Opportunities and Challenges before Indian INCs

India business houses are flying high. Not only over the Indian sky, many Indian firms have slowly and surely embarked on the global path and lead to the emergence of the Indian multinational companies. With each passing day, Indian businesses are acquiring companies’ abroad, becoming world-popular suppliers and are recruiting staff cutting across nationalities. While an Asian Paints is painting the world red, Tata is rolling out Indicas from Birmingham and Sundram Fasteners nails home the fact that the Indian company is an entity to be reckoned with. There are examples of Indian companies already donning the mantle of an MNC. The companies which have operations around the world; the Aditya Birla group is an example. Ranbaxy is a great example of an Indian MNC. There is a dispute as to which was the first MNC. Some have argued that the Knights Templar, founded in 1118, became a multinational when it stumbled into banking in 1135. However, others claim that the British East India Company or the Dutch East India Company were in fact the first proper multinationals. But the first true Indian MNC is Ranbaxy. The present paper an attempt to analyze the growth of IMNCs and also discuss the challenges which they are facing in global market. 

1.  Introduction

These days we are living in the era of economic reforms. Several countries in the developed and developing world have started it. India has also adopted this policy in 1991 under then compelling circumstances. The reform included new industrial policy 1991, emphasizing upon globalization, liberalization and privatization. All these measures facilitated as well as compelled the Indian business houses to bring necessary improvements, and compete with the Multinational Companies (MNCs) and become global. The Indian global producers, in fact, faced and continue to face, some challenges. According to a senior analyst with Earnest & Young, Indian companies have come out of the pain, focusing on productivity and profitability. Top line companies are cash rich. The big boost has come with financial reforms and a strong rupee. The action is now mainly in the automotive, auto components, pharmaceuticals, IT and food business. The acquisition of the U.K.'s top steel maker Corus Group Plc by India's Tata Steel Ltd for $8 billion adds to the $2.68 billion spent by Indian firms during the first half of 2006 on 32 acquisitions of European firms. It does not include the $38 billion purchase of Arcelor SA by Mittal Steel Co., as the latter is not India-based. "The Tata-Corus deal is a shot in the arm in the globalization of Indian firms," said Bundeep Singh Rangar, Chairman of IndusView, the India-focused cross-border advisory firm. "Europe's multilingual, multicultural and fragmented marketplace means that Indian companies must buy their way into the European market." The Corus acquisition will be India's largest-ever global acquisition that will make Tata Steel the world's fifth largest steel producer with a capacity of about 26 million tons and combined sales of $24.4 billion. Reliance Industries Ltd (RIL) might also join the ranks of Indian companies buying in Europe if it acquires $2.52-billion Scottish company Wood Group, as reported in India's Economic Times newspaper.

2. Opportunities of IMNCs

Indian MNCs are on a shopping spree for companies globally. After acquiring over 75 firms in 2003, the Indian corporate are now in the process of expanding their mergers and acquisition activities to Spain, Brazil, South America and Europe. Merchant bankers working on some Indian assignments said that the sectors bullish on going global include auto, pharma, infotech, chemicals, light engineering, and entertainment. The M&A service of the CMIE reported that investment abroad by Indian companies in 2002-03 was $1,048 million. In 2003, there were 75 cross border M&A acquisitions by Indian firms, up from 36 deals in 2002. Indian firms have about 440 investments/joint ventures in the UK, mostly technology-oriented. India is the eighth largest investor in UK. In Singapore there are 1,441 Indian companies, 450 of which are technology enterprises. The top 92 Indian-American owned companies in the US generated business of $2.2 billion and provided full-time employment to about 19,000 in 2002. Indian companies have acquired 120 foreign firms in the period 2001-2003 worth $1.6 billion. Seven Indian companies are listed on the NYSE and three on NASDAQ. There are over 15 companies listed on the London Stock Exchange. In January 2004, the government removed the $100 million cap on foreign investment by Indian companies and raised it to the net worth of the companies. In fact, with over 75 Indian companies spreading their wings, creation of an Indian MNC index is in the offing. G Ravishankar, vice-president and head strategic advisory and M&A group of Meghraj Financial Services India, stated that, "The transition is rapid. We are seeing a mind set shift among several Indian companies. Indian companies have realized the competitive advantage of having large operations. That's why many companies are acquiring firms outside India and transmit the service part of the business here."  Mr. Kumar Mangalam Birla stated that, the age of the Indian MNC is here. This is one of the most visible outcomes of India's integration into the global economy. A key determinant of success for Indian companies will be our ability to strike global roots. We are well positioned for this challenge. The success of the Indian Diaspora is the stuff of legend. As individuals, we have a long tradition of striking roots across the world.

2.1 Opportunities in Auto sector - While the world was busy lauding the success of the fast-growing IT and services sector over the past few years, it did not notice the coming-of-age of the old economy brick and mortar businesses.

