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Why do Indian firms go abroad?

Research output: Working paper

Publication date2013
Place of PublicationLancaster
PublisherThe Department of Economics
Number of pages29
<mark>Original language</mark>English

Publication series

NameEconomics Working Paper Series


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.