From Local to Global: The Transformation of Indian Multinational Companies

By Jaya Prakash Pradhan December 2, 2008 1.2K

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Type	Journal article (overview)
Title	“The Evolution of Indian Outward Foreign Direct Investment: Changing Trends and Patterns”
Author	Jaya Prakash Pradhan
Published	2008 · International Journal of Technology and Globalisation, 4(1), pp. 70–86 · Inderscience
Coverage	India’s outward FDI, 1975–2001
Read	DOI: 10.1504/IJTG.2008.016188

This is a plain-language summary of “The Evolution of Indian Outward Foreign Direct Investment: Changing Trends and Patterns” (Pradhan, International Journal of Technology and Globalisation, 2008).

In short:

India’s outward investment didn’t grow in a straight line — it changed character across two distinct waves.
The first wave (1975–1990) was cautious manufacturing in developing countries; the second (1991–2001) was IT and services, into developed markets, through majority-owned acquisitions.
Over the period, India’s outward FDI grew from roughly $17 million (1975) to about $8,181 million (2001) — and its competitive edge shifted from cost to technology and skills.

Two waves, two kinds of multinational

India’s companies have been investing abroad since the 1960s, but the modern story divides cleanly into two phases. What changed between them was not just the amount of investment but its whole nature — the sectors leading it, the markets it targeted, how much ownership firms took, and what gave them their edge.

The first wave (1975–1990) was tentative. Indian firms ventured into manufacturing in other developing countries — markets that resembled India’s own — usually taking minority stakes, working in low- and medium-technology sectors, and deploying technologies they had adapted for developing-country conditions. Houses like Tata, Birla, and Kirloskar led the way, often investing abroad to escape the constraints of a tightly regulated home market and to put their developing-country know-how to work.

The second wave (1991–2001) looked entirely different. Services firms — above all in IT and software — took the lead. They targeted developed markets like the United States and the United Kingdom, increasingly took majority or full ownership, moved into knowledge-intensive industries, and used strategic acquisitions as a favoured way in. Where the first wave competed on cost and familiarity, the second competed on technology and skill.

What drove the shift

Several forces converged in the 1990s to turn the cautious first-wave investor into the confident second-wave one: the economic liberalisation of the decade, the technological capabilities Indian firms had steadily accumulated, a growing confidence about competing internationally, a sharpening need for strategic assets and skills, and rising competition at home that pushed firms to look outward.

A new kind of Indian multinational

By the end of the period, the typical Indian multinational was a different animal from its 1970s predecessor. It competed on innovation rather than just cost, sought technology and brands through acquisitions, entered developed markets with confidence, drew on India’s growing knowledge economy, and aimed not merely to participate globally but to lead. That profile sat awkwardly with older theories of “developing-country multinationals,” which assumed such firms could compete only on low cost in nearby, similar markets — and it is part of why this transformation prompted calls for new frameworks to understand emerging-market multinationals.

Read the academic abstract

This paper provides an overview of the changing patterns of outward foreign direct investment (OFDI) from India over 1975–2001. It shows that the increasing number of Indian transnational corporations (ITNCs) during the 1990s was accompanied by several changes in the character of such investment — notably an overwhelming tendency of Indian outward investors to take full or majority ownership, expansion into new industries and the service sector, and the emergence of the developed world as an important host region for cross-border activity. The competitive advantages of Indian OFDI are now increasingly driven by technological and skill-based activities.

Cite this article

Pradhan, J. P. (2008). The evolution of Indian outward foreign direct investment: Changing trends and patterns. International Journal of Technology and Globalisation, 4(1), 70–86. https://doi.org/10.1504/IJTG.2008.016188

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