Links Between Multinational Firms and Domestic Firms: A Comparison of the Software Industry in India, Ireland and Israel

Abstract

India, Ireland and Israel have experienced a high growth in the software industry especially during the 1990s. This paper aims to analyze the role of multinational corporations (MNCs) in the development of the software industry in these countries. The study is centred on software production and IT-related services - software development, chip design and electronic devices design, computer and Internet services such as web design and maintenance, and call centres. The empirical analysis leads to two final conclusions. First, it shows that the evolution of software activities and the role of MNCs vary considerably across these three countries. The main differences concern the time of entry of MNCs relative to domestic firms and the type of activities conducted by MNCs, which appear to reflect different regional comparative advantages. The second final conclusion is that the overall impact of MNCs on the development of the domestic software industry in the three examples analysed is quite controversial. Ireland is the only case where many MNCs entered before the domestic industry started and contributed on various grounds to its emergence, mainly as customers and sources of competencies. In Israel and India, the positive effects of MNCs on domestic firms, such as reputation, access to capital and managerial capabilities, have become apparent only in recent years. This suggests that analysts of MNCs’ linkages and policy makers in emerging regions should devote attention to MNCs’ entry timing in new industries.