Challenges for Indian Multinationals

Pravin Wakle EPGDBM110311 Raghavendra DV EPGDBM110312

Quote -Unquote
India today is in the mainstream of global consciousness. There is a newfound sense of self assuredness. The entrepreneurship and dynamism its corporate houses have shown over the last five years have been and continue to be quite remarkable. However, while the age of Indian multinationals is undoubtedly here, we in India Inc. have a long way to go.
Kumar Mangalam Birla, Chairman, Aditya Birla Group

In this presentation, we will discuss the four challenges that Indias multinationals face on the journey from being National Champions to being Global Powerhouses.

The key challenges

1. The India Challenge 2. The Brand India Challenge 3. The Cross Border Acquisition Challenge 4. The Talent Management Challenge

Goading the Elephant towards Modernization

Companies are products of their environments, and Indias global powerhouses must therefore grapple with both the advantages and disadvantages of operating out of India. The bureaucratic machinery of India, as reflected in its 10-million strong civil service army, equaling the population of countries such as Belgium and Czech Republic, is corroded with apathy and corruption. The time it takes to obtain a business license in India ranges from 159 days to 522 days depending on where you are located. The 4 seasons hotel that was opened in Mumbai in 2008, required 165 government permits including a special license for a vegetable weighing scale in the kitchen India is ranked at 122 on the ease of doing business in different countries report by world bank in 2009

Ease of Doing Business-India

Goading the Elephant towards Modernization

Part of the reason towards this unfriendly business environment is the reflexive ambivalence toward the west (refer British East India Company) Political leaders pursuing modernization and liberalization by stealth Many of the regulations become a source of revenue for corrupt administrators and extra costs for businesses, without actually producing the intended benefits. In Bihar (though it might be better now!) 5 to 10% of the project costs of setting up a new plant must be set aside for payments to local mafia, politicians and bureaucrats.

Infrastructure failures The lack of national policy in crucial areas, poor transportation infrastructure, woefully inadequate power generation capacity, and slow legal system
The autonomy of state governments adds to the confusion No single internal market

Goading the Elephant towards Modernization

An Indian subsidiary of a French multinational exporting to Korea from Chennai in south India did an analysis of its transportation costs. It costs more to transport the companys products from its factory near Chennai to the Chennai port, a distance of 40 kms , than it costs to transport them the 5000 kms from the Chennai port to Korea!

In addition, the average time to clear exports through customs in India is nearly sixteen days, in contrast to only six days in China or OECD (Organization for Economic Cooperation and Development ) countries.
Acute power shortages have forced business in order to run their operations in an uninterrupted manner. To build captive power units. Having to build a power source increases both the capital outlays and subsequent operating costs for industrial plants. Captive power costs 50 to 100 percent more than that from the grid.

Goading the Elephant towards Modernization

The World Bank ranked India 173 out of 175 countries for contract enforcement in 2006. It takes an average of 4 years to enforce a contract, compared with less than 10 months in China. Indian multinationals have already started to examine options and move their headquarters or atleast significant part of their operations to more business friendly environments. Headquarters of Indian global powerhouses like ArcelorMittal, Suzlon, and Vedanta are located in Luxembourg, Denmark and London respectively rather than India.

Takeaway - The challenging Indian business environment teaches Indian Managers to succeed in imperfect market conditions. Thus when they encounter other challenging environments in emerging markets , these managers operate quite effectively.

More than Fakirs and Call Centers Brand India Constraints

IT sector, where India is uniquely claiming to be the back office of the world is the only part of modern India that receives significant global press coverage. Countries go through an evolution with respect to brand image as they develop economically. The initial market entry strategy for a company from a developing country is usually based on offering cheaper products of acceptable ( sometimes barely acceptable )quality. Brand India has failed to evoke Awe except for outsourcing and IT industry An exception is the example of brand Exotic India which has a positive impact if on is selling ayurvedic medicines, spas, exotic foods, or fabrics. In terms of hard power, India is poorer compared to China, its asian competitor on the global stage. However, when it comes to soft power, Brand India with its large private sector, history, democracy, free press stands out. With the emergence of BRIC , this image is changing. In future, perceptions of India being seen as a third world country will become weaker.

Indias Soft power

The Indian Media & Entertainment Industry grew by US$ 12.9 billion in 2009 to US$ 14.4 billion in 2010, a growth of 11 per cent, according to a report by the Federation of Indian Chambers of Commerce and Industry (FICCI) and research firm KPMG Around 15 million Indian expatriates living in different parts of the world account for over 65% of Bollywoods earnings.