• Passenger car exports have nearly trebled in the past four years, from 28,122 units in 1998-99 to 1,30,000 units in 2003-04. Revenue from the export of passenger cars shot up 47.85 percent during April-May 2004-05 to Rs 7.16 billion from Rs 4.84 billion in the same period last year.
• Exports of two and three wheeler have crossed the 300,000 mark for the first time clocking around 3,33,000. By 2005, the industry expects 400,000 two-wheeler on foreign shores.
• Commercial vehicle exports have also increased to an all time high of over 17,000.
• India's export of auto components crossed the $ 1 billion mark in 2003-04. By March 2003, $850 million worth of the nuts and bolts were exported, up from $578 million in March 2002.

In percentage terms the growth during the year over the previous year have been almost 80 percent for passenger vehicles, over 49 percent for two and three wheeler and over 40 percent for commercial vehicles.

2.2 Opportunities in Aluminium business

• Vedanta Resources, the holding company of the Sterlite group raised a record $1 billion last year in its maiden public offering on the London Stock Exchange. This was the largest sum garnered by an Indian company in overseas markets and the second largest IPO in Europe in 2003.
• In 2003-04, nearly Rs 2,500 crore of the total turnover of Hindalco - Rs 1,800 crore from copper and rs 620 crore from aluminium - came from the international business, including exports from India.

2.3 Opportunities in Pharma Sector – Another space which is seeing hectic activity is the pharma sector.

• Ranbaxy has set an aggressive target for itself - to become a $5 billion company by 2012. That would require a compounded annual growth rate in excess of 20 percent. Going by its present growth strategies, that goal should not be far away. The firm exports to over 70 countries, directly manages operations in 34 and manufactures in seven. It has 8,500 employees, of which 2,000 are overseas. In October last year, Ranbaxy entered into a research collaboration with GlaxoSmithKline Plc. This will be just another way in the company becoming a global player.
• Dr. Reddy's Labs, which is the second largest pharma company in the country, has operations in many countries with its markets being in US, India and CIS countries and the UK. US and India contribute close to 70 percent of its sales. Dr Reddy's boasts of six FDA-inspected API (active pharmaceutical ingredients, or bulk) facilities and seven formulation plants, three of which cater to the US and European markets. It is also the only Indian company to have ever out-licensed three molecules to MNCs.
• Aurobindo Pharma is already part global with eight subsidiaries across the world, two JVs in the US and a new acquisition in China. Half of its revenues come from exports, which accounted for 47 percent of the total sales in 2002-2003. This strength is derived from its strong presence in emerging markets of Asia, Brazil and Latin America.

2.4 Opportunities in Public Sector - It's not only the private sector that is in aggressive mode. Even public sector units are rearing their heads to join the global Indian takeover race though for different reasons.

• In the last two years, ONGC has become a valuable company with a market capitalization of Rs. 122,000 crore. Now it wants to build bigger energy assets, both in India and abroad.
• The reasons IOC has for going global are, in comparison, more market-driven. Its chairman M.S. Ramachandran feels that Southeast Asia and Africa offers great opportunities for the corporation.

3. Some Indian MNCs:                 

Following are the name of the some Indian companies which has become giant MNCs in the world;

• Tata Motors sells its passenger-car Indica in the UK through a marketing alliance with Rover and has acquired a Daewoo Commercial Vehicles unit giving it access to markets in Korea and China.
• Ranbaxy is the ninth largest generics company in the world. An impressive 76 percent of its revenues come from overseas.
• Dr Reddy's Laboratories became the first Asia Pacific pharmaceutical company outside Japan to list on the New York Stock Exchange in 2001.
• Asian Paints is among the 10 largest decorative paints makers in the world and has manufacturing facilities across 24 countries.
• Bharat Forge auto Components Company is now the world's second largest forgings maker. It became the world's second largest forgings manufacturer after acquiring Carl Dan Peddinghaus a German forgings company last year. Its workforce includes Japanese, German, American and Chinese people. It has 31 customers across the world and only 31 percent of its turnover comes from India.
• Essel Propack is the world's largest manufacturers of lamitubes - tubes used to package toothpaste. It has 17 plants spread across 11 countries and a turnover of Rs 609.2 crore for the year ended December 2003. The company commands a staggering 30 percent of the 12.8 billion-units global tubes market.
• About 80 percent of revenues for Tata Consultancy Services comes from outside India. This month, it raised Rs 54.2 billion ($1.17 billion) in Asia's second-biggest tech IPO this year and India's largest IPO ever.
• Infosys has 25,634 employees including 600 from 33 nationalities other than Indian. It has 30 marketing offices across the world and 26 global software development centres in the US, Canada, Australia, the UK and Japan.
• Sundram Fasteners is not merely a nuts and bolts company. It believes in thinking out of the box. Probably that is why it decided to acquire a plant in China. The plant in Jiaxin city in the Haiyan economic zone has ensured one fact: that its customers who were earlier buying Sundram products in Europe and the US, did not have to go far from home to access the product.

