Abstract
The electronics industry—the hardware core of the digital economy—is strategic for any country because of the rapid expansion in the adoption of digital technologies across sectors. Several policy reforms have been carried out by successive governments to attract FDI and to promote global value chain (GVC) engagement by Indian electronics firms, with a view to upgrade their technological capabilities and to increase electronics exports from India. Against this backdrop, the present paper seeks to analyse the nature of FDI-driven engagement of Indian electronics firms in industry value chains. Based on a critique of the existing approaches for examining GVC participation based on intra-industry trade (IIT) or trade in value added (TiVA), the paper presents an alternative methodological approach and examines the nature of value chain participation of foreign-owned firms through an analysis using firm-level data. Analysis of the value chain engagement of a large FDI-recipient Indian electronics firm is carried out using this methodology. This analytical framework relates macro policy aspects of trade and FDI liberalisation and industry-specific policies with firm-level business strategies, to understand the impact of policies on the nature of an industry’s FDI-led GVC engagement and its implications for the industry’s development trajectory.
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Notes
- 1.
- 2.
See the literature review in Francis (2015).
- 3.
- 4.
Rao and Dhar (2016) consider foreign investors as belonging to two broad categories: one, who merely seek return on their investments and the other perceiving the host country operations as integral to their global operations. The first category essentially comprises a host of financial investors such as PE funds and FIIs. The second category is considered as real FDI (RFDI).
- 5.
Arms-length transactions are inter-firm transactions between non-related parties, and internalised transactions are intra-firm transactions between related parties.
- 6.
- 7.
- 8.
- 9.
- 10.
In general, Samsung has dominated the smart phone market since 2013. Although it had lost market share and the top rank to the Chinese firm Xiaomi in between, by the second quarter of 2018, Samsung had accounted for the largest market share of 29% of the Indian smartphone market again. See Tech Desk (2018) ‘Samsung beats Xiaomi as top smartphone vendor in India in Q2 2018: Counterpoint’, Indian Express, 25 July, https://indianexpress.com/article/technology/mobile-tabs/samsung-leads-xiaomi-in-q2-2018-smartphone-shipments-counterpoint-5274207/. But subsequently, Xiaomi had again topped the Indian mobile market. According to the 2020 quarter 3 data, Samsung’s share went up to 24% and it became the top smart phone again after 2 years since Q3 2018. https://telecom.economictimes.indiatimes.com/news/samsung-pips-xiaomi-to-become-indias-top-smartphone-brand-after-2-years-report/78913110.
- 11.
The firm having significant control over the Indian company holding more than 50 per cent ownership is considered as the holding company. In this case study, the holding company is Samsung Electronics Co. The ultimate holding company is the Samsung Group (South Korea). Firms under common control by the parent/holding company are grouped as fellow subsidiaries and other firms under the Samsung Group are considered as associates. All other firms are considered as unrelated firms.
- 12.
See the in-depth analysis in Verma (2019).
- 13.
It must be noted that while the Annual Reports give an assessment of the extent of related party transactions in services too, the trade data excludes services.
- 14.
This was due to the financial implications of purchasing the full set of data covering the 2056 products. The firm-level trade data was purchased under the ICSSR project from private market research companies.
- 15.
These 139 top traded electronics products constituted average shares of about 79% of India’s electronics imports and 66% of electronics exports during the two-year period 2017–18 to 2018–19.
- 16.
According to the Annual Report, while Samsung Asia Pte. Ltd., Samsung’s Singapore-based subsidiary, is a second promoter, it held just 18 out of the total number of 216,787,504 shares.
- 17.
In 2007–08 and 2012–13, this share came down on account of a rise in the share of royalty payments to the South Korean parent firm by the Indian subsidiary.
- 18.
Further, imported spare parts constituted an average share of 66 per cent of total spare parts consumed between 2006 and 2011.
- 19.
The holding company Samsung Electronics Co.’s consolidated subsidiaries totaled 240 in number globally, as of 31 December 2019. It must also be noted that the holding company Samsung Electronics itself is only one of a total of sixty domestic affiliates of the Samsung Group headquartered in South Korea. Forty-four affiliates were unlisted.
- 20.
This is also reflected in the 2018–19 Annual Report.
- 21.
The supplier information in the trade data threw up a total number of 215 firms as import suppliers to the Indian subsidiary. Supplier information on about 6% of the total imports was missing in the data.
- 22.
While trade data gives the actual port of origin country, shipping bill address gives the address of the company sending the consignment.
- 23.
See the discussion in Francis and Kallummal (2020).
- 24.
This would primarily involve the presence of a technologically advanced local parts and components supplier base and a significantly larger numbers of high skilled production engineers than India currently churns out. In addition, the drag of the energy and logistics sector on manufacturing competitiveness has been well acknowledged.
- 25.
Mani (2007) pointed out how the public sector agency, Centre for Development of Telematics (C-DoT) was extremely successful not only in generating technologies, but also in transferring the generated technology to a host of public and private sector enterprises. Although C-DoT was very successful in building up a good number of component suppliers, these firms did not have in-house R&D and were dependent entirely on the technologies that they received from the public laboratory. This became a serious handicap for the latter, as C-DoT failed (for lack of strategic technology foresight) to move on quickly to newer telephone switching technologies and also failed to foresee and make the switch to mobile telephony. Neither did India have a strategy in place to make its leading state-owned equipment manufacturer, ITI, a national champion, as Mani (2006) emphasised. These have been major policy failures in the Indian electronics industry’s earlier development trajectory. The more recent policy efforts also have serious design failures due to the continued faith by policymakers on large MNCs to establish a domestic parts and components manufacturing base on the one hand, while keeping out the advanced indigenous SME parts and components firms from these policy initiatives and from government procurement on the other hand. See Menon and Francis (2020).
- 26.
See the discussion in Kallummal (2019).
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Acknowledgements
This paper is drawn from a forthcoming ISID Working Paper, as part of the output of a major Research Project titled ‘Global Value Chain Engagement and Industrial Restructuring: A Study of the Indian Electronics Industry’, which was funded by the Indian Council for Social Science Research (ICSSR) and was hosted at the Institute for Studies in Industrial Development (ISID), New Delhi. An earlier version was presented at the Annual Conference on the Indian Economy, Centre for Development Studies, 7–8 February, 2020. The first author acknowledges all the support extended by ISID in carrying out the study, while she was a Consultant there.
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Francis, S., Kallummal, M. (2021). Indian Electronics Industry’s FDI-Led GVC Engagement: Theoretical and Policy Insights from a Firm-Level Analysis. In: Mani, S., Iyer, C.G. (eds) India’s Economy and Society. India Studies in Business and Economics. Springer, Singapore. https://doi.org/10.1007/978-981-16-0869-8_5
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