Outward FDI and Knowledge Flows: A Study of the Indian Automotive Sector

Pradhan, Jaya Prakash and Singh, Neelam (2008): Outward FDI and Knowledge Flows: A Study of the Indian Automotive Sector.

Abstract

In recent years developing countries have emerged as significant participants in the OFDI (outward foreign direct investment) activities having the strategic asset seeking motive. Such OFDI which is assets exploiting cum augmenting involves potential two way cross border knowledge flows. This study examines these issues for the Indian automotive industry that is currently transnationalizing at a rapid rate in terms of both exports and OFDI. The study traces the technological capability building and several dimensions of OFDI in this industry. The case studies of two major automotive Groups highlight their competence building, and knowledge seeking operations. This study undertakes a quantitative analysis of the influence of OFDI activities on the in‐house (domestic) R&D performance of Indian automotive firms during 1988–2008. As expected, the favourable impacts on R&D intensity appear to be stronger for developed vs. developing host nations, and for joint venture vs. wholly‐owned ownership OFDI. The study concludes with suggestions to promote particularly the strategic asset enhancing OFDI.

• Item Type: MPRA Paper
• Language: English
• Keywords: OFDI; Strategic Assets‐seeking FDI; R&D; Automotive Industry
• Subjects: F - International Economics > F2 - International Factor Movements and International Business > F23 - Multinational Firms ; International Business; L - Industrial Organization > L6 - Industry Studies: Manufacturing > L62 - Automobiles ; Other Transportation Equipment ; Related Parts and Equipment; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O32 - Management of Technological Innovation and R&D; F - International Economics > F2 - International Factor Movements and International Business > F21 - International Investment ; Long-Term Capital Movements

References

ACMA (2008a), Annual Report 2007–08, ACMA, Delhi.

ACMA (2008b), Status of Indian Automotive and Auto-Component Industry: Status Report, accessed 8 August 2008; www.acmainfo.com.

ACMA News, various issues, Delhi: ACMA (www.acmainfo.com). ACT now, various issues, Delhi: ACT, a Division of ACMA (www.acmainfo.com).

AMP 2006‐2016 (2006), Automotive Mission Plan 2006‐2016: A Mission for Development of Indian Automotive Industry, Delhi: Ministry of Heavy Industries & Public Enterprises, Government of India, December (AMP 2006‐16.pdf).

Balakrishnan, K., S. Seshadri, A. Sheopuri and A. Iyer (2007) ‘Indian Auto‐Component Supply Chain at the Crossroads’, Interfaces, 37(4), pp.310–323.

Barney, J. (1991), ‘Firm resources and sustained competitive advantage’, Journal of Management, 17 (1), pp. 99–120.

Blomstrom, M. and H. Perssion (1983), ‘Foreign Investment and Spillover Efficiency in an Underdeveloped Economy: Evidence from the Mexican Manufacturing Industry’, World Development, 11, pp.493–501.

Braconier, H, K. Ekholm and K. H. M. Knarvik (2001), ‘In search of FDI‐transmitted R&D spillovers: A study based on Swedish data’, Review of World Economics, 137 (4), pp. 644–665.

Branstetter, L (2000), ‘Is Foreign Direct Investment a Channel of Knowledge Spillovers? Evidence from Japanʹs FDI in the United States’, NBER Working Paper, No. 8015.

Cai, K. G. (1999), ‘Outward Foreign Direct Investment: A Novel Dimension of Chinaʹs Integration into the Regional and Global Economy’, The China Quarterly, No. 160, pp. 856–880.

Caves, R. E. (1971), ‘International corporations: the industrial economics of foreign investment’, Economica, 38, pp. 1–27.

Caves, R. E. (1974), ‘Multinational Firms, Competition and Productivity in Host Country Markets’, Economica, 41, pp. 176–93.

Chen, H. And T. Chen (1998), ‘Network Linkage and Location Choice in Foreign Direct Investment’, Journal of International Business Studies, 29(3), pp. 445–467.

Deng, P. (2007), ‘Investing for strategic resources and its rationale: The case of outward FDI from Chinese companies’, Business Horizons, 50, pp.71–81.

Dunning, J. H. (1998), ‘Location and the Multinational Enterprise: A Neglected Factor?’, Journal of International Business Studies, 29(1), pp. 45–66.

Dunning, J. H. (2001), ‘The Eclectic (OLI) Paradigm of International Production: Past, Present and Future’, Int. J. of the Economics of Business, 8(2), pp. 173–190.

Dunning, J. H., R. V. Hoesel and R. Narula (1996), ‘Explaining the ‘new’ wave of outward FDI from developing countries: the case of Taiwan and Korea’, MERIT Research Memoranda, No. 009, Maastricht.

Fan, E. X. (2002), ‘Technological Spillovers from Foreign Direct Investment—A Survey’,ERD Working Paper No. 33, Asian Development Bank, Manila.

Fishman, A. and R. Rob (1999), ‘The Size of Firms and R&D Investment’, International Economic Review, 40(4), pp. 915–931.

Gammeltoft, P. (2008), ‘Emerging multinationals: outward FDI from the BRICS countries’, International Journal of Technology and Globalization, 4 (1), pp. 5–22.

Globerman, S. (1979), ‘Foreign Direct Investment and ‘Spillover’ Efficiency Benefits in Canadian Manufacturing Industries’, Canadian Journal of Economics, 12, pp. 42–56.

