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Film Clusters: The Case Study of Bollywood and its Contribution in Indian
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Working Paper · January 2014

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Film Clusters: The Case Study of Bollywood and its Contribution in Indian
Economy

Agallos Ioannis-Christos

Department of Economics, University of Thessaly

January 2014

Abstract

In the context of an emerging economy, the paper analyzes indigenous growth and
internationalization. Using data of previous researches and studies, this theoretical paper studies the
Indian film cluster in Mumbai, Bollywood. It argues that as the world’s biggest film industry and a
conspicuous growth phenomenon in an emerging economy context, Bollywood can be seen as a
paradigmatic case for adding to our understanding of the development of film clusters outside the
USA. The theoretical analysis of the paper points to the importance of home market and
government regulation for Bollywood's recent export growth, which constitutes the most important
factor to Indian economic development over the last decades.

Key words: Emerging economy, clusters, film industry, India, Bollywood, home market,
economic development

1. Introduction

From the beginnings of civilization, economic activity tends to agglomerate in clusters in the
geographical space (Martin and Sunley, 2003). Clusters have a global impact not only through
competition and trade (Krugman, 1991; Fujita et al., 1999), but also through flow of resources
(Amin and Thrift, 1992). During the last decade, economic geographers and regional scientists have
acknowledged that the forces of globalization have increased the level of competition, while
increasing the potential gains from trade that arise from the flow of resources between firms that
located in different clusters. Such firms are now interlinked globally and this facilitates the flows of
knowledge, investment and entertainment (Krugman, 1991; Bathelt et al., 2004; Klagge and Martin,
2005; Zademach, 2009).
Among the various types of clusters universally prominent place possess the film clusters.
Especially, Hollywood dominates to such an extent, that the other industries around the world are
unable to compete it, even in their home markets (Lorenzen, 2009). The film industries and film
clusters affect local and regional economies playing a key role in their development. They provide
services to the local community, such as the cinema or movie rentals, serving in this way the local
market and increasing its modest added value. Thus, it is protected by foreign competition, while
offering opportunities for the local population to be employed. Furthermore, within the marketing
and promotion of films, local productions and film industries of each region or country propound
through a series of advertisements their homeland attracting a significant number of tourists and
contributing to local and regional development. Finally, the most important role is assumed by
exports films of each cluster, as well as a possible international commercial success has as result
inflows of significant amounts in the funds of the local economy, which will be invested in several
ways in order to improve and develop the standard of living, and not only, in the region and the
country (Turok, 2003).
In recent years, on the “global” map of cinema and movies dominant role plays the Indian
film industry, and more specifically Bollywood. With its global impact upon films, music, dance
and other art forms, Bollywood has developed a very strong brand in international cultural events.
The Indian cluster of Bollywood is an excellent for studying the growth and internationalization of
the domestic industry in an emerging economy. Entertainment, and more specifically cinema, is the
India's second fastest growing sector, and the Indian film cluster currently grows by 16%
annually(Lorenzen and Taeube, 2008; Lorenzen, 2009). Bollywood presents an 60% export growth
the last years and is well on its way to becoming integrated in the global economy contributing to
Indian economic development.
This paper, based on researches and studies carried out by previous scholars and scientists
about Bollywood intends to answer the research questions concerning the role of the domestic
market and policy settings to increase film exports of Indian cinema. Through the answer of these
two research questions is also covered the dominant case-position of the work regarding the positive
influence of Bollywood in the Indian economy. Contrary to previous studies, this paper not only
focuses on the importance and the role of globalization in Indian cinema, but also reflects the
benefits of Indian film exports and hence of Bollywood in Indian economic fundamentals.
 The second section of the paper presents the literature review on cultural and film clusters and
how the internationalization-globalization influenced them. The third section presents Bollywood,
the evolution of Indian cinema and the Indian economy capturing the financials of the country using
tables. In the fourth section is applied the methodology of working paper, which is a comprehensive
theoretical analysis of the literature of previous studies and researches that called to answer the
research questions we raised above. In this section is formulated the central position of the paper,
while in the last section are mentioned the conclusions that will may be the subject for future
research studies.

