impact of multinational companies on indian economy
TRANSCRIPT
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UNIVERSITY OF MUMBAI
PROJECT REPORT ON
IMPACT OF MULTINATIONAL COMPANIES ON INDIAN ECONOMY
SUBMITTED BY
SANTOSH GUNWANT PANDARE
MASTERS OF COMMERCE ( MANAGEMENT )
( M.COM P- I )
ROLL NO -49
UNDER THE GUIDANCE OF
Prof. RACHANA JOSHI
PTVAs
M.L DAHANUKAR COLLEGE OF COMMERCE
Vile Parle (East), Mumbai
2012-2013
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CERTIFICATE
I, Prof.RACHANA JOSHI here by certify that SANTOSH GUNWANT PANDAREof
M.L Dahanukar College of Commerce of M.COM P- I MANAGEMENT (Semester-II ) has
completed project on IMPACT OF MULTINATIONAL COMPANIES ON INDIAN
ECONOMY during academic year 2012-2013. The information submitted is true and
original to the best of my knowledge.
Signature of Project Guide Signature of the principal
Signature of External Guide
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DECLARATION
I, SANTOSH GUNWANT PANDARE of M.L Dahanukar College of Commerce of
M.COM (Semester-II), hereby declare that I have completed project on IMPACT OF
MULTINATIONAL COMPANIES ON INDIAN ECONOMY in the academic year
2012-13, as per the requirement of the University of Mumbai as a part of Master of
commerce (M.COM P-I) programme. The information submitted is true and original to the
best of my knowledge.
( SANTOSH GUNWANT PANDARE )
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ACKNOWLEDGEMENT
Success is not a destination, but a journey. While I reach towards the end of journey, I
realize I may not have come this far without the guidance, help and support of people who
acted as guides, friends and torch bearers along the way.
I take this Opportunity to thank the UNIVERSITY OF MUMBAI for giving me a
chance to do this project,
I take this opportunity to thank our principal Prof. MADHAVI PETHEfor her moral
support and guidance. I would like to express my sincere gratitude toward my project guide
Prof. RACHANA JOSHI whose guidance and care made the project successfully.
Apart from the efforts of me, the success of the project depends largely on the
encouragement and guidelines of many others. I take this opportunity to express my gratitude
to the people who have been instrumental in the successful completion of this project.
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IMPACT OF MULTINATIONAL COMPANIES ON INDIAN
ECONOMY
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INDEX
Chapter
No.
Topics Page
No.
1 INTRODUCTION 7 - 12
2 FOREGIN DIRECT INVESTMENT (FDI) 13 -14
3 SHINING INDIAN MULTINATIONAL 15 -16
4 IMPACT OF MNCs ON INDIAN INDUSTRIAL
SECTORS
17 -30
5 CASE STUDY: IMPACT OF GLAXO-SMITHKlINE
MERGER
31 -32
6 HP MARKS INDIAN EMPLOYMENT MILESTONE 33 - 34
7 CASE STUDY: PEPCI CO 35 -38
8 INDIA v/s CHINA 39 - 40
9 CONCLUSION 41
10 BIBLOGRAPHY AND WEBLOGRAPHY 42
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INTRODUCTION
Till 1991, India was more or less a closed Economy. The rate of growth of the economy waslimited. The contribution of the local industries to the countrys GDP was limited that were
the main cause of shortage of funds for various development projects initiated by the
government.
In an effort to revive the industries and to bring the country back on the right track, the
government began to open various sectors such as Infrastructure, Automobile, Tourism,
Information Technology, Food and Beverages, etc to the Multinational Corporations. The
MNCs slowly but reluctantly began to pour capital investment, technology and other valuable
resources in the country causing a surge in GDP and upliftment of the economy as a hole.
This was the post 1991 era where the government began to invite and welcome giant MNCs
into the country
Opportunities for Developing Economies
The opportunities for developing economies are significant as well. Through the application
of capital, technology, and a range of skills, multinational companies' overseas investments
have created positive economic value in host countries, across different industries and within
different policy regimes.
The single biggest effect evidenced was the improvement in the standards of living of the
country's population, as consumers have directly benefited from lower prices, higher quality
goods, and broader selection. Improved productivity and output in the sector and its suppliers
indirectly contributed to increasing national income. And despite often-cited worries, the
impact on employment was either neutral or positive in two-thirds of the cases.
Foreign direct investment is already having a dramatic impact on the way companies do
business and developing economies integrate with the global economy. Compared to its
potential, however, it's just a drop in the bucket.
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Impact On Developing Economies & Policy Implications
Investments by multinational companies (MNC) allow developing economies to share in the
considerable benefits of the global economy. Official incentives, trade barriers, and other
regulatory policies, though, can result in inefficiency and waste.
Case studies reveal that in virtually all cases, MNC investment had a positive to very positive
impact on the host country. Rather than leading to the exploitation of lower-wage workers, as
some critics have charged, the investments fostered innovation, productivity, and an
improved livingstandard. Therefore, government seeking those advantages would be advised
to favor policies of openness, rather than regulation, when it comes to foreign direct
investment.
The world's service provider
The services sector, which has been growing consistently at a rate of 7 percent perannum, accounts for almost half of the country's GDP. Export revenues from the
sector are expected to grow from $8 billion in 2003 to $46 billion in 2007.
Global investment banks, brokerages and accounting firms have set up large research
establishments in India. A growing number of US companies are hiring Indian
mathematics experts to devise models for risk analysis, consumer behaviour and
industrial processes.
