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Globalization and Its Impact on Indian Industry 04 January 2005, New Delhi

Globalization and Its Impact on Indian Industry 04 January 2005, New Delhi. Rajen Mehrotra Sr. Specialist On Employers’ Activities For South Asia International Labour Organization India Habitat Centre, Core 4B (3 rd Floor), Lodi Road, New Delhi 110 003

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Globalization and Its Impact on Indian Industry 04 January 2005, New Delhi

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  1. Globalization and Its Impact on Indian Industry04 January 2005, New Delhi Rajen Mehrotra Sr. Specialist On Employers’ Activities For South Asia International Labour Organization India Habitat Centre, Core 4B (3rd Floor), Lodi Road, New Delhi 110 003 Tel: 011 24602101 - Extn. 265: E-mail : rajen@ilodel.org.in

  2. Mile Stone Events That Have Affected Business • End of World War I (1918) • End of World War II (1945) • End of Cold War (1989) • 9/11 (2001)

  3. GLOBAL SITUATION • Global GDP Growth 2% In 2003, 2002 And 2001 While 4% In 2000 And 1999 • World Trade Growth Has Slowed • Every country wants to improve Global Trade

  4. Globalization & India India Went Through Economic Reforms From 1991. The major ones are: • Reductions In Import Duty • Removal of restrictions on imports • Devaluation of Currency • Removal of permissions on setting up enterprises and expansion of capacity • Removal of permission of Controller of Capital on Share Premium Account on issues of Shares • Privatization of Public Sector Units • Membership of WTO • Easier entry of multinationals

  5. World Perception • Visualization of Six Major Global Players (U.S.A., Japan, Europe, Russia, China, India) • Goldman Sach’s Report (Brazil, Russia, India, China – BRIC major players). Projects India as a potential winner ahead of China and would overtake U.S.A. and China by 2025 in terms of Real GDP. • India huge market – population of 1 Billion with at least 250 Million middle class with tremendous buying power • Economy with 6% Growth Post Liberalization

  6. India’s Problem • High growth but problem of unemployment. • Need to generate 10 million jobs per year. • Multi party rule, hence need to accommodate political ideology with economic reality (reservation, labour law reforms).

  7. Multinational’s History (Prior to 1991) in India • East India Company the first one which also brought British Rule in India • Large number of British/European Owned Companies set up prior to 1947 and continued till 1977 though certain restrictions got imposed when India became free in 1947 and republic in 1950. • FMCG (Lever Bros., Colgate), Tobacco (Imperial Tobacco), Packaging (Metal Box), Banking (Grindlays, Standard Chartered, Imperial), Tea/Plantation (Sterling Co.), Engineering (Siemens, Brown Boveri, Burn Standard, Jessops, Richardson & Cruddas), Beverages (Coca Cola), Computer (IBM), Pharmaceuticals (Glaxo, Burroughs Welcome, Sandoz, Merck Sharp & Dhome, E-Merck, Many others), Chemicals (Imperial Chemicals, Bayer). • Period of 1977 to 1991 – Multinationals were asked to dilute equity, restrictions on growth, price controls. Two Companies that closed and left India in 1976 were Coca Cola and IBM as they had 100% foreign held equity and refused to dilute their equity.

  8. Large Number of Multinationals Have Moved to India Post Globalization (Strategy 100% Equity, Collaboration, Franchise, Importing, Manufacturing) • Beverages (Coke, Pepsi) • Fast Foods (McDonalds, Pizza Hut, KFC) • Coffee (Barista, Café Coffee Day) • Sports Wear & Goods (Nike, Adidas) • Apparels & Garments (Levis, Reid & Taylor) • Cosmetics (Revlon, Oriflame, Maybellene) • Two/Four Wheelers (Honda, Toyota, Suzuki, Hyundai, General Motors, Ford, Mercedes) • Computers (Del, HP, IBM, Samsung, Sony, Compaq) • White Goods (LG, Samsung, GE) • Construction • Engineering Companies • Pharmaceuticals (US, Europe, Britain) • Music (Sony, BMG, Warner) • Entertainment Channels (Star, National Geographic, Discovery, Sony) • Sourcing (IKEA, Adidas, Nike, many others)

