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Trends in Strategies and Performance of the Indian Corporate Sector What has changed in two decades of economic reforms?

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  • Basant, Rakesh
  • Mishra, Pulak

Abstract

In the context of various policy initiatives made during the last two decades to reform the Indian economy in general and corporate sector in particular, this paper documents strategies followed by firms in this period and the resultant changes in business conditions. We find that although the rate of growth of the industry sector has not accelerated following economic reforms probably due to slow growth in agriculture and industrial productivity, investment in general and FDI in particular have shown considerable increase. Increase in competitive pressures seems to have resulted in firms adopting a variety of strategies. While reliance on mergers and acquisitions (M&As) has increased to restructure business and grow, the role of embodied technology purchase has declined in relative terms with firms depending somewhat more on in-house R&D, disembodied technology purchase and FDI linked technology inflows. There are some signs of a growing domestic technology market as well. Although strategies of building marketing and distribution related complementary assets continue to be important for implementing the strategy of product differentiation, their role seems to have declined in a relative sense as these expenses as a proportion of sales show a declining trend. The emerging competitive pressures have significantly raised the importance of sub-contracting/outsourcing in manufacturing possibly as an alternative to the strategy of vertical integration, a measure of in-house value addition. While cost-efficiencies do not show improvements, export orientation has increased significantly across industries and import penetration has seen a marginal decline. Overall, the observed trends of corporate response to economic reforms are interesting, but one needs to systematically explore how M&As led consolidation and flows of FDI are linked to the adoption of various non-price strategies relating to technology and product differentiation. As economic reforms deepen and competitive pressures build up, an analysis of these interactions would provide useful insights for understanding corporate behaviour and for making policy choices.

Suggested Citation

  • Basant, Rakesh & Mishra, Pulak, 2016. "Trends in Strategies and Performance of the Indian Corporate Sector What has changed in two decades of economic reforms?," IIMA Working Papers WP2016-03-31, Indian Institute of Management Ahmedabad, Research and Publication Department.
  • Handle: RePEc:iim:iimawp:14484
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    References listed on IDEAS

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    1. Erdal Yalcin & Joachim Karl & Sebastian Benz & Feodora Teti, 2015. "UNCTAD World Investment Report 2015: Developments in Foreign Direct Investment," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 68(20), pages 48-56, October.
    2. VAZQUEZ-ROZAS, Emilia & VADLAMANNATI, Krishna Chaitanya, 2009. "Direct Foreign Investments In India: Potential & Performance Of Fdi Inflows From United States As Strategic Major Investor," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 9(2).
    3. P.L. Beena, 2000. "An analysis of mergers in the private corporate sector in India," Centre for Development Studies, Trivendrum Working Papers 301, Centre for Development Studies, Trivendrum, India.
    4. Basant, Rakesh & Mishra, Pulak, 2012. "How has the Indian Corporate Sector Responded to Two Decades of Economic Reforms in India? An Exploration of Patterns and Trends," IIMA Working Papers WP2012-02-02, Indian Institute of Management Ahmedabad, Research and Publication Department.
    5. K, S Chalapati Rao & Dhar, Biswajit, 2011. "India's FDI Inflows: Trends and Concepts," MPRA Paper 29153, University Library of Munich, Germany.
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    Cited by:

    1. Pulak Mishra, 2018. "Are Mergers and Acquisitions Necessarily Anti-competitive? Empirical Evidence from India’s Manufacturing Sector," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 12(3), pages 276-307, August.
    2. Pulak Mishra & Neha Jaiswal, 2017. "Impact of Mergers and Acquisitions on Firms’ Export Competitiveness," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 18(1), pages 1-20, March.
    3. Rakesh Basant & Pulak Mishra, 2019. "Impact of Vertical Integration on Market Power in Indian Manufacturing Sector During the Post-Reform Period," Journal of Industry, Competition and Trade, Springer, vol. 19(4), pages 561-581, December.
    4. Basant, Rakesh & Mishra, Pulak, 2017. "Vertical Integration, Market Structure and Competition Policy: Experiences of Indian Manufacturing Sector during the Post Reform Period," IIMA Working Papers WP 2017-09-02, Indian Institute of Management Ahmedabad, Research and Publication Department.

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