C Milelli

Outward expansion by Indian firms: the European route

Keywords: JEL Classification Numbers: F14, F23 foreign direct investment, multinational firm, India, European economies

This contribution attempts to shed light on the surge of direct investment flows from India because of the limited understanding of this huge country in the context of liberalization of inward and outward foreign direct investment. As far as the latter is concerned, India cannot be described as an underdeveloped country since it can mobilize substantial native capital and it hosts flourishing multinational companies. The liberalization of the national economy in the early 1990s and the resulting arrival of large foreign multinationals have prompted domestic companies to engage in a restructuring path along with to seek new business opportunities overseas in order to expand market share. If the bulk of Indian outward direct investment is still directed toward developing countries, mature economies are emerging as a growing host place. The paper focuses on Europe and draws on a wide range of data from various sources, and tackles the question empirically in order to provide a more comprehensive understanding on entry modes and strategies followed by Indian investors.

This contribution attempts to shed light on the surge of direct investment flows from 'third-world' to 'first-world' countries and explain why third world companies are currently investing in advanced economies. This emerging phenomenon has several implications for the host economies and global competition. To analyze this new trend, we chose to focus on India because of the limited understanding of this huge country in the context of liberalization of outward and inward foreign direct investment (FDI). As far as FDI is concerned, India cannot be described as an underdeveloped country since it can mobilize substantial native capital and it hosts flourishing multinational companies. The liberalization of the national economy and the resulting arrival of large foreign multinationals have prompted domestic companies to engage in a restructuring path along to seek new business opportunities overseas in order to expand market share. But due to an international stage -much more globalised with transnational networks within large multinational in command than previously in the 1980s with the Japanese FDI surge or in the 1990s with the Korean one -Indian companies have to be choosier in terms of strategy. If the bulk of Indian outward FDI is still directed toward developing countries, mature economies are emerging as a new target.

The paper focuses on Europe and draws on investment data and cases from various sources, and tackles the question empirically. It is structured as follows:

First, a statistical analysis of investment data is carried out in order to give an overview of the magnitude of the phenomenon, along with the spatial and sectional distribution of India's direct investment in developed countries; Second, to take account of the strategies followed by Indian companies on the eve of entering European markets we have collected and construed individual data on those companies. As a result, we draw insights about Indian corporate presence in Europe;

Third and last, we discuss some conjectures which have been put forward about the economic impacts of these investments on European countries.

Indian direct investment in a worldwide perspective: Basic trends for developed countries -Europe versus North America

Even before the independence India was home of vibrant national entrepreneurs and large companies. For example, the well-known Birla group which started cotton trading in the 1850s, or the Tata group which emerged in the 1870s through a textile mill, had sizeable market shares during the 1940s. Therefore, Indian companies have been investing abroad for many years, but it is only recently, say since 2000, that Indian outward direct investment flows have taken off to reach substantial amounts on an annual basis. The first signs of Indian investments overseas date back to the beginning of the 20 th century with cottonspinning started in Uganda by an Indian investor in 1920 [START_REF] Jaffrelot | L'Inde moderne : un produit de longue durée[END_REF], and thereafter in the 1950s with further investments in Africa by the Birla group. The whole picture changed in the 1990s. The underlying factors were the deregulation and liberalization of the Indian economy after a foreign exchange payment crisis which culminated in the early 1990s: previous import licences were given up, tariff trade barriers lessened and impediments to foreign direct investment and portfolio investments were relaxed. However, India's economic policies altered only incrementally. Regarding India's economic growth in 1994, it must be noted that the Indian government chose not to accept further 'structural adjustment type' IMF loans as had been the case in 1990 [START_REF] Kohli | Politics of Economic growth in India, 1980-2006[END_REF]. This policy orientation explains why FDI outflows stayed almost flat during the second part of the 1990s1 , and it is only in 2002 that the symbolical one billion dollar mark was reached. Accordingly, Figure 1 exhibits a more synchronous trend between inflows and outflows since 2001 because of a more balanced relaxation of regulations along with growing opportunities for foreign companies to invest in India on the one side, and for Indian companies to start and expand operations overseas on the other. 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Outflows Inflows

Source: UNCTAD, World Investment Reports/WIR According to UNCTAD (WIR 2005), the share of Indian FDI to GDP is still modest: it was only 1 percent in 2004 (2.4 percent for mainland China). But Indian data are underestimated as is usually the case with investments coming from developing countries even if India adopted FDI international computing standards in 2001.

Developing countries are still getting the lion's share of Indian FDI whereas developed countries received less than 30 percent of the total cumulative outflows for fiscal years 1995[START_REF] Jaffrelot | L'Inde moderne : un produit de longue durée[END_REF](RBI 2006): the United States accounted for 16.3 percent and Europe for 11.3 percent. However, Figure 2 is based on notifications and shows Europe catching-up with the United States in the last period. The percentage of manufacturing activities in Indian FDI flows to developed countries is comparatively smaller than in the total stock of Indian outward FDI, while the percentage of non-financial services and, to a lesser extent, financial services is much higher. This result is consistent with the expansion of services in developed economies, particularly in the United States.

If cross-border mergers and acquisitions (M&As) are currently the usual route for direct investment between developed countries, and represent the bulk of these operations on a worldwide basis, companies from developing countries are also getting on the bandwagon. Furthermore, M&As by Indian firms across Europe and the United States are fully part of these companies' international strategies. It is worth considering this aspect in more detail. To this effect, we used the SDC Platinum database from Thomson financial which tracks these operations worldwide. For the 1999/2005 period we found two interesting results: First, contrary to the dominant point of view arguing that it is easier for a company that wishes to be quickly operational to enter Europe's markets through M&As while the United States offers a more relaxed environment for setting up new activities, the fact is that Europe and the United States are on an equal footing for the number of M&A deals (Europe: 106, USA: 108). Second, there is a striking difference between both areas for industry distribution.

Figure 3a shows a very concentrated distribution in the United States for packaged software and IT services with drugs and chemicals taking the remaining part. Such concentration is due to the mainly services-oriented nature of the U.S. economy, and the important place taken by outsourcing and off-shoring for the application, development and maintenance of software. Note that, in 2004, more than two thirds of India's software services were exported to the United States.

The decisive influence of India's development path

Obviously, the national factors are still interplaying with the globalization on a large extent.

As the common determinant of companies' decisions to invest overseas -i.e. to avoid trade barriers -has lost importance, motivations are now largely based on the assertion of competitive advantage by firms. However, in the case of developing countries like India such advantage hinges upon the path followed by the national economy and its embedded environment.

It is worth recalling that after independence, India focused on self sufficiency to avoid dependence on imports and excessive external influence on its domestic affairs. This view was understandable for a country which had only recently emerged from colonialism. Furthermore, India considered itself an exemplar for other developing countries. Therefore, early emphasis was put on import substitution with stringent trade restrictions. However, contrary to other developing countries, independent India always allowed the development of private sector activity even though tight regulations kept it under strict government control -investment licensing, import licensing, controls on the use of foreign exchange, etc. -as part of the planning framework.

Another Indian characteristic was to give higher education priority over primary education. This remains true today: India spent 86 percent of per capita GDP on each student in tertiary education in 2000 yet only 14 percent in primary education [START_REF] Kochhar | India's pattern of development: what happened, what follows? Working paper n°12023[END_REF]). As a result, the availability of qualified manpower along with selective industrial policies has resulted in a national manufacturing base quite different from that of other developing countries. The Indian situation is indeed characterized by more capital-intensive activities and higher productivity.

The economic reform era which began with small deregulation steps in the mid-1980s and gathered speed in the 1990s had, of course, an effect on the behaviour of Indian firms at both national and international levels. Due to path-dependency inertia however, previous industry specialization is still alive. Deregulation and liberalization simply enlarged the strategic scope: it stimulated the organic growth of national companies in their traditional domains, it encouraged the entry into new sectors through diversification strategies and refocused strategies and specialization. In addition, the repeal of the 1970 Foreign Exchange Regulation Act -which aimed to control capital outflows -has reduced the number of obstacles Indian companies have to override when they wish to invest overseas.

