Abstract
The paper empirically examines differences in the technological and other characteristics of two ownership groups of firms, foreign multinational enterprises (FMEs) and domestic enterprises (DEs) in the Indian machinery industry (IMI). Analysis is performed with the help of data on a large sample of firms during a period in which FMEs enjoyed level playing field vis a vis DEs and India became the second most attractive destination for inward foreign direct investment (FDI). We apply three alternative techniques for comparison: univariate mean value (of a variable) method, multivariate linear discriminants analysis (LDA) and dichotomous probabilistic logit and probit models. The significant findings of the study are: (i) probabilistic models are most suitable for the study; (ii) FMEs have greater technical efficiency (TE), firm size (SZ), export intensity (XI), intensity to import intermediate goods (IMIG) and intensity to import disembodied technology (IMDT) but the lower advertisement and marketing intensity (AMI) and financial leverage (LEV); (iii) choice of techniques (CAPI), research and development intensity (RDI), gross profit margin (GPM) and market concentration (MC) do not differ significantly between the two ownership groups. The major recommendations of this study are that the current outward orientations of the economy with liberal and transparent FDI policy for IMI need to be continued. This would not only contribute towards the indigenous production of additional and better machinery products with the help of FMEs but also check the influx of import of final goods and improve the efficiency of the IMI. Besides, the domestic suppliers of intermediate goods need to improve the availability and quality of their products for achieving greater linkages with FMEs. To encourage FMEs to spend more on R&D, the Government of India (GoI) needs to take steps to improve R&D infrastructure, regulatory and legal framework and implementation of IPR regime in the country so that the FMEs find India attractive enough to locate their core R&D functions.
This is a revised version of the paper presented in the FGKS’ IX Annual International Conference on Technology: Corporate and Social Dimensions held during October 27–29, 2014 at National Institute of Advanced Studies, Bengaluru. I also authored an earlier version of this paper which appeared as MPRA Paper: Comparative performance of foreign affiliates and domestic firms in the Indian machinery industry, https://mpra.ub.uni-muenchen.de/33076/.
The author has greatly benefitted from the suggestions for improvements received in the conference and afterward. The author gratefully acknowledges Prof. N.S. Siddharthan, MSE, Chennai and Prof Pravin Jha, JNU, New Delhi for the encouragements and comments received on the earlier drafts of this paper. The views expressed in the paper are entirely personal and do not belong to the IDBI Bank Ltd. in which the author works.
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Notes
- 1.
Major TRIMs in past included fulfillment of technology, local content, dividend balancing and export obligations on the part of foreign firms with FDI.
- 2.
India became the second most attractive destination (next to China) among MNEs for FDI in terms of A.T. Kearney’s 2007 FDI Confidence Index (Global Business Policy Council 2008).
- 3.
To the best of my knowledge, there is only one firm level study in the recent periods comparing a few aspects of performance and conducts that is by Ray and Rahman (2006).
- 4.
- 5.
Finding in this indeed shows that FMEs are more technically efficient than DEs.
- 6.
The prime movers, boilers, turbines, combustion engines and steam generating plants; agricultural machinery; industrial machineries and machine tools have been the part of high priority sector.
- 7.
Mobility barriers are defined as entry barriers, which not only impede fresh entry to the industry but also restrict inter strategic group mobility of the existing firms. Thus, firms in a particular strategic group may not only enjoy protection from new entrants to the industry but also from existing firms belonging to other strategic groups in the same industry (Kumar 1990).
- 8.
Refer to Keshari (2013: p. 224).
- 9.
Ibid.: p. 225.
- 10.
Ibid.: p. 225.
- 11.
These shares are calculated from the data obtained from PROWESS on mean of net sales of each firm for the maximum 7 years and minimum 2 years period between 2000/01 and 2006/07.
- 12.
VIF shows the speed with which variances and covariance increase and can be defined as VIF = 1/(1 − r 223 ), where r 223 is the coefficient of correlation between X2 and X3. It is called variance inflating factor because it shows how the variance of an estimator is inflated by the presence of multicolinearity. If there is no colinearity between X2 and X3 VIF will be 1. When r 223 approaches 1, VIF approaches infinite (Gujarati 2004: Chap. 10).
- 13.
We prefer to use two-tail test because of the possibility that the mean of a variable capturing a characteristic for FMEs may be less or more than that of DEs.
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Keshari, P.K. (2016). Foreign Multinationals and Domestic Enterprises: Comparison of Their Technological and Other Characteristics in the Indian Machinery Industry. In: Siddharthan, N., Narayanan, K. (eds) Technology. India Studies in Business and Economics. Springer, Singapore. https://doi.org/10.1007/978-981-10-1684-4_5
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