goal within a short deadline. Thus, teamwork and systems thinking are two guiding factors playing an important role in adaptive systems. (Hong, 2020)

Source: All tables in this chapter are by the authors.

60  Tomy K. Kallarakal et al. study found that the relationship that exists between a LO and organizational learning was not significant. Thus, it has to be understood that these two concepts are not the same; the difference between them is based on their unique features. In the context of organizational performance, the top management ensures that each individual is trained and equipped to improve performance, which will help the firm achieve its targeted goals. Claudia (2014) stated that a university could improve its functioning and attain the status of a LO through the adoption of strategies. Universities have to encourage continuous learning, team learning, inquiry and dialogue, empowerment and strategic leadership (Rana et al., 2017). The researcher also says that schools that: utilize procedures of natural filtering; create shared objectives; build up community education and learning situations; empower activities and risk-taking; and consistently audit all angles identified with and impacting crafted by the school (Rana et al., 2020). Thus, even for an educational institution, personal contributions through personal mastery play an important role. Thus, with regard to personal mastery, the organization provides all the needed resources to develop individuals initially and for them then to work for the success of the organization (Alisha, 2017). Hence, personal mastery is a “self-achievement” approach. System thinking and mental models – integration approach and mental model, a thought process approach In the context of a LO, researchers have stated that in an educational institution there are certain factors which facilitate success criteria (Chris & Steed, 2017) The study takes into consideration factors such as technologyenabled distance education and educational innovativeness. These include measures to contain costs, widen access, aimed to enhance quality, which creates a customized version of distance education appropriate for researchintensive universities. Successful adoption of trouble-making technologies in higher education brings innovativeness and change in the system of education. Challenges to academic identity may act to inhibit educational change, especially in research-strong settings (Friedman & Kass-Shraibman, 2017). In an earlier era, the functioning of college technology and the internet were not given importance. Organizations adapting learning organization policy will undergo new organizational changes and will experience pressure from the existing status quo. Universities should have effective leadership quality to strengthen academic quality and performance. Today institutions need to shed their old ways and adopt modern management practices in order to be categorized as an LO. Empowerment is an important element, which institutions have to take into consideration because the success of an LO depends on the element of empowerment, says Farrukh (2015). Existing examples of transformational authority and, additionally, positivelearning association-compatible practices ought to be constantly enhanced to guarantee that schools maintain their status as LOs. This would empower

The Learning Organization   61 schools to adapt to instructive change and lead them to accomplish perfection (Hamzah, 2011). A study by Ratnapalan (2004) on health care organizations proves that organizational learning is not a one-time intervention, but a continuous organizational phenomenon that occurs through formal and informal learning which has a reciprocal association with organizational change. As such, organizational changes elicit organizational learning and organizational learning implements new knowledge and practices to create organizational changes (Kim, 1993). It is essential for organizations to survive and prosper in a competitive and ever-changing business environment. There is a high correlation between characteristics of leadership commitment and empowerment and employee characteristics and organizational readiness-to-change (Llorens-Montes, Garcia-Morales, & VerduJover, 2004). This can be supported by Snihur (2017), who says that in the book-selling industry, organizations may fail to adjust to changing environmental needs. Sometimes unlearning also leads to a failure rather than a revival of an organization. Yadav (2016) explored how discipline plays an important role in a Learning Organization, which helps team members in the goal achievement process. Essentially a results-driven structure, competent team members, unified commitment, a collaborative climate, standards of excellence, external support and recognition are a few factors which are important for an LO. The authors refer to leadership challenges in the transformation of an organization to an LO (Blackman, & Henderson 2005). Factors that hinder the transformation to an LO include: resistance to change, ignoring “purple elephants”, lack of direct leadership, disregard for team success, lack of valuing learning itself, short-term focus, and centralized control, among others (Salisbury, 2009). To initiate a learning culture in the workplace the performance of professionals must have the resources to provide collective learning to their employees; this enables them to learn anywhere and anytime and it can be integrated throughout the organization (Wikipedia, 2018). An organization which adopts these tactics will be successful in the future; an entity which is successful in innovating work and learning processes will reap various benefits like cost reduction, quality improvement, etc. Therefore, it is important for managers to identify them and provide knowledge, which can be outsourced if available. Innovative learning improves each group and organization as a whole. It brings learning when it is needed in a unique manner. An organization which follows this culture can be upgraded to today’s technology. However, when there is development in that technology, it can be easily adapted by such organizations. This technology enables workers to know the problem and the solutions to such problems. This system can be implemented in educational institutions. Sarder (2016) says that technology has a major role in change people’s lifestyles, so for a LO to sustain itself in a competitive environment, it is important to adopt and upgrade to the latest technologies. In an LO employees of a company produce, develop, gather, and transfer knowledge to others, which helps their organization to adapt to unpredictable situations much faster than their competitors do. Learning

62  Tomy K. Kallarakal et al. is vital for any company to be successful and each person in the organization possesses the capacity to learn and grow. Therefore, learning throughout helps to find solutions to many problems in the world. Renesch and Chawla (2006) stated that the workforce in an organization must be committed enough to work hard. People believe that the purpose of learning is survival but the scope of learning is broader than this. An organization cannot move forward without a committed workforce. True learning and enhancement of capabilities happen over time. Learning has two aspects: one is that learning is essential in order to accomplish goals; another is to be able to deal with the prospect of uncertainty that an organization might face. An LO is a type of organization where people wish to work and effect changes for the betterment of the organization and for the society in which they live. Building such an organization needs vision, patience, and courage. An LO provides a learning environment for employees and needs to update itself constantly. Similarly, an LO is applicable to an educational institution, as it is part of the educational learning environment. (Anna, Christopher, & David, 2005) mention that learning in higher education can be evaluated by its application, taking in the educational institution’s feedback on outcome, evaluation, faculty development, and student development. Organizational Learning culture has a direct influence on organizational innovativeness, which is proportionately tied to long-term organizational success. Therefore, all organizations that want to remain competitive should focus on becoming LOs (Odor, 2018). An LO implies that an organization is managed on the basis of wisdom, dynamism, managing complex situation, personal proficiency, ethics, values, long-term vision, face-to-face or in-person learning, group changing environment, and practices. Thus, when leadership and strategy are mentioned in the light of wisdom, that is the context of an LO mentioned by Rowely (2008). An LO helps to cultivate the environment for successful decision-making in an ever-changing environment. Thus, these Los progress from being learning organizations to being thinking organizations. A thinking organization is the result of the collaboration between people, and their perception, reasoning, knowledge, and the benefits from being an LO. A thinking organization will be highly knowledgeable and can manage any competition. Henceforth, it is mentioned that when learning organizations become thinking organizations it helps them defeat surrounding consequences. An LO will always prove beneficial for managers taking decisions in business (Howard, 2012). Systemic thinking is when practices are critically reviewed, and then the plan of action is decided accordingly. System thinking supports societal thinking, which can bring about organizational change. Also, the organization is affected by human power and knowledge, and is independent. However, Senge’s work is redefined as a combination of system thinking and theories of learning that leads to the process of system-based organizational change (Caldwell, 2011; Senge & Sterman, 1992). Variables, such as managing mental models and collaborative efforts, help to develop new tools, increase learning,

