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Published: May 5, 2009

 
 

For Indian Companies, It’s Globalization as Usual

Nirmalya Kumar, a professor of marketing at the London Business School, argues in a new book that although the world economic crisis may have taken the bite out of some Indian companies, most will adapt and emerge globally.

The global economic crisis has slowed India’s growth, but it has not curbed the potential of its strongest homegrown companies. So says Nirmalya Kumar, coauthor of India’s Global Powerhouses: How They Are Taking On the World (with Pradipta K. Mohapatra and Suj Chandrasekhar; Harvard Business School Press, 2009). Kumar believes that many of India’s largest companies are poised to expand into international markets and become true multinationals. Concerns have been raised about India’s accounting standards following the scandal at Satyam Computer Services Limited, a well-respected outsourcing outfit whose founder admitted to inflating the company’s financial statements by upward of US$1 billion. Yet even that blemish, says Kumar, will ultimately benefit ambitious Indian companies as they seek to improve corporate governance. In April, strategy+business spoke with Kumar about the future of Indian companies and their place in the global economy.

S+B: Are Indian multinationals reining in their growth strategies?
KUMAR: In general, the global strategies of many Indian companies are based on liquidity, which allows them to make acquisitions. Companies that have been hurt by the crisis will slow down their efforts to expand through acquisition. But companies with strong balance sheets and cash positions will continue to go global. In fact, Indian companies have made several cash acquisitions recently, including Sterlite Industries’ billion-dollar-plus purchase of copper mines from Tucson, Ariz.–based ASARCO LLC, and Tata Consultancy Services’ $500 million acquisition of Citigroup Global Services.

S+B: With Accenture, IBM, and Hewlett-Packard’s EDS unit launching counterattacks against India’s information technology outsourcing businesses, such as Wipro, Infosys, and Satyam, how will Indian technology firms fare?
KUMAR: The U.S. companies have the front-end capability to conduct computer activities directly at customers’ locations. What they don’t have is back-office efficiency; they are less cost-effective and less capable in general of performing tasks that can be done remotely. By increasing the number of people they employ in India, they’re rushing to mimic the back offices of Indian outsourcers. Conversely, Tata, Wipro, and Infosys are making small acquisitions abroad to obtain the same front-end capabilities that IBM has. In the past five years, for example, Wipro has acquired Infocrossing in the United States and several smaller technology consulting firms in Canada, Germany, Finland, and Portugal. In other words, both Western and Indian companies are rushing for the same spot, coming at it with different strengths. Both will win. I don’t think it’s a question of either-or. Of course, as a result of what happened at Satyam, the reputation of Indian outsourcers has been hurt, so Indian companies now have to prove that they have effective corporate governance.

S+B: Tata Group has finally launched the Nano, its $3,000 minicar, in India. But how long will it take for it to market that car or a similarly inexpensive one in world markets?
KUMAR: For the moment, the Nano has been designed for the Indian market — its safety equipment, or lack thereof, would not meet U.S. or European standards — and the potential Indian market is so large that it makes no sense for Tata to take the Nano into global markets anytime soon. Tata, which represents almost 5 percent of India’s exports and 2.5 percent of India’s GDP, has been global for the past 10 years in many businesses, including steel, hotels, tea, and chemicals. More than 60 percent of the group’s revenues come from outside India. So it knows how to manage global companies. But the automotive industry is under tremendous stress right now. Developing new cars for the wider world market is challenging for Tata not because it lacks the global management strength or the global capability, but because the auto sector has collapsed worldwide. Even if you have the world’s greatest management strengths, there’s not a lot you can do about this depressed market. For that reason, last year’s [$2.3 billion] acquisition of Jaguar and Land Rover from Ford, which was going to be challenging in the best of times, is currently causing Tata considerable stress.

 
 
 
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Resources

  1. Anil K. Gupta and Haiyan Wang, Getting China and India Right: Strategies for Leveraging the World’s Fastest-Growing Economies for Global Advantage (Jossey-Bass, 2009): A comparison of the business environments in the world’s two largest markets.
  2. Ranjit Shinde, “Indian IT Companies to Report Worst Ever Results,” Economic Times of India, April 3, 2009: Outsourcers get hit by downturns in global banking, finance, telecommunications, and automobiles.
  3. Jayashankar M. Swaminathan, editor, Indian Economic Superpower: Fiction or Future? (World Scientific Publishing Company, 2009): An examination of global supply chains in India and other issues facing India as it seeks to emerge on the world stage.
 
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