You are on page 1of 5

International Business 17-10-2010

Topic: - Opportunities and threats of Indian companies in international market.

Introduction

Globalization has given a new meaning and dimension to corporate India. Many Indian
firms have slowly and surely embarked on the global path, leading to the emergence of
the Indian multinational companies. Indian industry has crossed domestic frontiers and
established a credible presence in markets abroad in a very short time. The evolution of
the Indian multinational spans diverse sectors from pharmaceuticals to automotive to
hotels to textiles to engineering goods and entertainment. With each passing day,
Indian businesses are acquiring companies abroad, becoming world-popular suppliers
and are recruiting talent cutting across national boundaries. This trend truly typifies the
global aspirations of Indian companies, but more importantly, represents the ability of
Indian businesses to achieve global standards of competitiveness.

Several reasons for this greater sense of confidence amongst Indian companies.

Firstly, the restructuring process that many companies underwent in the mid-1990s
gave them more confidence to meet the global challenge. India Inc, plagued by excess
capacity in early nineties, used the opportunity provided by the demand recession to cut
costs, streamline operations and reduce debts (thanks to low interest rates). And as the
business cycle turned around in early 2000s, it pursued competitiveness through
international expansion and outward FDI.

Secondly, there are a large number of Indian firms with the financial capabilities to
invest abroad. A study suggested that the top 25 companies in India have spare funds
of US$10 billion, much of which would be invested abroad.

Thirdly, the success of India as an outsourcing destination also exposed the country to
knowledge and methods for conducting business in foreign countries. Companies in
India realized that investing abroad would not only give them access to foreign markets
but also to production facilities and international brand names.

Fourthly, in the face of high commodity prices, there is an increasing desire by countries
like India to secure long-term supplies of natural resources to meet domestic industrial
demand.

Fifth, Indian banks are also encouraged to give loans to companies for their overseas
investments. For example, Export-Import Bank has financed 122 ventures worth US$
420 million set up by over 100 companies in 43 countries. During 2004-05, the Bank

1
International Business 17-10-2010

supported 11 overseas investments including the acquisition of a stainless steel plant in


Indonesia.

Sixth, as the customer gets used to making choices on a global basis, the brand of the
product has become significantly more important than the country of origin or
manufacture. Many brands have succeeded in shedding their nationality” – that is, the
country from which they originally emerged. Examples are many— MTV, Nike, IBM, and
so on.

Finally, the government’s changing attitude has also helped in the process. While the
initial liberalization of Indian policy towards outward FDI was started in early 1990s,
significant steps in this direction were undertaken only in 1995. In January 2004, the
Government finally removed the US$100 million cap on foreign investment by Indian
companies and raised it to the net worth of the company. According to the quarterly
deals data of this year from Grant Thornton India, an accounting and consulting firm,
the total value of outbound (overseas) deals by Indian companies grew to over $12
billion in the March 2010 quarter from a measly $52 million seen in the same period last
year. The number of deals also increased to 45 from 15 over the year.
This, however, is just the beginning, say investment bankers and industry observers,
who predict an increase in cross-border mergers and acquisitions in the coming quarters
with improving confidence levels, stronger fundamentals and better availability of
finance.

Signs of going Global

Given this existing desire to venture abroad, acquire manufacturing firms and position
themselves near clients, it seems that the trend of Indian companies going overseas is
on the rise and is definitely sustainable in the future. The country will rapidly emerge as
an important source of FDI outflows for the Asian region. While investment in IT
services is expected to grow more rapidly, other sectors would not be left far behind.
Further liberalization of government policies will continue to play an important role in
the expansion of Indian firms abroad. Moreover, India’s proactive steps to form
regional groupings – BIMSTEC, SAFTA, India-Singapore CECA, India-Sri Lanka FTA and
the imminent ASEAN-India FTA - will also provide Indian firms with a favorable platform
to strengthen their presence in these partner countries.

The most remarkable Indian entries in the list are two Tata companies — Tata Motors
and Tata Steel. Both are there because they decided to compete with the very best in
the industry and went ahead with bold acquisitions. Bharti Airtel, Mahindra & Mahindra
and couple of other companies may also make the list in the next 2-3 years.

2
International Business 17-10-2010

Over the past nine years, the number of Indian companies in Singapore has more than
tripled to 4,090 such that it constitutes the largest foreign business community in
Singapore. The Reserve Bank of India's January 2010 report on Indian Investment
Abroad highlighted Singapore as the top destination for Indian overseas investments.
Many of these companies chose Singapore because it has strong governance which
allows them to carry out substantive activities in a tax-efficient environment. While this
growth is spread across various sectors including manufacturing, logistics and education,
the strongest growth comes from India's IT industry. Indeed, Singapore’s trusted
environment, connectivity to the region and cultural similarities mark the Republic as an
ideal location for Indian companies to establish a base to engage the region. Indian
companies have chosen to establish their regional headquarters and R&D centers in
Singapore to cater to the 7,000-plus multi-national corporations (MNCs) here, including
the rest of Southeast Asia. To date, Singapore hosts the regional headquarters of almost
all of India’s top 10 IT companies, including HCL Technologies and Tata Consultancy
Services (TCS).

