The Internationalization of Corporate R&D

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THE INTERNATIONALIZATION OF CORPORATE R&DAlso, Indian companies have emerged as significant international investors, as witnessed bytheir acquisition of software, pharmaceutical and automobile industry related companies inthe U.S. and U.K. Some of these investments have had a noteworthy R&D component.Moreover, much of the expansion of foreign and Indian companies’ operations has resultedfrom strategic alliances, i.e. non-equity based collaboration for which no official data isavailable. Rapid expansion of strategic alliances between foreign and Indian companies hasbeen a central ingredient in development of the Indian software product and servicesindustry.Furthermore, foreign institutional investment (FII) play a significant role in India, reflectingIndia’s developed financial and private enterprise system and investors’ confidence in awide range of Indian companies. FII inflows to India have risen sharply since 1999. AnnualFII inflows exceed actual FDI inflows to India by a wide margin in FY 2004 and FY 2005(RBI 2006).India has emerged as an increasingly attractive destination for foreign investors in the2000s. According to the Foreign Direct Investment Confidence Index 2005, compiled byA.T. Kearney, China is the most preferred FDI location followed by India, the U.S. and theU.K. Also, China and India are the most preferred countries for future R&D investmentswith slightly more than 40 percent of CEOs indicating they will likely make suchinvestments over the next three years (A.T. Kearney 2004a and 2005a).Moreover it should be noted that India is ahead of China in terms of software andknowledge process outsourcing (KPO). India’s share of the world market in offshoring ofsoftware and IT-enabled services was 25 percent in 2001 (UNCTAD 2004). India hascontinued to be ranked as the most attractive location for KPO and IT-enabled servicesoffshoring, well ahead of other emerging powers in this field such as China, Malaysia andthe Philippines (A.T. Kearney 2004b and 2005b)The expansion of foreign investments inflows to India (both FDI and FII) in 2004 and 2005was prominent in all sectors, including infrastructure, automotive component and high-techindustry production and R&D. According to Mr. Dayanidhi Maran, India’s Minster ofCommunication and Information Technology, planned investments in the ICT sector in thenext 3–4 years, as announced by companies in 2005, amount to over 9 billion dollars – adramatic increase over previous years (Business India 2006).11.2.2 National Economic Reforms and S&T Development PhasesR&D focused on serving local requirements has a long tradition in India, stemmingback to Nehru’s policies emphasizing nation-building and self-reliance. Startingwith the period of economic liberalization in the 1990s, there has been a shift in theIndian S&T landscape and corporate-led R&D operations have become increasinglyimportant (Rajan 2001).274
THE INTERNATIONALIZATION OF CORPORATE R&DSince 1991, the Indian economy has significantly opened up to foreign trade andinvestment. Indian companies have thus been forced to be more proactive in keepingup with new technologies to maintain their competitiveness in the local marketand to compete globally. There has been a major change in the strategic mindset oflarge Indian industrial conglomerates. Also, a new breed of smaller and mediumsize entrepreneurs who are inclined to think and act more internationally, areplaying key roles in vitalizing the Indian economy. Perhaps the most significantexamples of the latter are the dynamic expansions of India’s software,telecommunication and BPO-KPO industries. The development in these sectors hasserved as a catalyst to connect India globally.As noted by Rishikesha Krishnan, the impact of economic liberalization on innovationin the rest of the economy has, however, been mixed: “In the two-wheeler and pharmaceuticalindustries, regulatory changes, demand conditions, competitive forces andentrepreneurial initiative have resulted in the development of innovative capabilities asreflected in a number of successful products. Government support and links with governmentresearch laboratories have facilitated the process of innovation in the pharmaceuticalindustry. However, in many other industries, changes in the innovation profilehave been limited” (Krishnan 2003).Much of the growth in the software and knowledge-processing industry has come fromexternal demand. In many (but not all) instances this has implied that spillovers in termsof locally oriented demand and innovation system development have been limited.11.2.3 Government R&D and PolicyGovernment and state enterprises have played a central role in S&T-related developmentand other conditions influencing R&D. In addition, the government’s role in S&Thas gradually shifted. The record in public investment and speed of implementing policyreforms has however continued to be mixed in efficiency and cost effectiveness.The central government has been the pioneer in R&D investments in the country sincethe 1950s. R&D is carried out by different government entities, and the prime examplesare the Council of Scientific and Industrial Research (CSIR), the India Council of AppliedAgricultural Research, the Indian Council of Medical Research (ICMR) as well asthe universities. In addition, R&D is conducted by many laboratories of departmentsand ministries, such as those concerned with atomic energy, electronics, space, oceandevelopment, defense, environment and non-conventional energy sources. The CSIRand the Department of Science and Technology (DST), part of the Ministry of Scienceand Technology and universities, are the premier organizations that support and carryout R&D in the country (CSIR 2005 and 2006).275
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The Swedish Institute for Growth Po
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