2. Literature Review

2.1 Cultural Clusters

Not resting upon economic geographies, the issue that attracted considerable academic
interest is the problem of spatial clustering of specialized economic activities. Feser and Bergman
(2000) and Gordon and McCann (2000) seek to create classifications, while an increasing number
of scholars seek to explain theoretically the emergence and growth of clusters in cities and
Marshallina districts. There is a convergence of views that, while each cluster arises through a
peculiar confluence of historical factors (such as companies, universities, capital and policy), the
continuous development of a cluster depends on its ability to create cumulative causation (Myrdal,
1957) for one or more economic benefits of business firms geographically located in the same
place.
External economies of scale are the benefits of co-locating firms undertaking similar
economic activities. They include attraction of skilled labor due to the know-how of these firms, as
well as plus small and flexibly specialized firms that have the ability to offer high capacity and high
quality services through cooperation (Maskell, 2001; Morgan, 2004; Gordon and McCann, 2005).
In additional, external economies of scale include the benefits of co-location of various firms, which
are chains of different stages firms, or companies in entirely different industries. Such benefits
include specialization along the chain industries, facilitated by high trust and low transaction costs
and the possibility of achieving a single firm based on internal economies of scale and its activities
(Martin and Sunley, 2003). Survival of a cluster is based upon its continued competitiveness and
growth. As a result, if it is unable to adapt its external economies to overcome exogenous (e.g.
market) shocks or endogenous (organizational and political) challenges, the resulting within an
outdated growth path will weaken and will eventually erode the cluster.
With the “cultural turn” economic geographers spend more extensively their attention to a
special kind of cluster, the accumulations of firms in cultural industries such as films, TV, music
and advertisement (Pratt and Hesmondhalgh, 2005). Even though the majority of survey has been
satisfied with describing productive cultural clusters located in major centers around the world
(Lorenzen, 2009), some scholars attempt to explain the causes of their growth. Explanations of
cultural clusters growth insist on the arguments of external economies described above.
Furthermore, Bathelt (2005) describes how the continuous reproduction at local level could
contribute to the spread of external economies of scale in the guise of learning among clustered
media production companies. However, some scholars also point out that, due to the urban location
of virtually all clusters (Scott, 1997; Scott, 2007; Lazzeretti et al. 2008), it is also necessary to
include in their studies the external economies of scale related to urban location. These include
external economies of scale resulting from the co-location of a cultural cluster with urban venture
capital or with clusters in other industries (Lorenzen, 2009). They also have the advantage of large
cities to attract talent (Glaeser et al., 2001; Florida et al., 2008).

2.2 Film Clusters

Like other cultural industries, the film industry has a tendency to concentrate in particular
cities. The long list of film clusters include a wide range of cities, such as Copenhagen, Seoul,
Rome, Hong Kong, Paris, London, Kyoto, New York, Los Angeles, and Mumbai. Theoretical
studies that have been performed over time about the film industry, have centered predominantly on
the case of Hollywood. Scott (2005) argues that Hollywood emerged in the first decades of the 20 th
century as a result of an symptomatic contribution of exculpatory rights and external economies of
scale related to urbanization, in Los Angeles. Then, the film clusters developed external scale
economies in the guise of huge specialized labor market by attracting a large number of different
value films to Los Angeles. However, initially, utilizing its huge domestic market (Krugman, 1980;
Davis and Weinstein, 2003), Hollywood also began to develop powerful internal economies. First,
horizontal integration of production into large “studios” created largely advantages in production
(Prag and Casavant, 1994; Eliashberg et al., 2006). Subsequently, widespread and unnecessary
funding of film marketing, distribution and exhibition contributed to the configuration by some
powerful firms, particular criteria for its completion (de Vany, 2004). After the Second World War,
film clusters strengthened its external scope economies further, creating a flexible and professional
standard production model consisting of small-scale, independent production firms, which were
composed of specialized suppliers, freelancers and technical labor (Storper and Christopherson,
1987; Robins, 1993; Blair, 2001).
The case of Hollywood has a dominant position among researches related to film clusters to
the extent that the other film industries globally are unable to compete it, not even on their own
home markets. This is due to the innovative methods that uses Hollywood as compared to other film
industries (Scott, 2005). After their emergence, film clusters moved so fast in building external and
internal economies resulting their dominance in global film markets (Vogel, 1998; de Vany, 2004).
Bakker (2005) formulates a theory saying that Hollywood introduced endogenous sunk costs into
the film industry by investing heavily in production quality, marketing and distribution (Aksoy and
Robins, 1992). Hollywood's marketing and distribution system overpowered most of its competitors
in all export markets, as well it was designed to overcome the problems of multiculturalism, due to
the consumers between different cultural groups have diverse preferences about the language and
the kind of films. Thus, Hollywood has established a general preference for English language films
which reflect in most of the world markets (Hoskins and Mirus, 1988; Papandrea, 1998;Vogel,
1998; Doh, 2001; Elberse and Eliashberg, 2003; Lee and Waterman, 2006).
In contrast to standard assumptions in industrial economics, the film industry has been largely
dominated by one cluster – Hollywood – even during the last half century, when globalization has
widened the film market. Bakker (2005) argues that this is because the endogenous costs sunk by
Hollywood, rather than their reduction, continue to limit the competitiveness of other film clusters.
In the following, we shall take a closer look at globalization and what it may mean for cultural
clusters in general and film clusters in particular.

