Working Paper | HBS Working Paper Series | 2014

Toward Resource Independence—Why State-Owned Entities Become Multinationals: An Empirical Study of India’s Public R&D Laboratories

by Prithwiraj Choudhury and Tarun Khanna

Abstract

In this paper, we build on the standard resource dependence theory and its departure suggested by Vernon to offer a novel explanation for why state-owned entities might seek a global footprint and global cash flows: to achieve resource independence from other state actors. In the context of state-owned entities, the power use hypothesis of standard resource dependence theory 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.

Keywords: Multinational Firms and Management; Research and Development; State Ownership; Technology Industry; India;

Citation:

Choudhury, Prithwiraj, and Tarun Khanna. "Toward Resource Independence—Why State-Owned Entities Become Multinationals: An Empirical Study of India’s Public R&D Laboratories." Harvard Business School Working Paper, No. 14-076, February 2014.