The Learning Organization   63 and in turn, help managers face issues which are prevalent or which emerge in an organization. Team learning – the knowledge-sharing approach A study by Najafbagy and Doroudi (2010) says that organizational culture plays a vital role in contributing to, and developing, the success of an institution such as an LO. Researchers have strongly suggested that for any organization to be called an LO there should be a change in the learning process which every individual unit in the organization should accept. Thus, teamwork and active participation play a vital role in developing an organization. This can be supported by the words of Becker (2017), who says that in order to bring about the culture of unlearning, organizations must consider not only internal factors but also factor external pressures on individuals and groups. Professions that have great uniqueness may represent a significant force; they can either encourage or resist the attempts to learn and unlearn behaviour, systems or processes. A study by Shieh (2009) talks about the relationship between three variables, namely: cross-cultural management, Learning Organizations, and organizational performance. This study proves that learning in an organization can develop and maintain adaptability, and it is the most effective approach for an organization to create opportunities for existence and development. Davis (2010) talks about the advisory committees that are positioned to be the catalysts that facilitate the establishment of an LO within educational institutions. Thanks to the ICT revolution, committee members, as contributing participants, are no longer restricted to a conference room or bounded by geography, as has historically been the case in team composition. Mohebbifar (2015), who conducted a study on teaching hospitals in Iran, reveals that in light of the mandate of these centres to maintain and improve community health and to train skilled human resources, they should start to update the data and institutionalize learning. Furthermore, to modify staff behaviour and performance and to achieve their goals, they should accentuate the importance of acquiring, creating, and transferring knowledge, which is possible through an LO (Calantone, Cavusgil, & Zhao, 2002). (Marquardt M. J., Action in Learning, 2014) states that in an LO, the process of improvement never stops. The role of a learning organization is to support each learner in the learning process and to take pride in his or her growth. The various skills and values of true learning are applied and enhanced in various stages of business. Thus, change is a vital factor that never ends in an organization and hence, this creates a space for learning in an organization. A successful LO gives importance to continuous growth and creates direction to other organizations but motivates the employees to achieve success through teamwork and learning. Tobin (1993) argued that any organization which wants to transform must create solid foundations around its valuable assets. At present, and in future, knowledge assets will gain more importance than

64  Tomy K. Kallarakal et al. physical assets. Hence knowledge assets, which are embodied in the people of an organization, become a company’s competitive advantage (Stacey, 2003). Therefore, the leader of the company must be committed to laying such foundations, which build on and strengthen these knowledge assets. To succeed, an organization needs knowledge, which already exists, within accessible limits, but many organizations fail to provide this intellectual resource and distribute it to the people that need it. When thoughts and knowledge are shared, it becomes easy to solve all the problems in an organization. Thus, team learning facilitates the thought process. The evolution of technology and globalization in the 21st century has led to changes in the business environment. Knowledge has become the most important asset over any other of the resources of a company. The important task of a leader is to create an environment which stimulates learning. Every company depends on the knowledge that every individual contributes, which allows an organization to gain a competitive advantage. In an era where learning assumes a new form of labour, work must be integrated with learning. The objective of education can be accomplished only through the organizational system. The success of a learning organization depends on speed, quality, and its advantage of learning. Shared vision – the achievement approach Jermud and McGuire (1998) mention that shared vision is something that all the employees in an organization possess. In the concept of an LO, shared vision is the common goal for all staff members. For the success of an organization, system innovation and diffusion play an important role; at the same time business value has to be understood by management and employees (Cohen, & Levinthal, 1990). P. Senge (2012) states that shared vision is a collection of the mutual focus of all the members associated with the institution. For instance, the school as a LO flows from the vision of its students, teachers, the management, the parents, and other stakeholders. They should share a common goal through demonstration of the same commitment. A shared vision is a powerful ingredient, which aims for change to be successful through coordination (Colakoglu, 2012). Sustainable development and the objectives of firms become a part of the corporate vision and create a push strategy rather than a pull strategy. The most powerful ingredient for corporate vision is shared vision, which leads to a push strategy rather than the pull strategy (Boyatzis, Rochford, & Taylor, 2015). To that extent, a shared a vision is an important element amongst all stakeholders. Those running a family business should articulate a shared vision for growth and leadership. Leadership and success are qualities of a good leader that should give importance to a shared vision. A shared vision has a positive impact on behaviour (Sons, 2013). An organization’s directions and destinations are defined and directed by its vision. The vision has to be communicated to all stakeholders of a firm. The

