[A Study Prepared for the CBS Conference
on Emerging Multinationals, 9-10 October
2008, Copenhagen, Denmark.]
Indian Direct Investment in
Developed Region
Jaya Prakash Pradhan
Institute for Studies in Industrial Development,
New Delhi
The Context

Remarkable transformations in the internationalization
behaviours of Indian firms in recent years:



Emergence of OFDI as an important mode, besides exports.
 OFDI volume has gone up from $32 mn in 1961─69 to $106
mn in 1980─89 and further to $692 million in 1990─99 and
$24440 in 2000─2007.
 Number of Indian firms with OFDI has grown from mere 6 in
1961─69 to 1257 in 1990─99 and further to 2104 in
2000─2007.
Divergence from the traditional wisdom about developing
country multinationals:
 Indian OFDI is now less intra-regional (i.e., developing
country oriented); less in the ownership form of joint venture;
not just confined to sectors with standardized technologies.
Since Indian FDI is primarily destined to developed region in
recent years, this presentation looks at following issues:
 What is the trend of Indian FDI in developed region?
 What are its sectoral and regional patterns?
 Who are the major Indian investing firms in developed
region?
 What is the nature of ownership preference of Indian
investors in developed region?
 What are the factors affecting developed region bound
Indian FDI flows?
 What are its development implications for host developed
countries?
Indian FDI
ISID
2
Size and Trends of Greenfield FDI
18000
70
64
16000
15652
60
14000
50
43.6
40
10000
31.4
8000
30
23.7
Percentage share
OFDI in US $ million
12000
6000
20
4000
10
2000
1460
3.8
10
0
1961–69
3
1970–79
36
0
1980–89
OFDI Value (US$ Million)

1990–99
2000–07
As a percentage of India's total OFDI
The Origin:
 Early 1960s with the establishment of a WOS by Tata group in
Switzerland in 1961. In 1965, Dosal Private ( a WOS in Germany),
Kirloskar Oil Engines (a JV in Germany) and Raymonds Woolen
Mills (a WOS in Switzerland) joined the OFDI process.
 Modest flows of Indian FDI into developed region until 1980s but
dramatic growth since 1990s.
Number
of investing Indian firms has increased from 6 in 1961─69 to
55 in 1980─89; further to 687 in 1990─99 and 1327 in 2000─2007.
Number of host developed countries has gone up from 2 in 1961─69
to 9 in 1980─89; further to 27 in 1990─99 and 28 in 2000─2007.
Indian FDI
ISID
3
Regional Distribution

The OFDI operation of 1866 Indian firms covers a total of 30
developed countries:
 EU alone accounts for 76% of FDI in developed region. North
America 19% and other developed countries (4%).
 UK (53%), USA (16%), Netherlands (10%) and Cyprus (8%) are
important individual host developed countries.
FDI flows in $ million
Region/Country
1961– 1970– 1980– 1990– 2000–
69
79
89
99
07
No. of
Investing
Per cent Firms
All Years
Value
Developed Region
10
3
36
1460
15652
17162
100
1866
European Union
2
3
18
1021
12061
13105
76.36
857
20
1359
1379
8.04
36
0.01
57
1701
1759
10.25
79
17
798
8353
9171
53.44
531
8
0
8
175
191
1.12
49
8
0.4
7
175
191
1.11
44
17
388
2815
3221
18.77
1,156
5
411
416
2.42
45
384
2404
2805
16.35
1124
43
601
645
3.76
104
3
596
599
3.49
74
Cyprus
The Netherlands
UK
Other developed Europe
Switzerland
North America
3
0.1
Canada
USA
0.1
17
Other developed countries
Australia
Indian FDI
ISID
4
Sectoral Composition
 Service
sector dominated manufacturing throughout 1961–1999 but
manufacturing has taken over in 2000–07.
 Software & IT, financial & insurance, and films & entertainment are
important services host; pharmaceuticals, food & beverage are
important manufacturing host sectors.