To sum it up, the distributional importance of software and IT services, and drugs in India's FDI flows to developed economies is for a large part due to India's past and present economic environment. Let's now take a closer look at these two sectors.

Indian software and IT services industry

As a matter of fact, until the mid-1960s, there was virtually no software development in India. The industry actually got its start in 1968 with the establishment of Tata Consultancy Services (TCS), a wholly-owned subsidiary of Tata Group. Yet, TCS only really took off after IBM withdrew from India in 1978.

If the development of the Indian software and IT services industry has been marketdriven with minimal government regulation, its growth however was propelled by direct and indirect public incentives. First, it is well-known that in the late 1950s and 1960s the Indian government invested in elite technical institutions, such as the Indian Institutes of Technology and Indian Institutes of Management, as well as a large number of other engineering colleges. These institutions produced abundant talent, a critical input for the software services industry. Second, the government took the initiative by setting up technological parks with fiscal exemption and providing Indian software companies with direct telecommunication access to customers in the United States and Europe. In so doing, the government circumvented the public monopoly of the Indian telecommunication operator. Also of great importance was increasing international demand for such competitive and skilled manpower -more particularly from U.S. companies. A study observed that Indian software firms now possess strong capabilities in process maturity and management skills, which positively impacts on their international competitiveness [START_REF] Tschang | China's software industry and its implications for India[END_REF]. Thus, Indian software companies are attempting to move up the value-chain and establish presence in key countries around the world. Lastly, the outward-looking nature of the industry was influenced from the outset by the unattractiveness of the domestic market. The following reasons can be advanced. First, because it feared automation might cause unemployment, the government did not encourage the adoption of computerization in government and state-owned enterprises. Second, its interest in developing a domestic hardware industry led the government to impose extremely high tariffs (350 percent in much of the 1970s and early 1980s). Third, Indian private sector companies had little incentive to adopt information technology to improve operations and productivity, given the highly protected nature of the economy. Overall, this outward orientation stood in significant contrast to the orientation of much of the Indian manufacturing sectors which were focused on the Indian domestic market rather than the export market [START_REF] Khanna | The evolution of concentrated ownership in India. Broad patterns and a history of the Indian software industry[END_REF].

The Indian drug industry

Before the therapeutic revolution around 1940 there was no technology gap between Indian and foreign firms. Afterwards, foreign affiliates in India took advantage of local companies to expand their market share until 1970 when the Indian Patents Act was passed. It was obviously a turning point for the Indian pharmaceutical industry as it gave indigenous firms space to develop alternate processes, and they did so successfully. Therefore, these firms were able to keep prices low, introduce new drugs in the Indian market much earlier than before, and later on, in the 1990s, they started exporting to developed countries' markets. Undoubtedly, none of this would have been possible without the 1970 Act. Furthermore, the chemical industry's relatively strong base for the whole Indian manufacturing sector was particularly critical for the development of a national drug industry inasmuch as the pharmaceutical industry was firmly chemical-based up to the biotechnology revolution. By combining both aforementioned factors, indigenous generic companies gained strong competitiveness both at home and in foreign markets by successfully exporting their products. Those companies have currently embarked on a multifaceted strategy of comprehensive internationalisation -i.e. direct investment, mergers and acquisitions, along with strategic alliances with large multinational companies.

The relationships with financial globalisation

So far, the bulk of the investments by Indian affiliates in Europe comes from parent firms because of the family-controlled nature of those companies and their reluctance to lose control over their affiliates. In some cases they used financial vehicles (ADRs or GDRs) but largely they had 'deep-pockets'. In a few cases, Indian investors have used more subtle financial tools to back their deals. Tata Tea was the first Indian company to resort to a leveraged buyout in 2000 to take over the British Tetley company. But in this prominent case the Indian company had no choice since Tetley had previously been acquired by equity funds. An interesting finding is the large diversity of investors. Thus, we encounter large groups or conglomerates (Bharat Forge, Tata or Reliance), mid-sized enterprises (Avesthagen) or very specialized ones (Ranbaxy or Suzlon Energy). As far as internationalisation is concerned, we also get various actors: early movers (Tata Consulting Services or United Breweries), companies making rapid progress in their internationalization (Bharat Forge), or firms at their early stage (Jubilant Organosys or Subex). Note that these features are not exclusive.

Indian enterprises in

Besides, the new investments are mostly service-oriented (more than 80 percent), while the manufacturing component is larger for takeover deals and equity acquisitions.

The mainstream international business literature advances five motivations or categories for enterprises to invest abroad: to acquire natural resources (mineral or foodstuffs), to tap technological knowledge and capabilities, to gain access to new markets, to seek diversification, and to capture strategic assets.

Although the distinction was not always clear-cut to place each investment case in one category, one motivation seems to be ahead for Indian companies -i.e. to improve their global market positions, which is part of the rapid growth of strategic asset-seeking FDI over the last two decades [START_REF] Dunning | Explaining international production[END_REF]. Market-seeking investments are also prominent whereas technology-seeking investments, such as to tap proprietary technology, seem less important. Another specific factor, which can be labelled 'prestige factor', is driving the international expansion by Indian firms, particularly in mature markets through bids to acquire recognizable foreign brands.

An in-depth analysis of investment cases from Indian companies in Europe reveals five characteristics which are largely embedded in the institutional and economic context of the home country: first, a new phenomenon; second, a multi-dimensional entry pattern; third, the prevalence of family-controlled companies; fourth, an uneven spatial distribution; and lastly, a relatively narrow industry distribution.

A new phenomenon

As If along the 1990s, the entry of Indian investors into Europe through new business set-ups or M&As was relatively modest, the trend gathered pace in 2001 to accelerate in 2004, particularly for company creations.

A multi-dimensional entry pattern

An interesting finding about the investments by Indian companies in Europe is the simultaneousness of diverse forms of entry: direct investment, M&As, and increasingly strategic alliances with large foreign multinational companies. In this sense, Indian companies are not following the historic path previously taken by Western multinational companies which was more of a sequential path, but are clearly grasping the globalization age and its opportunities and constraints. We have already provided some insights into direct investment and M&As, so let's now briefly supply more details about strategic alliances with Indian companies as partners.

Following seminal contributions by authors such as [START_REF] Kogut | Knowledge of the firm, collaborative capabilities and the replication of technology organizations[END_REF], a growing body of literature in the management field has emphasized the crucial role played by alliances in knowledge-intensive industries. Various research studies have underlined the complementarity of the intangible assets controlled by each partner.

As a result it is not surprising to find Indian companies as partners in such settings due to their strong competitive advantage particularly in software and IT services, and the drug industry. If Indian companies, on the one side, are keen to participate in those arrangements, on the other, Western companies are also eager to engage in cooperation with Indian companies in order to tap useful resources and capabilities.

The prevalence of family-controlled companies

As mentioned earlier, family-controlled or ethnic-controlled companies is still the rule for Indian companies. In fact, this is not specific to India as it is also prevalent in Asia with the exception, for historical reasons, of Japan and mainland China. Unsurprisingly, there are numerous Indian family-controlled companies in Europe. We found subsidiaries from groups controlled by old families such as Tata and Birla, along with companies controlled by new families -for example, Bharat Forge by the Kalyani family, and the Reliance group by the Ambanis. However, we also found nonfamily controlled firms more particularly in the software development and IT services industries such as Infosys and HCL. Those companies are generally managed by professionals. This is a marked difference with public companies -i.e. companies with an open capital structure which is the norm in Europe and of course in the United States -because there is no place for hostile bids. As a consequence, the Indian acquisitions in Europe involve cash compensation in order to restrain the issue of new shares or equity exchanges so as not to dissolve family control.