The Learning Organization   65 authors have stated that organizational communication has various styles to share the vision with the associated constituents. Vision has to be shared to inspire, clarify, and focus on an organization’s goal. Vision, when communicated to the employees of a firm, should bear this in mind (Amini & Michael, 2010). For instance, a university is an institution which performs various activities such as teaching, active learning, research, and developing a dynamic environment. A shared vision is a mission statement, which will lead the institution. It has to be understood that an educational institution’s mission statement is a shared vision as everyone connected with this vision works for the achievement of the common goal (Hoe & Mcshane, 2002). Knowledge management is an important factor, which affects the ability of a firm to survive and compete in the market. Leaders of an organization are conscious of new knowledge generation and its distribution. Employees of the firm involve themselves in knowledge management activities when they realize it is required by the leaders of the organization. Informal knowledge acquisition and dissemination is also important in knowledge management. This can be supported by the words of Johansson and Abrahamsson (2018) who mention that in order to achieve development in an organizational workplace there is a requirement for knowledge of the organization and strategic workplace learning. Gender issues should not dominate organizational learning activities. The leader’s reward, and punishment in the organization, can also impact the acquisition and dissemination of knowledge. Moreover, leaders who realize the importance of informal knowledge provide more resources to informal knowledge acquisition and sharing. Unlike informal knowledge acquisition, informal knowledge dissemination needs more motivated shared vision. As a whole, leaders play an important role in the acquisition and dissemination of informal knowledge (Expósito-Lang, Molina-Morales, & Tomás-Miquel, 2015). A shared vision is a tool that helps different parts of the organization to combine resources. Firms benefit more when they have a higher level of shared vision (Celik, Akyazi, & Akgemci, 2016). Today’s organizations, across the globe, face far more competition and have to deal with uncertainty. Organizations create such strategies as those discussed, which allow them to overcome uncertainty and achieve continuous development.

Theoretical underpinning In his paper, Ng (2004) tries to answer the relationship between innovative organizations and Learning Organizations and states that the five elements defined by Peter Senge are fundamental and leads to innovativeness. Hence, innovative organizations are developed from Learning Organizations. The definitions of Learning Organizations are not in their infancy because they have been explored in various contexts. Learning Organizations, if implemented, will help the organization to build a learning culture in the workplace and slowly motivate all its associated stakeholders to be active in learning for mutual benefit. This concept can also be referred to as “Professional

66  Tomy K. Kallarakal et al. Learning Community” (PLC), which helps in inclusive and mutual learning which will reflect collaborative success. The Learning Organization brings about a personal association between the connected members where learning happens formally or informally and the same is applicable with the theory of PLC. One of the best examples is the teaching community, which is always ready with an attitude to share knowledge, transfer knowledge, and acquire knowledge. Thus, a LO also follows similar characteristics of community enhancement. Hence, for theoretical underpinning, the Professional Learning Community has been chosen. One of the most important components for a successful educational institution is a learning culture which will motivate all the members of the learning community to learn, un-learn, and re-learn. A PLC will gradually remove difficulties and stimulate learning skills by getting the members exposed to an active learning environment. In this regard, certain elements such as motivation, empathy, satisfaction, trust, belief, and values are inculcated amongst the learning community members. Moreover PCL will bring in new change which will benefit the pupil community in a better way through the teachers who have learned. Here the benefits, which have been acquired by the pupils, are extreme knowledge sharing and transfer, which will benefit society as a whole. However, to facilitate such a learning culture imbibed with Knowledge Management and Knowledge Transformation there is a need for infrastructural facilities. Even in the concept of the Learning Organization, when all the associates of the educational institutions are motivated to learn, there should be resources available to embrace learning in a more interesting way. Simply put, in the PLC every member should have a common vision and mission so that the goals are achieved within an expected time frame. The concept of shared vision in a Learning Organization also refers to the ability to work for a common goal to achieve team success. Though differences might be present, in the PLC there is always space for acceptance, which harmonizes the learning culture very positively, delivering the desired output of matching with team learning, an important element in the LO. Professional Learning Communities will enhance the organization as a whole but will also bring about opportunities for each member to explore themselves and create identity. Personal mastery in PLC and LO is the ability to discover the self and goes much beyond skills and spiritual unfolding. It means approaching one’s life as a creative work (David, & Chapman, 2000). Thus, the Learning Organization will be the foundation to develop a Professional Learning Community (PLC), which will facilitate all the associates of a Higher Educational Institution and society as a whole in creating a knowledge economy.

Significance of the study The Learning Organization concept is popularly used in the corporate world but it is not implemented in the educational sector by Higher Educational Institutions. As competition increases in leaps and bounds every institution

The Learning Organization   67 has to follow an organizational restructuring approach which will give an opportunity to all stakeholders to harmonize a change in culture. Further changes can be associated with learning capacity, knowledge sharing, costcutting, global expansion, partnership, and networking, research, etc. The implementation of the LO concept in Indian HEIs will contribute to society and to the nation as whole (Cross, 2013). The literature reviews used in this research analyzes how the Learning Organization has been implemented in the corporate world. The most frequently used variables have been carefully selected using qualitative software to build a variable matrix. The variables in the matrix can be used by educational institutions for measuring the role of an educational institution as a LO. Based on the variables presented in the matrix the administrators, and management expertise, can frame new policies and decisions to help educational institutions bring quatlity in education and excellence. Spending on education is an investment and stakeholders expect a good return, which will help them live a good life in society. Thus, helping all the stakeholders in a Learning Organization is a multidimensional approach, which will ensure that all the units are interconnected in order to achieve a common goal. Thus, Learning Organizations will help in framing strong public policies for the growth of the nation: 1. To help educational institutions excel with quality and academic standards 2. To ensure there is public participation in developing policies for educational institutions 3. To make education more equitable through the shared-vision approach 4. To include stakeholders in framing policies for the success of the educational institution

Definition of the problem A Learning Organization aims to improve an institution as a whole, to be an excellent institution with a clear set vision and mission (Thomson, Thomas, 1998). The success of an organization depends on a healthy organizational culture. A well-planned regulatory HEI should have the ability to determine needs, wants, and support. Corporate culture has very much the same characteristics, says Cierna (2008). Corporate institutions work for the benefit of societal development in form of Corporate Social Responsibility. However, LOs contribute to a nation’s development by encouraging all the associates to contribute in the creation of a knowledge economy. However, corporates and educational institutions are two different sectors; there can be a few common features to measure learning success and one such criterion is the LO. Educational institutions have also started to adopt the concept of an LO, like the corporates, to sustain themselves amidst stiff competition. If this success is to be achieved, the HEI as a whole should work together to improve the skills and knowledge of individual employees who

68  Tomy K. Kallarakal et al. will contribute towards the achievement of success. Nevertheless, whether all the units in the system work with the same motivation to ensure success is to be debated. An organization which opts to be an LO should make the best use of its employees to get the maximum work done from them. The Indian educational sector is in need of centralized policies for better governance and administration. Though there are many governing bodies at present, they do not produce quality work or execute the task of empowering the economy. Thus, the LO model can be used to frame exclusive policies for inclusive growth. The model developed through the qualitative content coding will help in finding the most important variables which can also be used as a checklist by educational institutions if they want to be called a “Learning Organization”. However, based on its expectations and needs, institutions can modify the checklist.

