Economic liberalisation across the globe and the drastic political changes taking place at the international level should focus enhanced attention on the role of multinational companies (MNCs). In terms of immediate impact, as felt in India, the liberalisation of trade and industry, together with foreign capital and technology, has exposed the Indian industrial sector to global competition. This has made domestic markets for goods and services more competitive and pushed all firms to improve their performance to survive. In addition, they have turned money power into muscle power.
India?s peculiar relationship with MNCs down the decades has meant that most of them have incorporated entities in the country with varying levels of equity participation by the parent firms headquartered overseas. Many of them, indeed, are a legacy of the British Raj; some readers will be surprised that of around 171 subsidiary companies in India, some 116 have their head offices in the UK and only 25 in the US. Most had to dilute their equity holdings in the local units to non-controlling levels during the high noon of India?s corporate nationalisation drive in the 1970s, and even change their names. But liberalisation and associated abandonment of the protectionist economic regime, since 1991, have meant that they are mostly now fully-owned subsidiaries again.
Under protectionism, costs were high, quality was low and technology was obsolete. Liberalisation has changed all that for Indian and foreign companies alike. Right now, MNCs are well placed to take advantage of the Indian economy?s robust growth trajectory. As the second fastest growing economy after China, India presents remarkable business opportunities by virtue of its sheer size and growth. Most importantly, India is among the world?s few economies that is expected to sustain a long spell of high growth, which could make it the eighth largest economy in the world over the course of the next 20 years, with a larger GDP than that of Italy, France or Germany by the year 2025. In other words, for the sake of their own future expansion and long-term survival, MNCs have little option but to be present in this market.
Another interesting factor is the legacy of the Raj?s education system. India not only boasts of the world?s second-largest pool of scientists and engineers (after the US), it is about to become the world?s largest English-speaking nation, with its middle class fluent in the Queen?s language set to overtake the population of the US. There are few other markets in the world with such MNC-friendly characteristics.
In India, MNCs can realise significant cost savings by utilising a highly qualified labour force at attractively low rates. The country?s reputation as a supplier of superior quality management and technical talent has grown enormously in the past decade or so. More than 100 MNCs have R&D facilities in India, and many have placed Indian talent in key positions in their organisation both locally and globally.
Plus, India is also emerging as a manufacturing and sourcing location of choice for various industries. India is already considered a low cost leader in steel and metals, for example, and there is heightened world interest in MNCs of Indian origin that are operating in these sectors, as also local policies on associated raw materials such as iron ore in an era of fast-paced globalisation.
India is increasingly part of the big picture for strategic planners. In fact, integration with the world economy allows MNCs to place India on their world map in a manner most appropriate to the execution of a global strategy. The impulses that India displays vis-?-vis MNCs and globalisation assume importance in this context.
The Indian economy, clearly, is positioned for success, and the market?s response to MNCs has varied to an extent that reveals a discernment of marketing strategy and intent. As long as India offers very attractive returns, MNCs cannot afford to get it wrong in this market.
The author is on the faculty, IBS, Chandigarh. These are her personal views
