OUTWARD FOREIGN DIRECT INVESTMENT FROM INDIA IN THE SERVICE SECTOR WITH REFERENCE TO IT INDUSTRY

OUTWARD FOREIGN DIRECT INVESTMENT FROM INDIA IN THE SERVICE SECTOR WITH REFERENCE TO IT INDUSTRY

Growing international integration through trade and investment is the emerging scenario of the 21st century. International Investment flows, particularly Foreign Direct Investment (FDI), have become a rising manifestation of this growing global linkage between nations. Outward Foreign Direct Investments (OFDI) from India in the service sector is emerging as a significant aspect of Indias international economic integration. Firms from India are incorporating outward foreign direct investment as part of their corporate strategy to compete globally and to acquire key assets. Outward investments is being adopted as part of their global strategy to emerge as leaders in their respective domain.As the significance of outward investment rises, it is important to understand the motivation and strengths behind such flows. With rising significance of services sector, more studies to explain the nature and factors behind outward FDI assumes importance. Therefore a focus on growth of OFDI from service sector like knowledge??intensive information-technology (IT) sector has become very relevant. IT firms from India have created a global presence and brand image. It is therefore important to consider various factors which give competitive advantage to the firms. The present study is divided into six chapters. The first chapter provides an overview and introduces the research issue. The second chapter comprises of a review of literature in the area. Research Methodology is outlined in the third chapter. The fourth chapter consists of an analysis of the trends in Indian outward foreign direct investment. The fifth chapter provides the analysis and interpretation of factors influencing foreign investments by firms. The sixth chapter gives the summary and conclusions of the study. Results of the study indicate that Indias outward foreign direct investment is showing a rising trend and that there are significant changes in the pattern of these outflows. The outflows by service sector firms have increased and there is also rising investment to developed countries. The changing trend is a reflection of the global aspirations of Indian firms and their willingness to compete in the world market. The study shows that India firms, though small in comparison to multinationals from developed world, do have competitive advantage. They have leveraged these advantages and acquired strategic assets to enhance their competitive position. The firms are gaining from experience and building tacit knowledge. These skills are applied to creating a network to supplement and augment their competitive advantage. In this endeavor, macro factors are also playing a significant role. Technological and information revolution has given firms an opportunity to strengthen their competitive advantage. In this endeavor, firms in developing country like India have benefited from a vast pool of educated, skilled and technically qualified human resource. They have been facilitated by a liberalized government policy and the domestic economic climate, which has given them opportunities for entrepreneurship. Rising outward FDI is a manifestation of these changes. As Indian firms seek to strengthen their competitive positions and augment their assets, the outflow of investment to nations that have intellectual assets will increase. At the same time the traditional motive of undertaking investments to seek larger markets is still important. Though India is still a fledgling in the spectrum of outward investments, Indian firms are fast rising up to the challenge of competitive global atmosphere with aggressive strategies. Indian economy is emerging as one of the largest economies in the world. With the second largest population in the world, India has to utilize every opportunity to build sustainable growth with greater international economic linkages with rest of the world.

Nair Leena

Economics