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Indian Exports Overview (in Rs. Crore)
YEAR EXPORTS GROWTH RATE
1990-91 32558 17.7
1991-92 44042 35.3
1992-93 53688 21.9
1993-94 69751 29.9
1994-95 82674 18.5
1995-96 106353 28.6
1996-97 118817 11.7
1997-98 130101 9.5
1998-99 139753 7.4
1999-2000 159561 14.2
2000-01 203571 27.6
2001-02 209018 2.68
2002-03 255137 22.06
2003-04 293367 14.98
2003-04 (April-Jan) 222863.90 -
2004-05(P) (April-Jan) 274313.37 23.09
April 2012 $24.4 billion
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Gross Domestic Product (GDP)
Year Total GDP
1985-86 156566
1990-91 212253
1991-92 213983
1992-93 225268
1993-94 238864
1994-95* 861064
1995-96 926412
1996-97 998978
1997-98 1049191
1998-99 1112206
2012 - 6.25%
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The world's service provider
The services sector, which has been growing consistently at a rate of 7 percent per
annum, accounts for almost half of the country's GDP. Export revenues from the
sector are expected to grow from $8 billion in 2003 to $146 billion in 2013.
Global investment banks, brokerages and accounting firms have set up large
research establishments in India. A growing number of US multinational companies
are hiring Indian mathematics experts to devise models for risk analysis, consumer
behaviour and industrial processes.
The brick and mortar companies
India is not merely a provider of services. Besides being an outsourcing hub, it has grown
into a global manufacturing hub. World corporations are now leveraging its proven skills in
product design, reconfiguration and customisation with creativity, assured quality and value
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addition. About 20 percent of Indian automotive production in 2004 is exported to developed
countries.
India: A Services and Manufacturing Supplier to the World
Sector Company Outsourcing Client
IT Services Infosys
Tata Consultancy
Wipro
Goldman Sachs, Aetna, Northwestern
Mutual, Arm Ex, DHL, Verizon
GE, Honda, UBS, HSBC
Transco, HP-Compaq, Nortel, General
Motors, CISCO, Sony
ITES Mphasis BFL
Spectramind
Citi group, Accenture, AutoZone, Capital One
Dell, American Express, Capital one
Pharmaceuticals Cipla
Shashun Chemicals
Lupin Laboratories
Ivex, Watson Pharma, Eon Labs
Eli Lilly, GSK Pharma
Apotex, APP, Watson, Pharma
Manufacturing Bharat Forge
Tata Motors
Moser Baer
Essel Propack
Meritor, Caterpillar, Toyota, Ford,
FAW(China)
Rover
Imation, BASF
P&G, Unilever, Colgate
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Foreign Direct Investment
FDI or Foreign Direct Investment refers to the investment of foreign currency and othervaluable resources by Multinationals into the host country.
FDI allows the host country to earn valuable foreign exchange that can be used for future
imports or to pay off existing loans of the country. The Government of the host country
controls the FDI levels in various segments of the economy such as Telecom, Retail,
Tourism, Infrastructure, Research and Development, Automobile and so on.
Perhaps the biggest advantage of MNCs is the influx of valuable Foreign Exchange. FDI is
required by a developing economy such as ours to tap unexplored resources and put them to
more productive use.
A series of ambitious economic reforms aimed at stimulating foreign investment has moved
India into the front ranks of the rapidly growing Asia Pacific region.
The Finance Minister cleared 46 proposals of foreign direct investment (FDI)
amounting to Rs 408.22 crore (US$ 93.4 million) in July 2004. With a half-billion strong middle class, consumer demand in India will grow sky high.
According to some estimates, 487 million middle-class Indians will spend an
additional $420 billion during the next four years.
It is evident. The investment scenario in India has changed. And the figures say that it is for
the better.
There has been a sharp rise in the number of FDIs approved in 2004. During the first
seven months of 2004, between January and July, Rs 5,220 crore worth of FDI was
approved.
This figure, which accounts for only seven months of 2004, amounts to 96 per cent of
the total FDI approved during the full year of 2003. The actual FDI inflow too is
expected to surpass last year's figure -- during the first seven months of 2004 actual
FDI inflow at Rs 9.503 crore was more than 80 per cent of what the country received
in 2003.
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In a bid to stimulate the sector further, the government is working on a series of ambitious
economic reforms.
The Centre has divested some of its own powers of approving foreign investments
that it exercised through the Foreign Investment Promotion Board (FIPB) and has
handed them over to the general permission route under the RBI.
The FDI cap for aviation has been hiked from 40 to 49 per cent through the automatic
route.
The government has scrapped Press Note 18, which was acting as a deterrent to
foreign investors. It has set up an Investment Commission that will garner investments in the
infrastructure sector among others, and plans to increase the limit for investment in
the infrastructure sector.
India's foreign exchange reserves rose $700 million to a record high of $120.78 billion in July
2004.
Comparison between India and China with respect to FDI
India vs. China FDI Flows
Chinese reform process 1977 Indian reform process 1991
5 years since 1982 China
USD 4508 m
5 years since 1991 India
USD 4488 m
10 years since 1982 China
USD 13791 m
10 years since 1991 India
USD 15483 m
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Shining Indian Multinationals
India Inc. is flying high. Not only over the Indian sky. Many Indian firms have slowly andsurely embarked on the global path and lead to the emergence of the Indian multinational
companies.
With each passing day, Indian businesses are acquiring companies abroad, becoming world-
popular suppliers and are recruiting staff cutting across nationalities. While an Asian Paints is
painting the world red, Tata is rolling out Indicas from Birmingham and Sundram Fasteners
nails home the fact that the Indian company is an entity to be reckoned with.
Some instances:
Tata Motors sells its passenger-car Indica in the UK through a marketing alliance
with Rover and has acquired a Daewoo Commercial Vehicles unit giving it access to
markets in Korea and China.
Ranbaxy is the ninth largest generics company in the world. An impressive 76
percent of its revenues come from overseas.
Dr Reddy's Laboratories became the first Asia Pacific pharmaceutical company
outside Japan to list on the New York Stock Exchange in 2001.
