Skip to main content
SpringerLink
Log in

The Rise of Indian Multinationals: Explaining Outward Foreign Direct Investment from India

  • Chapter
Institutional Dynamics and the Evolution of the Indian Economy

Abstract

Many years of mediocre performance of Indian industry has recently been replaced by a newfound optimism. Indian firms appear to be reasserting their role in the global economy, and global investors now see India as one of the main investment destinations of the future. That developing countries, like India, are attracting interest among foreign investors is not new. The new thing, however, is that developing countries themselves are becoming sizable foreign investors. In the last few years, India has seen an astoun ding growth in out ward foreign direct investment (OFDI): While inward FDI (IFDI) doubled between 2004 and 2006, OFDI grew four times in the same period.1 World class newcomer Indian firms are moving massively into IT and services in developed countries, and incumbent Indian houses are diversifying into the knowledge industry and/or acquiring the crown jewels of European and US manufacturing industry at intensifying rates. In industries such as pharmaceuticals, software, IT, telecommunications, and transport, Indian MNCs base their investments on advanced tech-nologies2, high knowledge intensity3 and on cutting edge strategies and organizational modes.4 Even within the traditionally highly protected Indian manufacturing industry we have seen a range of Indian manufacturing firms becoming global leaders in their industry.5 Thus, it appears that India is in the middle of an OFDI takeoff.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
eBook
USD 16.99
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
Hardcover Book
USD 54.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

Notes

  1. UNCTAD (2007), World Investment Report: FDI and Natural Resources. Geneva: UNCTAD.

    Google Scholar 

  2. Huang, Y., & Khanna, T. (2003), “Can India Overtake China?” Foreign Policy, 137, July-August: 74–78.

    Article  Google Scholar 

  3. Mathews, J.A. (2006), “Dragon Multinationals: New Players in 21st century Globalization.” Asia Pacific Journal of Management, 23: 5–27.

    Article  Google Scholar 

  4. Winters, A., & Yusuf, S. (2007), “Introduction: Dancing with Giants,” in A. Winters & S. Yusuf (eds.), Dancing with Giants. China, India and the Global World. Washington, DC: World Bank and Institute of Policy Studies, pp. 1–34.

    Chapter  Google Scholar 

  5. UNCTAD (2006), World Investment Report: Developing Country FDI. Geneva: UNCTAD.

    Google Scholar 

  6. Agrawal, R.G. (1981), “Third World Joint Ventures: Indian Experience,” in R. Kumar & M.G. McLeod (eds.), Multinationals from Developing Countries. Lexington, MA: Lexington Books

    Google Scholar 

  7. Lall, S. (1983), The New Multinationals: The Spread of Third World Enterprises. New York: John Wiley & Sons

    Google Scholar 

  8. Kumar, K., & McLeod, M.G. (1981), Multinationals from Developing Countries. Lexington, MA: Lexington Books.

    Google Scholar 

  9. Pradhan, J.P. (2003), Building Indian Multinationals: Can India “Pick up the Winners?” (New Delhi: Jawaharlal Nehru University)

    Google Scholar 

  10. Sauvant, K.P. (2005), “New Sources of FDI: The BRICs.” The Journal of World Investment and Trade, 6:5: 639–711.

    Google Scholar 

  11. Wells, L.T. (1981), “Foreign Investors from the Third World,” in R. Kumar & M.G. McLeod (eds.), Multinationals from developing countries. Lexington, MA: Lexington Books.

    Google Scholar 

  12. UNCTAD (2005), World Investment Report, Transnational Corporations and the Internationalization of R&D. Geneva: UNCTAD.

    Google Scholar 

  13. Khanna, T., Palepu, K., & Sinha, J. (2005), “Emerging Giants; Building World Class Companies in Developing Countries. Strategies that Fit Emerging Markets,” Harvard Business Review, June: 60–69.

    Google Scholar 

  14. Altenburg, T. (2000), “Linkages and Spill overs between TNCs and SMEs in Developing Countries,” in UNCTAD, TNC-SME Linkages for Development (Geneva: UNCTAD).

