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The US–Ireland–India in the catch-up cycles in IT services: MNCs, indigenous capabilities and the roles of macroeconomic variables

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Abstract

This study attempts to explain successive changes in industrial leadership in IT services by employing the catch-up cycle theory developed by Lee and Malerba (Res Policy 46(2):338–351, 2017). A catch-up cycle was observed in which leadership have changed from the US to Ireland and subsequently to India. Currently, there is now a `coexistent leadership` in which both India and Ireland share the leadership position since Ireland has recently recovered some of its market shares. The research has two main contributions: First, it has introduced macroeconomic variables into the catch-up cycle framework and exposed that the over-reliance of Ireland on MNCs made their leadership less sustainable and more sensitive to macroeconomic variations, and thus, argued that wage rate, exchange rate and FDI were important explanatory variables to understand the rise, fall and re-rise of Irish IT service exports. Second, it is shown that India has been more effective in maintaining a leadership position by developing strong indigenous companies, a sectoral system of innovation and through better technological capabilities. Therefore, it brings an important contribution in terms of public policies and catch-up strategies.

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Fig. 1

Source: Author elaboration based on International Trade in Services Database—IMF, link: https://data.imf.org/ITS. Accessed: 2018

Fig. 2

Source: Autor elaboration based on International Trade in Services Database—IMF, link: https://data.imf.org/ITS

Fig. 3

Source: The Conference Board, International Labor Comparisons program, February 2018

Fig. 4

Source: Reserve Bank of India (2005 and various years), and Bhatnagar (2006:57)

Fig. 5

Source: Illustration based on IBEF, 2017. https://www.ibef.org/download/IT-and-ITeS-March-2017.pdf

Fig. 6

Source: Author elaboration based on the Annual Business Survey of Economic Impact 2016. https://dbei.gov.ie/en/Publications/ABSEI-2016.html

Fig. 7

Source: Central Bank of Ireland. Link: https://www.centralbank.ie/statistics/interest-rates-exchange-rates/exchange-rates. Accessed 2018

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Notes

  1. An alternative approach is modeling, such as history friendly models (Capone et al. 2019; Malerba et al. 1999; Malerba et al. 2016).

  2. Refer to the information in https://data.imf.org/ITS. For a more detailed definition see International Monetary Fund (2009, p. 176).

  3. From Sands (2005: table 3.1) for the 1990s, and since 2000 from Annual Business Survey of Economic Impact 2016. https://dbei.gov.ie/en/Publications/ABSEI-2016.html. Accessed, 2018.

  4. In 2004, while in Ireland the IT employees were earning around twenty-five to thirty-five thousand dollars per year, in India the salary was less than half (Chandra 2006).

  5. Subsidiary or captive developed center established overseas by multinational corporations.

  6. Also, the indigenous companies in Ireland were badly impacted. According to O'Callaghan et al. (2015), a significant amount of 115 indigenous firms were either closed or taken over between 2001 and 2003. For more information on the impact of the crisis in Ireland, indigenous firms see Breznitz (2012).

  7. https://www.infosys.com/newsroom/press-releases/Pages/innovation-fund-global-in-house-center.aspx.

  8. National Competitiveness Council Bulletin (2016:1).

  9. The sources are Direct Investment and Multinational Enterprises: Comprehensive data (2018). https://www.bea.gov/international/direct_investment_multinational_companies_comprehensive_data.htm.

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Acknowledgements

The authors thank very much the detailed comments and suggestions by the editor of this journal, as well as by two anonymous referees. The first author acknowledges the support by the Coordenação de Aperfeiçoamento de Pessoal de Nível Superior—Brasil (CAPES)—Finance Code 001. The second author acknowledges the support of the Laboratory Program for Korean Studies through the Ministry of Education of the Republic of Korea and the Korean Studies Promotion Service of the Academy of Korean Studies (AKS-2018LAB-1250001).

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Authors and Affiliations

  1. Public Administration and Governance at Getulio Vargas Foundation of São Paulo, São Paulo, Brazil

    Tiago Couto Porto

  2. Center for Studies on New Developmentalism, São Paulo, Brazil

    Tiago Couto Porto

  3. Department of Economics, Seoul National University, Seoul, South Korea

    Keun Lee

  4. CIFAR Fellow, IEP Program, Seoul, South Korea

    Keun Lee

  5. Centre for Development Studies, Thiruvananthapuram, Kerala, India

    Sunil Mani

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  1. Tiago Couto Porto
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Correspondence to Keun Lee.

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Porto, T.C., Lee, K. & Mani, S. The US–Ireland–India in the catch-up cycles in IT services: MNCs, indigenous capabilities and the roles of macroeconomic variables. Eurasian Bus Rev 11, 59–82 (2021). https://doi.org/10.1007/s40821-020-00177-3

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