Asian Paints is among the 10 largest decorative paints makers in the world and has
manufacturing facilities across 24 countries.
Small auto components company Bharat Forge is now the world's second largest
forgings maker. It became the world's second largest forgings manufacturer after
acquiring Carl Dan Peddinghaus a German forgings company last year. Its workforce
includes Japanese, German, American and Chinese people. It has 31 customers across
the world and only 31 percent of its turnover comes from India.
Essel Propack is the world's largest manufacturers of lamitubes - tubes used to
package toothpaste. It has 17 plants spread across 11 countries and a turnover of Rs
609.2 crore for the year ended December 2003. The company commands a staggering
30 percent of the 12.8 billion-units global tubes market.
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About 80 percent of revenues for Tata Consultancy Services comes from outside
India. This month, it raised Rs 54.2 billion ($1.17 billion) in Asia's second-biggest
tech IPO this year and India's largest IPO ever.
Infosys has 25,634 employees including 600 from 33 nationalities other than Indian.
It has 30 marketing offices across the world and 26 global software development
centres in the US, Canada, Australia, the UK and Japan.
Sundram Fasteners is not merely a nuts and bolts company. It believes in thinking
out of the box. Probably that is why it decided to acquire a plant in China. The plant
in Jiaxin city in the Haiyan economic zone has ensured one fact: that its customers
who were earlier buying Sundram products in Europe and the US, did not have to go
far from home to access the product.
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Impact of MNCs on Indian Industrial Sectors
So far, we have analyzed the Indian Economy and the way in which multinational have added
more value and increased the exports, GDP and productivity, resulting in all rounddevelopment.
Further more, we have the actual analysis of the effect of MNCs on various Indian Industrial
Sectors. Certain important sectors are considered and the actual effect of MNCs i.e. the
practical way in which they are affected are studied viz.
1. Cement
2. Aviation
3. Automobiles
4. Auto Components
5. Biotechnology
6. Financial Services
7. Food Industry
8. Gems and Jewellery
9. Healthcare
10. Information Technology
11. IT enabled Services
12. Media & Entertainment
13. Oil & Gas
14. Pharmaceuticals
15. Real Estate
16. Retail
17. Research & Development
18. Science & Technology
19. Steel
20. Textiles
21. Telecommunications
22. Tourism & Hospitality
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Training & Education
Impact Of MNCs on Automobile industry
The present scenario is a highly transformed one. Multinational giants are vying with one
other to launch their models. Big names of the vehicle industry like the Korean giant,
Hyundai, General Motors, Mitsubishi etc. have already opened their account. In other vehicle
segments too, Volvo, Mercedes Benz, Audi etc. have carved out their niche. In the two-
wheeler segment besides the other major MNC brands made available to the Indian
consumers.
As a result conducting business in the Automotive Industry has become more competitive
and sophisticated, which increases the demand for multi skilled personnel. Employment
opportunities are emerging with Manufacturers, Dealership Operations including Parts, Sales,
Service, Leasing & Financing, as well as in the fast developing Automotive Aftermarket
sector.
On the other hand, Manufacturing in India has also come of age. The post liberation
economical scenario has resulted in all the big names such as General Motors, Ford, Toyota,
Honda, Suzuki, Mitsubishi, Mercedes-Benz, Fiat to come up with plants in India. The Indian
automotive giants like Telco, Mahindra, Ashok Leyland, Bajaj are revamping their
production strategies and launching new models designed and developed indigenously. This
has opened up numerous opportunities or employment in this sector for trained and skilled
professionals who are well versed in the latest manufacturing process.
The growth curve of India Auto Inc. has been on an upswing for the past few years. The high
growth observed since 2001-02 in automobile production continued in the first three quarters
of the 2004-05. Annual growth was 16.0 per cent in April-December, 2004; the growth rate in
2003-04 was 15.1 percent. Consequent to liberalisation, the arrival of new and contemporary
models, easy availability of finance at relatively low rate of interest and price discounts
offered by the dealers and manufacturers appear to have stimulated the demand for vehicles
and a strong growth of the industry.
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The automotive industry is the barometer of any major economy and the same holds true for
India as well. There has been a phenomenal growth in the automotive manufacturing sector in
our economy.
India has become a launch pad
Rising sales and strong growth prospects heightened the popularity of auto stocks in July
2004 as foreign institutional investors (FIIs) increased their stakes in key automobile
companies like Mahindra & Mahindra, Ashok Leyland, Maruti Udyog, TVS Motors and
Hero Honda.
Global names such as Daimler Chrysler and Porsche have begun introducing their newofferings in India. DaimlerChrysler plans to launch the new Mercedes SLK roadster, which
has just hit European roads, in India by October-November 2004. Porsche is bringing in the
Cayenne and Toyota is planning a simultaneous release of its IMV.
Note, these models are the latest cars zipping on international roads and not the dated
versions that were passed on earlier.
Impact on the Indian Manufacturing sector
The resurgence of India's manufacturing sector has been quite magical. Not only are profits
soaring, the sector is fast spreading its tentacles abroad as many Indian manufacturing firms
inch close to becoming true blue multinationals.
The Indian economy grew by 7.4 percent in the April-to-June quarter, FY2005, buoyed by
growth in manufacturing and services. Manufacturing grew 8 percent in the quarter,
compared with 7.6 percent in the previous quarter. The picture is about to brighten further.
According to a CII-McKinsey report, manufacturing exports from India are likely to
grow to $300 billion in 2015 from $48 billion in 2003. The country would then have a
3.5 per cent share of the world manufacturing trade.
To reach the $300 billion target, the industry has to clock a growth of 17 per cent
every year as against the 11 per cent rate at which it is growing at present.