2.3 Globalization – Internationalization

Internationalization can be understood as a kind of trade or relationship, such as alliances and

agreements between nations or nationally based firms and organizations. By contrast, globalization
entails the connection of a multitude of nations, firms, and organizations into global economic,
cultural, and to some extent also political, systems (Daly, 1999; Friedman, 2000). Specifically,
during the last half of the century, political reforms as well as developments in transport and
communication technology have facilitated the emergence of global product markets, labor and
capital as well as global institutions and organizations. The key of globalization is connectivity. The
main feature of global firms and organizations are not the consolidation in many areas, but the
creation of a global network (Amin, 2002; Sheppard, 2002). Contrary to basic theories (e.g.
Cairncross, 1997; Friedman, 2000), globalization, and the transportation and communication
technologies that facilitate it, does not mean the demise of spatial clustering (Morgan, 2004).
Obviously it entails more fierce competition, but it offers global opportunities empowered through
their global network concepts. However, there are clusters which are enlarged using informations
from external environment and enhancing innovations at local level (Bathelt et al., 2004). The use
of information from the clusters depends on the absorption capacity (Gertler and Levitte, 2005;
Giuliani 2007).
Many scholars consider developing countries with the assistance of OECD in terms of
investments. The bulk of research related to the effects of globalization on cultural clusters outside
dominant nations (USA, UK, France, Italy and Japan). For example, Pratt (2008) examines the role
of cultural clusters in emerging countries, while Wasko and Erickson (2008) analyze how the
production is transferred in order to exploit the cheap labor in similar clusters. In the respective
studies, a similar focus can be traced in the claims that a dominant Western cultural core
homogenizes its peripheries regions (Tomlinson, 1999; Giddens, 2000; Holton, 2000).
In the film industry , globalization , for more than half a century , has brought about a
substantial growth of markets. The growing global trade and stable consumer preferences allowed
filmmakers (especially in Hollywood, but also the United Kingdom with France have played an
important role ) to create and consolidate a global mass market for mainstream films. During the
last two decades, however, globalization has also facilitated the growth of global niche markets.
Moreover, the evolution of technology has played a significant role in the exhibition and
distribution of films mainly through internet. The greatest filmmakers of Hollywood especially
emphasize on marketing and advertising, while exploiting copyrights in other areas of entertainment
(video games, music, etc.), in contrast to many European countries with escalating film industry
(Denmark, Island, Switzerland) looking for new ways and opportunities for investment, such
government grants.
The countless cultural clusters in developing countries are growing rapidly, while covering a
wide range of markets, thus obtaining special and crucial role on global networks (Cooke and
Lazzeretti, 2008; Barrowclough and Kozul-Wright, 2006). The evolution of technology has
contributed to the growth of film industries due to the lower cost of production and promotion.
Stand out particular clusters of Mexico, Brazil, Korea, Taiwan, Nigeria and India, with the latter
considered a worthy competitor Hollywood. Specifically, Bollywood considered the dominant
filmmaker of Asia attracts daily at least 11 million viewers (Athique, 2012), while the friendly to
the Bollywood policies pursued by Government of India led to increased exports of Indian
entertainment industry by 450% within 3 years (1998-2001) (Athique, 2012). Undoubtedly the
Indian economy has been affected by domestic film industry, an issue that will analyze below.
 3. Bollywood

This paper focuses on Bollywood and through extensive research and study of global
literature analyzes the case of internationalization, and explores how is connected with the Indian
economy and whether it has an impact in a positive or negative way to economic developments.
The slightly humorous name of the film industry in Bombay and related media , does not
mean that it is a mere imitation of the film cluster in Los Angeles, USA (Lorenzen and Taeube,
2008). With its enormous global impact on films, music, dance and other art forms, Bollywood has
now developed a very strong own brand in international cultural events. While stylistically, the
dances and lip-synced songs, the symbolic and emotional drama, and the script contained in a
typical 3-hour Bollywood movie can be alien to the audience of Hollywood, rather than being a
“Third World” art cinema (Tyrell, 1999), Bollywood produces about 1100 films per year, twice the
number that produced in USA, and make India as the largest film producer in the world (Lorenzen,
2009). Bollywood, with an estimated annual number of ticket sold globally of 3.6 billion in 2001,
compared to Hollywood's 2.6 billion, is undoubtedly one of the most popular cultural industry in the
world (Kripalani and Grover, 2002; Lorenzen and Taeube, 2008; Lorenzen, 2009).
Bollywood is an example of the growing internationalization of an entertainment industry
indigenous to an emerging economy, and there is little existing theoretical foundation for
understanding such a phenomenon. Previous researches have demonstrated that the primary reason
for the growth of an entertainment industry in emerging economies is Foreign Direct Investment
(Tamuli, 2006; Lorenzen and Taeube, 2008). On the other hand, existing research on indigenous
industries in emerging economies deals with manufacturing, not entertainment or other knowledge-
intensive industries (Nadvi and Schmitz, 1999; Mytelka and Farinelli, 2000; Lorenzen and Taeube,
2008).
The ever-increasing rise of Bollywood, both in Indian, initially, and later to global stardom, is
inextricably linked with major changes to the political landscape and the economy of India, mainly
in the last decade. The Indian movies reflect the changes in the Indian political economy and
society, covering the entire period of Hindu growth rate, reaching the current "global" era, where
the economy has grown rapidly (Ullah Khan and Debroy, 2002). Despite its popularity among the
masses of the population for its entertainment value of films, it took eight decades to Bollywood
recognized by the government as an industry that can utilize loans from credit institutions for the
benefit of the Indian economy contributing further development (Sardana, 2013).
 3.1 The Development of Indian Cinema