Yoga tourism has been around for a while now, with Westerners flooding to a number of different ashrams for Yoga and spiritual healing

Indias Soft power

Besides being popular among the India Diaspora, such far off locations as Nigeria to Egypt to Senegal and to Russia generations of non-Indian fans have grown up with Bollywood during the years, bearing witness to the crosscultural appeal of Indian movies India has more than 70,000 newspapers and over 500 satellite channels (more than 80 are news channels) and is the biggest newspaper market in the world - over 100 million copies sold each day India has the third largest (based on the total number of fixed/mobile subscriber lines) telecom network in the world and the second largest mobile network with 911 million subscribers while the total number of telephone lines amounted to 943 m at the end of February 2012

What is India-Indian diversity

Our(indian) general elections, the biggest exercise in democratic franchise in human history. And the next one will be even bigger, because our voting population keeps growing by 20 million a year. But, the fact is that the last elections, five years ago, gave the world the extraordinary phenomenon of an election being won by a woman political leader of Italian origin and Roman Catholic faith, Sonia Gandhi, who then made way for a Sikh, Manmohan Singh, to be sworn in as prime minister, by a Muslim, President Abdul Kalam, in a country 81 percent Hindu Sashi Tharoor(2009)

The Cross Border Acquisition Challenge

In their hurry to become global powerhouses, Indian companies often prefer the acquisition route, for example, Dr. Reddys acquired Germanys Betapharm; Videocon purchased Thompsons pictures tubes business. The current nationalistic euphoria prevailing in India sometimes appears more like jingoism. It needs to be tempered as it can induce corporate overreach.

Challenges of acquisition: Different business Norms Management Style Cultures Communicating across long distances

Some Acquisitions
In Indias closely knit business community , it is almost becoming a fashion statement for companies to make foreign acquisitions. The result is Indian companies are on a acquisition spree backed by empire-building ambitions rather than solid commercial logic and careful appraisal of investments returns. Essar Energy completed its 350 million dollar acquisition of the UK based Stanlow Refinery of Shell in August 2011 In June 2011, the Aditya Birla Group announced its completion of acquiring US based Columbian Chemicals, a 100 year old carbon black maker company for an estimated 875 million dollar

The Cross Border Acquisition Challenge

The Indian Companies Act section 372A requires shareholder approval for investments above 60% of net worth, however many large acquisitions such as Tata Steel Corus, Bharti- Zain deal have been routed through special purpose vehicles in which no shareholders consent was required. This raises questions on protection of shareholder interests and their say in large cross-border acquisitions.

The Cross Border Acquisition Challenge

Why RILs bid for Lyondell failed Analysts and investors have since expressed relief at the falling through of what they considered an over-priced deal. Goldman Sachs analysts Nilesh Banerjee and Nishant Baranwal, wrote on 2 March that the bid not going through is a better outcome, as it saves RIL from getting drawn into a bidding war and thus potentially over-paying for the assets. Deal was more speculative from Reliance end.

The ACQUISITION
Tata Steel was put on credit rating watch after it announced its foreign acquisition. India's largest private sector steel company with revenues of US$ 5.0 billion Corus Steel: Company is world's seventh largest and Europe's second largest steel producer with revenues of 9 billion (approx. US$ 11.55 bn) Brand India is efficiency centric and has to still integrate capabilities of Innovation and Branding

Human dimensionChanging mindset

The sad reality of India is that despite access to more than a billion people, Indian business is running out of talent. World Economic Forum Has ranked India 114 out of 128 on gender ranking. Rapid growth in last decade has weakened the cost disciplined, so salaries are increasing leading to salaries almost equal to western levels.

Indians are regarded as hardworking, but suffer from hierarchal, individualistic attitude.
Multinationals pursue it as challenge to teach Indians to follow the process They are used to jumping the queue. In Mumbai, compensation in finance sector is more than in London, rental cost above newyork, electricity dearer than Japan. Indian companies mind blockMicrosoft focuses on innovative product(revenues $60 bn), Infosys Indian IT giant still focuses on services $4bn).

Need from The Talented

Indians are needed to be more team oriented, process oriented and learning oriented. Biggest success of colonization was the colonization of our minds. It is time consuming to reverse that. Increasingly Indians are unwilling to accept foreign asignments.So the global ambition of Indian companies is stunted. Cultural differences are big, Integration of various nationality would be the way to go.

India: The next 21st-century power

REFERENCES
http://www.doingbusiness.org http://www.ted.com/talks/shashi_tharoor.html Indian Global Power Houses Nirmalya Kumar

Conclusion
These woods are lovely, dark and deep, But I have promises to keep, And miles to go before I sleep, And miles to go before I sleep. Robert Frost

Thank You