Manufacturing exports from India grew 20 per cent in 2003 over the previous year.
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Of the total $300 billion, $70- $90 billion is expected to come from just four sectors -
apparel, auto components, speciality chemicals and electricals and electronic
products. India's exports in these sectors were $10 billion in 2002.
Manufacturing firms on expansion binge
Manufacturing companies are planning to invest as much as Rs 200,000 crore over the next
two years.
Of Rs 200,000 cr, Rs 100,000 cr will come from internal generation
Half of this debt may come through the ECB route
Most corporates are going for brownfield expansion
Rising interest rates won't impact India Inc's investments
With annual outflows averaging at $1 billion, the country's ranking in UNCTAD's outward
FDI performance index has already shot up from the 107th position in 1999 to the 61st spot
in 2003.
The two most important destinations for Indian FDI last year were the US and the Russian
Federation, accounting for around 37 per cent of the total Indian overseas investments during
last year, while Europe accounted for 40 per cent of the total outflow.
Some large Indian investments
ONGC's 25 per cent stake buy-out in a Sudan oil firm from Talisman Energy of
Canada for $720 million (around Rs 3,312 crore)
The Hinduja's purchase of controlling interest in C3, a call centre in the Philippines
Msource's Spanish language centre in Tijuanna, Mexico
Manufacturing Outsourcing
India is fast developing into a manufacturing hub for world corporations wanting to leverage
the sector's proven skills in product design, reconfiguration and customisation with creativity,
assured quality and value addition. About 20 percent of Indian automotive production in 2004
is exported to developed countries.
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While some MNCs enter into OEM deals to source components, others have Indian arms to
supply to global markets.
GE has entered into an OEM deal with Thermax India to supply chillers for the latter's
power systems.
South Korean two-wheeler major Hyosung is making India the manufacturing hub for
its 250cc cruiser bike, Aquila through a technical tie-up with Pune-based Kinetic
Engineering.
Ford Motor Company is aiming to source US$ 120-160 million worth of auto
components from Indian manufacturers over the next two years under its India
Sourcing Program.
Global consumer electronics giant Matsushita of Japan has decided to source
Panasonic colour television sets from India for its international market.
Colgate is setting up a brand new toothpaste facility in western India which will be
one of 15 such facilities across the world.
Impact on Telecom Industry
One of the fastest growing sectors in the country, telecommunications has been growing at a
feverish pace in the past few years. The speed of growth can be gauged by the fact that in
2004, ten years after private telephony was introduced in India, the mobile subscriber base
had crossed the number of fixed line connections.
While fixed lines touched 44 million at the end of 2004, the cellular user base
registered a 68 per cent growth to touch the 48-million mark. More than a third of
these subscribers were added during 2004.
The total telecom subscriber base, consisting of fixed as well as mobile users,
registered a growth of 31.42 per cent to touch 92.76 million at the end of 2004. The
gross telecom user base stood at 70.58 million at the end of 2003. (According to the
Telecom Regulatory Authority of India (TRAI), the growth in the mobile subscriber
segment picked up in December 2004 after remaining at around 1.5 million per month
for the previous two months.)
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Global handset major Siemens India Ltd is planning to invest over US$ 500 million in
India in the next three to four years for setting up new factories and expanding its
existing capacities.
Indian companies going global
India offers an unprecedented opportunity for telecom service operators, infrastructure
vendors, manufacturers and associated services companies. As the sector has been
performing well, the bulging bottom lines of Indian telecom companies are making them
invest in assets.
The Tata group's Videsh Sanchar Nigam Ltd. (VSNL) struck a $130-million deal to
pick up Tyco Global Network's (TGN) 37,208-mile (60,000 kilometre) submarine
fibre optic network that connects northern Asia, America and Europe. As part of the
TGN deal, VSNL also received a dark (uncommissioned) fibre that links Japan to
Singapore and 200 employees of TGN. The Tyco cable has the largest capacity
globally. It is of the order of 7 terabits on the Pacific route. Within days of bagging
TGN, VSNL inaugurated its own 3,175-kilometre, 5.12-terabit Chennai-Singapore
submarine link. Tyco has supplied the optic fibre for the Chennai-Singapore link.
VSNL's was the second submarine cable deal struck by an Indian company in 2004.
Reliance Infocomm had also picked up FLAG Telecom for $210 million a few
months before VSNL bought TGN.
The Tata Group has also won a bid to acquire 26 per cent stake in South Africa's
second network operator (SNO) that gives the company a mandate to develop and
operate both national long distance (NLD) and fixed-line networks in the country. The
development helped Tata gain a foothold in the South African market.
Technology advancements
Among other tidings in the telecom sector are the technology upgradations being effected in
Delhi and Mumbai. India will soon join the elite club of countries that have 3G mobile
services. The Mahanagar Telephone Nigam Limited (MTNL), the state-run telecom services
provider, is setting up India's first 3G network in Delhi and Mumbai. The network, which
will have a capacity of 4m lines, will require a total investment of Rs 4,000 crore (US$ 914.9
million).
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Impact on Research & Development
India has emerged as the hottest destination for multinational companies (MNCs) starting or
relocating their research & development (R&D) centres over the past two years. China comes
next, though it continues to be the leading destination for MNCs relocating their
manufacturing operations.
These are some of the underlying trends that emerge from the Ernst & Young Transfer
Pricing 2005 global survey that polled 348 multinational parent companies and 128
subsidiary corporations in 22 countries.
Around 10% of the respondents reported either new or relocated R&D operations in the past
two years. Of this, 27% identified India as the leading relocation destination for R&D,
followed by China with 17%.
The best-known Indian R&D companies are in pharmaceuticals and biotech sectors.
Companies such as Ranbaxy, Dr Reddy's Laboratories, Sun Pharma and Biocon and Shanta
Biotech are attracting interest from companies in the US and Europe, which are seeking a
strong platform for development skills.
