The role of foreign firms in the software industry in Bangalore - a study of productivity spillovers:

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This thesis qualitatively examines the existence of and types of productivity spillovers from foreign to domestic firms and the channels through which they flow in the software industry in Bangalore today. The focus of the thesis is on productivity spillovers, since these are the most important effects from foreign direct investment for host countries according to existing literature. For governments it is important to know whether spillovers exist and, if so, in what way they arise since it has implications for their policies towards inflow of foreign direct investment. The thesis is based on interviews with representatives of 14 Indian software firms in Bangalore. A main finding is that the domestic firms do benefit from productivity spillovers but that these spillovers are not as important to them as they were in the industry’s initial phase of development. Another finding is that the most essential spillover channels today are labour mobility and client and partner relationships. Competition for business, networks, exporting and imitation seem to matter as well although to a lesser extent. Two additional findings are that reverse productivity spillovers to the f...