Conceptual model (variable matrix) From the thematic approach of the literature review, it was easy for the researchers to identify the various strategies involved with LOs in the corporate sector as well as in the educational domain. Though there are many differences, which can be seen in both sectors, the common goal is of “continuous learning for organizational success and growth”. The smooth working of an organization depends on the nature of the organizational climate, which is never isolated, as it differs from one organization to another. The five essential elements given by Peter Senge – personal mastery, mental models, shared vision, team learning, and system thinking – have the same meaning and goal, but the efforts made by individuals and organizations as a whole are different and unique. Learning is the common ground, which leads to success because learning leads to new updates and healthy competition in the internal and the external environments. Learning patterns also differ from individual to individual, and hence it is interesting to know each institution’s own unique pattern of learning, execution of the task, and post-measurement criteria. Thus, it is important to understand the conceptual framework involved in each research paper over time to understand how learning and Learning Organizations have become vibrant in recent years.

Data analysis and interpretation From the analysis in Table 3.2, it is found that based on code co-occurrence, the most promising variables concerned with the concept of the Learning Organization are: V1 (Adaptability), V3 (Change management), V7 (Common goals), V10 (Creating competitive advantage), V12 (Inspired learning), V13 (Knowledge management), V15 (Multi-membership with external parties), V17 (Organizational communication), and V18 (Personal growth). Semantic proximity is a metric used in research used for a set of

The Learning Organization   69 documents, texts, and theories to find the similarity between the overlapping variables and to group them under a common heading. Semantic relatedness is used in this research to find similar terms associated with the concept of the Learning Organization. Using code co-occurrence the researchers have found that the two common variables known as knowledge management and organizational communication have been overly associated with the concept of the Learning Organization. Košir (2014) conducted research entitled “Knowledge management and internal communication with reference to Higher Educational Institutions” and found that there is a solid relationship between both the variables. In this research, the researcher has analyzed a few sub-variables of knowledge management such as knowledge capturing, knowledge creation, knowledge transfer, and knowledge storage. The study concludes that quality assurance is possible only through a well-built organizational culture, which is possible through internal communication (More, 1999; Eisenberg & Goodall, 2009; Bailey & Clarke, 2001). Thus, for any institution to be called a Learning Organization importance has to be given to knowledge management and creating competitive advantage. 

Inference for qualitative analysis From the Table 3.2, it is clear that many factors influence the concept of an LO, which many researchers have highlighted. Moreover, the idea has been validated as per the expectations of the industry in which it operates. The researchers have taken into consideration the corporate and educational sectors to find the shared pool of variables under exploration. From content analysis using the qualitative tool Dedoose, it was found that there are some variables which have repeatedly been mentioned in most research papers and hence it is understood that those variables are most promising in the domain of a LO. From the above variable matrix, it is easy to assume that knowledge management contributes more towards a LO when compared to the other variables. Continuous education in organization brings about improvement and serves as an edge to organizations (Stewart & Ruckdeschel, 1998; Nevis, 1997; Langley, 2009). Organization can be successful through acquiring, sharing, and creating knowledge (Roper, 2002; Argyris, 1996; Botiveau, 2017). To achieve targets, organizations need to focus on knowledge management. A Learning Organization nurtures the thoughts of its members, and hence it is a critical factor that enables organizations to enrich their knowledge assets (O'Dell, 1998). As justified by many researchers, educational institutions can give importance to knowledge management. Considering content analysis, we have developed a variable matrix with new variables under the five major elements of Peter Senge. These elements can be taken into consideration as a yardstick to ensure that a normal institution is progressing to be an LO.

                          1        

                                   

                        1          

                                   

                        1       1  

                  1                

                                   

                        1     1    

Adaptability (V1) Centre for educational excellence (V2) Change management (V3) Change in behaviour (V4) Clustered firms (V5) Collective learning (V6) Common goals (V7) Continuous learning activity (V8) Contribution towards nation’s growth (V9) Creating competitive advantage (V10) Creative thinking (V11) Inspired learning (V12) Knowledge management (V13) Long-term growth (V14) Multi-membership with external parties (V15) Organizational innovativeness (V16) Organizational communication (V17) Personal growth (V18) Productivity (V19) Professional grouping (V20) Professional identity (V21) Readiness to change (V22) Social group for learning (V23) Strategic leadership (V24) Team working (V25) Transcending organizational boundaries (V26)

                                   

Variables repeat criteria

Variables

Table 3.2 Variables repeat criteria on Learning Organization

              1                    

                                   

                            1   1 1

1       1   1                   2  

    1                              

                      1         1  

1                                  

            1         1 2   1     1

                      1         1  

    1                              

                      1 1       2 1

                      1 1       1  

                                   

