Staged Development of Dynamic Capabilities: A Study of International Joint Ventures in India

• DOI: http://doi.org/10.1002/tie.21796
• Published date: 01 November 2016
• Date: 01 November 2016
• Author: Pradyumana Khokle,Kaushik Roy

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Published online in Wiley Online Library (wileyonlinelibrary.com)

© 2016 Wiley Periodicals, Inc. • DOI: 10.1002/tie.21796

Correspondence to: Kaushik Roy, Strategic Management Group, Indian Institute of Management Calcutta, India, +91 33 2467 8300, kaushik@iimcal.ac.in

Staged Development of

Dynamic Capabilities: A

Study of International

Joint Ventures in India

By

Kaushik Roy

Pradyumana Khokle

This article investigates the microfoundations of different stages of development of dynamic capa-

bilities ( DCs ) in international joint ventures ( IJVs ). We conducted case-based research for three het-

erogeneous IJVs in the Indian life insurance space. Data collection involved detailed interviews and

access to other archival data. Results offer interesting insights on (1) the process of the development of

dynamic capabilities and (2) the relative importance of different stages in the development of dynamic

capabilities. Sensing and seizing are the two stages in which dynamic capabilities are built, and

recon guration/transformation is inherently subsumed within the stage of seizing. We also found that

broad-spectrum parental contribution across different functions impedes the development of dynamic

capability. ©2016Wiley Periodicals, Inc.

Introduction

T he study of the concept of dynamic capability

has emerged as a very active domain of strat-

egy research. An indicator of the concept ’ s sig-

nificance to strategy scholars is the fact that “Dynamic

Capabilities at Crossroads” was accorded the key plenary

topic at the Strategic Management Society ’ s 30th annual

conference (2010) in Rome.

A dynamic capability is a firm ’ s capacity (or the poten-

tial) to purposefully modify its resource base ( Helfat

etal., 2007 ). The purpose may be to systematically solve

FEATURE ARTICLE

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FEATURE ARTICLE

Thunderbird International Business Review Vol. 58, No. 6 November/December 2016 DOI: 10.1002/tie

problems with an aim to sense market opportunities

and threats and take decisions that are aligned with the

changing market scenario (Barreto, 2010 ). Teece ( 2007 )

proposed sensing, seizing, and reconfiguration capaci-

ties to be the components of the umbrella framework of

enterprise dynamic capability. In our study, we analyze

the staged development of dynamic capabilities, and

employ the sensing-seizing-reconfiguration stages (Teece,

2007 ) as a guiding framework.

We chose international joint ventures (IJVs) as the

context of our study. Most of the previous studies on IJVs,

and joint ventures in general, employed the game theoretic

prism to study the interplay of partners (Berg & Friedman,

1980 ; Gilbert, 1986 ; Inkpen & Beamish, 1997 ; Pfeffer &

Nowak, 1976 ; Rubinstein, 1982 ; Wolff & Reed, 2000 ). We

focus on the business IJVs, that is, those ventures that have

been set up for running day-to-day business on a long term,

and not just for the purpose of partner learning.

The Indian life insurance industry was chosen for a

number of reasons. Most of the life insurers in India are IJVs

as an outcome of a regulatory mandate (MarketLine, 2012 ).

Also, the industry witnessed environmental turbulence in

the recent past (December 2005, July 2009, and June 2010).

Based on our engagement with three heterogeneous

IJVs, we propose that there are broadly two stages in which

dynamic capability is developed: sensing and seizing. The

stage of seizing inherently requires an organization to

reconfigure its resources. At the initial and intermediate

stages of an IJV ’ s life cycle, the synergistic contribution of

the partners and foreign partner ’ s know-how of Indian

market and its alliancing capability contributes to devel-

opment of dynamic capabilities. As an IJV matures, low

foreign partner involvement is necessary for the organiza-

tion to effectively develop dynamic capabilities.

Dynamic Capabilities—An Integrative

Perspective

The concept of dynamic capability emerged as an out-

come of the shortcoming of the conventional resource-

based view (Ambrosini, Bowman, & Collier, 2009 ), which

took a “static” approach toward a firm ’ s sustained com-

petitive advantage (Wernerfelt, 1984 , 1995 ) as decided

by the V-R-I-N attributes of its resources (Barney, 1991 ).

Historically, we find the first mention of this concept in

Teece and Pisano ( 1994 ), and we also take cognizance of

Collis ’ s ( 1994 ) proposition of “higher-order capability.”

Organizations sense the environment, seize the mar-

ket opportunities, and manage threats and transform

their resources, for competitive advantage in a dynamic

environment (Teece, 2007 ). This “integrative” staged/

phased dynamic capability framework was subsequently

also agreed upon by Barreto ( 2010 ) and Li and Liu

( 2014 ). Barreto ( 2010 ) indicated that “a dynamic capabil-

ity is the firm ’ s potential to systematically solve problems,

formed by its propensity to sense opportunities and

threats, to make timely and market-oriented decisions,

and to change its resource base.”

However, significant debate ensued when the concept

of dynamic capability was first proposed. The debate

revolved around both the definition and the theorized

outcome of a firm ’ s dynamic capability. Our review of

extant literature, and the evolution thereof, has helped

us understand the concept, which is depicted in Figure 1 .

Each of the three stages (Teece, 2007 ; Teece & Pisano,

1994 ; Teece, Pisano, & Shuen, 1997 ), namely, sensing,

seizing, and reconfiguration, require unique capabilities.

The development of dynamic capabilities is also impacted

by the organizational dominant coalition and its bounded

rationality (Roy & Khokle, 2011 ). IJVs operating in an

emerging economy provide a unique opportunity to

investigate the nature of capabilities required to succeed

in the three stages, for a variety of reasons. IJVs typically

enjoy the interorganizational network of their parents,

the latter generally being mature organizations in their

respective domains/countries of operations. In an emerg-

ing economy, IJVs are such that one parent is an organiza-

tion from a developed economy while the other parent is

typically a local organization. This makes the joint ven-

ture a classic case where culturally distant organizations

come together to achieve sustainable competitive advan-

tage in the idiosyncratic market of an emerging economy.

It is difficult for the foreign parent to constantly transfer

its knowledge resources to the IJV, especially in an emerg-

ing economy (Griffith, Kiessling, & Dabic, 2005 ; Kogut

& Zander, 1995 ; Madhok, 1997 ). Apart from difficulty, it

is also not always desirable for the IJV to seek resources

from its parents. This is because the foreign and local

parents have a propensity to differ markedly on multiple

fronts, be it strategic orientation, value chain, and/or

managerial style (Yan & Gray, 2001 ).

Zhan and Luo ( 2008 ) investigated the parental role

in the capability exploitation and capability upgrading of

IJVs. We extend this theme further—the focus here is to

investigate a venture ’ s ability to undertake the stages of

sensing, seizing, and reconfiguration of resources, when

faced with an uncertain and dynamic environment. While

undertaking this investigation, we employ the theoretical

lens proposed by Teece ( 2007 ).

The primary research objective is to investigate the

development of dynamic capabilities for IJVs. The devel-

opment of dynamic capability is viewed as the staged