Paradoxical Effects of Institutions on MNC Firms: Evidence from the Indian Textile Industry

In an era of global competition, there is a growing interest within the strategy field to study how the institutional environments influence firm strategies and competitive advantage. In this paper, we further this research by examining how institutional stimulus through a government program (Technology Upgradation Funds Scheme (TUFS)) influenced the global competitive advantage of the Indian textile firms. Results from a panel of firms during the 1989-2010 period show that while accessing the resources provided by the government program enhanced global market share, this accrued at the cost of lower profitability. Furthermore, we find that the relationships between the institutional stimulus and global market share and profitability are moderated by quasi-institutions within which individual firms are embedded, namely business groups.