Following in the footsteps of the information technology enabled services (ITeS) industry,
which put India on the world map, yet another sector -- Research and Development (R&D) --
is witnessing increasing vitality and growth. More than 125 Fortune 500 companies have
opted to have their R&D base in India. The reasons for this are obvious. India's wealth of
scientific talent is unmatched in the world.
India conducted its inaugural test flight for Saras, the country's first indigenous
civilian light-transport aircraft, in August 2004.
About 165 institutions in the country are engaged in genetic engineering research,
comprising 55 in transgenic work, 25 in therapeutics and 85 in basic research,
according to the Department of Biotechnology.
http://economictimes.indiatimes.com/articleshow/articleshow/1299528.cmshttp://economictimes.indiatimes.com/articleshow/articleshow/1299479.cmshttp://economictimes.indiatimes.com/articleshow/articleshow/1299479.cmshttp://economictimes.indiatimes.com/articleshow/articleshow/1299528.cms -
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The country has already started commercial cultivation of genetically modified cotton
in Gujarat and some southern states, with several other crops in various stages of
getting approvals for commercial plantation.
India is the only developing country and sixth worldwide to manufacture and launch
its own satellites in geo-stationary orbit and even plans a moon mission in 2008. It has
also launched satellites for foreign customers such as Germany and Korea.
Having proved its scientific mettle, India has begun to appear on the outsourcing radar with a
monotonous regularity. Gone are the days when international companies retained R&D jobs
at home and sent abroad work that were clerical and of a repetitive nature. Now, even
innovation and design work have begun to move offshore, especially to India. More than 100
Fortune 500 companies including Delphi, Eli Lilly, General Electric, Hewlett Packard,
DaimlerChrysler and othershave put up R&D facilities in India over the past few years.
GE's John F. Welch Technology Center in Bangalore is the company's largest such
facility outside the US. With an investment of US$60 million, it employs 1,600
researchers and plans to raise the number of staff to 2,400.
The DaimlerChrysler Research Centre in Bangalore is involved with fundamental and
applied research in avionics, simulation and software development.
Boeing is working with HCL Technologies to co-develop software for everything
from navigation systems and landing gear to the cockpit controls for its upcoming
7E7 Dreamliner jet.
MNC products developed by R&D centres in India
Companies Products
Sun Microsystems
India
Portal server, Web server, Identity server and
Engineering Centre meta directory.
Texas Instruments
R&D Centre
Fully developed at least 20 products, including the Ankur
Digital Signal Processor; Sangam, a bridge router for the
DSL; and Zeno, which runs multimedia applications.
SAP Labs The lab has produced some of SAPs products meant for the
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global market, including the Channel Management Solution,
which helps chip manufacturers negotiate prices with their
dealers online; Dealer Portal for the automotive industry;
mobile laptop solutions and oil and gas upstream solutions.The lab is also working on a solution for Value Added Tax
(VAT).
i2 Technologies
R&D Centre
The centre has fully developed a strategic sourcing solution
for i2, besides delivering nearly eight manufacturer-industry
templates and retail solutions from India.
Philips Innovation It develops most of the software required for Philips
products. Almost
Impact on IT Sector
Information Technology enabled Services (ITES) by MNCs has probably generated the
maximum number of sunshine stories in the Indian industry in the last few years. According
to Nasscom, the software industry has overtaken the gems and jewellery as well as textiles
industries, to become the number one exporter in the country. Currently India is the Power
House, The world software Arena.
IT is now an industry, which is growing by leaps
and bounds both through participation by
captive units of multinationals and third party
providers of Indian origin. Some of them are the big
home-grown IT Services companies like
Infosys, Wiproand Tata Consultancy
Services(TCS).
The Top Five
The top five Indian IT companies based on FY04 revenues-TCS, Wipro, Infosys, Satyam and
HCL Technologies-are the prime contenders in the race to the Fortune 500. While the first
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IBM 96.23 149
HP 79.9 63
EDS 20.6 10.7
Accenture 15.1 23
CSC 14.7 8.6
Rules of the game
But, will this be enough for our top three to join the ranks of the likes of Wal-Mart Stores,
BP, Shell Group, Citigroup, General Motors, BMW, IBM, HP, etc. While TCS, Wipro and
Infosys may have crossed the psychological billion-dollar barrier, achieving the next few
billion dollars is going to be a tough task, warranting a much more rapid growth. Karnik
points out that along with organic growth these companies will have to go in for acquisitions
to be able to achieve the required rapid growth. "The organic growth will continue to happen
but that is not going to be good enough for rapid growth. Acquisitions will help these
companies to add expertise in terms of both new markets and technologies," he adds.
Impact On Food and Beverages SectorNew Delhi: India's booming tourism sector and its rapidly growing Western-style fast food
joints offer unlimited opportunities for foreign food and beverage exporters, as Indian food
imports are likely to grow 6-7 per cent over the next few years, says a study.
Eyeing the over 250 million-strong middle class, a US department study says the prospects
for investment in Indian markets could be gauged from the fact that total Hotel, Restaurant
and Institutional (HRI) service sector sales of F and B amounted to $ 8 billion during 2003-
04.
An upswing in the Indian hotel industry since 2003 following turnaround of the global
tourism industry, positive impact of 'Incredible India' tourism promotion campaign and the
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world's increasing interest in India's rapidly growing economy are some of the main reasons
cited for growth.
Though Indian consumers, on an average, spend only 2.5 per cent of their food expenditure in
hotels and restaurants, the HRI service sector is expected to grow by 6-7 per cent over the
next few years.
