Export Dynamics at the Firm & Regional Levels

Made in India: What Makes Companies Successful Global Exporters?

By Jaya Prakash Pradhan December 6, 2007 683

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Type	Book chapter
Title	“Knowledge-based Exports from India: A Firm-level Analysis of Determinants”
Authors	Nagesh Kumar & Jaya Prakash Pradhan
In	N. Kumar & K. J. Joseph (eds.), International Competitiveness & Knowledge-based Industries, pp. 53–96 · Oxford University Press, 2007
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This is a plain-language summary of “Knowledge-based Exports from India: A Firm-level Analysis of Determinants” (Kumar & Pradhan, in International Competitiveness & Knowledge-based Industries, OUP, 2007).

In short:

A firm’s own R&D is by far the most important driver of export competitiveness — and, strikingly, buying technology off the shelf actually hurts exports in high-tech industries.
Firm size matters in an inverted-U way: mid-sized firms tend to export best, while the very smallest and very largest do less well.
Access to foreign inputs, an overseas presence, higher productivity, foreign ownership, and the post-1991 reforms all lift export performance — though their weight varies by technology level.

The question

What separates Indian manufacturers that succeed in export markets from those that stay home — particularly in the high-technology sectors where India has historically struggled to compete? This firm-level study, by Nagesh Kumar and Jaya Prakash Pradhan, digs into the determinants of export competitiveness across India’s manufacturing, with a special focus on knowledge-based industries.

What drives export success

The analysis points to a cluster of firm-level factors — and, importantly, one that works in the opposite direction from what you might expect.

The headline finding is about innovation: a firm’s own R&D is by far the most important technological contributor to export competitiveness. Its mirror image is the study’s most counter-intuitive result — importing foreign technology through technology contracts actually damaged export competitiveness in the high- and medium-high-technology segments. Buying capability off the shelf, in other words, is no substitute for building it; firms that lean on licensed foreign technology instead of developing their own tend to compete worse abroad, not better.

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The other drivers are more intuitive but still nuanced. Access to imported raw materials and inputs is critical across every technology level, helping firms meet global quality standards and plug into international supply chains. Establishing subsidiaries abroad lifts exports — particularly in high- and low-tech industries — by building market intelligence and customer relationships. Higher productivity helps, especially in medium- and low-tech sectors (in high-tech, innovation matters more than raw efficiency). Foreign-owned firms generally export more, bringing international networks, though capable domestic firms can compete. And the post-1991 reforms improved competitiveness across the board, including in technology-intensive segments.

A related wrinkle from the study: younger firms drove competitiveness in the high- and low-technology groups, while in medium-technology it was the older, more established firms that did better.

The size sweet spot

One driver deserves its own picture, because the relationship isn’t a straight line.

Firm size affects export performance in an inverted-U shape. The smallest firms lack the resources to compete in global markets; the largest can lose the nimbleness and efficiency that scale was supposed to buy; and mid-sized firms tend to occupy the sweet spot — large enough to muster the resources, small enough to stay agile. The exact “optimal” size varies by industry and technology level.

What it means

For business leaders, the practical lessons are clear: invest in your own R&D rather than relying on imported technology, build toward an efficient (not maximal) scale, establish an overseas presence, secure quality inputs, and raise productivity. For policymakers: continue liberalisation, support R&D investment, facilitate raw-material imports, and encourage Indian firms to expand internationally. The deeper message is that genuine, home-grown innovative capability — not borrowed technology — is what ultimately makes Indian manufacturers competitive in the world’s most demanding markets.

Read the academic abstract

This study identifies factors that play an important role in the export competitiveness of Indian manufacturing firms, with particular emphasis on knowledge-based industries. It finds that younger firms drive export competitiveness in the high-technology and low-technology sub-samples, whereas in medium-technology, older firms are more competitive. Firm size has a non-linear effect on export performance, largely an inverted-U shape. A firm’s own innovative activities are by far the most important technological factor enhancing competitiveness, whereas importing foreign technology through technology contracts has detrimental effects on export competitiveness in the high-technology and medium-high-technology segments. Access to foreign raw materials and inputs is also a critical factor across technology segments. Encouraging Indian firms to establish subsidiaries abroad can raise competitiveness in high- and low-technology industries. Foreign affiliates in Indian manufacturing achieve higher export success than domestic firms. The outward-looking policy initiated since 1991 improved the export competitiveness of Indian manufacturing, including its technology-intensive segments.

Cite this chapter

Kumar, N., & Pradhan, J. P. (2007). Knowledge-based exports from India: A firm-level analysis of determinants. In N. Kumar & K. J. Joseph (Eds.), International Competitiveness & Knowledge-based Industries (pp. 53–96). New Delhi: Oxford University Press.

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