Open Innovation: Reshaping Industrial Capabilities

The Indian automobile industry (IAI) is undergoing a dynamic transformation, driven by increased adoption of open innovation (OI) practices and strategic flows of foreign direct investment (FDI). This paper explores interplay between OI systems and FDI in the Indian automotive sector, and highlights how global collaborations, technology transfers and public-private partnerships are reshaping industrial capabilities. By examining studies of multinational automakers and indigenous firms, this study illustrates how FDI not only provides capital but also facilitates knowledge exchange, co-creation and integration into global value chains. The research further analyses the role of innovation clusters, government policies such as FAME and NEMMP, and emergence of EVs and Industry 4.0 technologies in fostering a collaborative innovation ecosystem. Despite these advancements, challenges such as intellectual property concerns, uneven regional innovation capacity and limited absorptive capacity of domestic firms persist. The paper concludes with policy recommendations aimed at strengthening innovation-FDI nexus to ensure sustainable, inclusive and globally competitive growth in IAI.