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The advent of Indian
MNCs
By Kunal Kumar Kundu
KOLKATA - Is the world order changing? So
it seems, if one looks at the proliferation of
multinational corporations (MNCs) from the
developing world, an unheard of phenomenon
probably even a decade ago. In fact, as Harvard
Business School professor Louis Wells puts it,
first-world countries are now actively wooing
third-world multinationals in a remarkable role
reversal.
Companies from India, China,
Brazil and Malaysia are among those busily
investing around the world. According to the
annual World Bank report titled Global Development
Finance released recently, their reach is fast
spreading. Developing countries (as defined by the
World Bank, which includes middle-income countries
such as Malaysia, but not richer ones like Taiwan,
Singapore, Hong Kong or South Korea) made US$16
billion of foreign direct investment (FDI) in
2002. Last year, according to the bank's
estimates, companies from these countries invested
around $40 billion. Not all of these investments,
though, went to the rich world. The bank's
economists estimate that by the end of the past
decade, more than a third of the FDI going to
developing countries came from their peers.
In India, FDI conjures up visions of
global companies investing in the country to give
its economy a leg-up and provide employment to
thousands. But for whatever's coming into India,
there's a lot going out as well. India Inc is
flying high and not only over the Indian sky. Many
Indian firms have slowly but surely embarked on
the global path, leading to the emergence of
Indian multinational companies.
Thousands
of miles lie between Pimpri and Birmingham.
Nevertheless, in 2003, when the first batch of
Indica cars rolled out from the Rover factory in
the UK, the symbolism wasn't lost on anyone:
consumers in the UK would now buy "Made in India"
cars. Indica had clearly crossed a chasm far wider
and more significant than the geographical
distance between the two countries.
With
each passing day, Indian businesses are acquiring
companies abroad, becoming popular suppliers or
recruiting staff cutting across nationalities.
Indian firms have about 440 investments/joint
ventures in the UK, mostly tech-oriented. India is
the eighth-largest investor in the UK. There are
1,441 Indian companies operating in Singapore. Of
these, more than 450 are technology enterprises.
The top 92 Indian-American-owned companies in the
US generated $2.2 billion and provided full-time
employment to about 19,000 in 2002. Indian
companies acquired 120 foreign firms in 2001-2003
worth $1.6 billion. Seven Indian companies are
listed on the New York Stock Exchange and three on
NASDAQ, while over 15 are listed on the London
Stock Exchange. Though the acquisition of foreign
companies started off in the information
technology (IT) and related services sector, it
has now spread to other areas. Consider these
examples:
The AV Birla group has a
presence in 18 countries and generates an overseas
revenue of $1.8 billion, excluding their exports
of $900 million. Its overseas employees total
12,000 in 20 countries. Its recent purchases
include two copper mines in Australia and a carbon
black manufacturing unit in China;
ONGC Videsh Ltd (OVL),
the overseas arm of Indian petroleum giant ONGC,
is investing over $2 billion in oilfields in
Sudan, Russia and Angola, and gas fields in
Vietnam. Besides, OVL has acquired exploration
assets in Myanmar, Libya, Iran, Iraq and Syria,
and has expressed interest in acquiring partial
ownership of oil companies in Venezuela and West
Africa;
Asian Paints is now among
the 10 largest decorative paint makers in the
world and has manufacturing facilities in 24
countries;
Tata Motors shelled out
$118 million to buy Korea's Daewoo commercial
vehicle unit;
Tata Steel recently
bought the Singaporean steel firm Natsteel. This
acquisition gave the Indian major a foothold in
seven countries, including Australia;
Indian pharmaceutical
major Ranbaxy, the largest Indian pharma company,
gets 70% of its $1 billion revenue from overseas
operations and 40% from the United States. It
exports to 70 countries, has ground operations in
25 markets and manufacturing units in seven
countries, including China. Recently, it bought
French pharma company RPG Aventis for $80 million.
