Indian companies are left with limited choice7 min read . Updated: 30 Aug 2010, 08:41 PM IST
Indian companies are left with limited choice
Indian companies are left with limited choice
Mumbai: Indian companies have arrived on the world stage, acquiring overseas rivals and standing up to the competition. But how can they maintain the advantage? In a Siemens-Mint discussion on “Building the India Advantage: Global Competitiveness and Global Markets", Tarun Khanna, the Jorge Paulo Lemann professor at Harvard Business School; R. Gopalakrishnan, executive director, Tata Sons Ltd; Partha Bhattacharyya, chairman, Coal India Ltd; and Glenn Saldanha, managing director and chief executive officer, Glenmark Pharmaceuticals Ltd; spoke on the issue. R. Sukumar, editor, Mint, moderated the discussion. Edited excerpts:
On challenges to going global, and things that helped in going global.
Saldanha:Our experience in the pharma industry (is that) the landscape is changing in terms of the big pharma (companies) trying to move down the value chain and trying to get into generics and branded generics... In our industry, if you have to succeed, if you have to sustain, you have to be global in terms of reach and presence. The India advantage (is) the back-end infrastructure, the efficiencies of (the) supply chain, to use that to globalize and take it to many Western markets. I also think, coming from India, we are very competitive, both economically competitive and in terms of abilities. That has been helpful.
Bhattacharyya: In 1991, the government said (the) policy of budgetary support cannot continue forever. They came out with the policy of arm’s-length distance. Suddenly, we were told to fend for ourselves. Coal prices were deregulated. During the phase of deregulation, we handled the price issue very well. We visited price only when it was absolutely necessary. By doing that, we are able to keep (the) coal price rise at 4.9% annualized, less than inflation. We have been able to rectify (our) balance sheet profusely. (We are a) debt-free company with cash reserves of $8 billion (around Rs37,400 crore). We have started looking at acquisitions abroad. We feel there is no point in (an) energy company having surplus cash in a country with (an) energy shortage. Coal demand is rising at about 10%. Production is rising at 7-7.5%. That is the 2-2.5% gap, which is translating into an import growth of 20%. We feel this is another market opportunity for us.
Gopalakrishnan: I’d like to introduce the concept of the farmer company and the hunter company. The emerging market companies, like my own, are hunters. (A) farmer goes with fixed ideas. He looks for places where he can grow. (A) hunter goes wherever he can hunt. Emerging-market multinationals are companies which are going not to farm what they have, but to hunt what they can. And one of the things they are hunting for is capabilities. That has been our experience.
Khanna: Hanging around China, I want to believe (the) Indian entrepreneur is a bit more adept at dealing with diversities of their resources. I’m not sure if they are more adept than Brazilians, because Brazil has (a) lot of diversity as well...nonetheless, more adept than many other marginal societies. That, I think, is a trump card (that) could be of great use... Some of the trump cards that have a chance of getting us on the global dance floor, Partha’s companies or the likes, are essentially getting ready, having come from very different and difficult mandates.
On the transfer of capabilities from one market to another, such as cost-cutting in telecom.
Khanna:Even though parts of Africa are poorer, there is plenty of room to reduce the Arpu (average revenue per user) to bring it down to the Indian level. As I understand, there is massive variation around Africa. I bet Bharti (Airtel Ltd) is going to bring that back to the Indian operations. So there is interplay.
Gopalakrishnan: Tata bought Korean company Daewoo Motors. Tata was good at making rugged trucks—a capability that was developed given the state of Indian roads. And being somewhat better in terms of economic well-being, they had better roads. In fact, Daewoo had greater than 200hp (trucks). So with the emergence of highways, we could have immediate access to higher horsepower vehicles and, conversely, we could introduce smaller vehicles (for them).
Saldanha: In India, in the past 30 years, we have mastered the reverse engineering process/back-end. And that is competitive globally... The ambition is obviously to move up the value chain (in original research). In the interim, use the cash flows generated from the generics business. The jury is still out on how far the companies can taste success on a global scale. But the direction and the blueprint is there.
