Going Global: The New Horizon

Updated: Nov 8 2003, 05:30am hrs
They are moving up the ladder in quest to go global. Indian companies which till recent years had taken the route of exports to have overseas presence, are now increasingly moving to the next phase of mergers and acquisitions as well as setting up new projects abroad. While till recently this trend was restricted to a few sectors like pharmaceuticals, information technology and software, today, is changing in favour of a number of new areas like hotels, telecom, paints and chemicals and oil and gas. Further, in the past while the global drive was more in the US markets, today, with a new found confidence Indian companies are sniffing around for opportunities wherever they are: in China, Europe and South- east Asia. Says management advisor, M B Athreya, There is a growing trend of Indian companies moving towards becoming multinational corporations.

Why is there a new effort by Indian companies to leapfrog into the global arena Flushed with cash, companies like Reliance and Ranbaxy are finding that they have a war chest to outbid some of the global rivals. It is also a mindset change of corporate India that is reflective of the growing confidence in taking on foreign companies on their own turf. After successfully competing with multinationals on the domestic turf, some of them are ready for overseas challenges.

Other companies like those setting up operations in China are doing so with an eye both on re-exports and also the large Chinese market. There are a number of other cases where new trends in policy regime have helped them to look overseas. This is clearly the case in aviation. Bombay Chambers of Commerce & Industry (BCCI) vice president and Thomas Cook India CEO and managing director Ashwini Kakkar says, The open sky policy will allow private players to operate charter flights from India to a foreign destination. This will help to retain earnings in India instead of losing them for foreign airlines.

The newly announced policy has already seen some of the domestic airlines like Jet Airways and Sahara announce plans to start operations in the region. The new overseas thrust also has to do with a new generation of managers taking charge in business family groups, who are more tuned into to the overseas markets.

The recent free trade agreement with Thailand has already prompted various companies to announce their plans to set up shop in Thailand to serve ASEAN. Further, reduction in import tariffs, including within India, would also help Indian companies to produce in low cost countries and sell in other countries.

Further, as exports grow, Indian companies are feeling the need to be near their customers. Says Joy jain, executive director, Pricewaterhouse Coopers, Indian companies have basically followed the customer in the past. It is only recently that the Indian companies have also started setting up manufacturing locations in foreign countries such as China to take the benefit of lower costs. Reduction in import tariffs in low cost countries, including within India, would help Indian companies to produce in low cost countries and sell in other countries. But in recent weeks the biggest opportunity that some of these companies are hooking on to is the acquisition route.

Global Acquisitions
Two weeks back, Reliance Industries Ltd (RIL) announced the $ 207-million acquisition of the UK-based FLAG Telecom. FLAG owns and operates a 50,000 km optic fibre network across the US, Europe, the Middle East and Asia Pacific. Analysts believe that this acquisition will help RIL get competitive international long distance and broadband internet.

Tata Motors is close to acquiring Daewoo Commercial Vehicle Company (DCVC), Korea for $ 118 million, according to reports. Tata Motors is among the top ten CV manufacturers globally and is aiming big. The company is currently working on a new generation of commercial vehicles, internally being called trucks of the future.

According to Tata Motors director (commercial vehicle business unit) RaviKant, International business is going to form an important part of our future Asia plans. There are several reasons for this. The CV industry is a cyclical industry, so one cannot expect to see the growth we are seeing from last year to continue for ever. So, may be after 2-3 years, it will begin to come down. We should be prepared in that point in time to offset the fall which is going to come.

A Model For Overseas Growth

Management guru M B Athreya see an evolutionary growth in Indian companies overseas thrust.
These include:

Step one: Begin and consolidate exports
Step two: Open a few country offices
Step three: Create a regional organisation to strategically guide and control the country operations in that region
Step four: Explore the economics of local assembly, manufacturing and value addition
Step five: Now, Indian companies are leapfrogging into the next stage, where many of them are eyeing acquisitions abroad

The bid by Mahindra & Mahindra for the Finnish tractor company Valtra which failed to materialise was the largest bid by an Indian company ever for an overseas acquisition. Though it did not work out, it is a signal of intent of M&Ms aspirations to be one of the top players in the global tractor market.

Now the company, which has been fairly successful in USA with its subsidiary Mahindra USA, eyeing both organic and in-organic growth opportunities in Europe.

Asian Paints, Indias largest paints company and the tenth largest decorative coating companies in the world with presence in 22 countries, got on to the acquisition route quite early. With the acquisition of Berger International in 2002, the group gained entry into 11 additional countries.

Ventures Abroad
Ranbaxy is one of the first companies to have chalked out a global roadmap. Today, around 70 per cent Ranbaxys revenues come from abroad. And not just that. While some its products are brushing shoulders with most local products in the US and Europe some have established themselves as clear market leaders. The company has already chalked out its global plans extending till 2012, through its vision called Garuda and sees itself as top 5 global generic with a sales of over $5 billion by 2012.

Venu Srinivasans TVS Motor is also planning to set up two wheeler manufacturing plants in Indonesia and Thailand. While the exact investment plan is still being finalised, it would roughly entail an investment of around Rs 250 crore.