Earlier, it acquired companies in the UK and
Germany;
Another pharmaceutical
company, Workhardt, derives 55% of its revenue
from international business;
Bharat Forge acquired the
German company Carl Dan Peddinghaus Gmbh for $28
million, making it the second-largest forging
manufacturer in the world. Its workforce includes
Japanese, Germans, Americans and Chinese. It has
31 customers across the world and only 31% of its
turnover comes from India;
Candico is the first
Indian confectionary company to go global,
breaking into the $100 billion global
confectionary market. It invested $1 million in a
plant in Tanzania with a production capacity of
3,900 tonnes per annum;
Essel Propack is the
world's largest manufacturer of lamitubes - tubes
used to package toothpaste. With 17 plants spread
across 11 countries, the company commands a
staggering 30% of the 12.8 billion-units global
tubes market;
Reliance paid $207
million for the acquisition of Flag Telecom,
giving it access to 50,000 kilometers of fiber
optic network worldwide;
The TVS group has set up
a motorcycle plant in China and is planning to set
up two units in the Association of Southeast Asian
Nations (ASEAN) region;
Mahindra & Mahindra
has established a subsidiary in the US and is
producing 8,000 tractors every year. It has a 20%
market share in 25 states in the 20-60 horsepower
segment. The company is planning to venture into
Russian, Chinese and South African markets besides
setting up an assembly unit in Indonesia;
Indorama has set up resin
plants in Indonesia, Thailand, the US and
Romania;
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 initial
public offering IPO in Europe in 2003;
Aurobindo Pharma has gone
global with eight subsidiaries across the world,
two joint ventures in the US and a new acquisition
in China. Half of its revenue comes from exports,
which accounted for 47% of total sales in
2002-2003. This strength is derived from its
strong presence in the emerging markets of Asia,
Brazil and Latin America;
Wipro has acquired
US-based consulting company Nerve Wire for $18.7
million;
Tata Tea bought Tetley of
the UK, the world's biggest teabag-maker, for $430
million in 2000. With this acquisition, Tata Tea
became the second-largest tea company in the
world;
Tata Consultancy has set
up a software development center in Shanghai and a
software development center in Uruguay, with an
investment of $30 million.
Indian FDI is clearly
growing by leaps and bounds. At the end of March
2004, the total FDI from India was a whopping
$6,592 million compared to just $1,687 million in
2002-03. This exponential leap was brought about
by the government's initiative last year to remove
the $100 million cap on FDI, increasing it to the
net worth of the companies investing abroad.
Actual investment
outflows
| Financial year |
Total
($m) |
| 1999-2000 |
319 |
| 2000-2001 |
1,212 |
| 2001-2002 |
975 |
| 2002-2003 |
1,687 |
| 2003-2004 |
6,592 |
Source:
www.indiainbusiness.nic.in
Some recent acquisitions by Indian
companies
| Company |
Acquisition |
Price
($m) |
| Reliance
Industries |
Flag Telecom,
Bermuda
Trevira, Germany |
212
95 |
| Tata
Motors |
Daewoo,
Korea |
118 |
| Infosys
Technologies |
Expert
Information Services, Australia |
3.1 |
| 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 |
| Bharat
Forge |
Carl Dan Peddinghaus Gmbh,
Germany |
28 |
| Ranbaxy |
RPG Aventis,
France |
80 |
Source: Wall Street Journal,
IBEF
research
India is still scouting for
FDI. But thanks to the proliferation of its MNCs,
it is doing so from a position of strength. The
main reason for the outward flow of capital is
that the country is flush with foreign reserves.
In 1991, when India was left with less than $1
billion in its reserves, there was no way it would
have allowed its companies to invest overseas,
whereas today India is sitting on top of $140
billion, and now faces a problem of plenty. That
aside, the policy of economic liberalization and a
wave of deregulation has unshackled Indian
companies to seek greener pastures. The sleeping
giant may be stirring to life.
Kunal
Kumar Kundu is a senior economist with a
leading bilateral chamber of commerce in India. He
has a Masters in Economics from the University of
Calcutta.
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