ntroduction: Indian MNCs Till a few years back, the term MNC in India meant an organization with its headquarters located outside India and having presence in India as a part of its global network. In other words, in Indian eyes,”MNC” meant a foreign company, which has come into India. In recent times, however the business world has seen the emergence of a new breed of companies, which is beginning to be referred to as “India MNCs”. The Indian MNC is a company which is Indian in origin and spreading its wings to set up operations in various markets around the world.
For Example Tata Steel,Hindalco Industries,Ranbaxy laboratories etc are some of the Indian MNCs. Reasons for going global: Over the last couple of years, Indian Companies has acquired a slew of foreign companies across a spread of sectors in their quest to go global. The rising tide of Indian investment overseas reflects the imperatives of operating in a globalised market place. Because of rising competition, Indian firms are now driven by the need to seek the cheapest resource mix and locate operations where these are available Globalization also entails that they seek larger markets that transcend geographical barriers.
Both factors translate into a strategy of larger overseas investment . Changes in the International regulatory environment, particularly developments in the intellectual property rights (IPR) regimes are also critical drivers for Indian companies’ forays abroad. The liberalization announced will enable the Indian companies to take advantage of global opportunities and to acquire technological and other skills for adoption back home in India. Following are the reasons that drive Indian Companies to spread their wings abroad: ) Market distortions: In a world without tariffs and other ‘distortions’, exports and local production would be perfect substitutes. However, in the real world, distortions do exist and provides an incentive for firms to locate production facilities abroad. 2) Access to resources: Access to low cost resources has been another important reason behind foreign direct investments. In a number of instances, the availability of cheap, skilled labor has been an important driver.
Resource seeking investments from India is largely geared to the oil and gas sector where investment is driven largely by the need to explore new oil reserves. Here destination of investment is determined by the location of oil fields. 3) Market access: The penetration of large markets often entails physical Proximity of a firm to these markets, a condition that a pure export strategy fails to Satisfy. Firms, for instance, need marketing and distribution assets to access market and often the optimal strategy for successful penetration is to acquire a local marketing company or set up a marketing subsidiary.
Indian pharmaceutical companies are following exactly this strategy, particularly in unregulated markets. For Indian software companies, the need for market access has entailed locating facilities in major markets to acquire domain knowledge of clients and setting up ‘disaster recovery centers’ in case of systems failure. 4) Technology: The manufacture of certain products requires technology that is not available to the Indian companies. By acquiring companies abroad, they also acquire advanced manufacturing technologies that further help reduction in the cost of production. ) Expanding product mix: Companies acquire to obtain a new product mix or to acquire products that will otherwise require huge investments and a long time to manufacture indigenously. For instance, Tata Motors acquired Korean Daewoo Commercial Vehicle Co Korea, the truck-making arm of Daewoo. With this deal Tata Motors Ltd. gets access to Daewoo’s 93 models in cargo, dump, mixer and tractor categories that it can introduce in other markets. 6) Averting domestic cycles: The cyclicality in some products, for example, commercial vehicles segment, earlier saw manufactures reel under losses during downturns.
Diversification of markets helps companies’ hedge against the domestic cycles. Strategies for going Global Indian companies are using all the tricks of trade to go global. The scale and business share may not be significant today, but Indian businesses are slowly but surely establishing themselves abroad. Following are the strategies used by Indian companies to go global: 1) Acquisitions Acquisitions have been the major business strategy employed by Indian MNCs to expand and capture the markets. The International acquisitions help Indian companies by: a. Providing proximity to global customers, and significant upside . . Giving access to technology and intellectual property, which can be exploited at a larger scale. c. Allowing Indian companies to drive value from their cost competitiveness by acquiring international operations with higher cost structures. d. Streamlining supply chains and securing raw material access. A significant part of Indian overseas investment has gone into acquisitions abroad. In its latest report, Grant Thornton, a global consultancy firm, stated that ‘The total number of M deals during the first 11 months of 2008 stood at 433, with an announced value of US$ 31. 95 billion. The number f outbound deals has far exceeded the domestic ones in terms of value break up. According to Grant Thornton’s Special Advisory Services official, for the month of November alone, there were 26 M&A deals with a total announced value of US$ 3. 40 billion, which is higher than October 2008 at US$ 2. 13 billion and comparatively higher than November 2007 levels at US$ 850 million. Here are the top 10 acquisitions made by Indian companies worldwide: Acquirer Target Company Country targeted Deal value ($ ml) Industry Tata Steel Corus Group plc UK 12,000 Steel Hindalco Novelis Canada 5,982 Steel Videocon Daewoo Electronics Corp.
