What motivates Indian firms to invest abroad?

Abstract

Purpose -The purpose of this paper is to examine the motivations behind Indian firms' outward investment, i.e. whether these firms are investing abroad in search of market, resource, technology, strategic-assets, efficiency, etc. Outward FDI by Indian firms has increased considerably in recent years. Such investments have gone to more than hundred host countries and into various sectors. The higher volume of outward FDI following policy reforms requires examination of factors that have motivated Indian firms to invest in different host countries. Design/methodology/approach -The empirical analysis is done for the period from 2008-2009 to 2011-2012 using firm-destination panel data with appropriate adjustment for clustering. Findings -The analysis provides evidence of the existence of multiple motives behind such investments. Indian firms are found to have invested abroad in search of resource, technology (strategic-assets) and efficiency, whereas the evidence on market-seeking motive is found to be at best weak in the empirical analysis. The results are robust to the use of alternative sample of outward investing firms. Practical implications -This analysis of firm-level motivation of outward FDI by Indian multinationals has pertinent policy implications as well. The presence of multiple motives implies that Indian firms could bring multiple benefits to the Indian economy through outward FDI. Originality/value -The link between outward FDI and host country factors is examined at the firm level as against at the aggregative level using a comprehensive and unique official database on actual outward FDI made by Indian firms, originating from both manufacturing and non-manufacturing sectors, in the form of equity and loan.

Location Determinants of Indian Multinationals: A Multilevel Analysis

“…Supported by previous studies (e.g., Chen & Moore, 2010), gross domestic product (GDP) of hosts is taken as a proxy to represent market access. In the absence of data on wage of labourer, gross domestic per capita income (GDPPC) is taken as the proxy of labour cost which is supported by prior works (e.g., Das & Banik, 2015). Bellak, Leibrecht, and Riedl (2008) also observed that GDPPC and labour cost move in the same direction.…”

“…Therefore, it can be assumed that location distribution of OFDI is influenced by labour cost, capital cost, transaction cost, market access of the host country and total productivity of firms. Apart from these, signing of double taxation treaties (Das & Banik, 2015;Pradhan, 2011), openness of FDI sector (e.g., Ramasamy et al, 2012), availability of strategic assets and natural resources of host country (e.g., De Beule & Duanmu, 2012) also influence location choice of multinationals. Recently, growing intensity of Indian multinationals to invest in offshore financial centres (OFCs), such as Singapore, Mauritius and so on, has been observed.…”

“…So, location distribution of EMs occupies an important place in the literature of international business. But, a few studies (Buckley, Forsans, & Munjal, 2012;Das & Banik, 2015;De Beule & Duanmu, 2012;Nunnenkamp, Andrés, Vadlamannati, & Waldkirch, 2012;Pradhan, 2011;Rajan, 2009) investigated location distribution of Indian multinationals. Furthermore, most of the studies investigate location determinants of bilateral OFDI or OFDI approvals.…”

“…Jain, Kundu, and Newburry (2015) stated that the linkage location choice of cross-border mergers and acquisitions of Indian pharmaceutical companies. Das and Banik (2015) investigated the motives of internationalization of Indian multinationals, using firm destination data. From the literature review, it is observed that previous studies under-examine simultaneous effect of firm-specific advantage and location factor on explaining location choice of Indian multinationals.…”

Latin American franchise internationalization: The impact of institutional environment

“…This variable was found in the Heritage Foundation database. GDP per capita was used as a control variable because this dimension is often present in studies on institutional environment, as it represents the economic power of the population by the multinationals (Berry et al, ; Das & Banik, ) and franchise chains (Baena, ; Hoffman et al, ).…”