MNCs in India

1. Challenges, Performance & Strategic Imperatives March 18 2006 MNCs in India

2. MNCs in India have a long history and tradition …

3. Let’s evaluate…. • Defining Success for MNCs in India • Performance of MNCs – Financial • Key Success Factors for MNCs operating in India • Key Advantages of existence of MNCs in India • Issues which have hindered MNCs growth in India • Key challenges that Indian MNCs would face

4. Defining success for MNCs in India • Success for MNCs in India can be defined along 2 dimensions : • Capturing the Domestic Market Opportunity • Leveraging India’s resource base to derive additional value for the corporation • R&D / Manufacturing / Sourcing / BPO

5. Many MNCs have managed to achieve success along both lines….. Source : CII BCG Report

6. Performance of MNCs – An Analysis • Over the last few decades, most MNCs have shown typical characteristics in their growth plans in India • Prefers operations to be less assets intensive • Lean operations as far as employees are concerned • Preference of profitability over growth • Most businesses generate high ROCEs • Extremely cagey to enter “non-Parent” growth areas

7. Performance of MNCs – Growth Vs Profitability

8. Performance of MNCs – Shareholders’ returns

9. Performance of MNCs – Capex Creation

10. Various studies have shown that there are 3 key success factors for MNCs operating in India … • Commitment at global level • Raise the profile of India • Formulation of bold long term targets • Empowered local Management • More cost effective, enhances continuity, leverages understanding of local environment • Localized product / market business models ; create customized products and services in response to unique environment in India • Deliver the right product at the right price with right positioning for India

11. Key Advantages of existence of MNCs in India ….i.e what has India really gained? • Work culture for employees • Systems • Training and Learning • Technology – especially concept of working with better technologies • Safety Health and Environmental Learnings • Culture and Ethos • Excellent training grounds for many entrepreneurs

12. Key gains NOW…… • Outsourcing Centres for key processes setup by various MNCs • R&D Outsourcing – Pharmaceuticals, Engineering, IT, Telecom • Product development centres (Telecom, IT)

13. Key gains NOW……

14. What are the key issues in the Indian context which have hindered MNCs growth? • “Global parent strategy” dictates India plans • Limitations of growth due to regulatory / legislation / IPR issues • Limited Autonomy for top MNC Managers • Sometimes bureaucratic setups have delayed decision making – sharp contrast to most Indian entrepreneur companies • Insistence of some companies on having expats

15. What are the key issues in the Indian context which have hindered MNCs growth? (Contd…) • Rigidity and insistence on evaluating India like any other market • Not being able to recognize early enough that India is a price and quality conscious market • Limitations of following aggressive M&A options (detail next slide) • Many MNCs have got consistently caught in rounds of “parent consolidation” • 100% subsidiary conundrum

16. M&A strategies – MNCs Vs Indian companies • Except for India entry M&A plays, MNCs in India have been quite dormant on this front • “Not to go beyond parent portfolio” • Protocols – difficult to meet deal / transaction timelines • M&A is an important tool for growth in today’s context – a tool which could be too crucial to miss out on

17. Some thoughts on Indian MNCs

18. How we classify a company as an MNC? • Companies that operate in more than one country with headquarters located in “home country” • Generally, to qualify as an MNC, the following qualities are essential : • Subsidiaries in foreign countries • Operations in number of countries • High proportion of assets / revenues in / from global operations • Overseas operations should have manufacturing / R&D operations • Employees / Stakeholders should be from different countries

19. The Indian MNCs ………………the list is subjective and endless…. • Paints – Asian Paints • Auto & Components – Tata Motors, Bharat Forge • Chemicals – Tata Chemicals, United Phosphorus • Metals – Sterlite Industries, TISCO • Packaging – Essel • Pharmaceuticals – Ranbaxy, Wockhardt, Sun, DRL • Oil & Gas – ONGC

20. Example : Asian Paints • Asian Paints rise from a mid sized domestic focused coatings company to a $ 500 million multinational with a global presence across 23 markets. Among the top 10 decorative coatings companies globally. • Key strengths are continuous innovations in all spheres of operations, economies of scale, strong management team, IT capabilities, stronghold over the distribution network, width of product portfolio and strong brand equity • Consistently generated EBITDAs of 16%+ and ROEs of 25%+ - higher than most Indian and global peers • Operates in 23 countries across the world - manufacturing facilities in each of these countries and is the largest paint company in nine overseas markets. It is also India's largest exporter of paints, exporting to over 15 markets in the Asia-Pacific region, the Middle East and Africa.

21. Key challenges that “Indian MNC” would face…. • Domestic market like India vis a vis International expansion • Language • Culture • Autonomy to “local” managers – how comfortable are we ? • Styles of doing business • Handling of potential liabilities related to Labour, IPR etc • And ………………Patience !

22. Thank You