            1         1 2   1   2 1

      1                 1       1 1

    1             1   1 1   1   2  

  2       3   1   1       3   1       2     1 8   11   1 1 5   1 1 15 1 6

70  Tomy K. Kallarakal et al.

The Learning Organization   71

Scope for future research and limitations Most of the research work concerned with an LO is conceptualized work, and hence, in future, researchers can use a mixed research approach to utilize both quantitative and qualitative approaches. This research focused more on the concept of an LO in depth and hence it was not restricted to any particular domain or industry. Future research work can concentrate on a specific sector to check the feasibility of an LO and its effectiveness. A few proven scales have been developed on the concept of an LO and have been widely used across the world. There is no separate scale for specific industries like banking, hospitals, and educational institutions, among others. Therefore, future researchers can develop a range for the specific sector. Such scale development will help researchers conduct a sector-specific metaanalysis (Thomas, & Allen, 2006). It would be more interesting if research could be conducted within the same area of an LO to explore different facets of an industry. For example, various sectors such as education, hospitality, medicine, banking, etc would help industry leaders to accord importance to continuous learning and involvement. It would involve a practical approach through focus on group interviews; a collection of primary data with questionnaires will provide a different perspective, which can be incorporated in the near future. This first-hand information will be more realistic in line with the current expectations and perceptions of the respondents, and hence there is a possibility of using a triangulation approach to connect the quantitative and the qualitative approach and to compare the inferences. Future researchers can also conduct a comparative study by taking the top business houses in each industry and studying the efforts made by these institutions to be called LOs – this constitutes the scope for future research which can be pursued to study the concept of LO better. The concept of Learning Organization is implemented in nearly all classes of industry, although this study focuses on business houses, which is the primary limitation of this chapter. Thus, the findings of the study cannot be generalized to all other organizations. Various organizations such as educational institutions, hospitals, banking, etc. are excluded from this study. A qualitative approach is adopted for the study where the results, opinions, and suggestions of other researchers are considered. The results of these studies are derived from the perspectives of individuals who are involved in the field of business. Generalizing the results based on these studies is difficult. The results of this study endorse the findings of the previous studies on the topic of Learning Organization. Therefore, many larger studies can be initiated using quantitative methods and offering paths for new research.

Conclusion The concept of an LO can also be called “old wine in a new bottle” and hence it is well understood that it has been used across the world in many

72  Tomy K. Kallarakal et al. industries and researchers. Past research work clearly indicates that the concept of an LO given by Professor Peter Senge has been used to obtain strategic decisions and it helps management to have control of the human resources working in the organization. An LO is an organization which engages in continuous learning to transform itself to be more competitive in the world market (Wilhelm, Warren, 2017). This idea has been adopted by many business houses to keep the fire of competitiveness burning in the business environment (Goh, 1998). Organizations have started to use the concept of LO to achieve their strategic objectives and strive towards excellence (Burgoyne, 1991). Educational institutions are the backbone of a country’s success and growth and achieving quality education is essential. The Institutions of Higher Education in India can adopt the concept of Learning Organization to set quality standards and to achieve them. This concept is also considered holistic in nature because of its connectivity with stakeholders, thus Learning Organization is a three-dimensional concept, which takes into consideration the top management of the firm, the employees working in the organization, and the external parties related to the organization. The collection of rules and regulations to promote education and learning is very important for educational institutions and this can be fostered through the Learning Organization concept. Governance and educational policy should consider the feedback and opinion of all the connected stakeholders and this is possible through LO (Mikuljević, 2013).. Thus, considering the variables popularly used in the corporate domain, educational institutions should also implement LO to attain success. Hence, the Learning Organization concept deals with the system approach where all the resources in the firm are linked to a common goal and vision. In an LO all the resources work with the same mentality to achieve the goal and also get involved in the process of knowledge management and knowledge sharing which facilitates learning and active contribution for the development of the firm. Thus, this is facilitated by the concept of shared vision. To achieve these expected outcomes, individual resources have to understand the expectations of the top management and have to work accordingly and prepare their minds for active learning and contribution, hence the concept of the mental model has to be drawn into the picture of the Learning Organization. The qualitative analysis used in this research offers a platform for researchers to understand the most promising variables which contribute to the concept of an LO, known as Knowledge Management and Creating Competitive Advantage.

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4

Investment motivations and institutional quality Cross-border mergers and acquisitions by Turkish MNCs Ayşe Kayacı1 and Aylin Ataay

After the 1990s, neo-liberal economic policies and advances in information technologies contributed to the outward foreign direct investment (OFDI) of emerging markets (EMs) and the progression of multinational corporations (MNCs) in these markets (Child & Rodrigues, 2005). The OFDI amount in 2018 for EMs was $417 billion which is quite close to the $558 billion of OFDI of advanced markets, which has significantly contributed to global FDI despite the decline in the volume of global FDI (UNCTAD, 2019). EMs owe this accumulated OFDI volume to their cross-border merger and acquisition (M&A) activities which can be defined as a quick internationalization route and access to digital capabilities (Meyer et al., 2018). As an OECD member and an emerging economy, Turkey has also increased its OFDI activities via several cross-border M&As worth $1856 million in net sales value for 2016. Besides, Turkey has received a quarter of the total FDI inflows into West Asia during the period of 2007–2015 (UNCTAD, 2018, 2017). Since their significant contribution to global FDI flows and M&A activities, EMs and MNCs from these markets have attracted the intensive attention of scholars in the international business (IB) domain and of practitioners who are willing to understand these economies, the strategies of EM firms, and their internationalization journey in the last two decades (Aybar & Ficici, 2009; Cuervo-Cazurra & Genc, 2008; Hoskisson, Wright, Filatotchev, & Peng, 2013). Despite their increasing contribution to global FDI, the location-specific conditions and the effects on cross-border M&A behaviour of EM firms have not been well examined so far. Moreover, most of the research about EM MNCs’ cross-border M&As has generally focused on China and India (Buckley et al., 2007; Yang & Deng, 2017; De Beule & Duanmu, 2012; Ramasamy, Yeung, & Laforet, 2012; Popli et al., 2016; Rana & Haque, 2020). Accordingly, there is a need to understand the motivations behind the cross-border M&As of other EMs. Even if the environmental uncertainty and high market growth potential are among the common features of most of the EMs, their contexts diverge significantly in terms of their institutional and infrastructural development levels. For instance, Turkey DOI: 10.4324/9781003199168-4

