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Why do Indian firms go abroad?

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  • Vudayagi Balasubramanyam
  • N Forsans

Abstract

Overseas investments by the emerging economies are a feature of globalisation. Investments by Indian firms, though not large in volume, differ from that of other emerging economies such as China in their composition, destination and modality of investments. A relatively high proportion of their investments are in the manufacturing and services sectors of the developed economies such as the UK and the USA. A number of statistical studies have attempted to identify the factors motivating Indian firms to invest abroad. Most of these studies attempt to ground the analysis in the received theory of foreign direct investment centred on the ownership advantages, location and internalisation (OLI) paradigm. This paper argues that statistical tests cannot fully account for the unique nature of India’s investments abroad. The pattern of investments that differs from that of the other emerging economies is to be attributed to India’s endowments of entrepreneurial skills centring on exploration of investment opportunities and astute management of complex organisations. These endowments are an inheritance from history augmented by the contribution of India’s diaspora abroad. The lukewarm investment climate at home may also be a factor in the decision of Indian firms in technology and skill intensive firms to venture abroad. Explanations for the unique nature of overseas direct investments by Indian firms have to be sought in the organisational structure and history of Indian business houses.

Suggested Citation

  • Vudayagi Balasubramanyam & N Forsans, 2013. "Why do Indian firms go abroad?," Working Papers 33867210, Lancaster University Management School, Economics Department.
  • Handle: RePEc:lan:wpaper:33867210
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    References listed on IDEAS

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    1. Jaya Prakash Pradhan, "undated". "Growth of Indian Multinationals in the World Economy: Implications for Development," Working Papers 0704, Institute for Studies in Industrial Development (ISID).
    2. Jaya Prakash Pradhan, 2004. "The determinants of outward foreign direct investment: a firm-level analysis of Indian manufacturing," Oxford Development Studies, Taylor & Francis Journals, vol. 32(4), pages 619-639.
    3. De Beule, Filip & Duanmu, Jing-Lin, 2012. "Locational determinants of internationalization: A firm-level analysis of Chinese and Indian acquisitions," European Management Journal, Elsevier, vol. 30(3), pages 264-277.
    4. Veeramani C, 2001. "India's intra-industry trade under economic liberalization: Trends and country specific factors," Centre for Development Studies, Trivendrum Working Papers 313, Centre for Development Studies, Trivendrum, India.
    5. Leff, Nathaniel H, 1979. "Entrepreneurship and Economic Development: The Problem Revisited," Journal of Economic Literature, American Economic Association, vol. 17(1), pages 46-64, March.
    6. Pradhan, Jaya Prakash & Singh, Neelam, 2010. "Group Affiliation and Location of Indian Firms’ Foreign Acquisitions," MPRA Paper 24018, University Library of Munich, Germany.
    7. Mukherjee, Dipa & Majumder, Rajarshi, 2008. "Efficiency, Technological Progress and Regional Comparative Advantage: A Study of Organised Manufacturing Sector in India," MPRA Paper 12758, University Library of Munich, Germany.
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