Spatial polarisation

At first glance, the spatial projection of Indian companies' investments across Europe is quite different from that observed at macro level using FDI data (on a balance of payments basis); even though the United-Kingdom ranks as the first European host country in both cases. The UK is still a gateway to European markets: it provides a base for regional headquarters coordination and command activities (for example, TCS set up its regional headquarters in London in 1994 after first starting business there in 1975); and a springboard for the Indian companies willing to expand in Continental Europe. As for other countries, while France still ranks as the third mostfavoured destination, there is a chasse-croisé between the Netherlands and Germany with the Netherlands ranking second for FDI flows and Germany holding the second place for the number of setting up operations and M&A deals. For Eastern European countries, the gap is more pronounced. These discrepancies can be explained by the use of a different computational base: FDI flows are computed in monetary value while setting up and M&A operations are the result of a mere arithmetic count. Therefore, there is no inconstancy between the two data sources: for example, the Netherlands' second rank is due to its fiscal attractiveness particularly for financial holdings, while Germany's second rank for the number of operations results from Germany's spatial centrality in an enlarged EU along with the density and diversity of German industry (Mittelstand). Germany is also the first target for the acquisition of drug companies by Indian counterparts (Table 1).

The 2004 EU enlargement to Hungary, Poland and the Czech Republic2 is a new opportunity for the Indian enterprises willing to enter European markets or expand their presence. A crucial factor is the low wage levels of workers with the appropriate skills in the software development and IT services. As a result, these States are not in direct competition with Western countries for those activities, but increasingly so with India where software engineers' wages have increased over the past few years despite the fact that India produces over 300,000 new postgraduates every year. However, competition does not affect call centers which are still located in India or in other developing countries such as Bangladesh.

The industry specialisation of Indian investments implies quite specific spatial distribution across Europe as investments are mainly concentrated in densely populated areas which can supply the labour market with the many varied skills in demand. Clearly, these investors are trying to reap the benefits of agglomeration effects and scale economies. France's Ile-de-France region, the UK's greater London and Germany's Munich and Ruhr areas thus receive many more Indian inflows than other areas. In addition, as most surveys show, underlying factors such as cultural dynamism, access to an efficient educational system and efficient transport interconnectivity are all part of those areas' attractiveness [START_REF] Veltz | Mondialisation, villes et territoires : une économie d' archipel[END_REF].

Narrow industry specialisation

At the first blush, the array of Indian investments already made in Europe is relatively large. However, the bulk of them is still focused on highly skilled activities in two prominent sectors: first and foremost, software development and IT-enabled services; second, the pharmaceutical industry, more particularly the production and distribution of generics. This twofold specialisation concerns greenfield investments which are very sizeable.

In this case we can speak of mono-specialisation as over 65 percent of operations occur in the same field. In the case of software development and IT-enabled services Europe does not only attract the top five Indian enterprises (TCS, Infosys, Wipro, Satyam and HCL) but also mid-sized ones. This huge presence is characterised by a scattering of representative or commercial offices, with still only a few development centres. Such layout is viewed as necessary by Indian companies so they can enlarge their European market share, strengthen their links with corporate customers or with their European counterparts with a view to forming strategic alliances which will put Indian firms in direct competition in the home markets of first-rank European companies such as Cap Gemini Ernst & Young or SAP. To a lesser extent, Indian enterprises also pursue the acquisition of small European firms so as to secure very specific assets. In 2005, for example, India's i-Flex Solutions acquired Login SA, a French company specialised in treasury management.

The pharmaceutical industry comes next, but this sector is way behind for company setting up operations while it is ahead for M&As. Here, Indian enterprises are large (Ranbaxy Laboratories), mid-sized (Wockhardt) or start-ups such as Strides Arcolab whose stellar growth is pulled by foreign markets. 1). Several reasons can explain this trend. First, there is a structural explanation which has much to do with the high barriers to entry into this industryincreasing R&D costs for a new molecule together with stricter requirements for clinical tests. The second reason is of a contingent nature and can be best described as the opening of an opportunity window -namely European governments' health cost reduction policies, the end of patents on important drugs, and the refocusing induced by the European pharmaceutical companies and U.S. subsidiaries' desire to capture the more substantial gains yielded by new molecules in some specific domains (cardiovascular and anti-infectious). Germany's prominent place (between 2000 and 2006, 6 out of 19 deals targeted German companies) is due to its market share: it is the largest European market for branded generics -Wockhardt's sales, for example, make up 40 percent of that market. The third reason concerns the threat to Indian companies' own home market from the world's pharmaceutical giants, which have more reason to expand in India now that the country has adopted the WTO patent law3 .

All of the above factors have offered attractive opportunities to the Indian companies willing to enter the European markets. When the amounts required were not too high (which can occur in the case of an overbid), this option provided the chance to have full advantage of well-known brands with their marketing settings and commercial networks, and thereby become immediately operational in European markets. In short, the main determinant of M&A activity in the drug industry was rapid access to large geographic markets.

Automotive equipment manufacturing comes third for M&A deals, behind the drug and software industries. This ranking was bolstered by the acquisitions of mid-sized European companies by large Indian enterprises (Tata Motors or Mahindra & Mahindra) or more specialised ones (Amtek Auto, Bharat Forge, EL Forge or Sundaram Fasteners). In so acting, Indian enterprises managed to get immediate access to vital technologies or manufacturing bases in Europe, and thus become part of regional automotive subcontracting networks. They were consequently given both direct access to one of the three global bases for innovation and production in the automotive industry and the opportunity to widen their customer base.

So, to sum up, the examination of M&A operations shows that industry distribution is larger than that of creations. Apart from the software, drug and automotive industries there are still numerous operations in such sectors as chemicals, metal products, and food. Some operations are obviously part of strategies aiming to make already large Indian companies into worldwide firms: for example, in 2004, Reliance Industries acquired a German polyester producer and consequently became the world's largest polyester producer. Other Indian companies target more specific assets as illustrated by Jindal Polyester's 2003 acquisition of the French Rexor -a Rhône Poulenc exaffiliate previously acquired by its managers and an equity fund through a management buyout -because Rexor had specific know-how in the polyester field.

Finally, after studying all of these acquisitions, it becomes possible to establish the recurrence of operations by some large Indian enterprises -either successive holdings acquisitions so as to secure a majority interest or new acquisitions.

All in all, the motivation for current Indian foreign investments is economic efficiency and profitability criteria (pull factors), rather than the desire to escape a restrictive business home environment (push factors), as used to be the case before economic reforms were introduced in India. We can also go back to another seemingly paradoxical finding: Indian FDI in Europe is mainly horizontal -i.e. FDI undertaken for market considerations. According to theory, a fall in trading costs does not bring about any FDI increase, more especially in the case of horizontal FDI. This reasoning implies that lower trading costs, ceteris paribus, make it more profitable for firms to serve foreign markets via exports rather than sell their production directly in the foreign markets. Yet, this statement is not valid in our context: first, for software development and IT services face-to-face interaction is still required, hence scattering investments are made in offices across Europe4 ; second, as regards drug companies, support investments such as trade-related, and legal or administrative investments are equally important.

The impact on European economies

It is now common place that Europe is confronted with two structural challenges: first, chronic high unemployment and second, a low growth path requiring innovation. In this perspective, the effect of Indian investments in Europe seems fairly neutral since those investments concern mostly services such as marketing and commercial representations in high value-added sectors, even though in some areas, notably Eastern Europe, the large IT-enabled services development centres have had some impact. Furthermore, as the acquisitions by Indian investors are part of a strategy to assume global leadership rather than make synergy gains through manufacturing downsizing or a quick profit by financial stripping, they do not cause disruptive effects on employment and consequently on local communities. Notwithstanding the employment figures, the skills problem is worth being addressed.

To do so, we need to go back to the innovation issue as Indian investors in Europe have flocked to high-tech sectors. Here, the impact could be more significant, even if it is not easy to gauge the results. Obviously, the arrival of numerous Indian software companies in Europe increased the demand for ICT skills; new practices and professional experience may affect the manpower structure. Besides, proximity with customers favours knowledge sharing, which may in turn enhance the competitiveness of European companies generally lagging behind the US for software outsourcing and off-shoring. Likewise, productivity gains could be reaped at macro-economic level since services are more pervasive in their effects than manufacturing. Another potential beneficial effect of Indian investors' presence in Europe's software or generic drug industries is an increase in competition (pricing pressures) which may subsequently entail some welfare impact for European consumers through lower prices.

