Inter source-country differences in foreign direct investment behaviour: a comparative study of US and Japanese firms in India

Abstract

Empirical literature has generally tended to consider Foreign Direct Investment from various source-countries as behaving in a similar fashion. Therefore, behavioural differences are not usually taken into account while undertaking an assessment of impact of FDI on the host country. This is despite the existing theoretical literature that argues country-specificity as one of the factors that evolve the ownership advantage of an investing firm. The argument can be extended to inter country comparison to analyse the differences that may exist between them. The study takes up a comparative analysis of technology behaviour of US and Japanese firms in the Indian context. newlineBased on the empirical evidence, the argument made is that Japanese investors perceive greater risk of spillovers. This is because their small size and absence of market concentration do not give them the quotenclave characteristicsquot enjoyed by their US counterparts. Also, the Japanese concentration in product technologies that are easier to imitate and subject to reverse engineering also increase the risk of technology leakage. As against this, US firms and technologies are concentrated in process technologies that are not as easily imitate-able by rivals. Most importantly the lack of control of Japanese parent firms over the affiliates because of their low equity stake, hampers their willingness to transfer technology. Thus, the first proposition put forward in this study is that Japanese FDI transfers less technology compared to their US counterparts. newlineTechnology transfer behaviour is examined here in the framework of foreign ownership control. This best incorporates the various aspects of differences in the transaction costs involved as well as the risks and returns to the technology supplier in undertaking transfer of technology.