Korea 729 Electronics Dr. Reddy’s Labs Betapharm Germany 597 Pharmaceutical Suzlon Energy Hansen Group Belgium 565 Energy HPCL Kenya Petroleum Refinery Ltd. Kenya 500 Oil and Gas Ranbaxy Labs Terapia SA Romania 324 Pharmaceutical Tata Steel Natsteel Singapore 293 Steel Videocon Thomson SA France 290 Electronics VSNL Teleglobe Canada 239 Telecom Source:economywatch. com/mergers-acquisitions/india. htm 2) Joint Ventures The advantages of Joint Ventures are, a. An opportunity for each partner to benefit significantly from the comparative advantages of the other local partners that bring knowledge of the domestic market; . Familiarity with government bureaucracies and regulations c. Understanding of local labor markets and existing manufacturing facilities. d. Foreign partners can offer advanced process and product technologies,management know-how, and access to export markets. e. For either side, the possibility of joining with another company in the new venture lowers capitals from access to a new customer base and new markets. For example :Ranbaxy laboratories limited ,India’s largest pharmaceutical company formed joint ventures with pharma companies in Nigeria,US,China and japan etc.
The problems in joint ventures are: a. Transparency : Since accounting standards are quite different for each company, getting accurate data may be difficult. b. Division of management responsibility and degree of management independence c. Marketing and staffing issues: Conflict of interest is possible when both companies have different viewpoints about marketing strategies. d. Dividend policy and other financial matters. e. Problems related to multinationality 3) Other Strategies Organic Growth implies the growth in a natural manner by establishing a subsidiary and capturing the market.
Merger implies acquiring and becoming as a single entity. These strategies are not much adopted by Indian MNCs, since in developed countries the Competitor will be already established and the gestation period etc are more. Also the rival will be having more technological advantage compared to Indian MNCs. Further it reduces one of the advantages of cheap labour. Example of Bharat Forge: Bharat Forge, with its headquarters in Pune, an aggressive player in engineering industry with its goal of becoming one of the top players in global automotive forging industry.
The company has made a series of acquisitions in Germany, USA, Sweden, and Scotland and has formed a Joint Venture in China. The Company follows a strategy of “dual Sharing “where its global customers need can be met from at least two of its plants worldwide. This allows to the company to satisfy its customers requirements with fast possibility local responses, while at the same time meeting the constant demand for more competitive prices. Challenges faced by Indian MNCs: Indian MNCs has to face the following challenges: – At Strategic and operational level Brand play: Indian MNCs has to have a game plan ready for building brands on a global scale, which will enable to compete with established global brands. Thus these MNCs have to understand local customers needs in different markets. -Managing cultural differences is an important challenge . As global business brings people from different culture together . They need to overcome cultural differences and collaborate with each other in order to succeed. -In order to have a positive image of the Indian industry in the host nations overseas and across geographies by maintaining the highest degree of corporate governance
Practices. Conclusion: When India opened up its markets in 1992, there were apprehensions that India Inc. may not be able to survive the challenges posed by the influx of foreign MNCs. But the India Inc. has not only survived the challenges, in their quest for expansion they are increasingly thinking globally. This is evident from the number of acquisitions and foreign operations done by India Inc. The Indian companies are on the buying spree overseas, the inescapable fact is that they are relative newcomers to the game of cross border acquisitions.
There are several issues they need to tackle before they can claim success. They have to deal with regulations, market liabilities, cultural issues; strict norms on everything from environment to customer protection make the Indian acquirer vulnerable to a host of lawsuits and penalties. Indian MNCs need to proactively implement cultural sensitization programs and transparent practices so that cultural gaps and problems are minimized . Giving the financial logic for global entry will not only work. The Indian MNCs are hosting the flag of ‘India Shining’ in the world.