Indian companies are slowly but surely making their presence felt in the global business arena. The recent takeovers by Tatas of Ford’s models like Jaguar and Land Rover; Dr. Reddy’s purchase of a host of global pharmaceutical firms, and Anil Ambani-owned ADAG’s purchases of many global firms, have seen the world sit and take notice of India Inc’s emergence on the global map. True, India Inc ushers in a new era.
India is not just about IT or business process outsourcing. We see it as an incubator for giant global corporations driven by IT strategy.”
– Prof Warren McFarlan, Senior Associate Dean, Harvard Business School
India Inc. has come a long way since the forces of Liberalization (L), Privatization (P), and Globalization (G), commonly referred to as LPG, were unleashed in the country in 1991-92. Since then, for over a decade or so, the industrial landscape in the country has undergone a sea change. One of the hallmarks of this has been the end of the (in)famous license raj. Other significant policy measures have been the deregulation in a number of sectors including telecommunications, banking, retailing, real estate, and aviation among others, while a significant number of public sector enterprises have undergone disinvestment during this period.
Foreign investment norms have also been liberalized significantly. In fact, in many sectors, the foreign direct investment limit has even been raised up to 100% now. The new policies have relaxed or removed many government controls on production capacity, imported capital goods, intermediate inputs and technology.2 These reforms have significantly altered the economic environment in which the domestic firms operated for long.
The journey though has not been all that smooth either. Having been used to operate in a protected regime (namely, license raj), the response (to opening up of the domestic economy) from Indian businesses was more reactionary rather than any thing else. But half-way through the reforms period (1998-99 onwards), situation began to change dramatically as domestic firms sensed huge opportunities knocking at their doors—in the form of access to a global market and power of low-cost and a vast talent pool which Indian businesses have even today. IT industry led this turnaround (in mindset and approach) and has successfully established India’s prowess in the global services arena. Today, a host of businesses from BPO (Business Process Outsourcing) to healthcare, financial services to telecom, hospitality to textiles etc. are demonstrating their competitiveness in the global market place. This has been achieved through organic growth as well as inorganic route through mergers and acquisitions (M&As).
Today, India boasts of a number of its own home-grown MNCs (Multi-National Corporations), companies which have global reach and also are among the top 10 globally like—Tata Steel (sixth largest globally), Hero Honda (world’s largest), Tata Tea (owns world’s second largest tea brand, Tetley), Reliance Industries (among the top global petrochemicals giant, owns and operates the world’s third largest refinery at a single location), Bharti Airtel (among top 10 telcos globally), Aditya Birla Nuvo (World’s top aluminum producer), Videocon (world’s third largest CPT manufacturer) etc.
Globalization Gambit
Having faced and faltered under fierce competition from multinational firms for long, domestic firms by the end of the 90s had begun to understand that only the fit and agile will be going to survive. And nothing could excite more than the idea of taking the war to the competitors’ turfs. Tata Tea demonstrated it by acquiring Tetley and in turn has challenged the hegemony of the top player, Unilever (the makers of Lipton, the world’s top tea brand). This cross-border acquisition has catapulted Tata Tea as the world’s second leading tea brand from being nowhere in the global tea market just until before the said acquisition.
Several similar other cross-border deals have now placed various Tata Group firms into enviable positions in the global sweepstakes in their respective industries. For instance, 2007 acquisition of Corus by Tata Steel has enabled to jump the world rankings from 56 to the world’s 6th largest steel producer almost instantaneously post-deal.
Tata Motors in another landmark deal for the group and also for the country as well, acquired two marque brands – Land Rover and Jaguar – from Ford Motors of the US for a sum of over $2bn. The acquisition marks a significant step in Tata Motors’s aspirations to break into the top league of the global automotive manufacturers. In fact, since 2000 till date July 31, 2008, Tatas have made 19 cross-border acquisitions out of which four deals are billion-dollar acquisitions (see the Table – Tata Group’s Acquisitions So Far).
Perhaps it was Tatas’ path-breaking deal (acquisition of Tetley) that stimulated other domestic firms to set out on the journey to have a global footprint. A host of firms in the last 7-8 years have ventured into other geographies/markets beyond the boundaries of their domestic market.
Besides Tatas, among other business groups from India that have achieved formidable global positions within their respective industries, come the AV Birla Group whose flagship company, Hindalco is now the No.1 rolled-aluminum producer globally, post its $6bn acquisition of Canada’s Novelis. Bharat Forge is another domestic company that has carved a niche for itself in the global business arena. Bharat Forge, the flagship company of the $2.4bn Kalyani Group, is the second largest forging company in the world, as a result of a string of acquisitions it made in a space of last five years or so, which include Germany’s Carl Dan Peddinghaus GmbH and the US-based Federal Forge Inc.