The birth of Indian cinema coincided with the national struggle against British colonialism,
and therefore since its conception, cinema was engaged in defining a cultural identity that had its
own Indian allegorical figure (Bhaskar, 1998). With the advent of “talkies” in the early 1930s, the
Indian film industry was able to free itself from the shackles of foreign influence. Films were made
in the colloquial language characterized by plenty of songs (Barnouw and Krishnaswamy, 1980),
many of which were played on the radio. The first Indian talkie movie Alam Ara (1931) included 12
songs and its advertisement was "all talking, all singing, all dancing". The dramatic form films
combined with music utilized into the long tradition of Ramayana and Mahabharata, two classical
Sanskrit epics which formed the basis of cinematic storytelling (Gokulsing and Dissanayake, 2004).
With the end of colonialism , the popular Indian cinema emerged as the India's unique model
of national unity, with an emphasis on realistic aesthetics (Chakravarty, 1993). A tension between
modernism and tradition, westernisation and adherence to Indian standards evolved in cinematic
imagination. Of these dialectical tensions emerged a specific sense of Indian identity. In the 1950s
and 1960s, directors like Raj Kapoor and o Vimal Roy made films that depicted the world of the
underprivileged and marginalized, which represented the Indian society as unfair and unequal
(Chakravarty, 1993). In films such as Awara (1951), Bandini (1963), Do Bigha Zameen (1953),
Jagte Raho (1956), Shri 420 (1955), and Sujata (1959), the filmmakers provided a narrative with a
socio-political message. In the 1970s and 1980s, Hindi films became catalysts for the nation’s
homogenizing mission, which appealed to the underprivileged by supporting their belief in the
“nationstate’s protective beneficence” (Virdi, 2003). The major assumption was that "the poor and
angry man" was the primary audience of these films (Shakuntala, 2007).
The enormous success of Zanjeer (1973), a film about a police officer who works outside the
bounds of law, introduced the figure of the “angry young man” to the Indian screen. The hero is
depicted as a disgruntled, cynical, violent and revolutionary worker who often combated rich
businesses and corrupt politicians. In Zanjeer and other similar films of period, the world of "poor
and angry ,man" was full of crime, unemployment and poverty. It was the main way through which
Indian films ensured the identification of viewer with the working poor and lower middle class
(Nandy, 1998).
The changes precipitated by release of the Indian economy throughout the 1990s facilitated
the growing internationalization of the production and distribution of Hindi films. With the entry of
satellite television , the producers of Indian films started to operate in a new media landscape , with
a wide range of options , including easy access Hollywood and Bollywood films, were available to
viewers at home. Rajadhyaksha (2003) mentions that "Bollywood is not the Indian film industry or
not the film industry alone. It might be best seen as a more diffuse cultural conglomeration
involving a range of distribution and consumption activities from websites to music cassettes, from
cable to radio, from New Delhi to New York.” With liberalization, the financial "equations" in
Bollywood have changed too. Overseas distribution rights for a big budget film almost doubled in
price than that in the Indian market. In addition, television and music rights created more revenues
than the entire production had cost (Shakuntala, 2007). The rise of multiplexes in big metropolitan
cities, where the cost of tickets was 10 to 15 times higher than the cost in a family-owned business
or a small-town theater , forced the filmmakers to focus on the rich and specialized audience which
had the ability to pay more and whose tastes were reflected in the content of the film (Deshpande,
2001). Now films target small segments of primary filmgoers, who constituted the paying
public.The "paying audience" could not just pay the ticket for the movie, but had disposable income
and attracted advertisers. Therefore, the traditional cinema was in its last stages, as people created
films for one quarter of the public (Deshpande, 2001).
In the last decade , some of the most popular movies like Black (2004), Dhoom (2004), Dus
(2005), Hum Tum (2004), Kal Ho Naa Ho (2003), Murder (2003), Salaam Namaste (2005) , Johnny
Gaddar (2007) and Rock Star (2011) were top-grossers. All are characterized by western culture,
while shooting made abroad with foreign actors and singers and their main feature is the free use of
the English language in the dialogues. Every year, a few films reflect the Indian culture, such as
Munnabhai MBBS (2003) and Veer Zaara (2004), and do well at the box office. Fewer and fewer
films now , have success both in urban and rural areas of India, and in the overseas market. Box
office statistics from India indicate a growing decline in cinema attendance in theaters in smaller
towns. Hits like Dhoom or Kal Ho Naa Ho made 80% of their profits from multiplexes in major
urban cities and abroad, where the public responds positively to the western mentality and culture.
These changes mark new innovations and practices relating to the production, distribution and
consumption of Bollywood films.