Yet, there are some drawbacks too.

Figure 1 :

 1 Figure1:Indian FDI inflows and outflows, 1995-2004 (in million US dollars)

Figure 2 :

 2 Figure 2: Approved Indian outward FDI flows to the United States and Europe, fiscal years 2000-2004 (in million US dollars)

Europe: why, when, where and how?

  Corporate data generally give useful insights about companies' strategies, but due to the paucity and inconsistence of such information we had to collect data on the identity, patterns of entry and eventually partnerships by Indian enterprises in Europe. Therein, numerous sources have been used: national or local agencies supporting inward investment, professional associations, information brokers (India Advisory Partners, Thomson Financial) and corporate information such as annual reports.Basically, two types of operations have been taken into account: first, new or greenfield investments in plants, development centres or commercial offices; second, M&As of/with European companies, and in some cases, U.S. affiliates. Very few expanding operations have been checked, and no divestiture or closing ones. We cannot therefore definitely ascertain whether Indian enterprises in Europe have divested of company affiliates or even closed factories as firms are generally reluctant to give publicity to such events. A first counting for the 1985/2005 period provides a fairly similar level of setting up operations and M&A deals (around 200).

  mentioned earlier, Indian FDI to developed countries has occurred recently. Even if Europe is still lagging behind the United States the inflows have been gaining momentum since 2002. Actually, the presence of Indian investors dates back to the 1970s when Tata Consultancy Services set up its first office in London in 1975. Afterwards, acquisition deals were conducted by public enterprises (Burmah Oil) in oil refinery and the distribution sectors which were considered as strategic by Indian governments. This trend continued in the early 1990s when large Indian companies acquired state-owned enterprises from Central and Eastern Europe through tenders in those countries' privatization programmes. Indian companies then bought plants from the German Treuhandanstalt agency at very low cost after Germany's 1990 reunification. Indian companies such as Orkay, Usha Rectifier or Dalmia acquired manufacturing footholds in Europe in the textile, electronic and chemical sectors. Apart from the business opportunity, the entry of Indian companies into Europe had more to do with familiarity with East German in terms of management and tradition of government involvement in manufacturing activities than in true synergies between both sides. This inclination is still alive: for example, Mahindra & Mahindra, India's largest tractor manufacturer, which also makes multi-purpose vehicles, made a bid to acquire a Romanian state-owned tractor maker in early 2006.

Table 1 :

 1 Acquisitions of European pharmaceutical firms byIndian companies (2000Indian companies ( - 2006) ) The drug industry's above specialization is even more reinforced if one takes the value of M&A deals into account. As a matter of fact, the largest operation by Indian enterprises in Europe concerns the pharmaceutical industry with the acquisition by Dr Reddys Laboratories of Germany's fourth-largest generic drugmaker Betapharm Arzneimittel for 410 million euros in 2006. It was not a single operation but part of a swelling wave of European companies and foreign affiliates' acquisitions that started in 2003 (Table

	Date	Target company	Target Company's	Buyer
			Country of origin
	2000	Bayer-Generics Pharmaceutical	Germany	Ranbaxy Labs
	2001	German Remedies	Germany	Zydus Cadila
	2003	CP Pharmaceuticals	UK	Wockhardt
	2003	RPG Aventis	France	Ranbaxy Labs
	2003	Alpharma France (Alpharma/ USA)	France	Zydus Cadila
	2004	Esparma	Germany	Wockhardt
	2004	Pharmaceutical Services	Belgium	Jubilant Organosys
	2004	Temmler Pharma	Germany	Wockhardt
	2005	Docpharma	Belgium	Matrix Labs
	2005	Heumann Pharma	Germany	Torrent Pharmaceuticals
	2005	Beltapharm	Italy	Strides Arcolab
	2005	Polish Sterile	Poland	Strides Arcolab
	2005	Efarmes	Spain	Ranbaxy Labs
	2005	ICN (Valeant Drugs Pharmaceuticals/ R-	Hungary	Sun Pharmaceuticals
		U)
	2006	Explora Labs	Switzerland	Matrix Labs
	2006	Betapharm	Germany	Dr Reddys Labs
	2006	Terapia	Romania	Ranbaxy Labs
	2006	Ethimed	Belgium	Ranbaxy Labs
	2006	Allen (GlaxoSmithKline/ R-U)	Italy	Ranbaxy Labs
	Source: SDC Platinum database

  If one considers European trade balances, the impact is negative because the competitiveness of Indian companies in Europe lies in the synergy of European distribution networks and Indian low-cost manufacturing facilities. It is not accidental if Indian national accounts have shown stellar growth in ICT services since 2002. As for the future the prospects are not too promising for the European manufacturing base because Indian companies can use other more competitive manufacturing places in Europe's neighbouring countries or elsewhere in Asia.

The following was also part of the explanation: the ending of the domestic market protection policy caused Indian firms to spend large amounts of capital and was followed by a period of consolidation and rationalisation.

According to one ranking (A.T. Kearney 2004) the Czech Republic offers the most attractive conditions in Europe for the off-shoring of software and IT services.

By recognizing product patents, India accepts that generic drugs cannot be sold in India until the patents on branded drugs have expired.

In addition, MNC customers expect some presence or support in many countries, and often prefer dealing with a single global contact in only one outsourcing company to entering into multiple contracts with a whole range of local suppliers around the globe.

Acknowledgments

The author thanks Ben Offerle for remarkable research assistance.


F Deroian

Z M'chirgui

C Milelli

Evidences on inter-Firm R&D partnerships in three high-tech industries

Keywords: JEL Classification Numbers: L24, L6, O31 Innovation, R&D Partnerships, High-Tech Industries, Network Architecture 1

This paper describes inter-firm partnerships in three major high-tech industries over the 1985-2005 period. We found that the architecture of the respective networks had evolved toward a 'small world' in the early 1990s. We also found that the number of alliances collapsed in the late 1990s. This result roughly follows the number of patents granted in the respective industries and is correlated to an increase in market concentration, and to some extent to the rising number of mergers and acquisitions.

Introduction

This paper examines inter-firm partnerships at sectoral level in three major high-technology industries over the 1985-2005 period. We opted for research and development (R&D) cooperation agreements, namely the contractual arrangements by which firms or academic institutions share and pool resources and coordinate their R&D activities. As these non-equity forms of collaboration are flexible and limited in their horizon, they should be distinguished from other forms of cooperation agreements like research joint ventures. We used SDC Platinum, one of the few databases with worldwide coverage that encompasses R&D partnerships in several industries, at both domestic and cross-borders levels. This database is continuously updated and therefore allows for the extraction of fresh data.

Our study focuses on the pharmaceutical, the semiconductor and the communications equipment industries. It exhibits four salient points: first, the number of R&D alliances stopped increasing in the late 1990s, and even started to decrease sharply after 2000. Second, during the most favorable period, i.e. 1989-1994, the architecture of the three sectoral alliance networks evolved toward a 'small world' layout. Third, the decline in alliance formation is concurrent with the collapse in the number of patents granted in the respective industries. Last, the recent changes in market structure characterized by both an evolution towards more concentrated markets and a rise in mergers and acquisitions (M&A) operations, shed light on the economic forces driving the drop in the number of partnerships after the year 2000. In this respect, the study bears out the Schumpeterian view that the dynamics of innovation affects the shaping of markets to a large extent. Likewise, it stands out that the use of R&D cooperative agreements as a way to breed innovation in high-tech industries is sensitive to the nature and the potential of future innovation developments.