Outward Bound: SWOT Analysis

Strengths
New management thinking and mindset change
Greater ability to raise cash
More liberal policy regime
Weaknesses
Organisational structure issues
Cultural integration in overseas markets
Short termism & inability to understand own strengths
Opportunities
New bilateral trade regimes
Established exports business in overseas markets
Comparative cost advantages
Threats
Opposition from local markets and governments
Need to balance between growing domestic and overseas markets

Similarly, Bajaj Auto, Indias second largest motorcycle manufacturer, is in the process of finalising plans for setting up an unit in Indonesia. To ramp up exports, Bajaj Auto is revamping its international operations. In a bid to have a more direct interface with its overseas customers, the company will gradually move away from the distributorship model and will have a direct marketing presence in these markets.

It has decided to adopt a leveraged approach in its global aspirations. The company, in association with its technical partner Kawasaki is in the process of setting up a separate marketing company which will be exclusively for exporting Bajajs bikes globally. The first step in this direction was with the launch of the Wind 125.

Bajaj Auto has divided its export markets into four distinct regions Saarc, Middle-east, South Asia and South America. The company will set up separate teams for each market which will be stationed in the respective markets. Each team will have 3-4 persons and would be headed by a senior official, of deputy general manager designation or similar seniority. The whole idea behind the revamp exercise is to build the Bajaj Auto brand overseas as well as to have a direct relationship with our customers, according to Bajaj Auto vice president (business development and marketing) RL Ravichandran.

Indian Hotels Company Ltd (Taj group) managing director Raymond N Bickson says that the companys future strategy is to expand geographically both within the country as well as internationally. We intend to expand in key international gateway cities like New York, San Franciso, Los Angeles and other Asian leisure destinations including China, he said. Just last month, the board of IHCL approved the management decision to acquire one property in the US.

The company is primarily interested in expanding through franchising and management route. We may even pick up a minority equity stake depending on what value we get from individual properties, Mr Bickson said. The company will push its Taj brand even in the international market. Taj is a name famous worldwide. We do not see any reason to dilute the brand, he said. Taj is having management contracts in Dubai and Mauritius (the luxury resorts is likely to be open in 2004).

Tata Motors has recently tied up with MG Rover of UK whereby Tata Motors will supply one lakh units of Indica to be sold as CityRover in UK over a five year period. This gives the company the much needed foothold in Europe.

Mahindra & Mahindras sport utility vehicle Scorpio after achieving success domestically is now slated for an overseas drive. The SUV is slated for its Europe foray by December. It is also looking at host of new markets.

A large number of Indian companies are again seriously looking at China to make their presence felt. These include International Travel House and Raymond. Some of the established players in China like Infosys and Tata Consultancy Services (TCS) is looking at expanding their presence there.

In the pharma sector, Orchid Chemicals and Pharmaceuticals Ltd exports its products to a slew of countries and has recently made a foray into the Chinese market by setting up a 50:50 joint venture with North China Pharmaceutical Corporation. The first phase of the $25 million venture has already commenced commercial operations. Orchid has invested $ 5 million in the equity of the JV. The JV has a capacity to produce 300 million tonne bulk active drugs per annum. Orchid early this year had acquired the assets, brands and business of Chennai-based formulation company, Mano Pharmaceuticals Ltd, for a consideration of Rs 26 crore. Further, to enhance its new drug discovery capacity, the company had entered into a joint venture agreement with the California-based BEXEL Biotechnology Inc for setting up a new drug discovery firm in the US. The new firm, BEXEL Pharmaceuticals Inc would concentrate on developing new molecules for various critical illness and commercialise it by licensing it to MNC pharma companies.

Say R Raghavendra Rao, managing director, Orchid Chemicals and Pharmaceuticals Ltd: Indian pharma companies have some fundamental strengths to emerge as MNCs in the global space. First, we are very strong in chemistry, R&D and clinical trials. We can leverage these strengths to manufacture products which are becoming generic both in bulk as well as dosage form on a global scale and be competitive. Some are already doing this and Orchid will also follow suit. Further, India is very strong in clinical and basic research. This stems from the low cost advantage we enjoy.

Healthcare is another area here Indian corporates have smelt opportunities outside the country. Apollo Hospitals has set up a super specialty hospital in Sri Lanka recently. Further, the healthcare major is in the process of implementing a mega hospital project for Petronas in Malaysia. The companys overseas strategy is based on managing the hospitals rather than investing in healthcare infrastructure. It is also in talks with several gulf countries for managing state-run hospitals. Says Dr Prathap C Reddy, Chairman, Apollo Hospitals Group: Apollo is looking at the tremendous opportunities in managing hospitals in Afro-Asian region.

The Challenges
But despite the fresh fillip that Indian companies have got in its globalisation drive, there will be a number of issues that they will have to cope with in future. People, cultural issues and increasing opposition from the new markets will be a few of these hurdles. Further, a growing Indian economy both helps and hinders such moves. Being a large domestic market, where products are profitable, there is less incentive to go global. On the other hand, the resource advantages like people give a comparative advantage to compete in the world markets. Increasingly in future, there will be the balance that Indian companies will need to make. Finally, there could also be threats from the foreign multinationals themselves. Sums up M B Athreya, The big foreign MNCs are just beginning to be concerned. The Indian growth story will both attract and worry them. In many sectors, a few companies are potential MNCs.

Additional Reporting by P VINOD KUMAR, RAJEEV JAYASWAL & PAPIYA DE