Building Sustainable MNCs F

Building Sustainable Indian MNCs :A Strategic Perspective:

Shivendra Singh Head- Training & Placement BHABHA GROUP Building Sustainable Indian MNCs :A Strategic Perspective Shivendra Singh-Head- Training & Placement

Indian MNCs: A New Concept?:

Indian MNCs: A New Concept? HMS Minden Jamshedjee Jeejaboy Pettits Sassoons Chettiyars Shivendra Singh-Head- Training & Placement

Early 20th C:

Early 20 th C Cotton-spinning in Uganda by the Mafatlals in 1920 Investments in Africa by the Birlas in the 1950s Shivendra Singh-Head- Training & Placement

A Long View of Industrial Policy:

A Long View of Industrial Policy Post-Independence 1950s to mid-1980s : import-substitution (IS) increasing levels of protection to domestic industry, restrictions on FDI, shifting to a liberal patent regime, and encouraging domestic technological capabilities MRTP/ FERA 74 Predatory view of MNCs Shivendra Singh-Head- Training & Placement

Protectionism:

Protectionism The case for protection : Friedrich List infant industries as strategy for industrialization of the developing countries Structuralist school Singer (1949, 1950) and Prebisch (1950, 1959). More recently the case for government intervention comes from the works of theorist of strategic trade policy (Brander and Spencer 1981, 1985; Krugman 1986). Shivendra Singh-Head- Training & Placement

Opening Up:

Opening Up Mid-1980s to 1991 : Seeds of Libralisation ‘halting’ liberalization process and set the movement of economic policy away from the earlier policy of import substitution albeit in slow space 1991 Post-Crisis - outward-looking (OL) phase Shivendra Singh-Head- Training & Placement

The Fears:

The Fears Vulnerability of Indian companies to take on the competition from global majors Shivendra Singh-Head- Training & Placement

The Scene Today:

The Scene Today 8 Indian firms in the global Fortune 500 Indian Oil Corporation (IOC) (125) Reliance Industries Limited (RIL) (175) State Bank of India (SBI). (282) Bharat Petroleum Corporation Limited (307) Hindustan Petroleum Corporation Limited (HPCL) (354) Tata Steel (410) ONGC (413) Tata Motors (442) What is significant – out of 100 BCG global challengers, 20 are from India Twenty years into the reforms era, we have found that not only have home-grown companies thrived in the competitive ecosystem, they have sought to expand horizons abroad through penetration of international markets Shivendra Singh-Head- Training & Placement

BCG Global Challengers, 2011:

BCG Global Challengers, 2011 Bajaj Auto Bharat Forge Bharti Airtel Cromption Greaves Dr Reddy’s Laboratory Hindalco Industries Infosys Technologies Larsen & Toubro Lupin Pharma M&M Reliance Industries Suzlon Energy Tata Chemicals Tata Communications Tata Consultancy Services Tata Global Beverages Tata Motors Tata Steel Vedanta Resources Wipro Red Queen Shivendra Singh-Head- Training & Placement

Heralding in a new mindset:

Heralding in a new mindset The Rs 1,870 crore Tetley acquisition by Tata Tea changed the psychology of the Indian Corporate World – Yes we can Provided momentum post 1999-2000 The strength of Indian MNCs now goes beyond the IT/ITeS sector, with big ticket outbound deals being seen in the area of energy, metals & ores, telecom, pharmaceuticals amongst others. Shivendra Singh-Head- Training & Placement

Some Indicative Big Ticket Acquisitions:

Some Indicative Big Ticket Acquisitions Acquirer Target Company Deal value ($ ml) Industry Year Tata Steel Corus Group plc (UK) 12,000 Steel Jan 2007 Hindalco Novelis (Canada ) 5,982 Steel Feb 2007 Videocon Daewoo Electronics Corp .(Korea ) 729 Electronics Oct 2006 Dr. Reddy’s Labs Betapharm (Germany) 597 Pharmaceutical Feb 2006 Tata Motors Land Rover and Jaguar (UK) 2300 Automobile June, 2008 HPCL Kenya Petroleum Refinery Ltd .(Kenya ) 500 Oil and Gas Sep2005 Bharti Airtel Zain (South Africa) 10700 Telecom June, 2010 Tata Steel Natsteel (Singapore) 293 Steel Feb 2005 Videocon Thomson SA (France) 290 Electronics Jun 2005 ONGC Imperial Energy (UK) 1900 Oil and Gas Jan 2009 (Source: http://ibef.org ) Shivendra Singh-Head- Training & Placement