80 Ayşe Kayacı and Aylin Ataay as a mid-range EM, has a better infrastructure development level compared to India and has a worse infrastructure and institutional development level than China (Hoskisson et al., 2013). Due to these differences, previous studies have acknowledged several significant differences in the international investment patterns of EM firms. While Chinese firms seem to be driven by market-seeking, asset-seeking, and natural-resource-seeking motives, Indian firms prefer to invest to acquire only valuable strategic assets in the host countries (Yang & Deng, 2017; De Beule & Duanmu, 2012; Sun et al., 2012). Moreover, most of the research in EM MNCs’ cross-border M&As have only considered firm- and industry-level factors to explain their foreign expansions in the last decade (Gubbi & Elango, 2016; Yang, 2015; Liou, Chao, & Yang, 2016; Contractor et al., 2014; Pinto et al., 2017). Since firms depend highly on their environments for accessing the necessary resources and ensuring their survival (Pfeffer & Salancik, 2003), adoption of a macro-level approach would be more beneficial to understand the location determinants of Turkish MNCs in their cross-border investments. Accordingly, we have examined the investment motives of Turkish MNCs from an OLI perspective. We have suggested that this framework can be utilized to explain the EM firms FDI motives as well as those of the advanced countries MNCs. Additionally, we have integrated institutional theory into the OLI framework to describe the effects of institutional complexities which are present around OFDI flows among countries. As a conclusion, we suggested that EM MNCs’ cross-border M&As intensity in different host regions can be analyzed by taking into consideration the specific EM contexts and by adopting a multi-theoretical approach. This chapter provides a literature review and hypotheses development in the following section. After the model development, the sampling and measurement processes of the study have been explained. The next section summarizes the statistical results of the tested hypotheses. In the last section, the results of the research model have been discussed through related literature.

Debates and research context Dunning’s OLI paradigm has a wider scope compared to other IB theories and it has been the most studied approach in IB research for more than 40 years (Eden & Dai, 2010). The OLI paradigm suggests that firms can achieve international production through their ownership (O), location (L), and internalization (I) advantages (Dunning, 1998, 1988). Firms possess these advantages if they have developed some competitive advantages at their home markets initially and then they can use these ownership advantages (OA)s under host-country specific conditions (L) and finally exploit them via their OFDI activities such as cross-border M&As (Dunning, 1988). Since the OLI paradigm has been based on the experience of MNCs from advanced economies which can exploit OAs easily, such as advanced

Investment motivations   81 production technologies, reputable brands, financial capital, and managerial skills, it has been criticized by several scholars as if this paradigm may also fully explain the internationalization of EM MNCs (Madhok & Keyhani, 2012; Ramamurti, 2012b; Bonaglia, Goldstein, & Mathews, 2007). Accordingly, recent studies have proposed an asset-exploration-oriented internationalization for EM MNCs and a springboard perspective to catch up with the advanced MNCs in terms of the strategic assets such as global brands, advanced technologies, distribution channels, and managerial competencies (Mathews, 2006; Luo & Tung, 2007). In general, EM MNCs have succeeded in this accelerated internationalization by following different kinds of routes, such as the original equipment manufacturer (OEM) contracts, joint ventures (JVs), international acquisitions, and greenfield investments (Child & Rodrigues, 2005; Yaprak, Yosun, & Cetindamar, 2018). Furthermore, cross-border acquisitions have been the most studied internationalization route of EM MNCs in the related literature as they are widely used strategies by companies to diminish the deteriorating effects of asymmetric assets between EM MNCs and advanced MNCs (Aybar & Ficici, 2009; Buckley et al., 2007; Deng, 2009; Madhok & Keyhani, 2012). Consequently, these propositions have contradicted the OLI paradigm’s incremental internationalization route which happens through internalizing OAs in different locations rather than in the home country (Yeganeh, 2016). However, recent research on the OLI paradigm has proposed that MNCs can reach the OAs by accessing the knowledge-based competencies in host countries rather than developing them in their home countries (Buckley & Hashai, 2009). Additionally, Dunning and Lundan (2008, 582) have integrated institutional ownership advantage (Oi) that “comprise the institutional infrastructure, which is specific to a particular firm” to the OLI framework since the increased outward investments of EM MNCs have generally been explained through the institutional context of the home or host countries (Demirbag, Tatoglu, & Glaister, 2010; Contractor et al., 2014; Cuervo-Cazurra, 2012). The location-specific motivations of FDI, which are searching for new markets (market-seeking), new resources (resource-seeking), increased efficiency (efficiency-seeking), and knowledge-intensive assets (strategicasset-seeking) have been another significant proposition of the OLI paradigm (Dunning, 1998). In the case of EM MNCs, the basic motivations of outward internationalization can be formed by different contexts. These may be seeking for new markets to expand their exports, acquiring strategic assets like reputable brands and improved value-chain configurations, and searching for natural resources like energy supplies. Nevertheless, efficiencyseeking and natural-resource-seeking investment activities cannot be fully applied for EM firms since they have already achieved low-cost production due to their home-country market conditions, and also acquiring natural resources has not been critical for these firms in most cases (Buckley et al., 2007; Dikova, Panibratov, & Veselova, 2019; Gubbi, 2015). Besides, the

