Sunday, January 6, 2008

Multinationals in Indian markets

The ascendancy of multinationals in the Indian markets is the next major aspect of the environmental sea change. With the reforms, the multinationals (MNC) found it both feasible and attractive to take up a dominant position in India. And, the new dominance of the MNC in the Indian markets manifested in many different ways. We will cite here three main developments:

*MNC already present in the country consolidated their position in their enterprises and Joint ventures (JV), acquiring majority equity in them

*Many MNC entered anew

*MNC entered even the core industries.

Multinational companies acquire majority Equity in their Indian Enterprises and JVs

The removal of FERA restrictions and the liberalization of FDI enabled MNC, who were already operating in India, to raise their equity in their Indian enterprises to 51% or more. Immediately, they started hiking their equity accordingly and acquired full control over the enterprises. The Unilever group was the first to consolidate in this manner. Very soon, many more MNC took to this route. They included: Ashok Leyland, Cadbury, Glaxo, Hoechst, Merck, ABB and Indian Shaving Products. And, most of the MNC with joint ventures in the country also raised their equity in their JVs to 51% or more. If we consider the total scenario, within a year of the launch of the reforms, out of the 300 and odd MNC enterprises/JVs in the country, more than half had emerged as companies where the MNC partner held majority equity. More are joining the list.

Several MNC Enter Indian Passenger Car Industry

With liberalization, the Indian passenger car industry became a fertile ground for entry by global car majors. Not only had the industry been de-licensed, foreign investment was also now permitted in the industry. In fact, Indian law now permitted majority ownership for foreign companies in the industry.

Practically all the major car manufacturers of the world, such as General Motors, Ford, Daewoo, Hyundai, Honda, Peugeot, Fiat, Mitsubishi, Daimler Benz and BMW set shop in India. Suzuki is already here with the Indian Government as partner.

*GM enters through a JV with HM

*Ford sets up a JV with M&M

*Honda enters through a tie-up with SIEL

*Hyundai arrives as a 100 % subsidiary

MNC enter Indian White goods Industry

By mid-1990s, the top three MNC in the world in white goods—GE, Whirlpool and AB Electrolux—each with a $5 billion plus turnover and a Fortune 500 rating, had entered the Indian refrigerator /white goods market.

GE set up a JV with Godrej. GE promoted the JV through GE Appliances, the white goods arm of the General Electric Group. The JV included a technology tie-up, a financial tie-up, and a strategic alliance. A new company by name Godrej-GE Appliances was formed, with Godrej holding 60% of the equity and GE Appliances the balance. The JV will handle all appliances of GE brand plus refrigerators of Godrej brand. As part of the JV agreement, Godrej transferred its refrigerator business to the JV. In the very first year of operations, the GE-Godrej combine became the first company in India to sell over 6,00,000 refrigerator units in a year. It also put on the market, India’s first CFC-free refrigerators. In 1997-98, Godrej-GE sold more than a million units of white goods, which included refrigerators, washing machines, air conditioners and cooking ranges.

In washing machines, GE-Godrej JV initially went in for outsourcing instead of manufacturing. It entered into outsourcing arrangements with Maharaja as well as Videocon, and launched its power wash range. This way, GE managed to enter instantly two of major segments of the white goods market in India—refrigerators and washing machines—without going through the gestation period involved in the start-up route. Subsequently, it put up two new plants, one each for manufacturing washing machines and air conditioners.

Whirlpool: Whirlpool Corporation, USA, entered the Indian Market by acquiring Kelvinator India Ltd (KIL) and later putting up plant of its own. It acquired 51% stake in KIL, paying Rs. 360 crore. Both Electrolux and Whirlpool tried to take over KIL. Electrolux lost the race to its arch rival, Whirlpool. As a result, though Electrolux is the global parent of the Kelvinator brand name, it had to operate in India without this brand for the time being and also reconcile to its arch rival using it in India. After functioning for two years as Kelvinator, the Whirlpool donned as the mantle of Whirlpool of India Ltd (WOIL).

Whirlpool put in place a state-of-the-art, no-frost, CFC-free refrigerator plant near Pune, with a capacity of 6.5 lakh units at an investment of $ 85 million. The plant has a 35% share of the total installed capacity in refrigerators in the country. Whirlpool was earlier marketing washing machines and also had a joint venture with TVS.

AB Electrolux: It is the world’s largest home appliances company and had only its presence in India due to Kelvinator brand. Though the Electrolux was not successful and the Whirlpool and Maharaja has taken over. Using the Maharaja facilities, the Electrolux brand of refrigerator had achieved the turnover of 200 crores. The Kelvinator reverted back to Electrolux from Whirlpool after a gap of 18 months to re-launch the Kelvinator refrigerators in India. In 1997, Electrolux started marketing both the Electrolux and Kelvinator brands in India.

Others: Subsequently, a few more MNC entered the Indian white goods market. They included Maytag Corp, Siemens-Bosch, and the three Korean conglomerates—Daewoo, Samsung and LG. Matyag Corp set up a joint venture with MNodi-Hoover; Siemens-Bosch set up a joint venture with Crompton Greaves; and Samsung Electronics Corporation entered through a wholly-owned subsidiary as by then the government was approving wholly-owned subsidiaries of MNC in white goods. The Indian refrigerator market was thus becoming the battleground of MNC. Some other multinational company tie ups and set ups are listed below:

*GE Plastics Enters Engineering Plastics in Partnership with IPCL

*GE Capital Sets up Three Consumer Finance Companies with Godrej, HDFC and Maruti as Partners.

*Merrill Lynch Sets up JV with DSP Financial Consultants

*Re-Entry of IBM and Coca-Cola

*Cosmetic Majors, L’Oreal, Avon, Amway, and Oriflame, also set Shops.

*Food Chains-Mc Donald’s , Wimpy and Domino’s

*Kellogg Brings its Breakfast Cereals into India

*Ice cream Chains Baskin-Robbins, Haagen-Dazs and Wall’s Bring in Their International Brands of Ice –cream

*Consultancy Firms like Mckinsey and Anderson Become Active

Telecom: Among the core sectors, telecom is the area, where the MNC have been most active. In telecom, in the first bout of opening up, MNC were allowed to come into hardware such as telephone instruments, electronic exchanges, fax machine, modems, peripherals and switching systems. They were also allowed to operate value added services like cellular phone and radio paging services. Sizeable investment flowed into the country in these areas from the global telecom majors. Subsequently, even basic telephone services were opened up to the MNC.

Power: Power is another core industry where MNC entry has brought about some change, though the actual impact has been far lesser compared to the earlier expectations.

Until liberalization, in India, power-generating companies could be set up only by Central or State governments. Now, in one stroke, Indian as well as foreign private investment has been allowed in power sector—generation as well as distribution. MNC can now build, operate and own power plants in the country. They have, in fact, been offered many incentives. They have been allowed to hold 100% equity in power projects. The other incentives include freedom to fix tariff, which ensures a return on investment of 16%, liberal debt-equity ratio (up to 4:1), long duration license arrangements extending up to 50 years, and freedom to repatriate profits.

Enron set up the Dabhol Power Company (DPC) in Maharashtra. DPC, however, has had a chequered life. Its power purchase agreement (PPA) with the Maharashtra State Electricity Board has become particularly controversial.
We have given only a few examples in this article but many more industrial activities have taken place. These facilitated better quality goods to Indian Public and also enabled an increased share of Indian goods in International markets. The whole economy got rejuvenated improving the employment opportunities and also bettering standard of life. Foreign exchange availability once an arduous task is now very much liberalized.

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