Academic journal article South Asian Journal of Management

Multinational Enterprises and Technological Capability in Indian Industries: A Sector-Wise Analysis after Liberalization

Academic journal article South Asian Journal of Management

Multinational Enterprises and Technological Capability in Indian Industries: A Sector-Wise Analysis after Liberalization

Article excerpt

Multinational enterprises are considered as producers and carriers of advanced and sophisticated technologies. It is hypothesized that the technological effect on the productivity of foreign multinational firms through various technology sources should be higher than that of domestically owned firms. This study examines this hypothesis using data for 661 Indian manufacturing firms for the period from 1993 to 2004. The study found that there is considerable heterogeneity in the impact of technological variables on the productivity of firms across industries. Technology import through licensing is found to be the most favorite channel of technology capability building among both domestic and foreign firms. The technological learning from exporting is significant in a few of the industry sectors for domestic firms. Surprisingly, the study does not show any significant own R&D efforts by both domestic and foreign firms in any of the industry sectors considered.

Key Words: Foreign Direct Investment, Indian manufacturing industry, Multinational enterprises, Technological capability, Economic liberalization

(ProQuest: ... denotes formulae omitted.)


It is now well ackn owledged that substantial economic growth and industrial development requires a strong technological base (Lall, 1992). Technological progress can be achieved in different ways. It can be through own Research and Development (R&D) efforts , purchase or licensing of technology, transfer of technology fr om multinational-affiliates (hereafter MNE-affiliates), and/or through imitation or reverse engineering of goods. The relative importance of these various technology channels may vary from country to country and from industry to industry (Hu et al., 2005).

The growing disparities among nations in their technological capabilities, commonly referred to as 'technology-gap', have nurtured a cause for a continual process of international transfer and diffusion of technology (Dunning, 1970). While the earlier studies have stressed the role of trade in technology transfer and economic growth, in recent years the most recognized and accepted channel for the diffusion of technological knowledge is the Foreign Direct Investment (FDI) through Multinational Enterprises (MNEs), which brings in technology along with a host of other factors such as capital, management skills and international marketing expertise, among others (Aulakh et al., 2008). In the FDI literature it is always presumed that by their very nature, direct investments from advanced countries are likely to be productivity improving and growth stimulating for a less developed country since such investments often embody high knowledge capital content.

Theoretical literature points out that the multinational investment is precisely an attempt on the part of some companies to exploit certain company-specific advantages (known as 'ownership advantages') from the corresponding domestic companies and the most important reason for firms establishing overseas operation is to exploit its technological lead (Mansfield, 1974; Dunning, 1996; and Rugman and Jonathan, 2008). Chatterj i (1990) identifies a numb er of ways th rough which MNEs help in the technological progress of the host country. In those countries where they have plants, they train people as operators and managers. They establish R&D facilities in these countries and often train the users to make the technology transfer smoother. With an upper hand on the technological front they always set some standards for their competitors. It is now recognized that FDI would create positive externalities on the host country economies, which is commonly known as FDI 'spillovers'.

In the literature as well as from the policy makers' perspective, therefore, it is assumed that multinational enterprises are producers and carriers of the most advanced and sophisticated technologies, and hence, the technology effect on their productivity through various factors like learning, in-house R&D and technology imports should be higher than that of domestic firms. …

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