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Do Foreign Companies in India fare better in R&D Spend? What makes a
foreign company in India? “Direct Investment Enterprise is an incorporated or unincorporated enterprise in which a direct investor, who is resident in another economy, owns 10 per cent or more of the ordinary shares or voting power for an incorporate enterprise) or the equivalent (for an unincorporated enterprise)”. Global Scenario FDI
has spread to become a truly global phenomenon, no longer the exclusive
preserve of OECD countries. FDI has grown in importance in the global
economy with FDI stocks now constituting over 20% of global GDP. In the
last few years, the emerging market countries such as China and India have
become the most favoured destinations for FDI and investor confidence in
these countries has soared. As per the FDI Confidence Index compiled by
A.T. Kearney for 2005, China and India hold the first and second position
respectively, whereas United States has slipped to the third position. Statastics According
to the Reserve Bank Of India
data [RBI Bulletin April 2006] there are slightly more than 500 Foreign
Direct Investment Companies in the country. These have ownership of eight
different countries. The largest being from the U.S., followed by the U.K.
and Mauritius. These companies are, however, minor players in the
industrial context of our country. They
fall in the industries category such as, food products, chemicals,
electrical machinery, machine tools, motor vehicles and retail trading. On
the whole the R&D intensity of these companies is not considerable,
though in recent years they show an increasing trend.
The
table above indicates that the R& D expenditure has been increasing
every year. The sales turnover too has been
increasing at a higher pace. A
detailed picture of the statistics (Annual sales, R&D spending and
R&D intensity) of FDI’s in various countries is shown in the table
below. The
selected 508 FDI companies show improved performance in terms of high
growth rates in sales and value of production in 2003-04 as compared to
the respective growth rates in the previous year. They recorded a net
outflow of Rs. 816 crore in foreign currencies during 2003-04 as compared
to net inflow of Rs.465 crore during 2002-03. Companies having a major
portion of FDI from U.S.A and U.K. registered net inflow of foreign
currencies in both 2002-03 and 2003-04 whereas companies having major
portion of FDI from Germany, Switzerland, Japan, France and the
Netherlands registered net outflow of foreign currencies in all the three
years under study. The total earnings in foreign currency increased by
16.3% in 2003-04 as against an increase of 11.8% in the previous year. The
total foreign currency expenditure by these companies also increased at a
high rate of 24.6% in 2003-04 in comparison to 5.4% recorded in 2002-03. The
data also indicate that companies with Switzerland interest accounts for
the highest R&D intensity (0.839%) followed by Germany with 0.619% in
the Year 2005. But in absolute terms U.K.
Stands first for the year 2005.
Among
the industry groups motor vehicles, Machinery and Machine tools, Computer
and related activities and chemicals come out strongly in overall turnover
during 2003-04 Motor
vehicles and other transport equipments Industry is the largest investor
in R&D with Rs.104 crores and R&D intensity of 0.63 percent, among
the FDIs.
Global Trend As
companies make overseas investments, particularly in R&D, several
factors dominate their location decisions, including lower costs, higher
quality labor, protection of intellectual-property rights, reliable
educational systems and sophisticated IT infrastructures. Developing
countries in Asia and Eastern Europe are experiencing the largest
investments in R&D investments as these countries become integral to
multinational companies’ global innovation processes. R&D
investments in the industrialized world will continue, but at a less
robust pace. The pace of off shoring will intensify, as all corporate
functions, including R&D shift overseas. Conclusion India’s
FDI flows continue to be the skill intensive, and concentrated in
information and technology areas On
the whole the FDI companies show an awareness of the need for R&D in
the business context. Yet, they are not exemplary in the context for their
R&D thrust as depicted by the data.
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