Role of Transnational Corporations in theEvolution of a High-Tech Industry

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Role of Transnational Corporations in the
Evolution of a High-Tech Industry: The Case
of India’s Software Industry

MURALI PATIBANDLA and BENT PETERSEN *
Copenhagen Business School, Frederiksberg, Denmark
Summary.—India’s software industry presents the case of an internationally competitive high-tech
industry from a developing economy. This paper takes the evolution of the industry in terms of
human capital accumulation. The initial stock of human capital leads to entry of transnational
corporations (TNC), which triggers a cumulative process of further human capital accumulation
through a process of externalities (spillovers) governed by firm-level and market structure
dynamics. Spillovers from TNC operations are more effective when TNCs operate at higher end of
technology and build backward linkages with local firms and institutions in a developing economy.
The empirical exercises, based on the analysis of qualitative information collected through field
interviews and econometric analysis of firm-level panel data, provide evidence of the positive
contribution of TNCs for the evolution of the industry.