Going Global: The Rise of Small & Medium Indian Companies as International Players

By Jaya Prakash Pradhan December 3, 2007 719

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Type	Book chapter (UNCTAD volume)
Title	“Outward Foreign Direct Investment by Small and Medium-Sized Enterprises from India”
Authors	Jaya Prakash Pradhan & Manoj Kumar Sahoo
In	UNCTAD (ed.), Global Players from Emerging Markets, pp. 67–80 · United Nations, 2007
Read	UNCTAD volume (PDF) · Chapter (PDF)

This is a plain-language summary of “Outward Foreign Direct Investment by Small and Medium-Sized Enterprises from India” (Pradhan & Sahoo, in UNCTAD’s Global Players from Emerging Markets, 2007).

In short:

Indian SMEs — not just the big conglomerates — became significant overseas investors, making up 26% of manufacturing OFDI cases and 41% of software OFDI cases, and supplying nearly half (47%) of the software industry’s OFDI value.
Their expansion came in two waves: a cautious pre-1990s phase aimed at developing countries, and a bolder, post-reform phase reaching developed markets and led by knowledge-intensive sectors.
They competed abroad despite limited resources by specialising in niches, partnering to manage risk, and using acquisitions to gain technology and market access.

Size isn’t the whole story

When people picture Indian companies going global, they think of the Tatas and the big software houses. This UNCTAD chapter, by Jaya Prakash Pradhan and Manoj Kumar Sahoo, tells the quieter story of India’s small and medium enterprises — family-owned manufacturers and nimble software firms — building real international presence despite limited resources. It documents how they did it, where they went, and what support they still needed.

Two waves of expansion

Indian SMEs’ move abroad fell into two distinct phases, separated by the 1990s reforms.

The first wave (pre-1990s) was tentative — mostly directed at other developing countries, concentrated in manufacturing, structured as minority partnerships with local firms, and often financed by exporting equipment rather than cash. Much of it was about escaping the constraints of India’s then-restrictive domestic economy. The second wave (1990s onwards) was altogether more ambitious: aimed increasingly at developed markets, led by knowledge-intensive sectors like software and pharmaceuticals, with a preference for majority ownership and more varied financing — a strategic hunt for technology, markets, and capability rather than a defensive escape.

SMEs punching above their weight

The chapter’s striking quantitative point is how large the SME role was in India’s overseas investment.

By count of overseas investment cases, SMEs accounted for about 26% of manufacturing OFDI cases and 41% of software OFDI cases. And by value, software SMEs contributed a remarkable 47% of the software industry’s OFDI stock — striking for a group of firms usually assumed too small to invest abroad at all. (In manufacturing, by contrast, SMEs were 26% of cases but only about 7% of the value, since the largest manufacturing investments came from big firms.) They were active across light engineering, auto parts, electrical equipment, textiles and garments, pharmaceuticals, and software services.

How they did it

Lacking the deep pockets of large conglomerates, SMEs leaned on a few practical strategies: building their own marketing and distribution networks (warehouses, retail presence) to reach customers directly; acquiring foreign companies or setting up R&D abroad to gain technology and expertise; and forming joint ventures and partnerships to share risk and plug into international supply chains. The chapter illustrates these with real firms — among them ACE Laboratories building overseas marketing networks in pharmaceuticals, Roto Pumps establishing global warehousing and distribution, Aftek Infosys using acquisitions to enter European markets, and Superhouse Ltd creating overseas R&D facilities — as concrete examples of how modest-sized companies executed an international strategy.

What they needed — and the lessons

The chapter is candid that SMEs faced real disadvantages of scale, and it sets out where support would help most: better access to finance, market intelligence, technology-upgrading assistance, skills development, and quality certification — backed by policy steps such as dedicated SME export-financing schemes, international market-information centres, and help forming partnerships. For SMEs themselves, the lessons it draws are pragmatic: specialise in niches rather than trying to do everything, start with familiar markets and use partnerships to reduce risk, invest in technology and certifications, and build strong domestic operations first. The broader message is encouraging but not naïve — size need not cap international ambition, but smaller firms need the right scaffolding to compete.

About this chapter

This chapter examines outward foreign direct investment by Indian small and medium enterprises (SMEs): how it evolved across two waves of internationalisation, the share of India’s overseas ventures that SMEs account for in manufacturing and software, the strategies these firms use to expand abroad (marketing and distribution networks, acquisitions and overseas R&D, and joint ventures and partnerships), and the support — finance, market information, technology upgrading, skills, and quality certification — that would help them compete internationally. It appears in UNCTAD’s volume Global Players from Emerging Markets: Strengthening Enterprise Competitiveness through Outward Investment (2007).

Cite this chapter

Pradhan, J. P., & Sahoo, M. K. (2007). Outward foreign direct investment by small and medium-sized enterprises from India. In UNCTAD (Ed.), Global Players from Emerging Markets: Strengthening Enterprise Competitiveness through Outward Investment (pp. 67–80). New York & Geneva: United Nations.

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