3.2 Indian Economy

The Indian economy constitutes today the second fastest growing economy in the world.
More specifically, India's economic development after the 90s overshadowed only by the
spectacular growth rates of China during the same period (Table 1). In 2012, there was an increase
of GDP around 3%, but slowed down in comparison with 2010 and 2011 which were 11% and 6%
respectively (WB, 2013). The slowdown was mainly due to lower retail sales in major job losses in
labor-intensive industries, the lower growth in the manufacturing sector and the global financial
crisis plaguing the world since 2008 and beyond. Nevertheless, the growth rate of GDP is higher
than the U.S. (2%) and the EU (0%) in 2012 (WB, 2013). Both in governmental and business level
diffused the belief that the impressive momentum is able to maintain its paces, due to the multitude
of economic - social indicators that need improvement.

Table 1. GDP growth per year (%)

1995 2005 2008 2010 2011 2012

India 8% 9% 4% 11% 6% 3%
China 11% 11% 10% 10% 9% 8%
U.S.A 3% 3% 0% 2% 2% 2%
EU 3% 2% 0% 2% 2% 0%

Source: WDI (World Development Indicators) based on data of The World Bank

For a country with an area of 3.3 million km2 (6th worldwide), a population of 1.2 billion
people (second worldwide), low labor productivity, amounting to 550 million people and the tax
base not exceeding 35 million people, trends which constitute major challenges for the further
development of the country.
The slow reforms in the 21st century have improved the country's international image as
observed strengthening of external trade and foreign exchange reserves, gradual reduction of
foreign debt relevant restraint of inflation and sharp rise in the service sector which is estimated that
represents 55.6% of GDP. The reform program includes the gradual removing of restrictions on
industry, trade and in key-sectors of services and infrastructures, such as the financial industry,
energy, and telecommunications. Generally is recorded opening of the economy in terms of
increasing private sector participation in a wide range of economic activity.
But despite the above and the related support provided by the international financial media in
national logo "Incredible India", the Indian economy has not fully relieved from the rigidities of
the past and, on the merits, it remains a protected economy by applying various artificial barriers to
exercise of free transactions. Meanwhile, the enormous size and heterogeneity of the country,
income inequalities and inefficient development of infrastructure networks and distribution
complicate further the normal development of business and investing activity (Embassy of Greece,
2012).
These concerns do not weaken, the increasing dynamics of the Indian market, making the
current economic situation (after the global financial crisis) extremely favorable for the
investigation by the international business community of the perspective investment activity.
Moreover, while the government has set as a major goal the attraction of global investment, the the
high cost bureaucratic barriers and differences in the institutional investment framework, forming a
peculiar investment climate. Foreign direct investments have been valued at about $ 130 billion for
the period 2000-11. Multinational companies have established their presence in the Indian market
with an emphasis on research and development of international operations, significant problems
however, arise in collaborations of micro-sized enterprises, which require disproportionate
resources to solve them.
Regarding the international dynamics of Indian business groups, they spread on a global scale
having already demonstrate a portfolio of acquisitions and mergers, in various branches of business,
which by early 2000 exceeds $ 80 billion.
The following table (Table 2) present the key financial figures of India for the financial year
2011-2012.

Table 2. Key Financial Figures of India (2011 – 2012)

GDP (PPP) $ 4.463 trillion

GDP (constant
$ 1.19 trillion
prices)
% GDP growth 6.3%
GDP/capita $3.688
GDP (per sector) Primary: 16.09%
Secondary: 23.03%
Tertiary: 60.88%
Population 1,221,156,319 people
Labor Force 487,6 million
Unemployment 9.8% - 118th in the world
Population <
29.8%
poverty line
Life expectancy (at
Male: 66 years, Female: 68 years
birth)
Child mortality 46.07 deaths/1000 births - 50th in the world
Fertility 2.5 children per woman
Creed Hindus: 80.3%, Muslims: 13.5%, Christians: 2.3%, Sikh: 2%
Public Investments
32.8%
% GDP
Fiscal Deficit 5.5% GDP
Government Dept
45.7%
% GDP
Foreign Dept $345.8 billion (March 2012)
Current Account
$-184.9 billion
Balance
Inflation (CPI) 8.3%
Budget (2012-2013) Revenues: $170.7 billion/Expenditures: $208.1 billion
Foreign Exchange
$295.14 billion (March 2012)
Reserves / Gold
Gross Fixed Capital
Formation at
30% of GDP (30/3/2012)
constant prices
(% of GDP)
Total Reserve
Entered FDI in the $246.6 billion (30/3/2012)
country
Total Reserve of
Indian FDI in the $104.8 billion (30/3/2012)
world
Bombay Stock
Exchange $1,064.62 billion (31/12/2011)
Capitalization
Commercial Loan
Amount Interest 11.8% (31/12/2011)
Rate

Source: Edit data of the World Bank

4. Methodology

This paper aims to build new knowledge through the empirical research, and the most
appropriate strategy for this purpose is the method of case study. In contrast to econometric methods
and researches, which examine the theory correlating different phenomena, the method of case
study facilitates a better perception of the process behind the observed phenomena (Lorenzen,
2009). Hence, it is suitable for building theory about their conditions and causes. The following
sections explain why was chosen the case study of Bollywood and how it was designed.