FDI flows in $ million
Industry
Primary
Ores & Minerals
Gas, Petroleum and related products
Manufacturing
Food, beverages and tobacco
Textiles and wearing apparel
Basic metals and fabricated metal
product
Machinery and equipment
Electrical machinery and equipment
Transport equipment
Computer, electronic, medical,
precision
Pharmaceuticals
Services
Construction and engineering services
Film, entertainment and broadcasting
Hospital and health services
Financial and insurance Services
Telecommunication services
Software development, packages and
ITES
Total
Indian FDI
All Years
1961– 1970– 1980– 1990– 2000–
Per
69
79
89
99
07
Value cent
13
6966 6979 40.67
1
217
218
1.27
0.1
6727 6727 39.2
1
1
10
501
4468 4981 29.02
1
2
19
421
443
2.58
0.02
1
0.5
77
153
231
1.35
0.1
0.4
1
0.3
1
64
41
19
7
364
177
206
238
429
219
225
246
2.5
1.28
1.31
1.44
62
57
60
54
12
13
15
10
2
0.002
0.02
0.2
26
10
15
135
921
45
473
0.001
0.1
15
129
319
2334
4200
48
251
177
999
45
334
2470
5158
105
724
177
1014
174
1.95
14.39
30.05
0.61
4.22
1.03
5.91
1.01
66
102
1030
51
35
28
67
15
12
18
23
10
7
5
10
4
3
5
36
199
1460
2309 2513 14.64
15652 17162 100
692
1866
21
30
1
9
1
10
No. of
No. of
Firms Countries
48
8
4
3
14
5
864
29
72
17
180
18
ISID
5
Ownership choice
 Since
the beginning Indian firms investing in developed region had
strong preference for WOS as compared to joint venture. WOS
accounted for 78 per cent of the total number of Indian OFDI
approvals targeted at developed region in 1961─2007.
Ownership Mode
1961–69
JV
WOS
Total
1980–89
JV
WOS
Total
1990–99
JV
WOS
Total
2000–07
JV
WOS
Total
All Years
JV
WOS
Total
Percentage share of
WOS
Indian FDI
European
Union
Number of OFDI Approvals
Total Developed Region
Other
Other
developed
North
developed
Percentage
Europe
America countries
Number share to total
1
2
3
1
5
6
16.7
83.3
100
3
3
17
11
28
1
1
2
7
15
22
25
27
52
48.1
51.9
100
158
283
441
8
10
18
122
327
449
21
15
36
309
635
944
32.7
67.3
100
247
1099
1346
13
49
62
390
1689
2079
34
117
151
684
2954
3638
18.8
81.2
100
427
1400
1827
22
63
85
520
2032
2552
55
132
187
1024
3627
4651
22
78
100
76.6
74.1
79.6
70.6
78
ISID
6
Main Indian Investors
 1960s:
Tata Sons Ltd. (Tata Group), Dodsal (P) Ltd (Dodsal Group), Shanudeep Ltd.
(Stanrose Mafatlal Group), Kirloskar Oil Engines (Kirloskar Group) and Raymond
Ltd. (JK Singhania Group); two developed host countries such as Switzerland and
Germany; mostly trading and services projects; in 1970s continued to be dominated
by large Indian business houses like Tata, Arvind Mafatlal (Mafatlal Industries Ltd.),
Murugappa Chettiar (E I D-Parry (India) Ltd.), Jumbo Group (Shaw Wallace & Co.
Ltd.) and JB Boda (JB Boda & Co); two developed host countries such as UK and
USA; mostly trading and services projects.
Company Name
1990s
Zee Telefilms Ltd.
Videsh Sanchar Nigam Ltd.
Iridium India Telecom Pvt.Ltd.
Silverline Industries Ltd.
Ranbaxy Laboratories Ltd.
Sun Pharmaceutical Industries Ltd.
Wockhardt Ltd.
Ramco Industries Ltd.
NIIT Ltd.
Jindal Saw Ltd.
Business House
Areas of Operation
Zee
Govt. owned**
Broadcasting & telecasting
Telecommunication services
Telecommunication Services
Software services
Drugs & pharmaceuticals
Drugs & pharmaceuticals
Drugs & pharmaceuticals
Computer software services
Computer software services
Metallurgical products
Ranbaxy
Sun Pharmaceutical Group
Wockhardt Group
Ramco
HCL Group
Om Prakash Jindal Group
2000s
Dr. Reddy's Laboratories Ltd.
Dr. Reddy's
Suzlon Energy Ltd.
Suzlon
Ranbaxy Laboratories Ltd.
