At home, around the world
Overseas investment from India is gathering steam. Corporate India is competing with companies globally, raising capital in foreign markets and aggressively bidding for assets abroad.
By TNN |
Overseas investment from India is gathering steam. Corporate India is competing with companies globally, raising capital in foreign markets and aggressively bidding for assets abroad.
Indian corporate buyers have spread across a wide spectrum of industries ranging from steel and pharmaceuticals to telecom, automobiles and ancillaries to information technology. They have made their mark across the globe from the US to Japan, through Europe, Africa, China, and the erstwhile CIS countries.
Tata Steel, India’s second-largest steel maker is engaged in a multi billion dollar bidding war with Brazil’s CSN for Corus Steel, Videocon bid $731 million for Daewoo Electronics, Dr Reddy’s Laboratories acquired Germany’s Betapharm for $572 million. Ranbaxy Laboratories bought out Terapia in Romania for $324 million and Suzlon Energy purchased Belgium’s Hansen Transmissions for $565 million.
Brand India has gone global, thanks to a new kind of corporate – the Indian Multi-National Company (MNC). The internationalisation of the Indian corporate sector has been influenced by various factors including strong macro-economic fundamentals, India’s emergence in sunrise sectors (IT and BPO), healthy balance sheets and the liberalisation of the economy.
Speaking at the ET Think Turf on The Emergence of Indian MNCs, Mike Rake, chairman, KPMG International said, “India has become more than an outsourcing location. Rising domestic demand, increasing credibility to raise capital in foreign markets combined with great ambition, has taken India into a different league.”
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However, Indian companies would have already found that going global is a complicated process. The challenges of a global endeavour begin early. “Many need to be addressed before India can reach the next stage,” points out Mr Rake. Education is one of them. “We need to change the focus of our education. Students are not encouraged to be creative because the system is too hierarchical,” feels Ajay Piramal, chairman, Piramal Enterprises. Ajit Rangnekar, deputy dean, The Indian School of Business, agrees: “Indian students are good at learning by heart.” “Training of artisans is also critical to boost earning capabilities of those people who will go abroad and send money back home,” points out Ashwin Dani, vice chairman &MD, Asian Paints. But implementing change might not prove easy. “The most controlled part of our activity is education. You cannot change one curriculum,” points out Mr Rangnekar, before adding, “We need a flexible system of education.”
Research and development is another area, which needs to be closely looked at. “For a long time, research was not well recognised in India. We were only good at copying. We need now to build our own intellectual property. We need to create a new mindset,” says Mr Piramal. The road ahead is still long. “We are not doing enough research,” admits JJ Irani, Tata Sons, Tata Industries, Tata Motors & Tata International.
“History has shown it, France, UK, US, have all done a lot of research,” he adds. However, research and development is fraught with risks and requires sizeable investments. “Primary research should be done at University, companies cannot afford it,” suggests Mr Irani.
While educating and training manpower remains a challenge in India, retaining this same skilled labour has proven even more difficult. Ever rising attrition rates are becoming a stumbling block to the country’s economy. “And yet, hardly 10 to 15% of graduates are being used to service global markets,” points out B Ramalinga Raju, founder & chairman, Satyam Computer Services. “Education is getting underutilised,” he adds.
There is a mismatch between offer and demand on the employment market. “Specific training is required to develop specific skills.” Global access to talent is in fact one of the reasons pushing companies to bid for assets abroad. “In order to be globally competitive, you have to use global talent,” explains Mr Raju.
Hiring global talent can also create a certain comfort level in the mind of the consumer. “Communicating emotionally with the customer is essential,” feels Mr Raju. A customer might feel more comfortable working with a company, which has a base in the US or in Europe, for instance.
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However, keeping a manufacturing base in India is necessary to survive in a competitive market, feels Mr Piramal. For your supply chain to be sustainable, you need to have an Indian base. Acquiring assets abroad gives you technology and customer base. However, moving a part of the manufacturing to India is necessary to be more sustainable.
Another concern, particularly in the case of acquisitions, understands the culture of the markets they enter. When Tata Motors was mulling the acquisition of Daewoo’s commercial vehicles business, it realised that the Daewoo management was not very open to the idea of an Indian company acquiring it.
Explaining Tatas’ work culture and philosophy to Daewoo employees was the key to successful integration of the two organisations. The company’s share in the HCV segment has increased from 21-22% at the time of acquisition to 27-28% at present. “Cultures must match. We had bad experiences in the past. You need to be a good corporate citizen in the country you enter,” explains Mr Irani.
When you are looking for growth, it is important to identify viable markets. The next question will then be the route of expansion greenfield or brownfield? Essel Propack, the world’s largest specialty packaging company and also a leading manufacturer of laminated tubes, has set up manufacturing facilities in the US, Poland, and Germany.
On the other hand, by acquiring quality but operationally stressed assets in India and abroad, Spentex Industries has emerged as the country’s largest yarn maker. Proposed acquisitions must also be studied to ensure viability as is evidenced by the Spentex example.
Spentex acquired 2,20,000 spindles in Uzbekistan at 40% of what it would cost to build a similar capacity. For companies targeting global growth, finance is an important concern. Servicing debts accrued on acquisitions or expansions could be a problem if returns from operations are not high enough. Diversifying markets and increasing geographical spread could help hedge against risks of an economic downturn.
Indian companies are expanding their share in the global market, but they still have a long way to go. As an acquirer, in terms of cross-border mergers and acquisitions, India’s market share in value terms is a mere 0.7%. According to a US Census Bureau study, by 2020, India is estimated to have a labour surplus of 47 million as compared to the labour shortage in the rest of the world (11 million in the US, 11 million in Europe, 10 million in China, etc.).
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India’s ability to leverage this labour surplus to its advantage will be the key to country’s ascent on the international scene. Corporate India should not neglect India’s domestic market either. “India has a strong domestic market, which is set to count among the top 3 markets. We should not leave this aside,” concludes Mr Piramal.
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