Today it has manufacturing facilities spanning across India, Germany, Sweden, Scotland, USA, and China. This is not a complete list as there are a host of companies from Anil Ambani-controlled ADAG (Anil Dhirubhai Ambani Group) to Vijay Mallya’s UB Group, Tulsi Tanti-promoted Suzlon to Dhoots-owned Videocon, the consumer durables giant, which have been actively pursuing the M&A route to foster their global presence. India Inc. executed a total of 1,081 deals worth $70 billion in 2007.
However, India Inc. is not relying on inorganic route alone to create its global footprint. There are companies from industries like pharmaceuticals, electrical and home appliances, textiles and readymade garments and, automobile, which have created a niche for themselves in the global markets growing through organic route, by leveraging on capabilities such as low-cost, product innovation etc. For instance, Tata Motors’ Nano is being now hailed the world over. The path-breaking effort – that is the Nano, the Rupee 1 lakh-car, which is going to be the cheapest car in the world and make car ownership a dream come true for thousands, and perhaps millions of people in India and perhaps abroad as well, has the world showering praise on the group for thinking and doing the unbelievable.
Besides Tatas, another automotive manufacturer that has the world paying attention is the Mahindra & Mahindra (M&M), which recently earned the distinction of being the world’s third largest tractor manufacturer. The company now has a global presence with manufacturing and assembling plants spread across China, the US and, Australia besides having subsidiaries in Italy, the US and South Africa. In another first, the company’s US subsidiary, Mahindra USA, notched highest rating in overall satisfaction (in terms of parameters like product quality, technical support etc.) amongst tractor manufacturers in a survey conducted by the North American Equipment Dealers Association (NAEDA), which is a growing sign of how Indian companies are slowly beginning to make a mark for themselves in the global business arena.
Another player to make aggressive foray in international markets is Bajaj Auto, India’s second largest two-wheeler maker, which has been in the news in recent times for its much-awaited foray into manufacturing of ultra low-cost cars. A project in which many global car makers like Japan’s Nissan and French Renault have evinced interest to join as co-manufacturers. This is a far cry from a few decades back, during the 70s, when the company, which became famous for its Bajaj Chetak scooters and now winning accolades for its Pulsar range of motorcycles, struggled to get license to manufacture scooters based on indigenous technology, and later during the 90s when it was fast losing out to Hero Honda and faced stiff competition from TVS Suzuki and Kinetic Honda. Bajaj Auto, squeezed by competition from Japanese motorcycle manufacturers in the Indian market, has repositioned itself as the premium-brand leader at home - and is now taking the battle back to Japanese and Chinese rivals in markets like Indonesia, Egypt, and Brazil.
Besides, pharmaceutical majors like Dr. Reddy’s Lab and Ranbaxy too have pursued ‘going global’ strategy, through a combination of both organic route as well as inorganic. In fact, Ranbaxy began on the globalization bandwagon much before other Indian companies could realize its true virtue. Ranbaxy, which is soon going to be a part of the Japan’s Daiichi Sankyo, which recently announced to acquire India’s largest drug maker, has manufacturing facilities in about a dozen global locations including India, China, Japan, Brazil, South Africa, and the US.
The story would not be complete without the mention of India’s Information Technology (IT) and ITES (IT-Enabled Services) companies, which were the first to establish India Inc. on the global business map. Companies like Tata Consultancy Services (TCS), Infosys and Wipro have been among the early movers to demonstrate that Indian companies have the skill sets (technical as well as managerial), vision and capabilities to make it big in the global business arena. Today, there is a long list of IT and ITES firms from India who are playing big roles in the global IT industry.
Going Forward
A set of several other factors too have helped the Indian companies realize their dream of going global. Government’s continued focus on economic reforms which include sweeping reforms in the areas of capital markets and financial services opened the doors for corporates to fund their dreams through various available channels as banking, capital markets and even through overseas borrowings including ADR/GDR and ECB routes. Also, continued deregulation in several sectors including banking, insurance, mutual funds, telecommunications and pharmaceuticals sectors have enabled the private sector firms to capitalize on several new growth opportunities. A strong rupee (against the US dollar) all these years has also helped the overseas acquisitions of the domestic firms as they had to shell out fewer rupees.
Going ahead, the rapid integration of India with the global economy will further put pressure on Indian firms to achieve global scale, gain cost competitiveness, and look out for expanding reach across geographies as to sustain their growth and survive in a fiercely competitive global market as well as back home. Another factor that would push the globalization drive of Indian firms is that many of the firms enjoy strong cash flows as a result of the last few years of strong economic growth in India as well as exports markets. Companies like Reliance Industries, ADAG, UB Group, Tatas and Birlas, not to mentions the IT Czars like TCS and Infosys, having tasted success in the past would be all geared to further push their globalization drive to further firm up their positions in the global business arena.
N Janardhan Rao, Senior Economist.
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