This study complements previous papers on the subject. Among others, [START_REF] Hagedoorn | Inter-firm R&D partnerships: an overview of major trends and patterns since[END_REF] provided evidence of the rise in the number of contractual R&D partnerships in high-tech industries1 from the mid-1970s to 2000. Later, [START_REF] Hagedoorn | Inter-firm R&D partnering in pharmaceutical biotechnology since 1975: trends, patterns and networks[END_REF] confirmed the increasing number of alliances in the bio-pharmaceutical industry during the same period. With reference to these two papers, the review of our data (updated to 2005 included) discloses a collapse in the number of R&D partnerships after 2000. It would certainly be worth considering additional studies to establish whether this drift is nothing but an ephemeral anomaly. Furthermore, [START_REF] Gay | Innovation and network structural dynamics: study of the alliance network of a major sector of the biotechnology industry[END_REF] make it clear that the evolving alliance network has given form to a 'small world'. Our findings are consistent with this last result. The authors also display a positive correlation between the number of alliances and the number of products already in the pipeline.

Again, we confirmed the point for our three industries by correlating the number of alliances with the number of intra-industry patents. Interestingly, the latest theoretical literature on industrial organization supports these results [START_REF] Goyal | R&D networks[END_REF], [START_REF] Goyal | Networks of collaboration in oligopoly[END_REF]).

The paper proceeds as follows. The next section is a reminder of some of the technological breakthroughs, changing environment and path development in the three industries. Section 3 tackles the dynamics of R&D networks in these sectors. Section 4 discusses the main results, and integrates the data on patents, market concentration as well as details on M&As. The last section concludes and advances suggestions for future research in this area. Appendix A describes the contents of our databases and appendix B and C provide the related tables and figures.

A short perspective on the three industries

The three sectors under scrutiny have been propelled by steady innovation from the outset.

Yet, several differences lie behind the features common to the innovation process and path development and are therefore worth considering.

The semiconductor is fairly recent compared to the two other sectors but it is a crucial component of the all-out information industry and the pervasiveness of the 'digital age'. It emerged from a few radical advances in innovation which were highly localized: in the United States, especially in the 'Silicon Valley'. Right from the start, the sector was characterized by small and very specialized companies but due to idiosyncratic features, the development of the new industry occurred in a specific ecosystem. For example, most of the numerous start-ups in the 'Bay area' were founded and staffed by former engineers and technicians from Harris Corporation.

The development of the industry was driven by the law of Moore, which claims that memory capacity doubles every 18 months as a result of technological progress. This statement -which proved a self-fulfilling prophecy -was the sole driving force up to the mid-1980s when Japanese companies stepped in and started to exert mounting competitive pressure. The pressure impacted incumbent firms, mainly U.S. companies, among which many went bankrupt or had to give up their main business activity. Thus, Intel was constrained to start a new line of businessthe designing and manufacturing of microprocessors -which eventually proved highly successful.

Subsequently, Japanese companies became very active in forming R&D alliances. The industry's structure is currently based mainly on complex trans-national manufacturing networks in which Asia keeps reinforcing its role as a prominent manufacturing base that targets the emerging economies' sizeable markets.

The communications equipment industry (telecommunication thereafter) is a mature industry as it dates back to the infancy of the whole telecommunication industry. Up to the early 1980s and the deregulation of the U.S. telecommunication sector -American Telephone & Telegraph's monopoly was repealed in 1984 and the company was then split up into autonomous entitiesthe telecommunication industry was in effect linked to the large telecom operators which enjoyed a 'natural monopoly' (France Telecom in France, NTT in Japan, among others). Somehow, the year 1984 was a symbolic hallmark for the whole telecommunication industry as it was followed by a surge in privatization and deregulation programmes worldwide. In the early 1990s the spreading development of the Internet required new skills and capabilities. Consequently, the main actors integrated downwards to capture new added-value sources. While firms -among which Lucent has proved the most aggressive -have decided since 2000 to concentrate on their core activities. 2001 marked a crucial year in the M&A partnership downward trend. Several reasons may help to explain the change: first, the saturation of numerous market segments -more especially the downturn in the mobile telephony infrastructure market; second, the bankruptcy of fledgling operators; third, the high pressure on pricing from telecom operators. Furthermore, several alliances with large partners failed due to conflict of interest and the difficulty to benefit from synergy forces. The innovation race has been less harsh than in previous industry, and yet, although some new companies have emerged like Cisco Systems of America and China's Huawei, the industry is still largely composed of traditional companies. As scale economies are becoming crucial for sustaining a competitive advantage, the industry is consolidating at fast pace on a worldwide basis through the merger route. It is also the best option to reach critical size. In addition, both sectors, semiconductors and telecoms, nurture strong linkages as the design and the use of integrated circuits are common elements in the production process of communications equipment.

The pharmaceutical industry is also a fully-grown industry, yet with some particular characteristics. First, it spends more on R&D, measured as a percentage of sales, than any other major industry. By way of illustration, Pfizer of America, the then global leader, allocated more than 14 percent of its turnover to R&D expenses in 2005. The situation specific to that industry can probably be explained by the longer and riskier research periods of time together with other numerous constraints (e.g. clinical tests, safety regulations, etc.) pharmaceutical firms must incur before new drugs can be delivered to the market. A second characteristic is that the innovation process involves numerous academic institutions alongside private companies. This feature has been compounded with the breakthroughs of biotechnology in the early 1990s, when the innovation process became largely science-driven. As the large pharmaceutical firms did not have the appropriate skills in that field, new firms emerged. However, since many companies lacked the large distribution channels, the marketing and manufacturing facilities, or simply the substantial financial resources needed, they merged with the large drug companies -primarily from developed countries -that were already engaged in a worldwide race to gain valuable market share. Because they were latecomers, Japanese companies actively participated in forming R&D alliances, and in the early 2000s Asian companies (mainly from India and China) were participating in cross-borders alliances so as to tap the R&D resources and skills they badly missed. After the 'golden era' of new drug discoveries in the 1980s onwards, pharmaceutical companies started suffering from a dearth of new products. In addition, pharmaceutical makers had to face another challenge as the patents' expiry dates for the largest-selling drugs were approaching fast. These factors can explain why drug makers from the U.S. and Europe went on an aggressive M&A spree in the early 2000s. The move was indeed congruent with the streamlining initiated in the mid-1990s by all the incumbent firms which had been forced to bear the increasingly growing cost of bringing innovative molecules to market.

Dynamics of R&D networks

We introduced data on the networks of R&D partnerships in three high-tech industries. We began with the numbering of alliances per year, and came up with some outstanding evidence, and then pursued the analysis by characterizing the evolution of the networks' architecture. with an overall peak in 1994 followed by a dramatic decrease, which can be virtually equated with total collapse. The same characteristics apply for all three high-tech industries. In addition, contingent impacts on the shape of the curves can be drawn from the presence of the common 1994 peak.

A rise until the mid-1990s and a collapse thereafter

-Insert figure 1 about here -More precisely, the rise in the number of these contractual agreements took off in 1989 for the pharmaceutical industry, and during the following years for the two other sectors. Here, changes in the institutional setup in the United States and the European Union (Japan was already supporting cooperative agreements) is part of the explanation. The pharmaceutical sector displays the greatest number of alliances, far ahead of the semiconductor sector which is followed at some distance by the telecommunication sector. The increase in the number of alliances is irregular and idiosyncratic to each sector: pharmaceuticals witness three local peaks (in 1992, 1994 and 1997) 1994 being the most prominent; the semiconductor sector also displays three peaks (1991, 1994 and 1996).The telecommunication sector, for its part, shows two culminating points (1994 and 1997). A more recent upturn occurred in the pharmaceutical industry in 2005. It was mainly due to the Chinese and Indian investors' entry into the market.

Network characteristics and dynamics

Figures 2 to 10 display discrete-time images of the evolution of the three R&D networks. Interestingly, all three networks' evolution is fairly similar. The figures reveal the existence of a large network and a great component (more than 50 percent of the number of alliances) during the first two sub-periods of analysis. The networks are more dense and more complex in the second sub-period than in the first one. But in the last sub-period the number of R&D alliances drops dramatically. The R&D networks are only shaped by some isolated pairs (one-to-one ties) and a few isolated clusters.

