Foreign Equity and Technological Capabilities: A Comparison of Joint-venture and National Automotive Suppliers in India

Abstract

Using the evolutionary framework, this paper examines differences in technological capabilities between joint-ventures with over 10% foreign equity and fully national owned suppliers located in the greater Delhi region. In a country where automotive manufacturing emerged from the relocation of foreign capital and with only 3 automobile assemblers supplying essentially the domestic market until 1991, India has experienced tremendous upward movement in firm-level technological capabilities to generate rapid growth in automotive exports to record a positive trade balance by 2000. Against the background of rapid expansion, this paper uses a sample of 84 tiers one and two suppliers to compare technological capabilities between joint-ventures with foreign equity and wholly national owned suppliers. The results show considerable participation of both joint-venture and national firms in cutting edge technological capabilities. The two tailed ‘t’ tests, and the knowledge intensity exercises show joint-ventures enjoying higher overall technological capabilities, training expense in payroll, process technology expenditure in sales and R&D expenditure in sales than national firms. The Tobit regressions show that once export-intensity and firm size is accounted for, joint-ventures enjoy a statistically significant higher technological capability with its superior process technology over national firms. Overall, the evidence shows that foreign equity is still important in the technological operations of automotive suppliers in India.