Outward FDI and Knowledge Flows: A Study of the Indian Automotive Sector

Abstract

In recent years developing countries have emerged as significant participants in the OFDI (outward foreign direct investment) activities having the strategic asset seeking motive. Such OFDI which is assets exploiting cum augmenting involves potential two way cross border knowledge flows. This study examines these issues for the Indian automotive industry that is currently transnationalizing at a rapid rate in terms of both exports and OFDI. The study traces the technological capability building and several dimensions of OFDI in this industry. The case studies of two major automotive Groups highlight their competence building, and knowledge seeking operations. This study undertakes a quantitative analysis of the influence of OFDI activities on the in‐house (domestic) R&D performance of Indian automotive firms during 1988–2008. As expected, the favourable impacts on R&D intensity appear to be stronger for developed vs. developing host nations, and for joint venture vs. wholly‐owned ownership OFDI. The study concludes with suggestions to promote particularly the strategic asset enhancing OFDI.

Keywords: OFDI, Strategic Assets-seeking FDI, R&D, Automotive Industry

JEL Classification: F21, F23, O32, L62