-Insert figures 2 to 10 about here -In this section, we examined the topological R&D network structure for the three high-tech industries. First, we explored the global structure of the three R&D networks; and second, we looked at the actual position of the top-ten actors of each industry within their respective R&D networks.

A 'small world' architecture

Recently, several structural properties of social networks have been updated, such as 'small world' properties and power-law degree distributions. 'Small world' is a class of network architecture which has been popularized in sociology by the so-called experience of [START_REF] Milgram | The 'small world' problem[END_REF].

More recently, works conducted by physicists and mathematicians [START_REF] Watts | Small Worlds: the Dynamics of Networks between Order and Randomness[END_REF], [START_REF] Watts | Collective dynamics of 'small world' networks[END_REF]) shed light on the topological properties of 'small worlds' (low average degree, high clustering index, and low average path length). The latest economic and managerial studies on network topology have shown that real world networks did not look either like the random network or the regular one2 . The majority of these studies found that the network topology of the different sectors each possesses 'small world' properties. For example, in biotechnology [START_REF] Powell | Interorganizational collaboration and the locus of invention: networks of learning in biotechnology[END_REF]), in the semiconductor [START_REF] Podolny | Networks, knowledge and niches: competition in the worldwide semiconductor industry, 1984-1991[END_REF]), in the German industry [START_REF] Kogut | The 'Small World' of Germany and the durability of national networks[END_REF]), in strategic alliances [START_REF] Verspagen | The small worlds of strategic technology alliances[END_REF]), in the venture capital industry [START_REF] Baum | Where do Small Worlds come from?[END_REF]), in communication networks [START_REF] Schintler | Complex network phenomena in telecommunication systems[END_REF]), in bio-pharmaceuticals [START_REF] Gay | Innovation and network structural dynamics: study of the alliance network of a major sector of the biotechnology industry[END_REF]), in software [START_REF] Lyer | Managing in a 'small world Ecosystems', lessons from the software sector[END_REF]), and in the world of economics [START_REF] Goyal | Economics: an emerging 'small world' ?[END_REF]). The networks endowed with these properties are widely thought to enhance creativity and influence the rate of diffusion as well as the efficiency of knowledge, competencies and resources exchange.

In each of the sectors we focused on, we proposed a dynamic investigation by splitting the 21-year period in three seven-year sub-periods (the choice of period length does not affect the results). First, we computed the number of firms that were partners in alliances as well as the average number of partners for each firm (table 1a). From this, we observed that the average number of partners is small in each sub-period, i.e. 2.58 at most for the whole network and 3.49 in the largest component. Second, we examined whether or not the biggest component matched the characteristics of a 'small world' configuration (table 1b).

-Insert tables 1a, 1b about here -For that purpose, we compared the characteristics of networks of distinct size through a standard method that normalizes indexes by a corresponding index in an Erdos-Renyi stochastic network with the same average degree. More precisely, we gave to the number of firms in the largest component, the average of partners, the average clustering, in the Erdos-Renyi stochastic network with the same average degree, the ratio of clustering indexes, the average path length, the average path length in an Erdos-Renyi stochastic network with the same average degree, the ratio of average path length. A 'small world' network is typically a network with a large number of nodes, a small average degree, an average path length close to that of a random network with identical average degree (so the ratio of average path lengths should be close to 1) and a large clustering index with respect to that of a random network with identical average degree (so the ratio of clustering indexes should be much higher than 1). This is what we have obtained for the three industries. Clearly, the metaphor of 'small world' applies to large networks, i.e. the networks that emerged in the early 1990s (the semiconductor industry fits best the 'small world' architecture, with the pharmaceutical industry, and the telecommunication industry coming next). We concluded that during the 1990s the three sectors exhibited a 'small world' architecture.

The degree distribution

The degree of links, or degree centrality, refers to the number of partnerships a firm is involved in. A firm with a high score may be considered as central and consequently expected to play a non-negligible role in the network. It is indicative of the extent to which a firm has succeeded in developing a dominant position in the overall network of inter-firm partnerships. Tables 2a, 2b and 2c list the ten leading firms in R&D networks that show the highest degree (of alliances) in the three industries during each of the seven-year periods.

-Insert tables 2a, 2b and 2c about here -In the semiconductor sector, among the top-ten firms in each sub-period, Intel, Toshiba and Sony are present as central actors in all time periods. One striking result is that there is a noteworthy change in the ranking in the three sub-periods. The same applies to the telecommunication sector, with the exception of Motorola and Mitsubishi Electric which are present in all time periods. In the pharmaceutical sector, even though Eli Lilly, Bristol-Myers Squibb and Pfizer are present in the three sub-periods of analysis, we can notice a significant turnover in the last sub-period. However, the pharmaceutical R&D network seems to be relatively more stable than the other two networks.

We then turned to the description of the entire degree distribution. In this respect, we looked at whether the degree distribution for each R&D network unfolds a power-law regime or not.

A power-law distribution is a statistical distribution in which one variable is proportional to a power of the other. A power law 3 implies that the network has no 'typical' node, in the sense that 3 When considering dynamical models of network formation, a power-law distribution may emphasize the presence of preferential attachment [START_REF] Albert | Statistical mechanics of complex networks[END_REF]). Considering a process of node arrival in which new nodes form a unique link with a current node means that the probability that the new node will be connected to a current node depends linearly on the degree of the latter node. Then, new nodes are more likely to link up with a Gaussian distribution would have a mean node, and the distribution is scale-invariant [START_REF] Albert | Emergence of scaling in random network[END_REF]). Basically, a power-law distribution is more unequal than a Gaussian one, it typically contains few nodes with disproportionate degree. These highly connected nodes dominate the topology of the network by forming 'hubs'. Figures 11a,11b and 11c exhibit the cumulative degree distribution for the three R&D networks.

-Insert figures 11a, 11b and 11c about here -Further, a log-log representation is proposed in order to assess whether the distributions follow a power law (in which case one would obtain a linear relationship in log-log scale). The figures indicate an incomplete power-law relation, since the individual points of the degree distribution are not distributed along a straight line when plotted in log-log scale. This result is of importance, as it partly diverges from the 'physicists' explanation of the dynamic network formation la [START_REF] Barabási | Linked: The New Science of Networks[END_REF] 4 . Given that our empirical cases lie in an intermediate position between a Gaussian and a power-law distribution, we concluded that R&D networks are not totally cannibalized by a few firms, in spite of the crucial role played by the main actors.

The betweenness centrality

The betweenness centrality is an instructive indicator of network position. Basically, it measures the extent to which a particular node lies on the shortest paths linking other nodes in the network, and consequently the extent to which a firm, landing on the shortest path between two other companies, has a potential for accessing and controlling information [START_REF] Burt | Structural holes. The social structure of competition[END_REF]). Tables 3a,3b, 3c present the top-ranking firms in terms of betweenness measures for the first two subperiods (1985-1991 and 1992-1998) for each R&D network (the number of alliances being too low during the last sub-period to provide relevant betweenness indexes).

-Insert tables 3a, 3b and 3c about here -The comparison with degree centrality does not show a noteworthy change in the magnitude of betweenness centrality for the three R&D networks. Let us illustrate this point. In the semiconductor sector, out of the top-ten firms Toshiba and IBM are present in all three sub-periods, with Toshiba being dominant both in terms of degree and betweenness centrality, and IBM a focal actor only in terms of betweenness. This situation suggests that a dominant position is not existing nodes that have large centrality degrees than to nodes with relatively lower degrees. And consequently, highly connected nodes become more connected over time.

necessarily related to the number of alliances. In the telecommunication sector, only Motorola is present in the three sub-periods. This confirms the dominant role played by this company and also highlights its ranking in the three sub-periods of analysis. In the pharmaceutical sector, SmithKline Beecham and Genentech are present in all sub-periods. However, their ranking order decreased in the last sub-period. Pfizer and Eli Lilly seem to be more central in terms of betweenness centrality than SmithKline Beecham and Genentech in the last two sub-periods.

