Technology sourcing and outward FDI: A study of IT industry in India

Dunning’s eclectic or the OLI framework suggests that MNCs exist and grow due to possession of ownership (O) advantages consisting of the tangible and intangible assets of the firm (including technology); location (L) advantages consisting of production factors such as transportation, infrastructure, and human and natural resources available in the host country; and internalisation (I) advantages owing to firm’s competitive advantage in producing internally rather than selling or licensing technologies to others. There are several studies that have analysed MNCs of developed country origin from the perspective of both developed (home) and other developed or developing (host) countries. Recently, however, MNCs from developing countries are also making their presence felt in the world. Yet, there are hardly any studies that analyse MNCs of developing country origin.Using data on 130 firms from the high-tech Information Technology (IT) industry of India, we investigate whether ownership advantages (O), as proposed in the eclectic theory, holds true for the presence of MNCs from developing countries. Specifically, we analyse whether firm-specific technological advantages generated through differential technology sourcing at home (India) are important in determining inter-firm differences in the decision to invest abroad. The technological sources considered are in-house R&D efforts, import of designs, drawing and blueprints, and import of capital goods. The study reveals that in-house R&D efforts are indeed important for the firms to invest abroad. Size and export intensity of the firm also influence the decision of the firm to invest abroad. The study recommends a proper innovation and resource management strategy for developing country firms for efficient allocation of resources, technology sourcing, and technology assimilation.