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Published: May 5, 2009

 
 

For Indian Companies, It’s Globalization as Usual

S+B: Two of the largest Indian multinationals, Arcelor Mittal and Dr. Reddy’s, have had subpar results recently. How does their lackluster performance jibe with your argument that India’s multinationals are going to fare reasonably well and even grow during this downturn?
KUMAR: Each Indian multinational is different and will have its own strategic opportunities and challenges. Mittal is going to do fine in the long run but may be limited in its ability to expand in the short run. As a steelmaker, because of the collapse in the global construction and automotive sectors, it is facing the same challenges that all the other companies in its industry face. Reddy’s is in a totally different industry — pharmaceuticals; it is one of the leading generic drug producers in India. And in 2006, in the company’s largest international acquisition, Reddy’s acquired Betapharm, the fourth-largest German pharmaceutical company. Reddy’s is facing challenges integrating the acquisition because the business model in Germany is different from India’s. The German health-care structure is different, its patent protections are stronger, and the environment is highly regulated; it will take time, perhaps, but Reddy’s still has to learn how to make this acquisition work and yield value.

S+B: Traditionally, Indian companies are run by dominant families. With this model, can they match the management skills of Western multinationals?
KUMAR: They have to professionalize and improve their governance, and they are doing that. But just because you have a family business doesn’t mean it can’t be professional. You have some family-run businesses that have very strong governance standards, whereas in other family businesses the board of directors meets around the dinner table. The good family businesses — such as Aditya Birla Group and Mahindra & Mahindra — retain professional managers and employ better financial standards. But you don’t even hear about some of the family companies that were strong 20 years ago. They’ve become shadows of their former selves. They couldn’t professionalize and compete in the new environment.

The winners among these family businesses have also communicated better with stakeholders outside the company, especially with shareholder financial institutions. That has helped them raise more capital on India’s stock exchanges and get better financing from the banks. Ultimately what I think you’re going to see is that the Indian companies that have gone global will have the operations and systems and processes that any Western multinational has. But, similar to what has occurred in the West, I don’t think the families will completely sever their involvement with these companies. Ford Motor Company is a family business, and so are Bertelsmann in Germany and L’Oréal in France.

Author Profile:
William J. Holstein is the author of Why GM Matters: Inside the Race to Transform an American Icon (Walker, 2009). For more on his work, see www.williamjholstein.com.

 

 
 
 
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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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