"Though new, unorganised and untapped so far, the HRI service sector in India has vast
potential for growth as there are approximately 55,000 registered restaurants in the organised
sector and in the range of 1,00,000 to 5,00,000 in the unorganised sector, comprising
innumerable roadside eateries and tea/snack shops," the study noted.
The institutional food service sector consists of food service facilities for Railways,
government and corporate offices, education institutions, hospitals, prisons, armed services,
and airlines.
The Indian middle-class, which some estimate is 250 million-strong and growing at 30-40
million a year, is the main drivers of the economy, the study pointed out.
The economy of the country is widely anticipated to double by 2010 (Merrill Lynch 2004) to
become the world's third largest by 2050 (Goldman Sachs).
According to the study, hotels managed to get a miniscule five per cent of total sales of
Indian food service sector while restaurants and institutional caterers together cornered 52
and 43 per cent respectively.
In recent years, the Indian hospitality industry has benefitted from a steadily growing
economy and a booming tourism sector. Foreign tourist arrivals into the country in 2004crossed 3.36 million, a growth of 24 per cent over the previous year.
This growth is expected to remain strong over the next few years, the study said, adding that
the Indian hotel industry was gearing up to cater to the food needs of the international
visitors.
A rapidly growing Indian economy (6 per cent annually over the last decade) has increased
incomes of the consuming class. By 2007, approximately 22 per cent of households (44
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million) are expected to have an average annual income of $3,150 (USD 17,300 on
purchasing power parity basis) compared to less than seven per cent in 1995, the study
pointed out.
An expanding young population, more women in the workforce and increasing urbanisation
support HRI food sales, the study said, noting that close to 30 per cent of the population live
in urban areas. This share was likely to grow to 40 per cent by 2025.
Sixty-five million people are expected to enter the 20-34 year age group from 2001 to 2010 in
India and the number of dual income households has been expanding rapidly in urban areas,
the study observed.
The eating-out culture is evolving fast in India, as more consumers seek variety in their food
choices. Urban Indians are aware of international cuisines and an increasing number are
willing to try new foods.
About 4.5 per cent of urban consumers eat outside their home at least once a week, and about
12 per cent eat out once a month, it said quoting a survey.
There has been double-digit growth in the Western-style fast-food outlets and coffee shops,
both multinational chains (McDonald, Pizza Hut, Dominos etc) and Indian chains (Nirula's,
Pizza Corner, Barista, Cafe Coffee Day).
It is believed that the multinational and domestic multi-unit restaurant segment will drive the
future expansion of the Indian restaurant industry.
Most Indians still prefer Indian food, as regional cuisines offer many choices, it said, adding
"vegetarianism" was still a widely popular culinary tradition in India. However, the youngerurban population is increasingly shifting to Western-style fast food items, the study observed.
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Impact of Glaxo, SmithKline merger on India Economy
The merger of Glaxo India and SmithKline Beecham Pharma will create the second largest
pharmaceutical company in India, based on the results for the year ended 31 December 1998,
after Ranbaxy Laboratories, with its sales of Rs 1,382.06 crore. The new entity will have
combined net sales of Rs 1,278.26 crore (not counting the sales of SmithKline Beecham
Consumer Healthcare).
Glaxo Wellcome holds 51 per cent in Glaxo India and Burroughs Wellcome India, while
SmithKline Beecham is a 40 per cent affiliate of the UK-based parent.
Nutritional products will stay out
SmithKline Beecham Consumer Healthcare, or SBCH, is unlikely to be a part of the merger
in India. This is because the parent companies have decided to sell their worldwide
nutritional business as part of their merger plan. SBCH India is a 40 per cent subsidiary of
SmithKline Beecham plc. Glaxo India has already sold its consumer business to Heinz India,
which comprised popular brands such as Complan and Glucon-D.
SmithKline's consumer business in India comprises of nutrition drinks (Horlicks, and Boost,
which together account for a 63 per cent share of this market); oral care products Aqua Fresh
toothpaste and tooth brushes; and over-the-counter products Crocin and Eno.
Large market share
In terms of retail drug sales, the merger of Glaxo, Burroughs Wellcome and SmithKline
Pharma would further widen the gap between the number one company and the rest of the top
five drug companies in India. According to the IMS 1999 audit (Dec 98 to Nov 99), the
merged entity will have combined annual sales of Rs 1,084.87 crore and a 7.92 per cent share
of the Indian pharmaceuticals market.
Market leader Glaxo's IMS audited sales were Rs 879.36 crore, while SmithKline recorded a
retail turnover of Rs 205.51 crore. SmithKline Beecham Pharma is ranked 20 in terms of
retail sales.
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The emerging entity will have a combined annual prescription base of 23.5 million (IMS
medical audit Dec 98 to Nov 99). Glaxo, along with its affiliate companies Burroughs
Wellcome and Biddle Sawyer have a prescription base of 19 million, while SmithKline
products generate 4.5 million prescriptions per year.
The two companies complement each other very well in terms of therapeutic classes. Glaxo is
the market leader in therapeutic categories such as cephalosporins, plain corticosteroids, anti-
ulcerants and topical corticosteroids. SmithKline is the market leader in pure vaccines and
has a sizeable presence in broad spectrum penicillins, anti-infective antidiarrhoeals and iron
preparations.
Problems to be overcome
The amalgamation of the two entities is likely to pose some problems for Glaxo, which is in
the midst of a major restructuring excercise. Glaxo has split the product portfolio of Glaxo,
Burroughs Wellcome and Biddle Sawyer into seven business units, based on therapeutic
categories.
"The existing imbroglio between the Burroughs Wellcome union and the Glaxo management
is yet to be resolved before Burroughs Wellcome can be integrated with Glaxo. This may
cause some delays," says Devinder Pal, chief executive of Mumbai-based Catalyst Pharma
consulting. Glaxo spokesperson declined to comment on the merger, but a company source
says that a board meeting was held today for preliminary discussions.
