Internationalization through exaptation: The role of Domestic geographical dispersion

This study investigates the influence of an organization’s domestic geographical dispersion on its internationalization process. From evolutionary biology, we borrow the concept of exaptation – a process in which capabilities developed in a specific context are used in a different environment – and develop the concept of learning through exaptation. We draw on recent developments on organizational learning and economic geography to argue that organizations learn to engage in FDI by exapting knowledge that is domestically developed in order to organize and manage geographically dispersed units across sub-national areas. However, learning through exaptation is limited over time and across space. As organizations increase their engagement in FDI, FDI experience becomes a substitute for the exaptation of domestically developed capabilities. In addition, organizations mainly dispersed in less (versus more) urbanized sub-national areas lack opportunities to exapt domestically developed knowledge associated with Jacobs (diversification) externalities. We test our argument on a sample of 641 Indian business groups over the period 2001-2010.