82 Ayşe Kayacı and Aylin Ataay rapid internationalization of EM MNCs has been based on their countryspecific advantages (CSAs) rather than their firm-specific advantages (FSAs) (Rugman & Verbeke, 2003). For instance, as Turkish MNCs have benefitted from both country-specific (i.e. adaptation capabilities, strong social ties, geographic positioning, supportive government, and low-cost resources) and firm-specific (superiority in finance, operations, value-chain adaptation, learning abilities, and the ability to utilize low-cost resources) advantages while venturing abroad, these advantages have led them to choose strategic-asset-seeking and market-seeking OFDI. Investing in foreign markets would contribute to Turkish MNCs moving upstream in their value chains and gaining more financial returns while escaping from market saturation in their home countries (Yaprak, Yosun, & Cetindamar, 2018; Yaprak & Karademir, 2011). Besides, Turkish MNCs have also suffered from latecomer disadvantages like many other EM MNCs and would prefer to follow some catch-up strategies such as investing in countries which might provide them rich knowledge assets, high growth potential, and market size via cross-border M&As (Demirbag, Tatoglu, & Glaister, 2010; Eren-Erdogmus et al., 2010). For example, Arçelik’s acquisitions of German Grunding and South African Defy have been significant exemplars of Turkish MNCs’ FDI activities shaped by both strategic-asset-seeking motives in advanced markets (Germany) as well as market-seeking motives in EMs with growth potential (South Africa). Furthermore, institutions and institutional distance between home and host countries (North, 1990; Scott, 1995) have been significant determinants of cross-border investments that needed to be considered in EM MNCs’ research domain (Liou, Chao, & Yang 2016; Lebedev et al., 2015; Pinto et al., 2017). Several researchers who embrace the OLI paradigm have neglected to consider these constituents and this lack of integration has been criticized by other scholars (Mathews, 2006; Peng, 2012). Consequently, the motivations of EM MNCs to invest abroad should be investigated by considering both the OLI paradigm and institutional factors since the imperfect market conditions and high transaction costs have affected these firms’ strategies and organizational structures (Khanna & Palepu, 1997; Hoskisson et al., 2000; Wright et al., 2005). In the following section, the OFDI motivations of Turkish MNCs will be modeled through both the OLI paradigm’s location-specific factors and institutional distance between countries to be able to adopt a broader point of view.

Hypotheses development Market-seeking OFDI Markets with larger size and growth potential attract more FDI since they can provide the advantage of economies of scale for the production and the distribution of products to be sold in the host country (Buckley et al., 2007; Tolentino, 2010; Brouthers, Gao, & Mcnicol, 2008). For example,

Investment motivations   83 a host country’s income level is a more important determinant to attract FDI, especially in developed economies of the European Union (EU) such as Germany, the Netherlands, and France, than in developing countries (Kyrkilis & Pantelidis, 2003). The increased volume of OFDI from EMs in recent years has been generally identified as strategic-asset-seeking FDI, since most of the M&A activities held by Chinese companies are from technology-intensive industries (Deng, 2009). However, studies on other EMs, as well as China, have concluded that market-seeking FDI has been preferred by EM MNCs while expanding internationally (Gubbi, 2015; De Beule & Duanmu, 2012; Deng & Yang, 2015). Even though previous studies on host-country market size and cross-border M&As by EM firms have contributed to the relevant literature significantly, there is still a need to investigate the motivation of cross-border M&As of different EM firms such as Turkish MNCs. According to Erdilek (2008), Turkish MNCs turn to OFDI to escape from their saturated and volatile home market and to overcome the export barriers and tariffs which are present in some geographical regions. Besides, Turkey has been an open-market economy since the liberal economic policies of the 1980s and this has made it an attractive region for inward FDI by Western MNCs (Yaprak & Karademir, 2010). Markets with great growth potential and bigger sizes enable Turkish MNCs to diversify their geographic risk since they can amend an unfavourable power imbalance with foreign MNCs in Turkey this way (Deng & Yang, 2015). Although Aybar (2016) has pointed out that the Turkish OFDI level is related to the host country’s market size, a more distinguished element of FDI activity, like cross-border M&As, would give more accurate results about the main motivations of Turkish MNCs when going abroad. Consequently, the relevant hypothesis would be: Hypothesis 1: As the host-country market size increases, the number of cross-border M&As by Turkish firms in the host country increases. Strategic asset-seeking OFDI Strategic asset-seeking FDI helps firms to strengthen their capabilities at both national and international levels (Meyer, 2015). Most of the previous research on the cross-border M&As of EM firms has pointed out that as they don’t possess strategic assets, they eliminate this inconvenience by acquiring firms from developed markets which have knowledge-intensive assets and intangible resources (Luo & Tung, 2007; Child & Rodrigues, 2005; Mathews, 2006). After the global financial crises of 2008, most of the developed market firms suffered from a shortage of financial resources and EM MNCs benefitted from this situation to acquire the valuable assets of these companies (Meyer, 2015). Besides, overcoming “liability of emergingness” has also driven EM MNCs to select acquisitions as entry-mode strategies rather than other alternatives (Madhok & Keyhani, 2012, 28). Despite

84 Ayşe Kayacı and Aylin Ataay the previous international experience of Turkish firms in their home country in the 1990s when Turkey attracted a substantial amount of inward FDI, they still have drawbacks in areas such as brand reputation, production technology, and extensive distribution networks to operate in global markets (Yaprak, Yosun, & Cetindamar, 2018; Demirbag & Tatoglu, 2008). Arçelik is the most well-known example of a Turkish MNC which has built its brand reputation and technological assets via several smart acquisition decisions (Bonaglia, Goldstein, & Mathews, 2007; Erdilek, 2008). Besides, acquisition of DuPont’s shares in DUSA by Turkish Sabancı Holding and Godiva (premium chocolate producer) by Turkish Yıldız (Ülker) Holding are other examples of the strategic-asset-seeking FDI of Turkish MNCs (Aybar, 2016). As a consequence, Turkish MNCs are also driven by strategic-asset-acquisition motivation while investing abroad as are developed country counterparts. Hypothesis 2: As the host country’s strategic-asset endowments increase, the number of cross-border M&As by Turkish firms in the host country increase. The moderating role of institutions New institutional theory has emphasized the role of institutions as a mechanism to reduce uncertainties in economic transactions by establishing and applying legal and regulatory systems and stabilizing the environment (North, 1990; Scott, 1995). EMs are known for their imperfect market conditions, institutional voids, and the high levels of transaction costs which have shaped firm strategies and structures in these markets (Khanna & Palepu, 1997). Recent findings have proposed that the increased amount of OFDI by EM MNCs is the result of the motivation of these companies to escape from a weak institutional environment and the underdeveloped economy of their home markets (Cuervo-Cazurra & Genc, 2008; Ramamurti, 2012a; Yamakawa, Peng, & Deeds 2008). While the large and developed markets with wealthy customers are considered “pull” factors, the government support provided only to some business groups and their affiliates, the weak institutions of the home country, the insecurity about property rights in the home country and the negative image of the home country are the “push” factors of the accelerated OFDI flow of EM MNCs into more developed markets (Cuervo-Cazurra & Ramamurti, 2015; Yamakawa, Peng, & Deeds, 2008). Moreover, markets with underdeveloped institutions cause resource constraints for EM MNCs which lead them to invest in countries with better institutional quality (Cuervo-Cazurra & Genc, 2008). Since better institutional quality may enforce legal protection of proprietary assets and economic transactions, cross-border M&As into the developed countries also benefit from this situation (Zhang, Zhou, & Ebbers, 2011; Stoian & Mohr, 2016; De Beule & Duanmu, 2012).

