Abstract
This paper examines the determinants of profit margins of affiliates of multinational enterprises (MNEs) and local firms (LCEs) in 43 Indian manufacturing industries to seek explanations of the superior performance of the former. The empirical analysis finds support for the proposition that MNEs and LCEs constitute different strategic groups in an industry and that the former as a group enjoys greater protection from mobility barriers. MNEs appear to enjoy persistent advantage over their local counterparts especially in knowledge (both technology and human skill) intensive industries. Residual ability differences are not statistically significant in explaining profitability differences between MNEs and LCEs.
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