Another trend (January 04th, 2010) by Indian companies is to invest in buying land
overseas. Cheap land costs and increasing food prices have prompted them in doing it.
There are about 80 Indian companies who have purchased land in Africa to grow
agricultural products. The total investment is around £1.5 billion (about Rs 11,300
crore). Some of the companies which has invested in Africa are Kolkata-based Kankaria
group (manufacturing and textiles), Kommuri Agrotech (floriculture and horticulture),
Surya Electrical (electrical products), Karuturi Agro Processing, AVR Engineering
(construction), Nelvo International (minerals), Allied Chemicals, BP Jewellery, KSR
Earthmovers. It is estimated that Africa has about 807 million hectare of cultivable land.
Currently only about 197 million hectare is being cultivated.

Challenges to be faced

Indians tend to be highly flexible, culturally adaptable, and are able to work well in
different environments. However, talent development, with respect to the next
generation of leaders, is perhaps their weakest area. In India, there is a greater
emphasis on individuality and entrepreneurship. Thus, executives here are not strong
on bringing in new management, or on training and development. That said, India will
probably become the talent centre for the world. Many executives feel that China has a
better chance of succeeding economically, while India had a better chance of developing
pools of people. Whether India is able to capitalize on this opportunity will depend on
how it manages its talent.

3
International Business 17-10-2010

Growing globally requires organizations to open up and accept new cultures, integrate
these, and look to broader horizons. Indian businesses have to encourage people to go
abroad, and return with a bigger, global perspective. Graduates from India should gain
international experiences, and will hopefully return in a few years, when the
opportunities here will be even bigger.

Senior and middle managers in India tend to be individualistic rather than team
players, and developing a team is therefore a challenge. As a part of succession
planning, firms normally line up a few people who, over a period of time, can aspire to
the top job. However, they tend to become extremely competitive – and it is difficult to
reconcile this with team-building.

Most businesses that grow quickly are based on family leadership, or a close group of
people that are used to running every aspect of the business. Thus, they lose the ability
to delegate, and to trust others to do the job. To scale up, then, firms need to allow
people the freedom to grow and make mistakes as they do so.

Globalization is just not about scale and scope, but also about managing backward
and forward supply chain links. The local factors come into play when, for instance,
jobs are to be protected. Standardization allows companies to put processes in place
and go for economies of scale; customization challenges companies to provide
individual customers their choices thereby making processes and learning
vulnerable when customer loyalties are fickle. The notion of market capitalization is a
tricky one. Market capitalization economy imposes a strict discipline on companies to
create wealth for the shareholders, while the social responsibility paradigm imposes a
strict regimen for creating social wealth for the society for the company to gain
acceptance in the marketplace. Adag’s Reliance Natural Resources in India has eroded
shareholder value since a share-swap agreement with sister company Reliance Power
was announced.

The four challenges encompass the gamut of strategy, structure and leadership inter-
linkages. These also require a comprehensive understanding of local factors including
government policy, expectations, local laws and customs, and social infrastructure.
Suzlon found to its dismay that dealing with these areas in Germany and the US can lead
to unintended consequences in its global forays.

A key feature of today’s global markets is the emerging dominance of the customer over
the companies that compete for her attention and business. Through information media
like the internet and global television channels, today’s customer has instant access to a
wealth of information on any product or service that she may be interested in. Supply
chain efficiencies have made it possible for companies to make their products available
at competitive prices across world markets

4
International Business 17-10-2010

Global business brings people from different cultures together. They need to overcome
cultural differences and collaborate with each other, in order to succeed. The failure of
the Daimler-Chrysler “merger of equals” tells us
that cultural integration is a key pre-requisite for global managers to be effective and
successful.

Acquisitions and geographic cross-border expansion strategies require that companies


jump into the sea and learn to swim rather than wait and watch or depend solely on
consultants for guidance. These externally-induced internally-conflicting demands
require a great understanding of the markets, risks, legal and social business
environment and an appetite for risks. Indian companies in most industries have so far
excelled in small-ticket acquisitions. We are completely absent in many ‘global’ service
industries such as retail, FMCG, banking, bundled and shrink-wrapped software,
telecom, transportation and construction. Even in manufacturing industries, we have no
big guns in agro-processing, auto(except Tata Motors) and auto components,chemicals,
pharma and electronics, where the country has a comparative advantage.

Conclusion

Our research shows that successful and truly global-spread companies quickly learn and
acquire competences relating to management of four simultaneously arising and
inherently contradictory challenges. These are: globalisation and localisation;
standardisation and customisation; market capitalisation and social responsibility;
technological convergences and social divergences. So, it is still the challenge for Indian
firms is to become truly global.

You might also like