Görg, H. and D. Greenaway (2004), ‘Much Ado about Nothing? Do Domestic Firms Really Benefit from Foreign Direct Investment?’, The World Bank Research Observer, 19(2), pp.171–197.

Gupta and Ross (2001), ‘Mergers and acquisitions through an intellectual capital perspective’, Journal of Intellectual Capital, 2(3), pp. 297–309.

Hoesel, R.V. (1999), New Multinational Enterprises from Korea and Taiwan, New York: Routledge.

Hundley, G., C. K. Jacobson and S. H. Park (1996), ‘Effects of Profitability and Liquidity on R&D Intensity: Japanese and U.S. Companies Compared’, The Academy of Management Journal, 39(6), pp. 1659–1674.

Hymer, S.H. (1960), The International Operations of National Firms: A Study of Direct Foreign Investment, PhD Dissertation, Massachusetts Institute of Technology. Published in 1976 (Cambridge, MA, MIT Press).

Kathuria, S. (1996), Competing Through Technology and Manufacturing: A Study of the Indian Commercial Vehicles Industry, Oxford University Press, Delhi.

Kindleberger, C.P. (1969), American Business Abroad (New Haven, Yale University Press).

KPMG (2007), India Automotive Study 2007: Domestic Growth and Global Aspirations, India and Germany.

Kumar, N. and A. Aggarwal (2005), ‘Liberalization, outward orientation and in‐house R&D activity of multinational and local firms: A quantitative exploration for Indian manufacturing’, Research Policy, 34(4), pp. 441–460.

Lall, S. (1983), ‘Determinants of R&D in an LDC: The Indian engineering industry’, Economics Letters, 13(4), pp. 379–383.

Lunn, J. (1982), ‘Research and Development and the Schumpeterian Hypothesis: Alternate Approach’, Southern Economic Journal, 49(1), pp. 209–217.

Makino, S., C. Lau, and R. Yeh (2002), ‘Asset‐Exploitation versus Asset‐Seeking: Implications for Location Choice of Foreign Direct Investment from Newly 55 Industrialized Economies’, Journal of International Business Studies, 33 (33), pp. 403–421.

McKinsey & Company (2006), ‘Towards a New Global Order for Automotive Suppliers: Findings from the China and India Supplier Survey’, McKinsey & Company, Mumbai, August.

Narayanan, B.G. and P. Vashisht (2008), Determinants of Competitiveness of the Indian Auto Industry, ICRIER Working Paper, No. 201, January.

Narayanan, K. And R. Thomas (2007) ‘The Determinants of R&D in the Indian Pharmaceutical Sector: A Firm Level Study of Outward Investors’, paper presented at International Conference on Globalisation of Chinese and Indian Enterprises, Indian Institute of Technology Bombay, India, November 2–3.

Okada, A. (2004), Skills Development and Interfirm Learning Linkages under Globalization: Lessons from the Indian Automobile Industry, World Development, 32(7), pp. 1265–88.

Poon, J. P. H. and A. MacPherson, (2005), ‘Technology acquisition among Korean and Taiwanese firms in the United States’, International Business Review, 14 (5), PP. 559– 575.

Potterie, B. V. P. D. L. and F. Lichtenberg (2001), ‘Does foreign direct investment transfer technology across borders?’, The Review of Economics and Statistics, 83(3), pp. 490–97.

Pradhan, J. P. (2004), ‘The Determinants of Outward Foreign Direct Investment: A firmlevel Analysis of Indian Manufacturing’, Oxford Development Studies, 32, pp.619–639.

Pradhan, J. P. (2008a), ‘The Evolution of Indian Outward Foreign Direct Investment: Changing Tends and Patterns’, International Journal of Technology and Globalisation, 4, pp.70–86.

Pradhan, J. P. (2008b), Indian Multinationals in the World Economy: Implications for Development, Bookwell Publisher, New Delhi.

Pradhan, J. P. and V. Abraham (2005), ‘Overseas Mergers and Acquisitions by Indian Enterprises: Patterns and Motivations’, Indian Journal of Economics, Vol. LXXXV, pp. 365–386.

Rasiah, R. and A. Kumar (2008), ‘Foreign Ownership, Technological Intensities and Economic Performance of Automotive Parts Firms in India’, Asia Pacific Business Review, 14(1), pp. 85–102.

Rui, H. and G. S. Yip (2008), ‘Foreign acquisitions by Chinese firms: A strategic intent perspective’, Journal of World Business, 43, pp. 213–226.

Siddharthan, N.S. (1988), ‘In‐house R&D, imported technology, and firm size: lessons from Indian experience’, The Developing Economies, 26(3), pp. 212–221.

Singh, Neelam (2007), ‘Automotive Industry’ in N. Kumar and K.J. Joseph (eds.) International Competitiveness & Knowledge‐based Industries in India, pp. 233–279, New Delhi: Oxford University Press.

Singh, Neelam (2008), ‘Export Participation in Original Equipment Supply Chains: An Econometric Analysis for Auto Component Firms in India’, in K. Narayanan and N.S. Siddharthan (Eds.) Globalisation of Chinese and Indian Enterprises, forthcoming.

Tobin, J. (1958), ‘Estimations of Relationships for Limited Dependent Variables’,Econometrica, 26, pp. 24–36.

UNCTAD (2006), World Investment Report 2006. FDI from Developing and Transition Economies: Implications for Development, Geneva.

Wang, Q. and A. Boateng (2007), ‘Cross‐Border M&As by Chinese Firms: An Analysis of Strategic Motivation and Performance’, International Management Review, 3 (4), pp. 19–29.