  9. INTERNATIONAL BUYERS APPROACH ON COMPLIANCE OF CODE OF CONDUCT BY SUPPLIERS • COMPANIES HAVE DEVELOPED THEIR OWN CODE OF CONDUCT TO BE FOLLOWED BY THE SUPPLIERS COVERING MAINLY THE FOLLOWING THREE: • UNIVERSAL DECLARATION OF HUMAN RIGHTS (UN 1948) • FUNDAMENTAL PRINCIPLES OF RIGHTS AT WORK (ILO 1998) • RIO DECLARATION ON SUSTAINABLE DEVELOPMENT (UN 1992) • LEGAL REQUIREMENT: • SUPPLIER MUST COMPLY WITH NATIONAL LAWS AND REGULATIONS AND WITH INTERNATIONAL CONVENTIONS CONCERNING SOCIAL AND WORKING CONDITIONS, CHILD LABOUR AND THE PROTECTION OF THE ENVIRONMENT • COMMUNICATION METHODOLOGY TO SUB-SUPPLIERS AND WORKERS. ALSO CODE AVAILABLE ON WEB SITE • AUDITS AND ACTION ON REDUCING/ELIMINATING DEVIATIONS IN TIME FRAME • EXAMPLES OF IKEA, NIKE

  10. ILO DECLARATIONFUNDAMENTAL PRINCIPLES AND RIGHTS AT WORK • ILO in 1998 adopted the following 8 conventions as core and has been pursuing with each country to ratify them and even if a country has not ratified ILO has been collecting annually a report from the country on its present status: • Forced Labour Convention, 1930 (C.29) • Freedom of Association and the Right to Organise Convention, 1948 (C.87) • Right to Organise and Collective Bargaining Convention, 1949 (C.98) • Equal Remuneration Convention, 1957 (C.100) • Abolition of Forced Labour Convention, 1957 (C.105) • Discrimination (Employment and Occupation) Convention, 1958 (C.111) • Minimum Age Convention, 1973 (C.138) • Worst Forms of Child Labour Convention, 1999 (C.182)

  11. Interests of Stake Holders • Enterprises In Wealth Creation • Government In Revenue And Employment • Employees In Development And Increase In Standard Of Living • Customers - Value For Money (Choice, Affordability And Speed)

  12. GOI POLICY - FDI AND FII • 1990 FDI $ 234 Million • 1998-2003 FDI $ 2.5 Billion Per Year • Target FDI $ 10 Billion Per Year • Over 620 FIIs Compared to 500 in 2003 and Earlier • China FDI & FII FDI $ 50 Billion Per Year FII $ 20 Billion Per Year

  13. FOREIGN INSTITUTIONAL INVESTORS • Capital International, Morgan Stanley, Templeton, Goldman Sacs, Alliance Capital Management, Jardine Investing And Merlion Investment in India • Currently FII investment at $ 6.5 Billion Compared to $ 2 Billion In 2001 • Stock Market Booming (Sensex Around 6000) • Learnings From Last 2 Scams (Harshad Mehta, Ketan Parekh), SEBI Guidelines and Controls • Hot Sectors For FIIs – Automobiles, Banks, Pharma, Software, Energy, Telecom • FII Favourites – Infosys, Reliance, ICICI Bank, Satyam, MTNL, ONGC, Ranbaxy, ITC, SBI, Tata Motors, Hindalco

  14. WHY TNC’S BRING FDI Market Seeking TNC’s (Consumer Durables) • Market Size & Growth • Per Capita Income • Access To Regional Market • Consumer Preference • Market Structures Resource/Asset Seeking TNC’s • Raw Material Availability & Cost • Low Energy Cost • Low Cost Labour • Fiscal Benefits

  15. Efficiency Seeking TNC’S • Freight Advantage (Host V/S Home Country) • Membership Of Regional Block • Bilateral Country Agreements • Trans-shipment/ Port facilities • Productivity Of Labour

  16. IMPACT OF REFORMS IN INDIA Positive : • Easy Availability Of Imported/Foreign Collaborated Locally Produced Consumer Items Plus Consumer Durables. • Reliable Communication System Of Telephone (Landline And Mobile), E-mail • Availability Of Large Number Of Qualified Youth In Most Disciplines • State Governments Trying To AttractInvestment By Offering Incentives / Benefits Continued …