Investment motivations   85 In the case of Turkish MNCs, cross-border M&As have mainly been held in Europe and North America which are known for their superior institutional environments, greater market size, and richness of strategicasset endowment (Deloitte, 2016). Despite preferring a lower level of equity ownership in institutionally distant environments (Ilhan-Nas et al., 2018), Turkish MNCs could compete in highly institutionalized markets to achieve higher market shares and capability-building (Yaprak, Yosun, & Cetindamar, 2018). To sum up, Turkish MNCs could use the market size and asset-endowment advantages of host countries in a better way since the quality of institutions in these countries can guarantee the internationalization process. Hypothesis 3a: Host-country institutional quality will strengthen the positive relationship between the number of cross-border M&As by Turkish firms and host-country market size. Hypothesis 3b: Host-country institutional quality will strengthen the positive relationship between the number of cross-border M&As by Turkish firms and host-country strategic endowments.

Methodology Sample The study has used diverse databases to build up the sample of this study and variables in the research model. These databases include ZEPHYR Bureau van Dijk and Thomson Reuters Eikon for cross-border M&As, World Bank Statistics for country-level variables, and the Worldwide Governance Indicators (WGI) dataset that has been developed by Kaufman, Kraay, and Mastruzzi (2011) for institutional quality. The WGI dataset covers the data of six governance indicators (control of corruption, government effectiveness, political stability, rule of law, voice, and accountability) from 215 countries since 1996. The sample of the study has covered all M&A deals which were completed by Turkish companies and recorded by ZEPHYR and Eikon databases within the period of 2002–2017. In this way, the sample of the study has expanded and been cross-checked to control deal-information accuracy. During this period, Turkish OFDI has shown huge growth (WorldBank 2019) and significant insights about the motivations of Turkish MNCs to go abroad are given. The final sample includes 1,088 country-year observations from 68 countries for the 2002–2017 time period. Variable measurement In this study, the dependent variable is the number of completed cross-border M&A deals in each host country by Turkish MNCs for each year between 2002 and 2017. This operationalization allows researchers to increase the validity of results by finding out how host-country time-varying conditions

86 Ayşe Kayacı and Aylin Ataay affect the OFDI flows and eliminating the biased effect of extreme-sized cross-border M&As in recent literature (Dikova, Panibratov, & Veselova, 2019; Deng & Yang, 2015; Yang & Deng, 2017). The explanatory variables of this study are market-seeking and strategicasset-seeking FDI. We have measured market-seeking FDI with the hostcountry market size and used logarithmic transformation of GDP for the given country in each year as in previous studies (Buckley et al., 2007; Deng & Yang 2015). The strategic-asset endowments of the host country are measured through the total of patent registrations by both residents and non-residents in the given year (Buckley et al., 2007; Dikova, Panibratov, & Veselova, 2019). For the moderating variable, we have employed WGI to measure the host-country institutional quality and computed the mean value of six governance indicators for each host country to indicate how qualified the host country’s institutional environment is. We have used three control variables in the research model to find other aspects of the home and host-country environments. The effect of the home-market conditions is operationalized as the home-market size and measured by the LogGDP of Turkey in each year. The other control variables are the host-country natural-resource endowments and trade openness, which are derived from World Development Indicators (WorldBank, 2019). Natural-resource endowments of the host country are measured by the percentage of ores and metal exports in the total of merchandised exports and the host-country trade openness is measured through the ratio of the sum of imports and exports of goods and services to GDP, as in the World Bank database (Buckley et al., 2007; Chakrabarti, Gupta-Mukherjee, & Jayaraman, 2009; Yang & Deng, 2017). The statistical model and analysis Since our dependent variable is a count variable that takes value in a range of 0 to a certain positive number, applying the standard multiple regression model would not be appropriate due to the discreteness, non-negativity, and distribution of data problems (Dikova, Panibratov, & Veselova, 2019). Count data can be modeled by Poisson or negative binomial regression models. Due to the overdispersion problem and the assumption that the dependent variable occurs at some rate over a period of time in the Poisson model, we have considered a negative binomial regression model to analyze our data. Negative binomial regression allows for the variance in the rate of the underlying process across observations according to gamma distribution (Greene, 2012). A random-effect negative binomial model has been applied to all independent, moderator, and control variables. Table 4.1 shows the descriptive statistics and correlations of all variables.

0.84 1.93 120.07 0.96 0.40 8.07 53.22

0.30

27.19 5.77

88.03

s.d

0.37 25.82 33.31

Source: All tables are by authors * p< 0.05, **p< 0.01, ***p< 0.001

1. Number of M&As 2. Host-country LogGDP 3. Host-country total patents 4. Host-country ınstitutional quality 5. Turkey LogGDP 6. Host-country natural resources 7. Host-country trade openness

Mean

−0.05

0.08* −0.02

0.09**

1 0.19*** 0.07*

1

−0.44***

0.18*** −0.19***

0.33***

1 0.48***

2

−0.22***

0.05 −0.09**

0.04

1

3

0.27***

0.02 −0.04

1

4

0.09**

1 0.05

5

Table 4.1 Descriptive statistics and correlation matrix for the number of cross-border M&As of Turkish firms

−0.08*

1

6

1

7

Investment motivations   87

88 Ayşe Kayacı and Aylin Ataay

Findings The results of negative binomial regression analysis are reported in Table 4.2. Model 1 shows the effect of control variables on the number of cross-border M&As by Turkish firms. None of the control variables show any significant relationship with the number of M&As in Model 1. Only the host-country trade openness has shown a significant and positive association between the dependent variables in Model 2 (0.005, p