Multinational Firms and the Evolution of the Indian Software Industry


Suma S. Athreye

East-West Center Working Papers, Economics Series, No. 51


Honolulu: East-West Center

Publication Date: January 2003
Binding: paper
Pages: 39
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The Indian software industry appears to provide a startling confirmation of the benefits of multinational investment in a fledgling industrial sector. The main question explored in this paper is how and why this happened. We find that multinational firms had an important catalysing effect on the industry’s evolution, even though foreign firms established by expatriate Indians probably exerted more competitive pressure. We do not accept a popular view, which ascribes this benign influence to the development of human capital. We argue it was tight labour markets due to foreign competition, which induced domestic firms to both acquire unique organisational capabilities and to improve the value-adding strategies of multinational firms.