Emerging Markets - Building Sustainable Indian Multinationals: Agenda for Action

"Building Sustainable Indian Multinationals: Agenda for Action"

A Thesis Presented to

AIMA

"National Competition for Management Students"

By

Kamal Syal

Vijay Bhargava

Abstract

Sustainable development has become an overall policy objective in India. The sustainability transition is seen as the process of coming to terms with sustainability in all its ecological, social, economic, and institutional dimensions. Indian Multinational companies have transformed very quickly from small domestic players to competitive global powerhouses. Indian MNC's are still in an embryonic stage. The current paper discusses the challenges Indian MNC'S will be facing with regard to its growth in the long run. The paper also discusses about building sustainable growth by addressing the domestic as well as international needs. We will also discuss the strategies which Indian Companies will employ to sustain the competition locally and internationally.

Introduction

The Indian MNCs are the companies which are of Indian origin and spreading its wings to set up operations in various markets around the world. For Example Tata Steel,Hindalco Industries, Ranbaxy laboratories etc are some of the Indian MNCs.Indian MNC are private corporations primarily guided by the philosophy of the profit maximization.MNC's represent a network of private business enterprises having operations in many geographic locations. Indian MNCs need to build a core competency and possibly avenues to generate internal accruals or external finances for funding globalization plans. There are examples of several companies that have first built a robust and sustainable domestic business model by honing it through continuous experimentation in the home market and thus creating a core competency.

India's dual economic structure and wide dispersion in productivity levels call for a broader interpretation of innovation. Innovation is defined to include both "new to the world" creation and commercialization activities and "new to the market" diffusion and absorption activities. The first use of existing knowledge in new market contexts to help underperforming enterprises come closer to the global frontier of knowledge. Innovative activities include products, processes, and business and organizational models new to the local environment. India is increasingly becoming a top global innovator for high-tech products and services. Still, India is underperforming relative to its innovation potential, with direct implications for long-term industrial competitiveness and economic growth.

Indian Companies has acquired a slew of foreign companies across a spread of sectors in their quest to go global. The rising tide of Indian investment overseas reflects the imperatives of operating in a globalised market place. Because of rising competition, Indian firms are now driven by the need to seek the cheapest resource mix and locate operations where these are available. Globalization also entails that they seek larger markets that transcend geographical barriers. Both factors translate into a strategy of larger overseas investment. Changes in the International regulatory environment, particularly developments in the intellectual property rights (IPR) regimes are also critical drivers for Indian companies forays abroad. The liberalization announced will enable the Indian companies to take advantage of global opportunities and to acquire technological and other skills for adoption back home in India.

About 90 percent of Indian workers are employed in the informal sector, and this sector is often characterized by underemployment, as well as low-productivity and low-skill activities. Although India has the benefit of a dynamic young population--with more than half of the country's population under 25 years old, only 17 percent of people in their mid-20s and older have a secondary education. To sustain rapid growth and help alleviate poverty, India needs to aggressively harness its innovation potential, relying on innovation-led, rapid, and inclusive growth to achieve economic and social transformation. Sustaining growth is a challenge because of both intensified external competition brought on by information and communication technology (ICT), spurred globalization and internal pressures linked to skill shortages

Reasons for going global:

Following are the reasons that drive Indian Companies to spread their wings abroad:

1) Market distortions: In a world without tariffs and other 'distortions', exports and local production would be perfect substitutes. However, in the real world, distortions do exist and provides an incentive for firms to locate production facilities abroad.

2) Access to resources: Access to low cost resources has been another important reason behind foreign direct investments. In a number of instances, the availability of cheap, skilled labour has been an important driver. Resource seeking investments from India is largely geared to the oil and gas sector where investment is driven largely by the need to explore new oil reserves. Here destination of investment is determined by the location of oil fields.

3) Market access: The penetration of large markets often entails physical Proximity of a firm to these markets, a condition that a pure export strategy fails to satisfy. Firms, for instance, need marketing and distribution assets to access market and often the optimal strategy for successful penetration is to acquire a local marketing company or set up a marketing subsidiary. Indian pharmaceutical companies are following exactly this strategy, particularly in unregulated markets. For Indian software companies, the need for market access has entailed locating facilities in major markets to acquire domain knowledge of clients and setting up 'disaster recovery centres' in case of systems failure.

4) Technology: The manufacture