Sectors witnessing outbound deals in India..:

Sectors witnessing outbound deals in India.. IT/ ITeS Telecom Oil, Gas and Energy Pharma Automobiles Metals & Ores Engineering & Manufacturing Shivendra Singh-Head- Training & Placement

How Much? M&A trends….. outbound deals since 2000:

How Much? M&A trends….. outbound deals since 2000 Cumulative (Source: http://ibef.org ) Shivendra Singh-Head- Training & Placement

Outbound Deals from India over the past 5 years:

Outbound Deals from India over the past 5 years (Compiled from Grant Thornton – Deal Tracker) Shivendra Singh-Head- Training & Placement

Out bound deals:

Out bound deals Year 2007 witnessed the maximum M&A activity in the country over the period 2006-2010. In the next two years, the deal activity in the country was impacted by the global economic slowdown, with year 2009 retuning the worst performance. More recently, year 2010 saw a strong resurgence in M&A activity in India, which in fact was next only to 2007. Shivendra Singh-Head- Training & Placement

Where n What?:

Where n What? (Compiled from Grant Thornton – Deal Tracker) Distribution of Destinations for Outbound M&As by India Companies Preference for locations in developed economies An increasing preference for acquisitions over greenfield investments (i.e. entry through a newly constituted firm Shivendra Singh-Head- Training & Placement

Motivations:

Motivations Market seeking, Airtel – Zain Manufacturing efficiency Hindalco - Novelis Competence enhancement IT/ TCS – Phoenix (insurance), eServe (transaction processing); Pharma Tata’s acquisition of Corus Steel: gained access to new markets, acquired a large number of US patents to deepen their knowledge base Also firms with their traditional strength in Indian-based operations, such as IT services firms, have acquired foreign subsidiaries for service delivery (not just sales offices). Shivendra Singh-Head- Training & Placement

What has changed? Where is the advantage?:

What has changed? Where is the advantage? Low Cost? ITeS (BPO, KPO, Legal, Medical Transcription) Technology / Innovation? Porter … differentiation … Frugal engineering (Scorpio USD 150m, Space programme ). Implications for future strategy Shivendra Singh-Head- Training & Placement

The Enablers:

The Global Transitions Inflexion points Critical points in time that decisively change the way we think, perceive and act. marked by technical change changes in hierarchy cultural change, reorganization of societies implications for comparative advantage Ages – Hunting gathering, Agrarian, Industrial The Enablers Shivendra Singh-Head- Training & Placement

Slide 20:

The Enablers: Transition from the Industrial to the Information Age The differentiating factors have changed Then Now 17% of jobs in 1900 required knowledge workers. Today it is 60% In a knowledge based economy, high quality talent can change the context. The differential value of high quality talent continues to mount. Implications for income distribution ... FI Machines Factories Capital Talent Brand Intellectual Capital Proprietary Networks Shivendra Singh-Head- Training & Placement

Slide 21:

Transition to the Info Age Assets intangible assets - intellectual capital / talent supplanted hard assets such as capital, factories and inventories. People the principal assets of an organization Ownership organisations do not own people they way they own factories Opportunities a host of new industries, opportunities given rise to a supply demand imbalance. ‘Psychological contract’ or the ‘loyalty contract’ –seriously undermined - job opportunities & internet revolution. Hierarchies Traditional Hierarchies undermined Shivendra Singh-Head- Training & Placement

Factors behind robust development of Indian MNCs:

Factors behind robust development of Indian MNCs Reforms and policies of Indian Government, Reserve Bank of India and other institutions. Norms for investing capital overseas have been relaxed. Raising capital both inside and outside the country has been made easier thus allowing Indian companies to have greater accessibility to funds, further fueling overseas M&A Exports norms have been simplified giving greater access to international markets Lowering of tariff barriers across the globe has also unlocked newer markets for Indian companies Shivendra Singh-Head- Training & Placement

The Policy Environment:

The Policy Environment Shivendra Singh-Head- Training & Placement

Factors behind robust development of Indian MNCs:

Factors behind robust development of Indian MNCs The rise of Indian MNCs has also been favoured by structural shift in global industry: With focus on core competencies , industry are looking to offload non-core processes through outsourcing and subcontracting…..this provides am opportunity for niche Indian companies to occupy certain section of the supply chain Shivendra Singh-Head- Training & Placement

