Role Of International Joint Ventures In Promoting Technology Transfer And Innovation From An Indian Perspective

Overview of Innovation in the Indian Context:

The perceived technology transfer through foreign invested firms is one of the main reasons for promoting foreign investment and supporting the establishment of wholly or partially owned subsidiaries of MNCs through frequent trade and investment policy reforms by several developing regions of the world. The Indian case has been no different, where FDI is primarily viewed as a major vehicle of technology transfer by policymakers and has been actively and purposefully encouraged under a sequence of trade and foreign investment liberalisation reforms so vigorously since 1991. The foreign technology collaborations have been encouraged, and the caps related to outflows have been relaxed in a phased way to facilitate technology transfer. Very recently, the ceilings placed earlier on the payments of royalty have been removed in India under the Foreign Technology Agreement Policy, 2009 to ensure easy outflow of these payments to facilitate an easy inflow of technology. However, even in the backdrop of these policy efforts, conclusive evidence about the extent of transfer of technology through FDI is hardly available in the Indian context. Serious questions were indeed raised by the National Manufacturing Competitiveness Council of India in its report of the Prime Minister’s Group (2008) regarding the difficulties in acquiring technology through FDI especially in the context of the liberal FDI policy the country has been pursuing since 1991.

Research reports:

Technology flows from an MNC parent to an affiliate located in a developing economy is considered as a prime source of technology transfer and a key contribution of FDI to the host economy by the policymakers in various developing regions today .Once an MNC establishes a branch in a country, the trade in technology by the foreign affiliated firm in lieu of these payments leads to effective transfer of technology eventually through spillovers and regular absorption by the host nation. It is with these clear set of expectations that technology related payments have been encouraged by host developing economies over years and these payments are also directly considered as an approximate indicator of transfer of technology to them. In fact, the perceived technology transfer through foreign invested firms is one of the main reasons for promoting foreign investment and supporting the establishment of wholly or partially owned subsidiaries of MNCs through frequent trade and investment policy reforms by several developing regions of the world. The Indian case has been no different, where FDI is primarily viewed as a major vehicle of technology transfer by policymakers and has been actively and purposefully encouraged under a sequence of trade and foreign investment liberalisation reforms so vigorously since 1991. The foreign technology collaborations have been encouraged, and the caps related to outflows have been relaxed in a phased way to facilitate technology transfer. Very recently, the ceilings placed earlier on the payments of royalty have been removed in India under the Foreign Technology Agreement Policy, 2009 to ensure easy outflow of these payments to facilitate an easy inflow of technology. However, even in the backdrop of these policy efforts, conclusive evidence about the extent of transfer of technology through FDI is hardly available in the Indian context. Serious questions were indeed raised by the National Manufacturing Competitiveness Council of India in its report of the Prime Minister’s Group (2008) regarding the difficulties in acquiring technology through FDI especially in the context of the liberal FDI policy the country has been pursuing since 1991. The report highlighted that there has been little or no emphasis on whether technology transfer is taking place.

First, with the arrival of the new paradigm in the late 1970s that international openness facilitates economic development, a large literature on the impact of international trade and FDI on host country performance has emerged. With early studies at the country or industry level showing general correlations, the recent availability of data sets with firm-level data has enabled researchers to ask not only whether attracting FDI leads to benefits but also whether these effects are internal or external to the investing firm.

In order to assess the mode and extent of technology transfer through FDI route, a set of manufacturing companies with foreign technical collaborations were required to be identified, which is difficult as there is no particular database on operations or financials of FDI companies in India. On the website of Investment Map, information on companies having inward FDI option in India was available for recent year. From this database, a set of foreign affiliates operating in India in manufacturing sector were identified. A similar search was made for identifying manufacturing foreign affiliates from the Prowess-IQ database of CMI.

 Recently, progress has been made by Javorcik and Spatareanu (2009) who employ information on whether local firms sell to a foreign multinational for a sample of Czech firms, and to the best of our knowledge, our paper is the first paper to employ information on the ownership link between two Second, while there are hundreds of papers on the benefits of either trade or FDI, quantitatively has quite little on the effects of international joint ventures. Much of the literature presents qualitative characterizations of the incentives and organizational issues underlying partner selection (Kogut 1988, Geringer 1991), and discussions of the benefits and costs from the IJV for the foreign investor and Chinese partner firm. Furthermore, with few exceptions (e.g., Geringer and Hebert 1991, Reuer and Koza 2000, Howell 2016) work on the effects of joint ventures on firm performance is lacking, and to the extent that it exists it tends to derive its principal empirical findings from descriptive evidence or small data samples applied in non-econometric settings. In contrast, we employ a comprehensive data set together with a difference-in-difference estimation strategy to show a number of new results, including that industry spillovers from joint ventures are large compared to those typically estimated for wholly-owned foreign direct investment. Third, we produce a number of important new results for the case of China. Based on existing work there appear to be tangible impacts from FDI on local outcomes, with the results suggesting that industry-level heterogeneity and the ownership structure of FDI matter. It is widely apprehended that the risk to high cost, transfer mispricing and abusive terms of collaboration are particularly high in intra-firm contracts. The rationale for technology import and associated payments and subsequent transfer of technology in many specific cases where the scope of license for technology transfer is particularly limited by a range of restrictive terms of technical collaborations needs a careful review. While payments for technology can ensure an ‘accesses’ to it for a prolonged period, its real ‘absorption’ in the economy calls for conscious policy efforts and directives.

Conclusion:

 In concluding the important insights from examining IJVs in India, it is clear that these partnerships are crucial for enabling technology transfer and encouraging innovation. IJVs comprise a major channel for FDI, particularly for multinationals that establish operations in China.