“It’s IBM’s nightmare,” reported the American business magazine Fortune. In a conference room in Bangalore, consultants and engineers at the software company Wipro were redesigning the ‘consumer experience’ for a US retail chain to make it state-of-the-art. Reports the magazine, Wipro’s general manager for retail solutions was leading a group asking all kinds of detailed questions, “Should sales clerks carry handheld transaction devices or stand at cash registers? Which merchandise should be tracked electronically? How much information needs to be in the database to ensure that discount promotions don’t last longer than necessary?”
All this would be the stuff of bad dreams for ‘Big Blue’ because increasingly its US client companies are turning to Wipro and other software development companies in India for solutions. Indeed, lean and hungry IT companies like Wipro, TCS and Infosys are already invading IBM’s turf. These companies are part of the wave of ‘multinationalisation’ that is sweeping the Indian corporate world.
Wipro’s challenge to the mighty IBM is only the latest element of an unfolding saga, which is likely to redesign the global business landscape. In particular, the multinational corporations of China and India are swooping down on the playing field of the Western transnational corporations and in many cases running away with the ball. These Asian MNCs have drawn a great deal of attention of late, due to their direct impact on the market traditionally monopolized by Western MNCs. To trace how the large Chinese and Indian companies have arrived at this point, it is important to trace the evolution of the multinationals in Asia.
Multinationals of Asia
Many Asian multinationals evolved from trading outfits with overseas ownership, one example being the Swire Group founded in Shanghai in 1866 as Butterfield & Swire and now the parent of such worldwide companies as the airline Cathay Pacific. There were also the manufacturing leaders such as Unilever, incorporated in London and Rotterdam, and with a large presence from the beginning in Asian countries. The common thread running through these companies was clearly an entrepreneurial flair, and a healthy appetite for risk.
It was in 1902 that Citibank (then called the First National City Bank) set up its first branches in Calcutta, Hong Kong, Manila, and elsewhere. As business grew, these multinationals, by virtue of their greater access to capital, depth of management experience and global presence, came to dominate the Asian market. World War II and a greater American presence in Asia also acted as a boost to Western companies. Coca-Cola, to use one example, rode in on the rucksacks of US infantrymen into retail outlets across East, Southeast and South Asia.
Missing in this picture of companies doing business beyond their national boundaries were the indigenous companies of Asia. In many cases, newly established Asian or Southasian companies were too busy navigating the regulatory and competitive landscape in their respective countries to have the wherewithal to look outward at regional and overseas markets. In India, restrictive regulation linked to licensed manufacturing capacity and restricted access to foreign exchange acted as barriers for companies which, at any rate, were struggling to meet domestic demand. Also missing was a global mind-set on the part of management, and self-confidence in the ability to produce and sell Indian products and services in the developed economies. Furthermore, the less said about the quality perception of Indian manufactures back then, the better.
For many decades, Indian overseas exports consisted of non-manufactured goods with little value addition – agro-commodities, steel, heavy machinery, handicrafts and spices. You had a peculiar situation of a country able to put a satellite in space and carry out nuclear tests – in 1974, and then in 1998 – but unable to sell consumer products or services in the world market. But there were company stewards who were dreaming big, and over the 1970s and 1980s, even in the midst of the license raj and protected market, they were building a base of talent, knowledge and physical infrastructure that would create the foundations for liftoff. The trigger came with the rapid liberalisation of the Indian economy after 1991, and soon there was exponential growth and visibility on the global stage. There has been no looking back.
Paints and pharmaceuticals
To chart the great advance that has been made by Indian MNCs, one can consider the case of two Indian companies that have made it – Asian Paints and Ranbaxy. The former was founded in Mumbai in 1942 by four Indian entrepreneurs at a time when the Indian paints market was dominated by Western companies such as British Paints, Jenson & Nicholson and ICI. From its startup, Asian Paints focused on rigorous quality control systems, opening up rural markets, and utilising information technology, acting as one of the early Indian companies to use mainframes for data processing. It was also a leading and early employer of professional managers.
These initiatives paid off, and the company achieved market leadership in India in 1967. In 1978, it took its first steps overseas, setting up a greenfield (meaning starting up rather than acquiring an existing business) venture in Fiji. Operations were soon expanded elsewhere in the South Pacific, in Tonga, Vanuatu and the Solomon Islands. Asian Paints (Nepal) started production in 1985. In 1998, following the advice of a reputed consulting firm, the international operations of the company were integrated into a “strategic business unit”. The organisation as a whole took on an extremely ambitious goal – to elevate itself to the exclusive club of the world’s top five companies in the decorative paints segment by 2007.
