MNCs in India

1
MNCs in India

• Challenges, Performance Strategic Imperatives
• March 18 2006

2
MNCs in India have a long history and tradition

3
Lets evaluate.

• Defining Success for MNCs in India
• Performance of MNCs Financial
• Key Success Factors for MNCs operating in India
• Key Advantages of existence of MNCs in India
• Issues which have hindered MNCs growth in India
• Key challenges that Indian MNCs would face

4
Defining success for MNCs in India

• Success for MNCs in India can be defined along 2
  dimensions
• Capturing the Domestic Market Opportunity
• Leveraging Indias resource base to derive
  additional value for the corporation
• RD / Manufacturing / Sourcing / BPO

5
Many MNCs have managed to achieve success along
both lines..
Source CII BCG Report
6
Performance of MNCs An Analysis

• Over the last few decades, most MNCs have shown
  typical characteristics in their growth plans in
  India
• Prefers operations to be less assets intensive
• Lean operations as far as employees are concerned
  
• Preference of profitability over growth
• Most businesses generate high ROCEs
• Extremely cagey to enter non-Parent growth
  areas

7
Performance of MNCs Growth Vs Profitability
8
Performance of MNCs Shareholders returns
9
Performance of MNCs Capex Creation
10
Various studies have shown that there are 3 key
success factors for MNCs operating in India

• Commitment at global level
• Raise the profile of India
• Formulation of bold long term targets
• Empowered local Management
• More cost effective, enhances continuity,
  leverages understanding of local environment
• Localized product / market business models
  create customized products and services in
  response to unique environment in India
• Deliver the right product at the right price with
  right positioning for India

11
Key Advantages of existence of MNCs in India
.i.e what has India really gained?

• Work culture for employees
• Systems
• Training and Learning
• Technology especially concept of working with
  better technologies
• Safety Health and Environmental Learnings
• Culture and Ethos
• Excellent training grounds for many entrepreneurs

12
Key gains NOW

• Outsourcing Centres for key processes setup by
  various MNCs
• RD Outsourcing Pharmaceuticals, Engineering,
  IT, Telecom
• Product development centres (Telecom, IT)

13
Key gains NOW
14
What are the key issues in the Indian context
which have hindered MNCs growth?

• Global parent strategy dictates India plans
• Limitations of growth due to regulatory /
  legislation / IPR issues
• Limited Autonomy for top MNC Managers
• Sometimes bureaucratic setups have delayed
  decision making sharp contrast to most Indian
  entrepreneur companies
• Insistence of some companies on having expats

15
What are the key issues in the Indian context
which have hindered MNCs growth? (Contd)

• Rigidity and insistence on evaluating India like
  any other market
• Not being able to recognize early enough that
  India is a price and quality conscious market
• Limitations of following aggressive MA options
  (detail next slide)
• Many MNCs have got consistently caught in rounds
  of parent consolidation
• 100 subsidiary conundrum

16
MA strategies MNCs Vs Indian companies

• Except for India entry MA plays, MNCs in India
  have been quite dormant on this front
• Not to go beyond parent portfolio
• Protocols difficult to meet deal / transaction
  timelines
• MA is an important tool for growth in todays
  context a tool which could be too crucial to
  miss out on

17
Some thoughts on Indian MNCs
18
How we classify a company as an MNC?

• Companies that operate in more than one country
  with headquarters located in home country
• Generally, to qualify as an MNC, the following
  qualities are essential
• Subsidiaries in foreign countries
• Operations in number of countries
• High proportion of assets / revenues in / from
  global operations
• Overseas operations should have manufacturing /
  RD operations
• Employees / Stakeholders should be from different
  countries

19
The Indian MNCs the list is subjective and
endless.

• Paints Asian Paints
• Auto Components Tata Motors, Bharat Forge
• Chemicals Tata Chemicals, United Phosphorus
• Metals Sterlite Industries, TISCO
• Packaging Essel
• Pharmaceuticals Ranbaxy, Wockhardt, Sun, DRL
• Oil Gas ONGC

20
Example Asian Paints

• Asian Paints rise from a mid sized domestic
  focused coatings company to a 500 million
  multinational with a global presence across 23
  markets. Among the top 10 decorative coatings
  companies globally.
• Key strengths are continuous innovations in all
  spheres of operations, economies of scale, strong
  management team, IT capabilities, stronghold over
  the distribution network, width of product
  portfolio and strong brand equity
• Consistently generated EBITDAs of 16 and ROEs
  of 25 - higher than most Indian and global
  peers
• Operates in 23 countries across the world -
  manufacturing facilities in each of these
  countries and is the largest paint company in
  nine overseas markets. It is also India's largest
  exporter of paints, exporting to over 15 markets
  in the Asia-Pacific region, the Middle East and
  Africa.

21
Key challenges that Indian MNC would face.

• Domestic market like India vis a vis
  International expansion
• Language
• Culture
• Autonomy to local managers how comfortable
  are we ?
• Styles of doing business
• Handling of potential liabilities related to
  Labour, IPR etc
• And Patience !

22
Thank
You