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Toward resource independence – Why state-owned entities become multinationals: An empirical study of India’s public R&D laboratories

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Abstract

In this paper, we build on the standard resource dependence theory (RDT) and its departure suggested by Vernon to offer a novel explanation for why state-owned entities (SOEs) might seek a global footprint and global cash flows: to achieve resource independence from other state actors. In the context of SOEs, the power use hypothesis of standard RDT can be used to analyze the dependence of SOEs on other state actors, such as government ministries and government agencies that have ownership and control rights in the SOE. Building on Vernon, we argue that the SOE can break free from this power imbalance and establish resource independence from other state actors by becoming a multinational firm and/or by generating global cash flows. We leverage a natural experiment in India and outline both quantitative and qualitative evidence from 42 Indian state-owned laboratories to support this argument.

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Notes

  1. Examples include CMIE Prowess for India or FinAsia for China.

  2. A similar result is reported by Gupta, Ham, and Svejnar (2000), who report that governments sequence privatization by selecting the most profitable firms first. Bardhan (2003) mentions yet another difficulty of privatization in India and highlights that organized labor is opposed to privatization.

  3. The case study is based on interviews with Dr Mashelkar and other CSIR executives.

  4. For example, patent number 5,080,121 filed in August 1990 claimed to create a novel polymer useful for drag reduction in hydrocarbon fluids in exceptionally dilute polymer solutions.

  5. THPE is a branching agent used in the synthesis of high-grade polycarbonates with properties of high transparency, good mechanical strength, and high parison strength. 1,1’,1”-Tris(4’-hydroxyphenyl) ethane; a branching agent used in the synthesis of high-grade polycarbonates.

  6. For example, the following US patents: 5,780,578; 5,851,546; 6,379,599; 6,420,487; 6,605,714; 6,689,836; 6,794,467; and 6,867,268.

  7. In the area of patents, India and countries under the New International Economic Order tried to push for free flow of technological information, arguing that it was owned as part of a common heritage (Braithwaite & Drahos, 2000).

  8. These provisions allow governments to issue licenses to allow other companies to make patented products or use patented processes without the consent of the patent owners under certain circumstances.

  9. The government tried to pass an ordinance in 1994 reforming India’s law to conform to TRIPS, but this attempt failed in the Upper House of Parliament. The pharmaceutical industry argued that drug prices would rise if TRIPS was adhered to and NGOs argued that farmers would be hit severely if the patent system was reformed.

  10. The reformed bill was passed in the Upper House of Parliament in December 1998 and in the Lower House in March 1999.

  11. The patent reform process continued until 2002.

  12. The list of CSIR labs along with their locations is available from the authors.

  13. (1) Move toward the path of self-financing by generating more than Rs. 7 billion from external sources vs Rs. 1.35 billion in 1994–1995, of which at least 50% will be from industrial customers (up from 15% in 1994–1995); (2) Develop at least 10 exclusive and globally competitive technologies in niche areas; (3) Hold a patent bank of 500 foreign patents (up from 50); (4) Realize 10% of operational expenditure from intellectual property licensing (up from<1%); and (5) Derive annual earnings of $40 million from overseas R&D work and services (up from<$2 million). Note: the figures here are in Indian rupees and US dollars, as the text is reproduced from the original.

  14. Here, i indicates an individual laboratory and t indicates the individual year.

  15. We have five dummy variables for the “type of science” pursued, one each for “biological sciences”, “chemical sciences”, “physical sciences”, “engineering sciences”, and “informational sciences”. We also have 19 dummy variables for the lab location based on the 19 Indian states in which CSIR labs are located.

  16. We also used alternate specifications like log(1+US patents)/(1+Indian patents).

  17. The Prowess data set is the Indian counterpart of DataStream, and researchers have used it extensively in studies on India.

  18. We also repeated the analysis using 1999 as the baseline year. The year 1999 is the beginning of Dr Mashelkar’s second tenure as the director general of CSIR.

  19. We repeat the analysis with 1999 as the baseline year. This is the midpoint of Dr Mashelkar’s regime. We get similar results in this case. Results are available from the authors.

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Authors and Affiliations

  1. Harvard Business School, Boston, USA

    Prithwiraj Choudhury & Tarun Khanna

Authors
  1. Prithwiraj Choudhury
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  2. Tarun Khanna
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Correspondence to Prithwiraj Choudhury.

Additional information

Accepted by Kannan Ramaswamy, Guest Editor, 1 March 2014. This paper has been with the authors for two revisions.

APPENDIX

APPENDIX

Table A1

Table A1 Comparison of Indian SOEs and domestic private firms, 1991 and 2007
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Choudhury, P., Khanna, T. Toward resource independence – Why state-owned entities become multinationals: An empirical study of India’s public R&D laboratories. J Int Bus Stud 45, 943–960 (2014). https://doi.org/10.1057/jibs.2014.20

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