4.1 Why was selected the case study of Bollywood?

The purpose of the case study is not simply to present and explain an existing theory, but the
acquisition of new knowledge and ideas (Eisenhardt, 1989; Eisenhardt and Graebner, 2007). Hence,
the paper undertakes an explorative case study, in order to allow for insights to emerge as a
consequence of data collection. The main issue of the paper, as already mentioned, is to deepen and
to analyze how clusters films in emerging economies affected by globalization and whether they
contribute to the economic development of their country. However, it is not possible to exist
multiple case studies of cultural clusters in emerging economies. The total population of these
clusters is too small to allow for probabilistic sampling (Stake, 1995). Instead, the paper undertakes
a single case study.
Bollywood was chosen in our paper, because it constitutes an extreme case, in the sense that it
is the largest film cluster in the world, in terms of production. By logical inference (Flyvbjerg,
2006), the study of Bollywood can suggest topics or even mechanisms that could form the basis for
a research program on the development of the film industry outside the U.S.A. The case of
Bollywood is prototypical in the sense that India, with its wide-open borders for flows of products,
labor, and capital, is very intensely subjected to globalization. Finally, the increasingly rise of
Bollywood at global level significantly affect the path of Indian economy, which makes it unique
compared to other clusters films in emerging countries. Hence, the case of Bollywood and the
knowledge around it, may be indicative of the future for other cultural clusters in economies that
gradually developed.
This paper has set the following research questions about the case of Bollywood, which will
be answered below:
Q1: What is the role of the home market in export growth of Bollywood's films?
Q2: What is the role of government regulation in export growth of Bollywood's films?
Q3: What is the contribution of Bollywood in Indian Economy?

4.2 Data Sources and Collection

A variety of studies have been conducted to date on other major film industries in the world
(Storper and Christopherson, 1987; Storper, 1989; Blair, 2001; Scott, 2005), but few studies have
been published about Bollywood as a cluster that is internationalized affecting the economy of
India. The bulk of literature on Bollywood lies within the fields of cultural studies, anthropology or
sociology and often focuses on film texts and cultural impact upon viewers in India or abroad
(Valicha, 1988; Garga, 1996; Nandy, 1998; Dwyer and Patel, 2002; Rajadhyaksha and Willemen,
2002;Gokulsing and Dissanayake, 2004; Kaur and Sinha, 2005). The current analyzes of the Indian
film industry ( by the Federation of Indian Chambers of Commerce and Industry (FICCI), the
Confederation of Indian Industry (CII) and the Indian business magazines (such BusinessToday,
BusinessWorld, IndiaTimes, India Today)) primarily address the issue only from the perspective of
film exhibition or funding and not as a comprehensive analysis, which also includes demand,
industry structure, institutional factors and the effects of the economic development of the country.
Consequently, through meticulous study and research of existing literature on the Indian film
industry, and also with the use of economic data, this paper tries to present in the best possible way
the case study of Bollywood.

5. Empirical Analysis

With 1041 films during 2005 (CBFC, 2006), India is becoming the largest film producer in
the world, while USA during the same period released 535 films. And like the dominant film cluster
in USA, Hollywood, the Indian film cluster, Bollywood, operates on a full commercial basis,
without public subsidies, a mixture of high and low film budget, significant marketing efforts and a
relentless pursuit of blockbusters a consumer market, which is characterized by great uncertainty
(De Vany, 2004). With 244 films released in 2004, Bollywood dominates completely the production
of films in the Indian language, Hindi (CBFC, 2006). Hence, albeit not the regional film cluster
with the highest output (clusters in Hyderabad and Chennai produce more films), Bollywood has
the greatest market penetration in India. Despite of its size, due to low ticket prices, Bollywood’s
annual turnover (2005) of 575 million USD (CII/KPMG, 2006) is modest compared to other big
film industries of the World. Instead, in 2005 the total value of Hollywood films was up to 23
billion dollars, with top films and productions costing more than 200 million dollars each.
Traditionally, Bollywood exports accounted for less than 10% of industry's turnover.
However, during the last two decades Bollywood has used in the most efficient way to new global
business opportunities. Additionally, Bollywood producing films in Hindi language, has gained a
huge potential audience including Indians who live in USA Great Britain and Canada, and in
countries where a substantial number of people understand Hindi, like Pakistan, Nepal and Sri
Lanka. Also, using the widespread compile (and subtitling of videos), Bollywood films sell
successfully throughout South Asia, Africa, Russia, Eastern Europe and South America.
Distribution of Bollywood films to cinemas abroad has always been difficult (for example, the
Indian Diaspora in the UK and USA is too geographically dispersed to fill cinemas), but home
video, combined with more efficient distribution ensuring better deals for production companies,
has made exports grow 30-50% annually during the last five years (CII and KPMG, 2005).
Then, we will investigate the importance of home market for the growing exports of
Bollywood's fims.
 5.1 The Role of Home Market

