Foreign collaboration in india an objective analysis

1. Foreign Collaboration in India : An objective analysis
India has opened its economy in 1991 and tried to transform itself from economic crisis ridden
country to demographic dividendcountry. Now Indian stocks move up and down more closely in
sync with global market, because its market it diverse and deep and increasingly becoming
dependent on FDI . it has more than 5000 listed companies ,including more than a thousand in
which foreigners have invested . Foreign collaboration is an alliance of domestic (native)
and abroad (non-native) entitieslike individuals,firms, companies, organizations,
governments, etc.,that come together with an intention to finalize a contract on some
tasks or jobs or projects with an objective of mutual benefit and sharing their profits
as per the profit-sharing ratio mentioned in their executed contract.
foreign collaboration can be financial collaboration or technical collaboration . in case
of financial collaboration is inflow of foreign investment takesplace , but in case of
technical collaboration inflow of technology takes place.
After establishing foreigncollaboration, resident and non-resident entity start
business together in the domestic country.
The tenure (term) of the foreign collaboration is specified in the writtencontract
Objective of Foreign Collaboration in India-:
1.The first and foremost objective of foreign collaboration should be to harnish the
demographic dividend which India has in the form of young population through skill
development, education collaboration and collaboration in labour intensive technology
2. Vast majority of population in India is dependent on agriculture and allied industry
the objective of foreign collaboration is to get cheaptechnology transfer in the field of
agriculture, ware house, irrigation etc.
3. Improve the financial growth and generate employment in the resident’sentity
country.
4. Reduce the operating cost of companies of resident’s entity .
5. Occupy a major market share in collaborating entities.
6. The objective of foreign collaboration in the context of India is to developthe
infrastructure of the country so that foreign collaboration will act a catalyst for
growth.
7. By infusion of financial investment and technological transfer in the area of
manufacturing, service and affordable housing sector foreign collaboration can act as
means to reduce poverty.

2. As the Reserve Bank of India study on the subject puts it, "the major problem in this
field is, for instance, whether, on balance, foreign collaboration arrangements have
resulted in, or can be relied on to result in, a net gain to the country? Have those firms
and industries which have relied more on technology fared better relative to the others in
terms of productivity and growth?" Central to the same theme are questions such as
what exactly is the nature of knowledge imported under the technical collaboration
agreements? Is the knowledge imported stated to Indian conditions and prevailing factor
proportions? Has the implementation of foreign techniques resulted in a higher capital-
labour ratio? Is the imported knowledge restructured to suit Indian factor and product
market conditions? What has been the cost of such restructuring? How best to assess
the quality of knowledge imported? Is the market for knowledge a perfect one? If not,
what are the costs and benefits of operating in an imperfect market for knowledge?
We need to analyse whether the objectives of technology transfer were being met, whether
there is any hindrance and restriction imposed by technological suppliers and by which there is
a problem in adapting and assimilating of imported technology in India. Whether in grab of
restriction an obsolete technology transfer is becoming a norm by technological developed
supplier companies. whether consequently repetitive import of technology and inadequate
domestic R and D were a feature of the Indian experience.
There has been a paradigm shift in technology transfer policy after the FERA controls were
almost done away with as part of structural adjustment after July 1991.
This study for India try to evaluate these questions. Now let us analyse the available data to answer
these questions.
.Level of Foreign Collaboration in India by Value (Rs. in Million)
Year Value
1992 26895
1993 88571
1994 141872
1995 324324
1996 361498
1997 548902
1998 307388
1999 283665
2000 340282

3. Total 1992-99 2423397
Sectors Attracting Highest FDI Equity Inflows (US $ Million)
Sectors 2008-09 2009-10 2010-11
Service sector 6138 4353 3403
Computer Software &
Hardware
1677 919 784
Telecommunications 2558 2554 1665
Housing & Real
Estate
2801 2844 1127
Construction Activites
2028 2862 1125
Automobile Industry 1152 1208 1331
Power 985 1437 1252
Total FDI
27330 25834 19427
SOURCE- DIPP
Changing Dynamics of Investment:
• Overall FDI into almost all the sectors had declined in the year 2010-11, a reason
for which could be the global situation that prevailed during that time frame.
• Although services sector remain the sector attracting the highest FDI inflows since
2006-07 its share has been constantly declining.
• The FDI flows into computer hardware and software has been downward ever
since 2005-06. It has drastically gone down from 24.8 per cent in 2005-06 to 4.0%
in 2010-11.
• Housing & Real Estate have shown an upward trend in terms of their share in FDI
inflows.
• Investments in chemicals and metallurgical industries have been erratic as no clear
trend could be observed for the time period 2005-06 to 2010-11.
 The proportion of financial collaboration (indicating interest of foreign partner
in playing active role in the Indian ventures has gone from less than 305 in the
pre-liberalisation era (before 1991) to over 80% in the post liberalization era
(after 1991). The shift in the nature of foreign collaborationpoints towards
increasing interest of foreign partnersin playing an active role in the
management of the Indian venture rather than being contended with sale of
technology.
 Foreign collaborations in post liberalization shows that India is becoming a
assembly and outsourcing hub and its emphasis is more to enter into
partnerships for trading foreign goods and services with little valve addition
rather than high value addition seeking import of low cost ,high end
manufacturing technology. This tendency among industrial leaders is helping
India to becoming more of a global market rather than global player.
 The approvals of foreign collaborationshave been classified in two classes;
namely technological (without foreignequity participation) and financial

