In oil & gas, for instance, the Oil & Natural Gas Corporations international armONGC Videsh Limited (OVL)has been bidding for blocks abroad with the help of Chinese companies. So far two key projects one, in Syria, and the other in Colombia, have been acquired by OVL along with partners China National Petroleum Corporation (CNPC) and China Petroleum and Chemical Corporation (Sinopec) respectively. The total deal size is about $1,500 million for the two blocks. R S Butola, managing director, OVL, says, CNPC is also a partner with us in the Greater Nile Oil Project in Sudan, while Sinopec partners us in one of the offshore blocks at Sao Tome and Principe, an island near the coast of West Africa. Sinopec and OVL, for the record, are said to be working closely to acquire another blockYadavaran oilfield in Iran. CNPC, of course, has signed a memorandum of understanding with OVL. So more partnerships could be on the cards, say observers.
The need for equity participation and cooperation by oil companies from the two countries is borne out of a simple economic necessityto control escalating costs. Both nations are on the lookout for energy assets in the world to feed growing domestic demand and by competing with each other for oil blocks they land up increasing the cost of acquisition significantly. Which is why theyve joined hands, explains Raj Gandhi, research analyst, UTI Securities. Cost of acquisition comes down and bargaining power goes up. Also, says D Datar, vice-president, corporate affairs, MAN Industries, a saw-pipe-maker for the oil & gas industry, Risk in the project is shared between the partners.
In fact, say observers, most downstream oil & gas companies keen to get into exploration & production abroad, are toying with the idea of tying up with Chinese companies to jointly bid for overseas projects. Others like Gas Authority of India Limited (GAIL) which has an equity stake of about 9% in China Gas Holding by virtue of which the company will partner the latter in its city gas distribution project in over 40 Chinese cities have a different model. The company, say officials, is also eyeing oil & gas exploration abroad besides plans to participate in the liquefied natural gas (LNG) sector for which partnership with Chinese firms will come in handy. Says B. S. Negi, director, business development, GAIL, Who doesnt want to tie-up with a Chinese firm This point is also reiterated by Butola of OVL. Apart from the economics of the association, there is a knowledge and technology exchange as well. This is beneficial to both partners.
Cooperation of another kind, mainly in the form of joint ventures can be found in the automobile sector, where companies have been increasingly looking at China as a manufacturing hub besides targeting it as a vantage point for their international operations. Mahindra & Mahindra, for instance, has an 80:20 joint venture with Ziangling Motor Co Group for the production of tractors, while Bharat Forge recently inked a JV with FAW Corporation for its forging business. One more company likely to make a beeline for China is Delhi-based Amtek Auto, which is said to be contemplating operations there. Though the current JVs are primarily focused on the Chinese market, exports of components and products to allied regions havent been ruled out altogether. The domestic market in China is booming. It makes sense for players going there to focus on that segment, says Amit Kasat, senior analyst, Motilal Oswal Securities.
Interestingly, the movement to China by Indian automotive players has been tad slow on account of copycat manufacturing practices adopted by Chinese firms, which makes Indian manufacturers wary of partnering with them, say analysts. China is a bit of a black hole. And the efforts this far in terms of partnerships, joint ventures or even sourcing of components in the auto sector is at a nascent stage, says Kasat.
Despite the Chinese threat to Indian manufacturing, makers heresuch as consumer durable companies like Onida, Videocon and Godrejare choosing to outsource their production requirements to firms in China, importing finished goods, which are subsequently branded and sold in the Indian market. By some estimates, Chinese products constitute over half of the Rs 20,000-crore Indian consumer durable industry. This could increase over time, say analysts, as manufacturers continue to outsource production to China. Contract manufacturing is a visible trend in the sector, says an industry source.
Collaboration between Indian and Chinese firms is most visible in the oil & gas sector
Even Indian telecom companies have been turning to Chinese equipment vendors and handset manufacturers to meet their requirements. Says R L Dubey, director, operations, Bharat Sanchar Nigam Limited; There is a huge value proposition attached with Chinese makers. Their bids are low and they are comfortable to work with. How strong this association is can be gauged from the number of orders bagged by Chinese vendors of late. For instance, ZTE has been hired by Reliance Communications to manage its data card business. Huawei does the same for Tata Teleservices. Equipment manufacturers such as Hysen and Xingpeng besides ZTE and Huawei are working closely with BSNL. Again, Tata Teleservices procures Kyocera and Haier handsets among other alternatives. Rivals are said to be doing the same too.
In fact, say observers, telecom service providers inclined to play the volume game in India are increasingly going for Chinese models. The niche handset market, on the other hand, continues to be out-of-bounds for most Chinese handset manufacturers.
Like consumer durable and telecom companies, IT majors such as Tata Consultancy Services (TCS), Infosys and Satyam Computer Services have been looking towards China, strengthening their operations there and converting it into an engineering and services hub. There are three reasons for this, says Siddharth Pai, partner at global business advisory TPI, The Chinese government is making significant investments in the IT and BPO sectors. China has a pool of multinationals waiting to be tapped. In that sense, it is no more a mere offshore and outsourcing hub, and lastly, the supply and scale of Indian operations needs to be replicated elsewhere. China provides that opportunity.
Small & medium enterprises in the IT and ITeS sectors are also crossing the border into China expanding into niche areas such as design and control systems. Says Ramesh Chandra, managing director, India of engineering services firm Ranal, Like India, China is a huge market for global auto companies. These firms set up base to simultaneously serve both the domestic and export markets. As a result, there is a demand for suppliers of information technology and engineering services in this area. Though, finding professionals proficient in English is an issue in China, the government there is said to be taking proactive measures to deal with the problem. As such, points a Bangalore-based IT consultant, if you are dealing with local clients, the need for being proficient in English is eliminated. With Indian and Chinese firms increasingly joining hands, seeing sense in economic cooperation rather than cut-throat competition, does it imply an end to the one- upmanship between the two