Indian Companies on a buying spree

Company	Acquisition	Price (in $ millions)
Reliance Industries	Flag Telecom,Bermuda Trevira Germany	212 95
Tata Motors	Daewoo, Korea	118
Infosys Technologies	Expert Information Services, Australia	3.1
Bharat Forge	Carl Dan Peddinghaus, Germany	NA
Ranbaxy	RPG (Aventis) Laboratories, France	NA
Wockhardt	CP Pharmaceuticals, UK	18
Cadila Health	Alpharma SAS, France	5.7
Hindalco	Straits Ply, Australia	56.4
Wipro	NerveWire Inc, US	18.5
Aditya Birla	Dashiqiao Chem, China	8.5
United Phosphorus	Oryzalin Herbicide, US	21.3

Source: Wall Street Journal; IBEF Research

4. Emerging Challenges

The process of economic reforms in India had led to an 'unequal competition' a competition between 'giant MNCs' and ‘dwarf Indian MNCs (IMNCs)'. Today, IMNCs are facing several challenges. Some of them are as follows:

4.1. Price Challenge: Price is a big challenge for Indian MNCs, foreign companies are able to sell their products at cheaper rates, and often they have as resorted to dumping, as China has done. They have forced on IMNCs to reduce their prices; otherwise they will not be able to stand in the market. Earlier, their basic philosophy was cost plus pricing with attractive profits as there was seller's market. With the buyer's setting in it will no longer be easy for one firm to pass on cost escalations automatically to buyers, as they used to do it all along. This position will, in its turn throw up new pressures on margins and profits enjoyed by them. Now only through effective cost control, productivity, competitive pricing and quality assurance, can business houses ensure their sales and profits with reference to price and profit margin, the cost reduction has become quite imperative as for several products, we do not have competitive pricing. For example, the relative cost of manufacturing of Indian and Chinese car may be seen from the following table-

Relative Cost of Manufacturing

Items	India     (Rs)	China  (Rs)
Raw Material	81	59
Depreciation	6	6
Salaries & Wages	5	1
Interest	3	1
Others	5	10
Total	100	77

Source: Business World, Jan 19, 2004, p-32.

It is reflected from the above table that the Total Cost of manufacturing a car in India is Rs. 100 and in china is Rs. 77. So, it is 23% cheaper to make a car in China, as compared to India. Hence, we would have to pay proper attention in cost to reduction and control to have a competitive price.

4.2. Product Issue: With increasing competition, we have been forced to improve the quality of our product. Globalization has led to the challenge of international competitiveness in a global knowledge based economy. Trying to reach global customers in this globalize economy is another formidable task for the marketers and managers of today. Today quality of the products has assured an important role in the world as well as India. Today, the very existence of a manufacturer depends on the level of quality. Good quality ensures higher profitability, creates goodwill, and makes the employment of highly skilled manpower with better wages possible. Quality concessions has necessitated to adopted TQM, Quality circles, ISO certification etc. on business houses have started laying due to attention to this quality aspect, to the benefit of consumers.

4.3. CRM: Customer relationship management (CRM) has become a buzzword today and it is an important issue in the era of globalization. In this competitive world the customers creation, maintaining customers, provides after sale service have assumed greater significance. The success of every business house in, implementing the CRM will depend on how effectively it is adopted by the organizations. Gartner has pointed out that CRM is a business strategy with outcomes that optimize profitability, revenue and customer satisfaction by organizing around customer segments, fostering customer-satisfying behaviors and implementing customer-centric processes. The basic premise of relationship management is to build and maintain long term relationships with customers based on trust and commitment.

4.4 Ethical Aspect : Business ethic refers to the system of moral principles and rules of conduct applied to business. It means business should be conducted according to certain recognized moral standards. It is the set of moral principles that governs the actions of an individual or a group.  What is ethical and what is unethical in general society may not be the same in business. This is because; business operates in different environments and with different objectives. In the era of globalization, objective of the business centered around profit and wealth maximization.

4.5. Legal Aspects: The legal challenges are influence the development and sustenance of business houses in India. There are a number of laws that regulate the conduct of the business. They cover such matters as standards of product, promotion, packaging, ethics, environmental factors etc. In a number of countries, including India, the advertisement of alcoholic liquor is prohibited. Advertisements, including packaging of cigarette must carry the statutory warning that 'Cigarette smoking is injurious to health'. There are a host of statutory controls on business in India. Although the controls have been substantially brought down as a result of the liberalization, a number of controls still prevail. Certain changes in government policies, such as the Industrial policy, Exim policy, monetary policy, fiscal policy, tariff policy etc. may have profound impact on business. Some policy developments create opportunities as well as threats.

5. Conclusion:

Today the Indian business houses will have to update their technology, reduce their prices, improve the quality of their production, provide best services to customers, if they want to sustain and develop. The challenges, stated above, pose several threats but at the same time provide opportunities to them. They should make efforts to re-organize, unite weak and strong units, re-think about their strategies and focus more and more attention to the demands of demanding customers, keeping in mind that only the fittest will service in the business world today.