Another important aspect of the merger is SmithKline Beecham's 100 per cent subsidiary in
India SmithKline Beecham Asia. While SmithKline Pharma has already announced its
intentions to launch research products through this subsidiary, Glaxo products too may use
this subsidiary to launch certain new products, analysts feel. Glaxo is also not averse to
setting up another 100 per cent arm in India. Its chairman Sir Richard Sykes has already
conveyed this during his recent visit to the subcontinent.
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HP marks Indian employment milestone
Hewlett-Packard has become the largest multinational IT employer in India
Beating more well-known contenders such as IBM, Intel and Microsoft, Hewlett-Packard has
recently become India's largest multinational IT employer, with more than 10,000 employees.
Measuring the size of multinational corporations (MNCs) in India is difficult, as most do not
disclose country-specific revenue figures. Headcount provides one reliable standard, reported
theEconomic Times, an Indian daily.
HP is in the process of acquiring the public stake of Indian software services exporter, Digital
GlobalSoft (DGS), turning its current 51 percent stake into an acquisition. Including the DGS
employees, IBM's headcount goes over 10,000 staff.
DGS had a headcount of 4,400 by the end of September this year, with another 2,600
employees in software operations and 3,000 in HP's Global e-Business, the back office
division. With another 800 from sales and support teams, HP's total rises to around 10,800
staff, reported the daily.
This puts HP far ahead of its main rival, IBM, which has an Indian headcount of 6,000.
However, IBM is growing quickly in India, and a rise to 8,000-plus is expected.
Big Blue also has a relatively weaker presence in India compared to HP. Of the estimated
320,000 global employees, 6,000 is just under 2 percent, while HP has a smaller overall
headcount of around 140,000, which makes its India operations account for well over 7
percent of headcount.
Other large foreign companies in India are also expanding. Accenture, the IT consulting and
services corporation, wants to rise from its current 3,000 to rival HP with more than 10,000
employees within the next two years.
While Microsoft officially says it only has 700 staff in India now, human resource recruiters
in Bangalore told the Economic Times that Microsoft was aggressively recruiting for back-
office operations, and that they expected it to hire 3,000 people by the end of 2004. Cisco has
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3,000 now and Oracle will expand to 4,000 by the end of this year, and Intel plans to hit
3,000 in India in 2005.
However, beating HP and the rest of the MNCs in India for IT employment by a broad
margin is US-based General Electric (GE). The conglomerate has 22,000 employees in India,
most of them working for GE's business-process outsourcing and call-centre operations.
With Indian outsourcing a hot topic in the US and other source markets, the Economic Times
said none of the IT MNC executives it contacted were willing to comment on their hiring
plans. Outsourcing is seen as a threat to US IT jobs.
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Pepsi Co. Case Study
Pepsico has been an early starter in engaging farmers in India. With an elaborate contract-
farming programme underway for the last 15 years, there have been learnings along the way
for the cola and foods major. Pepsicos Worldwide President and CFO, Indra Nooyi shares
some of them with Chaitali Chakravarty & Bhanu Pande. An excerpt.
Has Pepsis contract farming model changed in India?
It hasnt changed but evolved over time. In 1989, when Pepsi came into India, we set up a
potato processing plant for our snacks business and a tomato processing plant in Punjab for
exports. The latter was primarily set up to meet our export obligations. P epsis entry into
contract farming was triggered by the need to make available sufficient quantities of tomatoes
& potatoes of the right quality for our domestic plant. To start with, there was no blueprint
available either in India or internationally of an appropriate model which could be emulated
to structure our contract farming initiative. In that scenario, starting from the basics of
application research, we created a model which has evolved to its current form. However,
when you take up contract farming for different crops in different areas, suitable
modifications and adjustments have to be made to ensure its relevant to local conditions.
Have the objectives changed?
The objective of contract farming is to backward integrate the supply chain to ensure timely
availability of right quality and quantity of materials. This basic objective has not undergone
any change.
Contract farming models rarely generate profits. Why then should an MNC expend so
much time and energy on them? What are the collateral benefits of entering the rural
economy?
Contract farming in itself is not a business. It is an integral part of a business model which
ensures that raw material is available at the right time conforming to the quality standards in
required quantity at competitive prices. All this to ensure the profitability of the business. Our
snacks business requires low sugar potatoes to produce the right quality of potato chips as
such varieties werent grown in India. So we had to introduce the suitable varieties via
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contract farming. Our efforts were also made to increase productivity to ensure higher income
for the farmer and to reduce our procurement costs. In order to succeed we had to undertake
extensive trials of various varieties and evolve agronomic practices suited to local areas. We
then put in place an extension team to transfer these learnings to the farmers. Efforts to
increase agricultural productivity also go a long way in improving farm incomes, thereby
bringing our efforts in sync with the national priorities.
Why has Pepsi not been able to scale up contract farming of various crops? The latest
seaweed project started out with a different objective. But it suffered delays and is now
being touted as a liquid fertiliser project. Doesnt this show the lack of clarity with
which MNCs enter contract farming in India?
The contract farming programme gets scaled up in line with business needs. Our potato
programme starting from Punjab has a footprint across the country to support manufacturing
capacities established in Maharashtra and West Bengal. Today, the number of farmers who
participate in our contract farming programme is higher than what we started with, and many
of the pioneers are still with us. Close to 50% of the potatoes processed by us come from our
contract farming programmes.
Do MNCs face any special hurdle entering the rural areas in contract farming?
