How different are multinational subsidiaries from local firms in a developing economy: a study of Indian industry

Abstract

The spell-overs associated with superior production and marketing practices of multinational (MNC) firms to local firms in a developing economy are germane only when MNC firms are significantly different from local firms in technological, organizational and marketing practices. The spill-overs and competition induced deliberate efforts of local firms should make the best practices common contributing to growth process, especially in developing countries such as India which have achieved a certain degree of industrialization and technological capabilities. This paper makes a conceptual distinction between exogenous and behavioural response variables that determine the differences among MNC and domestic firms. The empirical exercise tests for how different are MNCs from local firms in production efficiency, vertical integration, R&D behaviour, marketing, exporting and importing intensity for five Indian industries on the basis of firm level panel data. The explanation for the observed differences or lack of differences is drawn from the arguments of exogenous and behavioural response variables.