  17. Speedy Mode Of Travel And Transportation • Economic Growth Of 6% • MNCs Have Entered The Market Both For Sourcing As Well As Selling Their Products • Well Established And Developed Stock Exchange • Growth In Automobile, IT, Construction, Pharma, Telecom, Energy, Entertainment And Service Sectors • Foreign Exchange Reserves Presently At US$ 120 Billion With US$ Pegged Between Rs. 45/- And Rs. 46/-

  18. IMPACT OF REFORMS Negative : • Presently No Change In Existing Labour Laws • Manufacturing Companies have restructured and downsized (Engineering, Metals, Cement, Electrical Machinery, Textiles) • Lot Of Companies Offered Voluntary Retirement Schemes (VRS) And Reduced The Number Of Employees. Continued …

  19. Shift In Employment From Large Companies To Medium And Small Companies • Shortage Of Power Continues In Spite of Investment in Power • Qualified Persons Are Prepared to Work at Lower Level Jobs

  20. Value Chain MigrationProblem for Indian Companies • Professionally vs. Family Managed • MNCs vs. Local Corporate • Marketing/ Distribution vs. Manufacturing • Branded vs. Commodity Products • Low vs. High Capital Intensity

  21. Challenges To Indian Industry • Threat Of Imports • Easy Availability Of International Brand • MNC’s Have Deeper Pockets • MNC’s R&D, Systems • Pressure To Improve Operational Efficiency • Business Houses Also Expanding (Reliance, Adity Birla, M&M, Tata Motors, Asian Paints, Ranbaxy, Cipla, Dr Reddy’s) • Export Market Potential • Innovative Marketing Strategy • Innovative IR And HR

  22. APPROACHES ADOPTED BY INDIAN COMPANIES TO IMPROVE PROFITABILITYPost Globalisation 1. Strategy To Be Effective, Price Sensitive, Market Adaptive And Customer Friendly Through : • Restructure Sources And Uses Of Funds • No Place For NPAs • Tight Control On Working Capital • Efficient Management Of Raw Material, WIP, Finished Goods • Suppliers And Subcontractors • Utilization Of Manufacturing Plants • Distribution Channel • Manpower Continued …

  23. 2. Research Based Export By Pharma Companies • DRF Licensed DRF 4158 To Novartis For $ 55 Million Plus When Drug Is Marketed • Ranbaxy Ciprofloxacin For $ 65 Million To Bayer • Torrent, Wockhardt, Sun, Cadila, Orhid, Lupin, Cipla With Potential 3. The BPO-ITES Industry in India revenue $ 3.6 Billion in 2004 expected to fetch $ 21 to 28 Billion in 2008

  24. 4. Value Addition Approach by a Milk Cooperation in India (i.e.Amul) • Concept Of Value Added • Milk, Flavoured Milk, Condensed Milk, Curd, Cottage Cheese (Paneer), Khoya, Butter, Cheese, Ghee, Dairy Whitener, Baby Milk Powder. Market Share ItemMarket Size Amul Share Britannia Others Rs. Million Share Butter650085% 5% 10% Dairy 2750 45%15%30% Cheese 1400 60%33%7%

  25. 5. Collaborations, Mergers, Acquisitions (Eg. Pharma, Cement, Aluminium, Telecom) 6. Niche Markets 7. World Class Manufacturers (Titan, Sundaram Clayton) 8. Tackled Onslaught Large Companies (Reliance, Nirma, Piramal Health Care, Dr. Reddy’s Laboratories, Ambuja Cement, Bajaj Auto, Jet Airways, NTPC, BHEL, L&T, Aditya Birla Group, Asian Paints) 9. Strong Brands (Wagh-bakri, Vadilal, Frooti, Real, Rasna, Bisleri, Haldiram)

  26. Conclusion • Companies in India That Have Successfully Met Competition by Multinationals & Domestic Companies Had A Spirit Of Innovation Not Only In Their Products And Services But Also With Reference To All Their Resources And Effectively Restructured Them In A Time And Cost Frame And Met Customer Needs And Improved Their Top And Bottom Line

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