Several new greenfield projects were set up, notably in Bangladesh and Oman. In 2002, after two acquisitions in quick succession, the company extended its reach to Egypt, parts of the Middle East, Southeast Asia and the Caribbean. Today, Asian Paints comprises manufacturing operations in 22 countries, primarily in Asia, Australasia and the Caribbean, with a global turnover exceeding USD 500 million. It is already one of the top ten decorative paint companies in the world.
Ranbaxy Laboratories was founded in 1961 by Bhai Mohan Singh in order to produce pharmaceuticals, with the initial emphasis on the production and marketing of basic drugs. It went public in 1973, and in the 1980s it expanded domestic production significantly, simultaneously putting up modern research and development infrastructure. There was no looking back after one of its plants in India obtained approval from the US Food and Drug Administration, which allowed Ranbaxy entry into a prime world market. The company, which set up its first joint venture in Nigeria two and half decades ago, today has manufacturing operations in seven country and ‘ground presence’ in 44. In 2004, the company registered a growth in sales of 21 percent, with turnover totaling USD 1.2 billion. The overseas market accounted for 78 percent of the sales, with the US accounting for 36 percent and Europe 16 percent. Recently, Ranbaxy enhanced its European presence by making an acquisition in France, which makes it the largest producer of generic drugs in that country.
Ranbaxy has embarked on a full-fledged global strategy based on innovation, alliance-building and ‘globalisation’. The company began producing under intellectual property licenses held by global firms, conducted clinical trials for its drugs in foreign markets, and itself created new ‘intellectual property’. It developed alliances for producing new drugs for research. On the whole, the work done at home base over the years had allowed the marketing of Ranbaxy as a global major, and it has a global footprint encompassing countries as diverse as Nigeria, Egypt, Poland, South Africa, France, China, Malaysia, Thailand, France, besides the US and UK.
Asian Paints and Ranbaxy represent just the tip f the Indian iceberg that has in the last decade and half invaded the world marketplace. Some of the other major players incllude ICICI Bank, Indian Oil, the Aditya Birla Group, and the various companies of the Tata Group including Tata Tea (with its large acquisition of Tetly of UK). Not to mention the three giants of the Indian software industry : Infosys, Tata Consultancy Services and Wipro.
Lessons for aspirants
The growth of these Indian MNCs throws up some significant lessons for all aspiring multinationals of Southasia:
Access to capital: because financing is now global, it is possible for companies with the right profile and capability to access a volume of capital that could only be dreamed of earlier. It is up to the executives who hope to go global whether and how to take advantage the highly liquid and ‘risk-neutral’ sources of finance that have now become available.
Talent: Capable executives are now willing to relocate globally, and particularly to India, where they see stability, income and career enhancement. Indeed, Indian companies have begun to attract the best talent from the international pool, one example being Dr. Brian Tempest, CEO of Ranbaxy. Top-line executives are joining Indian MNCs because they know the goals are global, reaching far beyond India and Southasia.
Alliances and Partnerships: Overseas companies seeking to take advantage of the Indian workforce and market are willing to allow Indian companies an ‘in’ on their expertise and finance capacities. This seems to be the key to long-term alliances, and that is the path many Indian companies have taken in expanding their activities internationally. But it is easier said than done, because of the unfamiliar business terrain and diverse corporate cultures in different parts of the world. A deep understanding of the partner’s country and culture helps, but in the end, it is all about an understanding of mutual goals and expectations which allow both partners to tide over inevitable turbulence.
Within Southasia today, it is mainly the Indian multinationals that have ridden the wave of liberalisation to seek out world markets, and there are obvious reasons why this has been so. Most importantly, the much larger domestic playing field in India allows Indian companies a range of experience and access to capital not readily available to companies in neighbouring countries. However, it is a fact that the capability to go international does exist all over the region. Two somewhat dissimilar examples are Sri Lanka’s Dilmah’s tea company with its highly rated marketing, and BRAC, which is evolving as a multi-dexterous company using its experience within Bangladesh to reach out with services beyond Southasia.
In their quest for global growth, the Indian MNCs are looking at market opportunities across many geographical areas including Southasia. The style and functioning of these and other Asian MNCs, including Chinese and Korean companies, would have an impact on the functioning of the host economies. In this highly networked world, along with increased competition, these MNCs would be bringing in various elements: specialised knowledge, technical expertise, management skills, and new products and processes. These elements, going into the economy, act as enablers for development of industrial activity. Also, local companies learn to develop ‘business ecosystems’ built to leverage the presence of these MNCs.
The center of gravity of global economic activity is shifting inexorably to Asia, and the continued evolution of multinationals of India will have significant implications for business, trade and societal development in this region and beyond. Will there be an evolution towards more companies from among India’s neighbours becoming multinational, and will at some point there be a company with joint cross-national ownership which could be called a truly ‘Southasian MNC’? Only time will tell.