When we looked at the degree centrality of SmithKline Beecham and Genentech in the first sub-period, the two firms appeared to be in a better position than Pfizer and Eli Lilly. This situation indicates that the former were dominant actors during the first two sub-periods but lost their advantage afterwards and were surpassed by Pfizer and Eli Lilly.

To sum up, the structure of the three R&D networks clearly exhibits a 'small world' structure during the first two sub-periods of analysis, which may strongly influence their potential for knowledge creation and dissemination. 'Small world' networks are locally clustered into dense sub-networks or cliques that are sparsely connected by a small number of ties that cuts across the cliques, linking network members through a relatively small number of intermediaries. The two centrality measures (degree and betweenness) show that the ranking of the top-ten firms for each R&D network is not stable and changes over time. Only a few are present in all the three sub-periods of analysis, and that is fundamental for both the creation of a 'small world' architecture and innovation (Toshiba and IBM for the semiconductor industry, Motorola for the telecommunication industry, and Pfizer and Eli Lilly for the pharmaceutical industry).

Instability and changes in ranking emphasize the fierce competition these industries have to face up to as well as the rapid technological change that occurs in these knowledge-intensive industries.

Overall, the evolution of R&D networks over the period of analysis clearly shows that after an outburst of R&D partnerships for each network which essentially took place during the years 1992-1998 thanks to very dense R&D networks, the last sub-period is driven by some isolated dyads and clusters.

Discussion

Knowledge-intensive industries such as the semiconductor, telecommunication and pharmaceutical industries are characterized by both traditional price and knowledge-based oligopoly compe-tition (Mytelka and [START_REF] Delapierre | Strategic Partnerships and the rise of knowledge-based networked oligopolies[END_REF]). Globalisation has reinforced these modes of competition as well as the innovation race. The formation of networks by firms aims to develop new knowledge and control the evolution of technological trajectories [START_REF] Delapierre | Cascades d'innovations et nouvelles stratgies oligopolistiques[END_REF]). Indeed, partnerships help to reduce costs, risks and even uncertainties in a process of continuous innovation; they are also an important source of learning and innovation (Powell, Kogut and Smith-Doerr [1996]). In this context, the decline of the number of R&D alliances, as revealed by figure 1, can be explained by, at least, two complementary reasons: first, a decrease in the innovative activity of these industries and, second, a deepening of market concentration which was eventually accompanied by a rise in M&A operations. We addressed hereinafter these points by both suggesting specific arguments and presenting adequate features.

We started with data on the patents the three industries received during the same period . To do so, we extracted the relevant information from the United States Patent and Trademark Office (USPTO) database. Figure 12 shows that the number of patents issued in the three high-tech industries is strongly correlated with the number of alliances and its subsequent a collapse with a time lag of approximately five to six years for the three sectors.

-Insert figure 12 about here -It seems that by the end of the 1990s, innovation and the exploration of new capabilities attained a saturation threshold. However, this argument can be downplayed by the fact that the innovation projects undertaken by firms which are part of alliances is not fully representative of the innovative activity within the whole industry. Figure 13 presents the evolution of the number of patents granted to the allied firms in the total number of patents for each industry over the period.

-Insert figure 13 about here -We found that the ratio is rather stable (even on the increase for the semiconductor industry).

Therefore, the total amount of R&D cooperative agreements, and more particularly their decreasing number during the late 1990s, were strongly correlated with the innovative activity in the sectors concerned. We inferred from figures 1 and 12 that joint innovative activity was presumably representative of the innovative activity within the whole industry, and that it sharply declined during the late 1990s. To explain this decrease in innovative activity, recent empirical work [START_REF] Sachwald | The 'Old Economy' in the New Globalization Phase[END_REF]) asserts that around 2000, a new phase of globalisation gathered pace through a comeback of the 'old economy' sectors and concurrently caused the 'new economy' and the high-tech sectors to shrink. Hence, current economic growth is more readily driven by traditional sectors, such as machinery, automobiles (assembly, components), chemicals, foodstuffs, and the metal industry; all of these sectors being somehow revitalized by the economies of emerging countries such as China, India, Brazil, among others.

We then turned to the dynamics of market structure and investigated the recent concentration in market share. Our data are incomplete as some years are missing in the telecommunication industry . We computed the Herfindhal index for the ten highest market share figures in each sector and collected data for each year (therefore neglecting residual market share). Figure 14 indicates an increase in the concentration index for the semiconductor and pharmaceutical sectors; the available data in the telecommunication sector suggest an increase after 2001.

-Insert figure 14 about here -These converging results confirm the recent evolution toward a more concentrated structure in the sectors concerned. In parallel, we measured the evolution of M&A operations involving a target firm in each sector as of 1990. As a result, figure 15 displays a continuous increase in the measure for the pharmaceutical industry, an upward trend between 1998 and 2000 for the semiconductor sector, and an increase until 2000 followed by a fall afterwards in the telecommunication sector.

-Insert figure 15 about here -Accordingly, the dynamics of M&As gives part of the explanation for the recent increase in concentration for the semiconductor and pharmaceutical sectors. The first reason why the high-tech sectors recently became more concentrated seems to be reflective of the dwindle in innovative activity. This trend is supported by the surge in M&A operations, which were often preferred to strategic alliances as external sources of innovative capabilities in the firms' core businesses. This view is confirmed by some studies which have documented that M&As are negatively correlated with the industry's growth rate [START_REF] Hennart | The transaction costs theory of equity joint ventures[END_REF], [START_REF] Hagedoorn | The transition from strategic technology alliances to mergers and acquisitions: an exploratory study[END_REF], [START_REF] Vanhaverbeke | External technology sourcing through alliances or acquisitions: an analysis of the application-specific integrated circuits industry[END_REF]). As a matter of fact, M&As do not only bring size into the considerations associated with the range of products and markets in which a firm can be present, but also new R&D, design and engineering capabilities. Therefore, M&As contribute to the flexibility with which firms can provide new solutions to their clients in the long term.

The second reason results from the overarching globalisation process through the emergence of institutional change such as extensive deregulation policies and the opening to domestic and foreign competition. Obviously, deregulation has hit many sectors like air transportation and telecommunications, more particularly. Furthermore, deregulation in telecommunications together with the pressure of more competitive markets prompted telecommunication operators to invest on a large scale. Concurrently, the move from monopolistic to competitive markets, robust economic growth and the development of real innovative services (electronic commerce) have fed the 'Internet bubble'. Battered by overinvestment, the telecommunication operators were unable to achieve their forecast objectives. So, the bubble eventually burst and the sector fell in crisis. Revenues as well as production targets were downgraded and, eventually, investment expenses were reduced. As they were strongly reliant on telecommunication operators, the telecommunication equipment suppliers have also suffered from the operators' drastic curb on investment. In addition, size has become a prominent consideration in the way firms compete for survival, as illustrated by recent big-ticket mergers (Alcatel/Lucent, Nokia/Siemens).

Conclusion

We have thoroughly described the dynamics of worldwide R&D networks in three high-tech sectors (semiconductors, pharmaceuticals and communications equipment). Our analysis points out that, beyond the specificities of each industry, the dynamics of R&D network formation is, in the end, not industry-driven. This is to some extent surprising, as the parameters controlling both the technological potential and the turbulence of innovation, as well as the profitability of economic actors is largely industry-sensitive. Our analysis also reveals a dramatic fall in the number of R&D partnerships after the mid-1990s. One straightforward result is that the collapse of R&D partnerships was accompanied by market concentration. Hence, the study supports the view that the development of R&D cooperative agreements spurring innovation in high-tech industries is sensitive to the nature and the stage of the life-cycle of innovation within the industry.