There is a rich literature on the importance of the home market for film exports. The basic
claim of this literature is that a large home market is beneficial to any film industry, because of the
cultural difference between home and export markets - as export always entails cultural
disadvantage, it is easier to be big and export to small markets, than being small and export to big
markets (Hoskins και Mirus, 1998; Vogel, 1998; Elberse και Eliashberg, 2003). This also means that
film industries with big home markets can more easily impose their culture upon other countries,
and consolidate a cultural advantage associated with language preferences and styles, and the larger
the cultural differences between different export markets, the more advantageous the bigger country
(Papandrea, 1998; Oh, 2001). There are no several and extensive studies on the extent to which the
Bollywood, given its huge home market, has created a cultural advantage on the markets such as
Asian and African markets, and how this may affect film exports.
According to a Lorenzen' s and Taeube (2008) survey, we can claim that the recent increase in
Bollywood's exports has positively affected by developments in the home market. For example, Lee
and Waterman (2006) show that the growth of US dominance on world markets in the period 1950-
2003 is correlated to the growing US home market relative to the home markets of other big film
producing nations, such as Japan, Germany, Italy, France and the UK, in that period. So, we outline
the first research question of the paper.

Q1: What is the role of the home market in export growth of Bollywood's
films?

Bollywood's profile as a low-profit industry is changing. First of all , still earning 70 % of its
revenues from the cinema (CII and KPMG, 2005), Bollywood has benefited from the growth in
national demand caused by the rapidly rising of India's GDP (doubled over the last two decades)
and a thriving middle class (more than 300 million people strong and growing at 5% annually)
through the release of a wide range of films, combined with investments to upgrade existing
cinemas and construct multiplexes. During the period 2001 – 2005, box-office collections increased
by 29% (Kheterpal, 2005) and in 2005 by 17%. Second, Hindi films produced by Bollywood have
found a new exhibition channel in Indian television, contributing in this way to the rapid spread of
cinema. While national coverage of TV in India in the early 1980s caused an initial drop in demand
for Hindi films, after the entry of satellite channels in the 1990s (such as Zee TV), selling films to
Hindi TV channels became major business. Finally, it is worth mentioning the fact that Bollywood
blows most enthusiastic - and much quicker - compared to other film industries (mainly
Hollywood) rates in adopting new technologies for products and platforms (Currah, 2007). Hence,
Bollywood is not only implementing digital cinema distribution on a large scale, but also is in the
process of mastering new sources of revenue complementing sales of music soundtracks, such as
toys, electronics and ring tones and video clips for mobile phones (Lorenzen and Taeube, 2008).
Because of this ability to penetrate into new markets, Bollywood is one of India's major
industries and in the process of becoming a future global giant. Producing 16% of Indian films in
2004, it represents more than 40% of the Indian Film Industry's revenues (CII and KPMG, 2005).
Bollywood’s recent growth is impressive, and the industry is now recognized as one of India’s top
growth sectors. The revenues of the Indian film industry have increased 360% in the period 1998-
2005 and 58% in the period 2001-2005. This figure includes all revenues, including advertising and
music rights (Kohli-Khandekar, 2006). In 2006-2007 Bollywood's growth was 16% (as compared to
Hollywood's growth that was estimated of 7% for the same period (Kapoor, 2005)), while its annual
growth rate reached 30% in 2010.
So, the developments of Bollywood’s home market support theoretical expectations that
exports are backed up by a growing sales and revenues at home.

5.2 The Role of Government Regulation

A significant number of film clusters in the world receive government subsidies not only for
the production, but also for exports. In Europe, film exports are supported by the EU, and countries
that constitute major film industries, such as France, England and Italy can enjoy the promotion of
their products globally (De Turegano, 2006). Similarly, in Asia, Hong Kong is gradually beginning
to attract government support for film production and exports. From its side, the film industry with
the most exports in the world, Hollywood, although it operates without government subsidies,
however, has positively affected by government regulation in USA. Segrave (1997) emphasizes to
the role since WWII of the US government’s strategic trade in a range of different industries. The
aim of these trade strategies is generating favorable conditions for exports of U.S. products in
industries, where such exports would enhance domestic scale economies (Busch, 1999). Cinema is
exactly such an industry, and Hollywood has benefited notably from the efforts of the US State
Department, the Department of Commerce, and various US embassies in paving the way for US
film exports. The postwar Marshall Plan for Europe, associated with economic aid to European
countries to opening of their markets for US exports films (Scott, 2005).
The observation that production and export growth of other film industries have been
positively affected by government regulation leads to the following research question.
 Q2: What is the role of government regulation in export growth of
Bollywoood's films?