Factors behind robust development of Indian MNCs:

Factors behind robust development of Indian MNCs Human resources : S/W skills, English speaking ability, Leveraging the vast talent pool / Demographic Dividend? Lower end - High end talent - IIT / IIM alumni leading global companies – promoted outward focused mindset in Indian business. Shivendra Singh-Head- Training & Placement

How? Strategies:

How? Strategies Taking local brand global: the Indian automotive industry Frugal engineering followed by M&M Soft Innovations Leveraging Process knowledge into global innovation Pharmaceuticals, global generic manufacturers of drugs (Ranbaxy since acquired , Dr Reddy). IT transited from bpo to kpo outsourcing Global category leadership Taking a local category leadership position and leveraging it to a global category leadership position , (polyester yarn Reliance group, or in steel where Bharat forge has pioneered a dual shoring system Shivendra Singh-Head- Training & Placement

Arenas of Competition:

Arenas of Competition Battle for emerging customer segments Middle class, niche markets, china, bajaj auto, Battle for Industry leadership Adapt business model to stay competitive, partner or acquire challengers, reinforce traditional strengths For new markets Shivendra Singh-Head- Training & Placement

Trends:

Trends Rush for natural resources Building global brands Building reliable partnerships Shivendra Singh-Head- Training & Placement

Challenges:

Challenges Increasing competition on the home turf While good for the economy and for overall efficiency, implies that the earlier fairly safe home market of Indian firms now is contested. Talent crunch Serious shortage of talent. Indian IT firms are currently recruiting abroad, in Russia, the Philippines and other places. Global firms require global management There are currently few Indian managers with international management experience. There is no quick fix for this situation, but there is a functioning international market for management. Ambiguity … ICICI, HDFC Shivendra Singh-Head- Training & Placement

Challenges: Limitations of India as a Home Base:

Challenges: Limitations of India as a Home Base the innovation system underfinanced Public financing of R&D activities (1%??) R&D spending of Indian firms (reportedly eighty percent of Indian firms not conducting any R&D activities at all). Positioning related to world class manufacturing capacities Quality and reliability similar to India’s IT/ ITeS in the manufacturing sector Conducive organizational culture to encourage strategic planning and implementation with an international perspective for evaluating global marketing strategy for products, exploring alliance with overseas supply chain partners Shivendra Singh-Head- Training & Placement

Challenges: Fortress Home:

Challenges: Fortress Home Protectionist tendencies persisting in the global trade, further heightened by uncertainty in post-crisis recovery process Unfavourable mindset of customers and general public in the host nations towards MNCs. (little post acquisition controversy, Pre-acquisition issues - mindsets - Arcor, Orient Hotels) Shivendra Singh-Head- Training & Placement

Sustainability:

Sustainability Are we there? Is it transitory? What do we do to establish a firmer presence? What do we do to make it hold, to endure and to keep going … Shivendra Singh-Head- Training & Placement

Creating Sustainability: Innovation:

Creating Sustainability: Innovation Creating a culture of innovation Shivendra Singh-Head- Training & Placement

Creating Sustainability:

Creating Sustainability State Policy on Science and Technology State Policy for R&D Corporate sensitising to R&D Shivendra Singh-Head- Training & Placement

Creating Sustainability: Collateral Issues:

Creating Sustainability: Collateral Issues Sensitivity to the culture of the host nation Views on Intellectual Property ... Collaborations Brand Building – Brand India and Soft Power Balancing People, Planet and Profits Shivendra Singh-Head- Training & Placement

Sustainability:

Sustainability Shivendra Singh-Head- Training & Placement

Glocalisation:

Glocalisation Shivendra Singh-Head- Training & Placement

Environment:

Environment Shivendra Singh-Head- Training & Placement

Geopolitics and Foreign Policy:

Geopolitics and Foreign Policy Shivendra Singh-Head- Training & Placement

Brand India :

Brand India Shivendra Singh-Head- Training & Placement

IPR:

IPR Shivendra Singh-Head- Training & Placement

The Red Queen Effect :

The Red Queen Effect Shivendra Singh-Head- Training & Placement

People Perception on MNC:

People Perception on MNC Balancing People Planet and Profits Shivendra Singh-Head- Training & Placement

Slide 44:

Thank You By: shivendra singh Shivendra Singh-Head- Training & Placement