Mergers, Acquisitions and Export CompetitivenessExperience of Indian Manufacturing Sector

When India opened its economy to mergers, foreign competition, and cross-border capital in the 1990s, the fear was not that Indian firms would get stronger. The concern was that they would be absorbed — consolidated out of existence and pushed off the global stage by multinationals with deeper pockets and better technology. This fear influenced real regulatory choices. However, if we look at the data, we see that the industries that merged more aggressively ended up selling more to the world. The policy anxiety and the empirical reality went in opposite directions. This is the puzzle Pulak Mishra and Neha Jaiswal aimed to explain. India's economic reforms began in 1991, and within a decade, they reshaped the corporate landscape. Researchers like Chandrasekhar, Basant, Beena, Kumar, and others documented a significant rise in mergers and acquisitions across Indian manufacturing. Domestic firms used deals to restructure and scale up, while foreign firms used them to enter or deepen their control in Indian industry. The motivations ranged from portfolio diversification to consolidating shareholding to simply acquiring human capital that was hard to build from scratch. By 2002, the surge was large enough that India passed the Competition Act, establishing the Competition Commission to ensure that business combinations did not harm competition in any market. This regulatory response highlights an unresolved tension: should the state restrict consolidation to protect competition, or facilitate it as a path to efficiency and global reach? Mishra and Jaiswal took this tension seriously and decided to test it empirically. Their approach utilized a structure-conduct-performance framework — a classic perspective from industrial economics that links market structure, firm behavior, and the resulting performance — applied to a panel of 33 Indian manufacturing industries from the year 2000 to 2008, yielding 264 observations. Every variable was computed as a three-year moving average to smooth out year-to-year noise, and each independent variable included a one-year lag to reduce the risk that export performance was influencing the explanatory factors rather than the other way around. Their outcome variable was export intensity: an industry's exports divided by its total sales, measuring the share of what Indian manufacturers produced that actually left the country. On the explanatory side, they measured mergers and acquisitions activity as the total number of deals in an industry over the relevant three-year window. The presence of multinational corporations was captured as foreign exchange spending on dividends divided by sales. Foreign technology purchase intensity was calculated as spending on imported foreign technology divided by sales. Capital intensity represented capital employed divided by sales. Selling intensity reflected advertising, marketing, and distribution outlays divided by sales. They also tracked import competition, in-house research and development intensity, market concentration using both the Herfindahl-Hirschman Index and the GRS index, and profitability. Data came from two CMIE databases — deal counts from Business-Beacon and financial series from Prowess. After running pooled ordinary least squares, fixed effects, and random effects models, and applying the standard battery of selection tests, the Hausman test indicated that random effects was the preferred specification. All results discussed below are derived from this model with White-robust standard errors. Now for the findings. Mergers and acquisitions activity is positively and significantly associated with export competitiveness. The random effects coefficient on deal count is 0.0011, with a z-statistic of 3.82, which is significant at the one percent level. That might appear to be a small number by itself, but industries with more mergers and acquisitions had noticeably greater penetration in international markets, even after controlling for all other factors in the model. The consolidation that policymakers feared would focus inward actually pushed firms outward. Two additional variables reinforce that picture. The presence of multinational corporations has a large, positive coefficient of 5.40, significant at the one percent level. Foreign technology purchase intensity comes in at 1.12, which is also significant at one percent. Industries where multinationals had a stronger foothold and where firms were actively purchasing foreign technology were exporting a significantly larger share of their output. Access to global management practices, established distribution networks, and superior technology all lower the cost of competing internationally. Then come the surprises. Capital intensity has a negative and significant coefficient of negative 0.094, with a z-statistic of negative 5.27. More capital-heavy industries exported less, not more. Selling intensity — which is spending on advertising, marketing, and distribution — also has a negative and significant coefficient of negative 1.52. Industries that were heavily invested in domestic selling efforts achieved lower export penetration. Mishra and Jaiswal flag these findings as counterintuitive. One interpretation