Our analysis shows that there has been no significant government regulation to facilitate
exports from the film industry of Bollywood. In contrast, Indian public regulation has been
preventing the film industry’s growth as well as exports for more than half a century.
More specifically, despite the existence of national governmental committees related to the
film industry and their reports regarding policy issues, such as financing of films, the Indian
government has largely neglected the growth prospects of Indian cinema. The policies that
ocassionally followed by the respective governments brought in increasingly difficult situations the
cinema. Typical is the case of entertainment tax, which is added to the ticket prices. This tax rose to
an Indian average of 33% after Independence (Barnouw and Krishnaswamy, 1980), and averages
50% today (Lorenzen and Taeube, 2008). Additionally, the lack of political support for the film
industry meant that neither national nor state governments invested in education for the theater and
the cinema. So India still has only one public film school, The Film and Television Institute of
India.
During the last fifteen years, Indian policymakers at both national and state levels have
discovered the great economic potential of the film industry. This has resulted in multiple changes
in government regulation (Lorenzen and Taeube, 2008). First, the national government is now
actively promoting the growth of the domestic market for films with multidimensional way. As a
response to pressure from the entertainment industry, has launched public campaigns and
conferences in order to fight piracy (which has, according to some estimates deprived the film
industry of more than 40% of revenues (CII and KPMG, 2005)) and to be punished legally the
offenders (IBEF and PwC, 2005). Also, in 2001 government put pressure on Indian states to reduce
the entertainment tax in an effort to increase film sales. Many states have responded enthusiastically
to this initiative, as through tax breaks and exemptions sought to enhance their film industries,
consequently, the number of Indian multiplexes in 2010 has doubled. This situation is of minor
importance, because Bollywood in this way collects much of its revenues.
The second and most important change in government regulation regards finance, and is
currently influencing exports indirectly through its effects on industry structure. Investments by the
Industrial Development Bank of India are now meant to encourage private banks, insurance
companies and other financial institutions to be involved with film financing. In an effort to attract
foreign funding, the government has allowed for 100% Foreign Direct Investments in the film
industry (IBEF and PwC, 2005).
 Generally, the Indian governmental policies have now most positive impact on Bollywood's
export performance. However, this is not due to government subsidies or other forms of direct
support. Rather, regulation has allowed new types of private investments to flow into Bollywood,
thus facilitating alliances between production companies and a new breed of distributors. This,
rather than the effort of government to support export activities, has led to more efficient finance
and more targeted investments by both producers and distributors in marketing and exports.
In general, the assumption that rising and successful Indian film exports and the the rapid
evolution of Bollywood significantly affect the Indian economy, leading to the last research
question of our paper.

Q3: What is the contribution of Bollywood in Indian Economy?

The Indian film industry contributes the amount of $ 6,200,000 in the Indian economy,
according to a report published by PricewaterhouseCoopers (2010). Also, the film sector has a total
production of approximately $ 20.4 billion and contributes more to the Indian GDP compared to the
advertising industry. Although Bollywood represents 16% of India’s film output, it accounts for
40% of India’s film revenues, with a current annual growth rate between 10 and 20%. This results
in the film cluster of Bombay to contribute the largest share of the Indian's cinema revenue in
economy in order to grow further. Since 2010, Bollywood is the largest foreign exporter to the US
entertainment market, while attracting significant foreign investments to the production of Indian
films, resulting in the influx of large sums in Indian funds.It is largely due to Bollywood that
entertainment now is India’s second biggest growth sector (FICCI and PWC, 2006; Lorenzen and
Taeube, 2008; Lorenzen, 2009; FICCI and KPMG, 2010; Lorenzen and Mudambi, 2012).
To sum up, the rapid revenue growth of film industry during the last decade, due mainly to the
global success of Bollywood's films, as mentioned above affects directly the Indian economy, so
cinema is evolving into a key sector for the total economic development of India.

6. Conclusions

In our paper we raised and addressed three research questions in order to explain the case of
Bollywoood and more specifically its recent export growth, as well as its contribution to the Indian
economy.
Concerning the first research question (Q1), there is a significant growth of Bollywood's
home market, which is combined with India's continued economic growth and the emergence of
new innovations in the film industry. Bollywood has taken advantage of the growth opportunities
that have been presented, so revenues are increased, attract investments and make successful
exports.
According to the second research question (Q2), government regulation played no direct role
for Bollywood’s recent export growth. However, the weakening of restrictive policies and the
possibility of private investments from other Indian industries and businesses abroad, have proved
crucial for the developments in the structure of Bollywood's industry and distribution of Indian
films globally.
Finally, the third research question of paper (Q3) renders the Indian film industry as the
second greatest growth sector in India, whose contribution is crucial for the rapid economic growth
of country in recent years.
Bollywood is, with a rapidly rising annual growth rate of now 16%, not just one of India’s
most eye-catching growth phenomena, but worldwide. In terms of production, it is also the world’s
biggest commercial film cluster and the fastest growing. Therefore, this paper addresses the case of
Bollywood, as the most paradigmatic and suitable for the development of film clusters outside the
USA. Also, gives insights into the internationalization of industries in emerging economies.
Through the examination of Bollywood's home market and government regulation, this case study
indicates their crucial role for attracting FDI in various clusters, contributing in this way not only to
the internationalization, but also in the development of emerging economies, which until now was
considered impossible. Thus, this paper complements the existing literature on clusters films in
emerging economies, quoting data through the case of Bollywood and addressing development
policies.
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