Hindalco Industries Ltd.
TransWorks Information Services Pvt. Ltd.
Tata Consultancy Services Ltd.
Tata Tea Ltd.
Videocon Industries Ltd.
ONGC Videsh Ltd.
Indian
Mphasis
BFLFDI
Ltd.
Ranbaxy
Aditya Birla
Aditya Birla
Tata
Tata
Videocon
Govt. owned
MphasiS ISID
Drugs & pharmaceuticals
Generators, turbines and other electrical
machineries
Drugs & pharmaceuticals
Non-ferrous metals, investment services
Software development services
Software development services
Tea processing and blending
Electronics equipments
Oil exploration
Software development services 7
Indian Acquisitions in Developed Region
 Since
2000s an increasing number of Indian companies are
aggressively following the businesses strategy of overseas acquisition
in developed region.
 From the year 2000 to March 2008, the Indian FDI flows into
developed region on account of acquisition stand at US $47.4 billion;
far greater as compared to greenfield investment.
 A total of 306 Indian firms engaged in acquisitions covering 28
developed countries; major factors are: strong sales growth,
increased corporate profits and capability to raise international
resources for M&As, liberalized Indian OFDI policy regime.
 Regionally, European Union (50% of total acquisition value) and
North America (43%) are major host developed sub-regions.
 UK in European Union with 37 per cent share and USA in North
America with 39 per cent share are by far the two largest destinations
for Indian brownfield investment in developed region—they together
claimed 76 per cent share.
 Sectoral Composition: Manufacturing (79%), Services (15%) and
Primary sector (5.8%).
 Metal and fabricated metal products (47%), food & beverages
(6%), chemicals and electrical machinery (5.8% each), and
pharmaceuticals (5%) are important manufacturing sectors for
Indian acquisitions.
 IT&ITES (11.6%) and Telecommunication services (1.9%) are two
important services host sectors to Indian brownfield investment.
Indian FDI
ISID
8
Drivers and Factors
 Drivers
of early growth (1960s to 1980s):
Stagnant domestic market.
Policy restrictions on growth of large firms.
The ownership advantages of Indian companies derived from
modified and adapted foreign technologies were not suitable for
exploitation through manufacturing in developed region with
strong patent regime and different factor conditions. Indian firms
have found trade-supporting FDI and services projects as feasible
strategies with respect to developed region.
 Drivers of recent growth (since 1990s)
Liberalization and growing competition in domestic markets (entry
of foreign firms and cheap imports)→need to access new markets
and the need to acquire strategic assets.
Growing competition in export markets→need to expand
overseas trade-supporting infrastructure and gaining insider
status in trade blocks.
Growing firm-specific competitive assets in sectors like
chemicals, pharmaceuticals, auto components, software,
consultancy, etc.→ability to exploit them in overseas developed
countries.
The liberalization of Indian OFDI policy.
Indian FDI
ISID
9
Implications for host developed countries
•Crowding-out?
•Indian multinational firms are still small when compared to
developed country local firms in terms of scale of operation, financial
strength and extent of intangible asset bundle; the scope of Indian
greenfield FDI leading to crowding out of domestic investment
appears to be limited.
•Enlargement of consumer welfare?
•Indian companies offer cheap and quality products and services→
promote consumer welfare in developed countries (product and
service substitutes with downward pressure on prices).
•More competitive production process:
•Local producers in developed countries are now required to meet
competitive challenges of outward investing Indian firms, which
impart strength to enterprise level productivity growth and
technological activities.
•Transfer of technologies:
•Apart from directly augmenting capital formation in developed
countries, greenfield Indian FDI projects involve transfer of unique
Indian technologies and skills diversifying the knowledge base of
host developed countries.
Indian FDI
ISID
10
Implications for host developed countries
•Sectoral Impacts:
•Indian service sector FDI helps in tremendous cost-saving achieved
by host developed country manufacturing and non-manufacturing
companies. The emergence of Indian software and information
technology companies enable developed country firms to achieve
significant cost reduction, productivity growth and increased
flexibility to remain competitive in global markets and to save
existing jobs.
•Impact of acquisitions
•Predicted to be negative in the short-term for both local R&D and
employment.
•Indian acquiring firms may step up affiliates’ R&D activities in the
long-run.
Indian FDI
ISID
11