    Google Scholar 

  15. Hymer, S. (1960/1976), The International Operations of National Firms: A Study of Direct Foreign Investment. (Cambridge, MA: MIT Press)

    Google Scholar 

  16. Dunning, J.H. (1981a), “Explaining Outward Direct Investment of Developing Countries: In Support of the Eclectic Theory of International Production,” in R. Kumar, & M.G. McLeod (eds.), Multinationals from developing countries (Lexington, Massachusetts: Lexington Books)

    Google Scholar 

  17. Dunning, J.H. (1988), “The Eclectic Paradigm of International Production: A Restatement and Some Possible Extensions.” Journal of International Business Studies, 19:1: 1–31.

    Article  Google Scholar 

  18. Hymer (1960/1976); Kindleberger, C.P. (1969), American Business Abroad. New Haven, CT: Yale University Press

    Google Scholar 

  19. Caves, R.E. (1996), Multinational Enterprise and Economic Analysis, 2nd edition. Cambridge: Cambridge University Press.

    Google Scholar 

  20. Buckley, P.J., & Casson, M. (1976), The Future of the Multinational Enterprise. London: Holmes & Meier

    Book  Google Scholar 

  21. Hennart, J. (1991), “The Transaction Cost Theory of the Multinational Enterprise,” in Pitelis, C. & Sudgen, R. (eds.). The nature of the Transnational Firm. London: Routledge.

    Google Scholar 

  22. Buckley, P.J., Wang, C., & Clegg, J. (2007), “The Impact of Foreign Ownership, Local Ownership and Industry Characteristics on Spill over Benefits from Foreign Direct Investment in China.” International Business Review, 16:2, April: 142–158.

    Article  Google Scholar 

  23. Bonaglia, F., Goldstein, A., & Mathews, J. (2006), Accelerated Internationalisation by Emerging Multinationals: The Case of the White Goods Sector. (Paris: OECD Development Centre).

    Google Scholar 

  24. Lecraw, D. (1981), “Internationalization of Firms from LDCs: Evidence from the ASEAN region,” in R. Kumar, & M.G. McLeod (eds.), Multinationals from developing countries. (Lexington, MA: Lexington Books)

    Google Scholar 

  25. Lecraw, D. (1977), “Direct Investment by Firms from Less Developed Countries.” Oxford Economics Papers, 29:3: 442–457

    Google Scholar 

  26. Wells, L.T. (1983), Third World Multinationals: The Rise of Foreign Investment from Developing Countries. Cambridge, MA: MIT Press.

    Google Scholar 

  27. Goldstein, A. (2003), Emerging Multinationals in the Global Economy: Data Trends, Policy Issues, and Research Questions, mimeo, Paris: OECD Development Centre

    Google Scholar 

  28. Beausang, F. (2003), Third World Multinationals: Engine of Competitiveness or New form of Dependency? (Hampshire, UK: Palgrave Macmillan).

    Book  Google Scholar 

  29. Vernon, R. (1966), “International Trade and International Investment in the Product Cycle.” Quarterly Journal of Economics, 80: 2, May.

    Article  Google Scholar 

  30. Dunning, J.H., & Narula, R. (1996), “The Investment Development Path Revisited: Some Emerging Issues,” in J.H. Dunning & R. Narula (eds.), Foreign Direct Investment and Governments: Catalysts for Economic Restructuring. London: Routledge, pp. 1–38.

    Google Scholar 

  31. Johanson, J., & Vahlne, J. (1977), “The Internationalization Process of the Firm—A Model of Knowledge Development and Increasing Foreign Market Commitments.” Journal of International Business Studies, 8:1: 23–32.

    Article  Google Scholar 

  32. Wells (1981); Lecraw (1981); Nambudiri, C.N.S., Iyanda, O., & Akinnusi, D.M. (1981), “Third World-Country Firms in Nigeria,” in R. Kumar & M.G. McLeod (eds), Multinationals from developing countries. (Lexington, MA: Lexington Books).

    Google Scholar 

  33. Vernon-Wortzel, H., & Wortzel, L.H. (1988), “Globalizing Strategies for Multinationals from Developing Countries.” Columbia Journal of World Business, 23 (Spring): 27–35.

    Google Scholar 

  34. Gerschenkron, A. (1962), Economic Backwardness in Historical Perspective. Cambridge, MA: Belknap Press.

    Google Scholar 

  35. Mathews, J.A. (2006), “Dragon Multinationals: New Players in 21st century Globalization.” Asia Pacific Journal of Management, 23, pp. 5–27.

    Article  Google Scholar 

  36. Madsen, T.K. & Servais, K. (1997), “The internationalization of born globals: An evolutionary process?” International Business Review, 6(6), pp. 561–583.

