From Local to Global: The Rise of Indian Service Companies Going International

A Hidden Success Story In the 1990s, something remarkable but largely unnoticed was happening in India’s business landscape. Indian service companies – from software firms to hotels – were increasingly spreading their wings globally. But what drove this international expansion, and what can we learn from their journey?

The Changing Face of Indian Business Picture India’s economy as a three-act play:

• Act 1 (1970s-80s): Hotels and financial services lead the way, mainly investing in developing countries with minority stakes
• Act 2 (1990s): Enter the software champions, targeting developed markets with majority ownership
• Act 3 (2000s): A diverse portfolio of services, from media to consulting

Success Stories: The NIIT Example Consider NIIT, which grew from a humble IT training company in 1981 to a global education powerhouse. Their journey illustrates the classic expansion pattern:

1. Build strength at home
2. Test international waters
3. Go big through strategic partnerships and acquisitions

By 2003, NIIT had:

• 29 international ventures across 8 countries
• Partnerships with tech giants like Oracle and Microsoft
• A reputation as one of Asia’s top 15 training companies

What Makes Service Companies Go Global? The research reveals some fascinating patterns:

1. The Age Factor: Like fine wine, companies need some aging – but not too much. Peak international expansion happens at middle age
2. Size Matters: Larger firms are more likely to go global, but again, there’s a sweet spot
3. Innovation is Key: R&D investment strongly correlates with international success
4. Export Experience: Previous export experience serves as a gateway to foreign investments

Practical Lessons For Companies:

• Focus on building innovation capabilities
• Use exports as a learning ground before full international expansion
• Build profitability before attempting major international moves

For Policymakers:

• Target support at mid-sized and younger firms
• Strengthen R&D infrastructure
• Continue liberalizing foreign investment policies

The Bigger Picture This transformation reflects India’s broader economic evolution – from agriculture to services, from local to global. As services now contribute nearly half of India’s GDP, the success of these international ventures becomes increasingly critical for the country’s economic future.

Academic Abstract:

The rise of service sector outward FDI (O-FDI) activities has emerged as one of the most important aspects of Indian economy during nineties. The present paper reviews the recent trends and patterns and tries to identify determinants of such investment. As compared to the eighties, the character of service sector O-FDI flows has gone through several transformations. In the seventies it is largely a phenomenon led by firms from hotels & restaurants, finance and marketing segments and is being directed at developing regions in overwhelming cases and is mostly minority owned. In contrast, during nineties it is predominantly led by the software segment of the service sector, locationally developed country oriented and is largely majority-owned ventures. The rising trends in the service sector Investment Development Path (IDP) of Indian economy has been found to be related to the stylized aspect of economic growth expressed in terms of structural shift in economic activities. At the firm level the O-FDI behavior of service sector firms is observed to be non-linearly related to the firm age and size, both relationships following inverted U-shape curves. Firm’s innovation, export orientation and profitability are also found to be important explanators in the rise of O-FDI at the firm level. The import of capital goods however appears to have a negative impact on trans-border expansion of service sector firms.

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Full citation: Pradhan, Jaya Prakash (2006), ‘Rise of Service Sector and Outward Foreign Direct Investment from Indian Economy: Trends, Patterns, and Determinants’, GITAM Journal of Management, 4(1), pp. 70–97, Publisher: GITAM University.

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