The seaweed contract farming project is a path breaking initiative as cultivation of seaweed in
the open sea had never been undertaken before in India. Initially, effectiveness of the
technology to deliver a viable and sustainable income model for the growers had to be
established. Its efficacy had to be demonstrated to the funding and partnering institutions,
who would manage the Self Help Groups undertaking this activity. Last, being a new activity,
regulatory clearances were required, which could be granted only after due evaluation andobservation of the trials. Only last month, due to the efforts of the CM of Tamil Nadu and her
team, Self Help Groups have been given the go ahead to take up this activity. Very soon it
will work on a commercial scale. CSMCRI, which provided the technology for this while
working on the process optimisation discovered an additional application of the weed. They
discovered that it could also deliver a by product a liquid plant growth nutrient. It made
sense for us to acquire this technology for which CSMCRI had taken a global patent. We
hope to now make available this organic and cost effective growth nutrient to the Indian
farmers and we believe this will have a significant impact on the yields and their incomes.
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What kind of challenges, if at all, do you see in partnering with farm workers?
Any successful initiative requires clear understanding of the ground realities of the terrain
and the needs of its people; their resource base and their constraints.
Any corporate, Indian or multinational entering this field has to make the effort and spend
time and money to learn in order to build a successful partnership with the farmers. Indian
farmers have no bias against the multinationals and our 10 years of successful partnership
with the Punjab farmers is a testimony of the same.
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For investors, India is less risky than China
NEW DELHI : India continues to be less risky than China as a business destination,
according to a corporate study. India has been ranked 10th among 29 emerging markets in the
latest country risk analysis by Economic Intelligence Unit (EIU), an information service arm
of the Economist group.
With a score of 39 out of 100 in the risk scale, India has got 'B' risk rating and has outranked
China (41), Saudi Arabia (41), South Africa (45), Mexico (45), Brazil (48) and Egypt (49),
who have got 'C' rating.
However, Singapore (11, A rating), Hong Kong (21) continue to be the safest place for
foreign investment, followed by Taiwan (25), Israel, Hungary and Poland (37), who have
qualified for 'B' rating. Not surprisingly, Iraq is the most dangerous country to do business,
with a score of 91 out of 100, followed by Argentina (76).
A low risk rating is an important indicator of a country's global credit rating and the
willingness of foreign investors to invest in a country. Industry representatives said India has
an opportunity to gain from China 's slowdown.
Experts said country risk report comes in handy as a decision making tool for MNCs to enter
or expand in new markets.
EIU country risk rankings combine measures of political risk (like threat of war) and
economic risk (like size of fiscal deficits). They also include measures that affect a country's
liquidity and solvency (debt structure and forex reserves). Some of the operational factors
that are considered in determining country risk include security, political stability,
government effectiveness, legal & regulatory framework, macroeconomic conditions,
financial & tax policy, labour market and infrastructure. EIU reviews the risk ratings of over
100 emerging markets on a monthly basis.
Rapid growth, highly skilled labour and opportunities in outsourcing boosted India 's ratings.
While change in government brings no decline in risk for India , EIU says that Manmohan
Singh-led coalition must support reforms to sustain current ranking.
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" India is watched closely by overseas investors on whether reforms will continue in the Left
supported government. There is little awareness about economic policies adopted by Left in
West Bengal ," says Amit Mitra, secretary general, Ficci. He said FDI investment will gather
momentum. " India is as safe as what it was and change in government has not changed the
situation," says N Srinivasan , DG-designate, CII. "Indian industry is upbeat and full of self-
belief."
Former RBI governor Bimal Jalan is confident that the country can handle any economic
crisis. Compared to China , India has become marginally safer in 2004. This perception could
be partly attributed to the strong external sector performance and reduced border-tension that
India experienced a year back.
EIU says that India is poised to grow at 8.3% in 2003-04 (April-March) and will grow at
7.3% in 2004-05 owing to a "smaller harvest and hence less robust growth in personal
incomes". It also predicted a slowdown in China . " China 's GDP is likely to grow by 9.4%
this year and by 8.1% in 2005, with the slowdown being led by an easing of investment
growth," projects EIU. India has an edge over other global competitors in outsourcing
opportunities, R&D. China has scored over every country in cheap labour.
Despite slowdown, China will continue to be among top emerging markets for FDI, but India
is also becoming very attractive to global investors. EIU has projected FDI flows to India to
touch $13 billion in 2008 from $5 billion in 2003. However, China is forecast to receive $58
billion in FDI this year. " India 's performance as one of the most attractive destinations for
FDI is based on several criteria, considering Indian authorities' commitment to attract more
FDI is yet to be fully matched by more investment-friendly policies," says EIU.
CII says effective communication is key to reduce India 's risk further, saying, "The biggestchallenge is spreading the right message to the global investing community." Jalan pointed
out the need to reduce fiscal deficit.
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Conclusion
Multinational companies are like double-edged sword. The sword can harm if not handled
properly. Similarly the Multinational companies have their own pros and cons.
The extent of technology and management of know-how transfer by the MNCs depend to a
large extent on their corporate strategy; for example, firms desiring to have a longer-term
relationship with the suppliers (rather than those simply using the host country as a
marketing/export base) will be more inclined to effect transfer technology.
As pointed out in the World Investment Report, 2000, MNCs may restrict the access of
particular affiliates to technology in order to minimise inter-affiliate competition. It is noted
that MNCs are more likely to licence older technologies from which they have already
derived significant rents than newer technologies on which there are still relying for market
leadership. Further, they may hold back the upgrading of the affiliate technology or invest
insufficiently in host-country training and R&D in accordance with their global corporate
strategies. Therefore, arguing that FDI inflows and economic liberalization automatically
facilitates technology transfer is being extremely nave.
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BIBLOGRAPHY AND WEBLOGRAPHY
Economics times
www.ficci.com
www.indoinfoline.com
www.ibef.org
http://www.ficci.com/http://www.indoinfoline.com/http://www.ibef.org/http://www.ibef.org/http://www.indoinfoline.com/http://www.ficci.com/