What motivates Indian firms to invest abroad?

Abstract

Purpose

The purpose of this paper is to examine the motivations behind Indian firms’ outward investment, i.e. whether these firms are investing abroad in search of market, resource, technology, strategic-assets, efficiency, etc. Outward FDI by Indian firms has increased considerably in recent years. Such investments have gone to more than hundred host countries and into various sectors. The higher volume of outward FDI following policy reforms requires examination of factors that have motivated Indian firms to invest in different host countries.

Design/methodology/approach

The empirical analysis is done for the period from 2008-2009 to 2011-2012 using firm-destination panel data with appropriate adjustment for clustering.

Findings

The analysis provides evidence of the existence of multiple motives behind such investments. Indian firms are found to have invested abroad in search of resource, technology (strategic-assets) and efficiency, whereas the evidence on market-seeking motive is found to be at best weak in the empirical analysis. The results are robust to the use of alternative sample of outward investing firms.

Practical implications

This analysis of firm-level motivation of outward FDI by Indian multinationals has pertinent policy implications as well. The presence of multiple motives implies that Indian firms could bring multiple benefits to the Indian economy through outward FDI.

Originality/value

The link between outward FDI and host country factors is examined at the firm level as against at the aggregative level using a comprehensive and unique official database on actual outward FDI made by Indian firms, originating from both manufacturing and non-manufacturing sectors, in the form of equity and loan.

Citation

Das, K.C. and Banik, N. (2015), "What motivates Indian firms to invest abroad?", International Journal of Commerce and Management, Vol. 25 No. 3, pp. 330-355. https://doi.org/10.1108/IJCoMA-12-2013-0132