    Article  Google Scholar 

  37. Teece, D. (2002), “Firm Capabilities, and Economic Development: Implications for NIEs,” in Kim, L. & Nelson, R. (eds.), Technology, learning and Innovation. Cambridge: Cambridge University Press.

    Google Scholar 

  38. Dunning, J.H. (1981b), “Explaining the International Direct Investment Position of Countries: Towards a Dynamic or Developmental Approach.” Weltwirtschaftliches Archiv, 117:1: 30–64

    Article  Google Scholar 

  39. Dunning, J.H., & Narula, R. (2004), “Industrial Development, Globalization and Multinational Enterprises: New Realities for Developing Countries,” in J.H. Dunning and R. Narula (eds.), Multinational and Industrial Competitiveness. Cheltenham, UK: Edward Elgar, pp. 38–77.

    Chapter  Google Scholar 

  40. UNCTAD (2004b), World Investment Report: FDI in Services. Geneva: UNCTAD.

    Google Scholar 

  41. Khanna, T., & Palepu, K. (2004), “Globalization and Convergence in Corporate Governance: Evidence from Infosys and the Indian Software Industry.” Journal of International Business Studies, 35: 484–507.

    Article  Google Scholar 

  42. Altenburg (2000); Scott-Kennel, J., & Enderwick, P. (2005), “FDI and interfirm linkages: exploring the black box of the IDP.” Transnational Corporations, 14:1: 105–130.

    Google Scholar 

  43. Hamel, G., & Prahalad, C.K. (1990), “The Core Competence of the Corporation.” Harvard Business Review, 68:3, May-June: 79–91.

    Google Scholar 

  44. Khanna, T., & Palepu, K. (1997), “Why Focused Strategies May be Wrong for Emerging Markets,” Harvard Business Review, July/August: 41–51; Peng, M.W. (2002), “Towards an Institution-Based View of Business Strategy,” Asia Pacific Journal of Management, 19; Nielsen, C. (2005), “The Global Chess Game. Or Is It Go? Market Entry Strategies for Emerging Markets,” Thunderbird International Business Review, 47:4: 397–427.

    Article  Google Scholar 

  45. Morck, R.K. (2005), A History of Corporate Governance around the World (Chicago: NBER and University of Chicago Press)

    Book  Google Scholar 

  46. Khanna & Palepu (1997); Peng (2002); Hoskisson, R.E., Eden, L., Lau, C.M., & Wright, M. (2000), “Strategy in Emerging Economies.” Academy of Management Journal, 43:3: 249–267.

    Article  Google Scholar 

  47. Aggarwal, R., & Agmon, T. (1990), “The International Success of Developing Country Firms: Role of Government.” Management International Review 30:2: 163–180.

    Google Scholar 

  48. Sauvant (2005); Pradhan (2005); Dige Pedersen, J. (2007), “Den Anden bølge af Indiske Udlandsinvesteringer.” Den ny verden, 40:1

    Google Scholar 

  49. It thus appears that the Indian elites have arrived at the conclusion that to assert its moral and political standing in the world, India needs to become economically strong through globalization. Outward investment could be seen as a key ingredient in India’s globalization strategy (Alamgir, J. (2005), The Power of Nar rative in M anaging Globalization in India, Boston: University of Massachusetts University, Department of Political Science Working Paper Series).

    Google Scholar 

Download references

Authors
  1. Michael W. Hansen
    View author publications

    You can also search for this author in PubMed Google Scholar

Editor information

Editors and Affiliations

  1. Indian Institute of Management Bangalore, India

    Murali Patibandla (Professor) (Professor)

  2. University of Nottingham Business School, UK

    Rajesh Kumar (Associate Professor of International Business Strategy) (Associate Professor of International Business Strategy)

Copyright information

© 2009 A. Desai, R. Dossani, M.W. Hansen, R. Kumar, R. Lema, A. Okada, M. Patibandla, J.D. Pedersen, A. Roland, and A. Sanyal

About this chapter

Cite this chapter

Hansen, M.W. (2009). The Rise of Indian Multinationals: Explaining Outward Foreign Direct Investment from India. In: Patibandla, M., Kumar, R. (eds) Institutional Dynamics and the Evolution of the Indian Economy. Palgrave Macmillan, New York. https://doi.org/10.1057/9780230620131_2

Download citation

Publish with us

Policies and ethics

Search

Navigation