Troubled Neighbourhood

Updated: Aug 25 2004, 05:30am hrs
A number of Indian companies have reportedly decided to down their shutters in Nepal in the aftermath of the latest round of Maoist violence.

The list includes companies like Dabur Nepal Ltd, a subsidiary of Dabur India, Surya Nepal, a subsidiary of tobacco major, ITC and Coca-Cola.

The decision comes after a diktat from the Akhil Nepal Mazdoor Trade Union Mahasangh earlier this month ordering them to close shop on the grounds that they are exploiting labour.

There is a moral in this story for Indian businesses which is not limited just to the companies immediately involved but is relevant for Indian industry at large: Overseas expansion is not without its risks.

The post-reform period has seen a sharp increase in Indian companies going abroad in search of new pastures.

Easier norms for acquisition of overseas companies, relaxation of the rules governing release of foreign exchange and greater degree of openness have all resulted in many more business houses seeking to set up shop in other countries.

Tata Motors, Tisco, Ranbaxy, the AV Birla group — today is there any Indian business house worth the name that doesn’t have some subsidiary or other abroad

The trend is not restricted to the private sector. Public sector oil majors too have been aggressively picking up stakes in overseas companies.

The opportunities are immense. With tariff barriers coming down and the government committed to reducing import duties to ASEAN levels, Indian companies can no longer look to protected domestic markets for their survival.

They need to locate wherever they have a competitive advantage in terms of resources, skills and markets.

But overseas expansion, as the Nepal experience has shown, is not without its risks. A recent survey by The Economist shows that there are many places in the world where it is simply unsafe to do business.

Companies that get carried away by the prospect of immediate profit without considering the larger picture may well have to pay the price for their haste.

ONGC Videsh Ltd’s acquisitions in countries like Syria, Libya, Iran and Iraq and its on-going efforts to get a toe-hold in Sudan and Angola come to mind.

True, some of these countries might turn around and point a finger at India but that is beside the point. Globalisation presents both challenges as well as opportunities. It is time companies factored that into their calculations.