On Indian companies having very little awareness of stakeholders in the countries they go to.
Gopalakrishnan: I have quite a contrary impression based on my experience. I think (they) are highly sensitive in their acquisitions, sometimes to a point of being hesitant. I regard it as a virtue to be a little humble; it’s a good thing for globalization.
Saldanha:There’s a certain amount of work done before doing something of any scale. But when you are entering a geography, there are going to be challenges from cultural diversity and dealing with uniqueness of local cultures, getting the right management team and infrastructure.
Bhattacharyya: This problem is quite different in (the) case of (the) public sector because every transaction has to meet the basic perspectives of accountability, transparency, because it is all public funds. So in that process, we sometimes do things in a very different manner, because of which transactions do not take place. We are expected to clearly state what is it to acquire and float a global expression of interest. Public sector processes are very transparent, but sometimes non-functional and I believe the Prime Minister’s Office has set up a committee to review this because, other than OVL (ONGC Videsh Ltd), nobody has succeeded in a big way. We have been debating that if Tata was a PSU (public sector unit), would (the) Corus acquisition have taken place?
Khanna: It seems inevitable that when you go from location A to B, there are going to be differences, and to some extent you can plan for those differences. But ultimately, these are just crutches to guide you through a relatively dark room, and I’d expect most people doing cross-border transactions would expect to run into things they are unfamiliar with.
On the hostility of foreign companies towards Indian acquirers.
Gopalakrishnan: We have come across a Korean company who said we would rather be bought by a European company than an Indian company for a variety of misconceptions and reasons, and my colleague Ravi Kant narrates lovely anecdotes on how they had to explain India and make them see that an Indian purchase per se was not a bad thing, unless they found something else distasteful, and indeed were successful. Another example from a UK company: I asked them what has changed in four years. He said when we were ICI 20 years ago, people said come and meet us, we could go and meet the chancellor of the exchequer. Then for the next 20, private equity guys owned us and we were nobody. Now we are Tatas, we can pick up the phone and go and see the Prime Minister. So you gave us self-esteem.
The important lesson is Indian companies should not be sensitive to an apprehension from a Korean, American or English company... It is understandable apprehension, and you have to work persuasively to overcome it.
Khanna: I agree completely, but this has been going on for donkey’s years. When the Japanese came into the US with Fujifilm in 1960 or Toyota after that, people despised them. Then Hyundai, and Korean cars, have made an impact now, and these days the Chinese and Haier have made an impact, and I am sure the Indians will do the same.
On future challenges for Indian companies.
Khanna: If you look at real structural dynamics in the world like demographics where the die has been cast, by and large the pools of capital are in the developing world and the marginal returns to the capital are more in the developing world simply because of scarcity and less development. So the action is going to be in the developing world.
Gopalakrishnan: I only want to add two points... The longest surviving ones are not the biggest one; cockroaches are much older than elephants. Also, using our humility: We are humble today because we don’t know better. We don’t go as conquerors. When a Western company buys a company, they remove all the top guys, they put their own guys, they give their systems, change their name board outside, and everything is different. Most Indian companies don’t do that, because we are not sure on what is the right way, we are groping and that comes out of humility and uncertainty. The day we lose our humility, we will have some resistance.
Bhattacharyya: The one acquisition that we could do in Mozambique had a story. In the first round in 2004, we were out-bid by Vale. We and SAIL (Steel Authority of India Ltd) together tried and we could not succeed. That time onwards, we tried alone and in a different manner, so we got the delegations there and simply took them through the institutions we’d created. We showed them what we do for (the) environment, society, rehabilitation and all that. We suggested to them that you possibly should look at this model and build a mining institution; we will be glad to be associated with that. Your geologists, your engineers, workforce can be trained. This somehow struck. When the bids were opened it clicked.