Indian MNEs & Outward FDI
Going Global: The Rise of Small & Medium Indian Companies as International Players
From family-owned manufacturers to innovative software firms, India’s small and medium enterprises (SMEs) are increasingly making their mark on the global stage. This transformation tells a fascinating story about how ambitious companies from emerging markets can compete internationally, even with limited resources.
The Two Waves of Indian Global Expansion
India’s journey of international business expansion can be divided into two distinct waves, each with its own characteristics and motivations:
The First Wave (Pre-1990s): Testing the Waters
- Mostly focused on developing countries
- Limited to manufacturing sectors
- Driven by the need to escape domestic restrictions
- Primarily minority partnerships with local firms
- Investment funded mainly through equipment exports
The Second Wave (1990s onwards): Bold Global Ambitions
- Greater focus on developed markets
- Led by knowledge-intensive sectors like software and pharmaceuticals
- Strategic pursuit of new technologies and markets
- Preference for majority ownership
- More diverse financing methods, including cash investments
SMEs Leading the Charge
While large corporations often dominate headlines, Indian SMEs have been quietly building their international presence:
- 26% of manufacturing overseas ventures are by SMEs
- 41% of software industry international projects are SME-led
- SMEs contribute 47% of India’s total software industry overseas investments
Key Industries Where SMEs Shine
- Light engineering
- Auto parts
- Electrical equipment
- Textiles and garments
- Pharmaceuticals
- Software services
How Are They Doing It?
Indian SMEs are using several strategies to go global:
- Market Access
- Setting up marketing and distribution networks
- Establishing warehouses in key markets
- Creating retail presence in foreign countries
- Technology Enhancement
- Acquiring foreign companies for technical expertise
- Setting up R&D centers in developed markets
- Collaborating with international research institutions
- Strategic Partnerships
- Forming joint ventures with local companies
- Building relationships with global customers
- Participating in international supply chains
Success Stories
Several Indian SMEs have shown how smaller companies can succeed globally:
- ACE Laboratories (Pharmaceuticals): Built international marketing networks
- Roto Pumps: Established global warehousing and distribution
- Aftek Infosys: Used strategic acquisitions to enter European markets
- Superhouse Ltd: Created overseas R&D facilities
Lessons for Other SMEs
The experience of Indian SMEs offers valuable lessons:
- Focus on Strengths
- Specialize in niche markets rather than trying to do everything
- Build on existing technical capabilities
- Leverage cost advantages wisely
- Smart Internationalization
- Start with familiar markets
- Use partnerships to reduce risks
- Invest in technology and quality certifications
- Resource Management
- Carefully plan international expansion
- Focus on sustainable growth
- Build strong domestic operations first
Looking Ahead: Opportunities and Challenges
The future looks promising for Indian SMEs going global, but success requires:
Support Needed
- Better access to finance
- Market intelligence support
- Technology upgrading assistance
- Skills development programs
- Quality certification support
Policy Recommendations
- Create dedicated SME export financing schemes
- Establish international market information centers
- Develop technology upgrading programs
- Support quality certification processes
- Facilitate international partnerships
Conclusion
The rise of Indian SMEs as global players demonstrates that size doesn’t have to limit international ambitions. With the right strategy, support, and determination, small and medium companies from emerging markets can successfully compete on the world stage. As India continues to liberalize its economy and support international expansion, we can expect to see even more success stories of SMEs going global.
Academic Abstract:
This study analyses regional determinants of export performance of small and medium enterprises (SMEs) in India. The export determinant analysis brings out the significance of certain key physical and economic infrastructure for SMEs, particularly access to roads, ports and loan finance. Local market conditions, namely the size, growth and per capita income of the host states also favourably affect SME export activities. State’s stock of technological knowledge also encourages SME exporting. While direct competition with foreign players tends to dampen exporting by SMEs, foreign shareholding participation in SMEs allows affiliated firms to achieve higher level of exports. Apart from improving the key business support infrastructure, export orientation of SMEs could be enhanced by networking them with R&D facilities and providing them easier access to information about overseas markets. Relatively smaller enterprises need greater support as they are disadvantaged by their size.
Learn More:
- Full citation: Pradhan, Jaya Prakash and Manoj Kumar Sahoo (2007), ‘Outward Foreign Direct Investment by Small and Medium-Sized Enterprises from India’, in UNCTAD (2007) (eds.) Global Players from Emerging Markets: Strengthening Enterprise Competitiveness through Outward Investment, pp. 67–80, New York and Geneva: United Nations.
Learn More: