Strategic Adaptation to Deregulation in the Indian Auto Components Industry

Abstract

We explore the strategic adaptation by domestic firms subsequent to economic liberalization and industry deregulation in an emerging economy. We study the Indian auto components industry during a ten-year period (1992-2002), using the Prowess database complemented by in-depth interviews with senior industry executives. Firms in our sample accounted for over 70 percent of industry sales during the period. Results of our analysis of indicate that technology licensing by domestic firms was significantly and positively related to their performance during the six-year period (1992-1997) immediately after industry deregulation. During the subsequent five-year period (1998-2002) domestic firms’ ability to create strong relational ties with downstream automakers was more significantly and positively related to performance. A potential implication of our study is that domestic firms need to adapt their strategic behavior by forging successive “fits” with the evolving policy and market environments.