4. (having Foreignequity participation).According to a study of DIPP that out of a
total of17810 foreign collaborations approved during 9 years of post liberation
period (1992-2000), only 6155 (45%) were technical collaboration and 11642
(65%) were financial ones
 The findings indicate that the this trend is not good for sustainable,mutually
beneficial international trade .Findings indicate that the country is not making
much headway in designand development of new product and technology
realizingthe benefits of economiesof scale.
 Foreign collaboration although it has enhanced domestic competition
with all the global giants competing for market share here, it pushing
out domestic players, leading to over capacity creation.
 It is difficult to understand how, being inherently capital intensive, the
imported technologies can provide competitive advantage in a country having labour
as abandoned resource specially young labour.
 Global players are more interested in harnishing the abundant natural
resourcesand cheaplabour of India to make more profits and take away that
profit to their own country rather than being part of growth of new products,
new invention, new technology by collaborating for R & d D support and
infrastructure development in India itself.
The conclusion of this analysis shows that there is lot to be done to fulfill the true objective of
Foreign collaboration .
 Need of hour is to developlabour intensive,cost effective products and
technology with the helpof foreign collaboration to harnish demographic
dividend of India as well as to guard against the surrender of Indian domestic
market to global players from rest of the world The focus should be to make
indigenous product with helpof cheaplabour and R & D and market it to
other parts of the globe at least to the extent required for mitigatingthe foreign
exchange requirements.
 Technology transfer is more likely to be achieved by the presence of foreign firms
rather than by simple purchase of foreign technology. It is also seen that
technology transfer is dependent on the absorptive capacity of firms and
the competitive nature of the industry. Finally,this study finds that institutional
factors like the degree of competition positivelyimpact the effects of traditional factors like
absorptive capacity in determining technology transfer.
Therefore we would like to propose a few suggestion to the policymakers for their consideration:
 The findings presented in this suggest that there is a need to developtechnical and
manufacturing competencies among Indian companies rather than over rely on
foreign collaboration to enhance the demands of products and services That will

5. help in increasing purchasing- power on a sustainable basis on the one hand, and
enable development of their own products and services for international exchange on
the other, whichalone can lead to international trade with the various developed and
developing countries,on a sustainable basis, as equal partners.
 Policy framework needs to be changed to attract foreign collaboration in agriculture
and allied services,mining, affordable housing and infrastructure so that foreign
collaboration will act as catalyst of growth.
 Government should ensure the Infrastructure amenities, macroeconomic
stability such as Steady exchange rates, low inflations,steady fiscal and
monetary framework as well as certain incentivessuch as tax concession .
 No one can disagree that single window for clearances involving different
ministries and departments will fastened the process of foreign collaboration.
• Government should liberalize further restrictions on sector caps and entry route
such as retail, pension etc.
• A mechanism could be developed which facilitates a consultation between Centre and State
governments as well as different stake holders before a policy rollout so that once the decision
is taken its implementation does not get affected
• Time bound, non-discretionary, simplified and less number of procedures and
approvals would also help in uplifting the international investor’s confidence and
help foster more investment into India.
Resources-:1.India’s Experience with FDI: Role of a Game Changer-ASSOCHAM
2. Foreign Collaborations in Indian Industry, Fourth Survey Report, (1985),
Reserve Bank of India, Bombay
2.Kumar, Krishna, Foreign Collaborationsin India, W.P. 10 (3) 1994, Indian
Institute of Management,Lucknow, Presented in the EICEP (Euro-India
Cultural Exchange Programme) International Conference, organized by
European Foundation of Management Development at New Delhi
4. FDI, Technology Transfer and Spillover: A Case Study of India
Manoj Pant and Sangeeta Mondal
Rahul Mishra