Outward FDI as a Strategy for Technology Catch-Up: A Case Study of Two Indian Automotive Firms

Abstract

Liberalisation of outward FDI (OFDI) in India at the beginning of this millennium had resulted in a spurt in OFDI flows from India. Automotive was one of the leading sectors of origin of OFDI. Interestingly, it was also found that nearly half of the total innovation-oriented greenfield OFDI, originating from the manufacturing sector of India, had come from this sector alone. This paper, which looks into the factors leading to OFDI from the Indian automotive sector and the impact of such investments through a case study of two Indian automotive firms, finds that acquisition of technology was a major driver of OFDI. The fast-changing preferences of Indian consumers necessitated going outward for the acquisition of technology and know-how. This has resulted in the establishment of an R&D network located in different parts of the world to continuously work on improving the products and identifying new possibilities. This has also resulted in the increased R&D spending and the introduction of vehicles that meet the toughest global safety and environmental standards.