is that capital-intensive industries during this period were focused on the domestic market, where returns on fixed investment were more predictable. Similarly, heavy selling expenditure in India may indicate a focus on domestic markets rather than an outward orientation. Now, let's turn to the null results — and these are worth discussing, as they challenge some common assumptions in the debate. Market concentration had no significant effect on export competitiveness in the random effects model. The Herfindahl-Hirschman Index coefficient was 0.079 with a z-statistic of just 0.18, while the alternative GRS index yielded negative 0.20 with a z-statistic of negative 0.75. Neither coefficient moved significantly. What makes this especially interesting is the contrast with the pooled ordinary least squares model, where the Herfindahl-Hirschman Index coefficient was large and negative and highly significant. This discrepancy highlights how much model choice matters. The authors' preferred specification, which accounts for industry-level heterogeneity, finds no robust concentration effect. Their explanation is straightforward: mergers and acquisitions in Indian manufacturing did not significantly increase market concentration in most industries during this period. If consolidation did not produce market power, it could not suppress exports through that channel either. Import competition was similarly insignificant, showing coefficients of negative 0.058 and negative 0.012 across the two specifications, neither of which was close to significance. Mishra and Jaiswal interpret this finding as two forces roughly canceling each other out. Import competition can enhance domestic firms' efficiency and push them toward export markets, but it can also put pressure on smaller firms, causing them to exit or retrench. The net aggregate effect, in this dataset, was essentially zero. In-house research and development intensity did not show any significant effect either, with coefficients of 0.26 and 0.28, both having z-statistics below 0.3. This null result is striking. The authors propose a mechanism: when firms gain access to foreign technology through mergers and acquisitions or partnerships with multinationals, the motivation to invest in costly domestic research and development may weaken. They also note that foreign affiliates operating in India spent significantly less on in-house research and development than their domestic counterparts, further diminishing any aggregate industry-level signal. Profitability also showed no significant association with export competitiveness — the coefficient remained around negative 0.03 in both specifications, with z-statistics below 0.35. The theoretical ambiguity there is real: profits can reflect efficiency and competitive strength, or they can point to sheltered domestic market power that diminishes the incentive to export. So, what does all of this mean for policymakers? Three points stand out. First, regulators should not evaluate mergers and acquisitions purely through an antitrust perspective. Given that mergers and acquisitions activity is empirically associated with enhanced export competitiveness — not just market power — policy design surrounding business combinations needs to consider both sides of the equation. The Competition Commission's mandate is legitimate but a framework that views every deal as a threat to competition overlooks what this data reveals about export upgrading. Second, policy should facilitate technology transfer and multinational engagement rather than restrict it. However, Mishra and Jaiswal emphasize an important qualification: a substantial share of foreign investment came through acquisitions rather than Greenfield investment — building new facilities from scratch — and foreign affiliates in India invested significantly less in in-house research and development than domestic firms. Thus, the recommendation is not simply to welcome any foreign capital. Instead, it is crucial to actively guide multinational corporation entry toward Greenfield approaches when the policy goal is to build domestic innovative capacity for the long term. Third, since capital-intensive industries demonstrated lower export competitiveness, trade and investment policy regarding capital goods imports is important. The authors urge for coordinated efforts to develop indigenous capital equipment and invest in the skilled workforce necessary to effectively utilize imported capital. India's manufacturing sector in the early 2000s offers a clear lesson about how openness and consolidation can interact in an emerging economy. The wave of mergers did not undermine Indian industry; it propelled it into the global market. Firms that absorbed foreign technology, attracted multinational partners, and restructured through deals ended up competing internationally at higher rates. What did not matter — concentration, domestic research and development, profitability, or import pressure — is nearly as informative as what did. Occasionally, the narrative that dominates policy discussions is the very one that the data fails to support. This lecture was created by ennepō. Go to https://ennepo.ai to Discover, Create and Follow the latest research in your field. Read when you can. Listen when you want to.