Although the pursuit lies beyond the scope of this paper, the findings raise several questions which deserve further attention. The first issue concerns the extent to which the database content is reliable. The drastic fall in detected R&D partnerships after 2000 may after all, be only partly either due to less systematic tracking for exogenous reasons, or simply be the result of the drop in publicly declared alliances by the firms concerned. Further studies may therefore be needed to determine to what extent our statement can be upheld. The second issue relates to the extent of the respective impact of, on the one hand, the international economic environment and, on the other, the recent slowdown in these industries' technological innovation potential. The third issue deals with the on-going deregulation process, at national and transnational levels, and the advance of globalisation, both of which factors must be viewed as permissive. In this context, we may suspect that globalisation could affect the evolution of contracting practices even more.

AUTHORS' AFFILIATIONS: F. Deroian is at GREQAM, Marseille, France. E-mail: frederic.deroian@univmed.fr; Z. M'Chirgui is at CREM, Rennes, France. E-mail: zouhaier.mchirgui@univ-rennes1.fr; C. Milelli is at EconomiX, Nanterre, France. E-mail: milelli@u-paris10.fr.

Acknowledgements:

The authors thank Ben Offerle for remarkable research assistance. main high-tech sectors and holds probably 3 or 4 times more alliances than the MERIT-CATI database). In addition, it monitors the formation of new alliances over time more systematically, although it probably focuses more on the alliances that have U.S. firms as partners. Basically, the database contains a lot of information on various types of agreements, such as marketing, commercial, R&D, or manufacturing agreements. We concentrated here on R&D agreements only. We extracted from the database the details containing the alliance announcement date, the partners' names and their SIC codes, the nature of the agreement, the name of the firms' home country, the name, country and SIC codes of their parent firms. Note that the database is constantly updated, which enabled us to obtain fresh data. The present paper is actually concerned with the partnerships established over the 1985-2005 (included) period. The pharmaceutical sub-base contains 3,648 alliances over the period, the semiconductor's 1,592, and the communications equipment sub-base 798. When an alliance contained k ≥ 3 partners, we chose to substitute it with the k(k-1) 2 alliances corresponding to the maximal set of distinct pairs among all members.

Second, we used the USPTO database which is continuously updated and in free access. We assigned patents to the year of application, and extracted data for the same period as previously.

The database takes in the patents granted on the U.S. market to companies and academic bodies.

This could be a problem for our analysis and the results we have used, since two other prominent markets (the European Union and Japan) are out of reach, but it is somehow consistent with SDC Platinum's foregoing bias in favor of U.S. companies on the one side and the large number of foreign companies as assignees present in the USPTO database on the other.

APPENDIX B: TABLES

Figure 1

 1 Figure 1 presents the number of R&D partnerships per year for each industry over the 1985-2005 period. The figure clearly shows a rise in the number of contracts from 1985 to the mid-1990s,

Figure 11 :

 11 Figure 11: Degree distribution in log-log scale for the three industries

Table 1a :

 1a Characteristics of the R&D networks for each seven-year period

		Semiconductor	Pharmaceutical		Telecom
	Period	85-91 92-98 99-05 85-91 92-98 99-05 85-91 92-98 99-05
	Number of firms	174	375	83	449	1099	167	157	471	30
	Number of alliances	161	384	41	411	1419	92	157	706	26
	Average degree	2.02	2.58	1.25	1.84	2.61	1.11	1.88	2.54	1.13

Table 1b :

 1b Characteristics of the greatest (giant) component for each seven-year period

		Semiconductor	Pharmaceutical		Telecom
	Number of firms	77	234	8	272	822	6	80	269	3
	As percentage	44.25	62.4	9.64	60.58	74.8	3.6 50.95 57.11	10
	Average degree	2.93	3.38	2.50	2.23	3.08	2.67 2.55	3.49	1.33
	Av. path length	3.72	3.90	2.25	8.30	5.17	1.53 4.55	4.24	1.33
	Av. path length stoch. net.	4.03	4.47	2.27	6.00	5.96	1.83 4.68	4.48	3.82
	Ratio av. path length	0.92	0.87	0.99	1.18	0.87 0.84 0.97	0.94 0.35
	Av. Clustering coef.	0.39	0.39	0.58	0.17	0.2	0.75 0.26	0.48	0
	Av. Clust. coef. stoch. net. 0.006	0.002	0.06	0.008 0.004 0.53 0.03	0.01	0.67
	Ratio clustering	63.87 169.83 10.25 21.04 53.22 1.41 8.08 36.58	0

Table 2a :

 2a Top-ten degree centrality in Semiconductor R&D network

	85-91	92-98	99-05
	Texas Instruments Inc (15)	Intel Co (25)	Taiwan Semiconductor Mnfr Co (4)
	National Semiconductor Co (11)	Toshiba Co (24)	STMicroelectronics NV (3)
	Fujitsu Ltd (10)	NEC Co (22)	Koninklijke Philips-CDMA Asset (3)
	Intel Co (8)	Siemens AG (20)	IBM Co (3)
	VLSI Technology Inc (8)	Fujitsu Ltd (19)	Motorola Co (3)
	Toshiba Co (7)	Texas Instruments Inc (15)	Toshiba Co (3)
	Motorola Inc (7)	Hitachi Ltd (15)	Cadence Design Systems Inc (2)
	EXAR Co (6)	Sony Co (14)	Intel Co (2)
	General Instrument Co (6)	SGS-Thomson Microelectronics (14)	Infinesse Co (2)
	Sony Co (6)	LSI Logic Co (13)	Sony Co (2)

Table 2b :

 2b Top-ten degree centrality in telecommunication R&D network

	85-91	92-98
	Fujitsu Ltd	Intel Co
	Texas Instruments Inc	Toshiba Co
	Toshiba Co	Texas Instruments Inc
	Hitachi Ltd	IBM Co
	Sony Co	Siemens AG
	VLSI Technology Inc	NEC Co
	MIPS Computer Systems Inc	LSI Logic Co
	Siemens AG	VLSI Technology Inc
	National Semiconductor Co National Semiconductor Co
	IBM	Motorola Inc
	Table 3b: Betweenness centrality in Telecom R&D network
	85-91	92-98
	Motorola Inc	Intel Co
	American Telephone & Telegraph	IBM Co
	Digital Equipment Co	American Telephone & Telegraph
	Nippon Telegraph & Telephon	NEC Co
	Cabletron Systems Inc	Mitsubishi Electric Co
	NEC Co	Motorola Inc
	SynOptics Communications Inc	Northern Telecom Ltd
	Data General Co	SynOptics Communications Inc
	Wellfleet Communications	Hitachi Ltd
	SGI	Cisco Systems Inc

Table 3c :

 3c Betweenness centrality in Pharmaceutical R&D network

Inter-firm partnerships have been particularly drawn to industries like information and communication technologies[START_REF] Hagedoorn | Leading companies and networks of strategic alliances in information technologies[END_REF]), semiconductor[START_REF] Rowley | Redundant governance structures: an analysis of structural and relational embeddedness in the steel and semiconductor industries[END_REF], pharmaceutical[START_REF] Mitchell | Incumbent's use of pre-entry alliances before expansion into new technical subfields of an industry[END_REF]), automobile[START_REF] Hennart | The transaction costs theory of joint ventures an empirical study of Japanese subsidiaries in the United States[END_REF];[START_REF] Osborn | Forms of interorganizational governance for multinational alliances[END_REF]), biotechnology[START_REF] Shan | Interfirm cooperation and start-up innovation in the biotechnology industry[END_REF];[START_REF] Walker | Social capital, structural holes and the formation of an industry network[END_REF]).

For literature surveys on network topology see[START_REF] Albert | Statistical mechanics of complex networks[END_REF],[START_REF] Watts | Six degrees: the science of a connected age[END_REF][START_REF] Newman | The structure and function of complex networks[END_REF].

See Jackson and Rogers (2007) for a dynamical model of network formation generating incomplete power laws.

Figure 3: R&D Network in semiconductor industry; period 1992-1998

Figure 4: R&D Network in semiconductor industry; period 1999-2005

Figure 9: R&D Network in pharmaceutical industry; period 1992-1998

APPENDIX A: DATA

For this study, we used two databases. First, we resorted to SDC Platinum (Thomson Financial), a database which collects information on R&D partnerships from public announcements.