인도·남아시아

Unctad’s latest World Investment Report launched by this columnist devoted considerable space to rise of outward direct investments (ODI) by Indian enterprises. Indian enterprises have been investing about $1 billion annually on average for the past few years which represented about a percent of country’s gross fixed capital formation (GFKF). Ministry of finance data suggests that Indian companies have invested nearly $5 billion in the last four years in 4,000 projects.

Unctad finds only a few developing countries ahead of India in terms of percentage of ODI in GFKF viz. Singapore, Hong Kong, Taiwan, Chile and Malaysia. Even China was behind India in terms of this proportion at 0.8%. India’s ranking among the sources of FDI actually improved. India is also noted for ‘its potential to be a large outward investor.’ India Inc seems to have arrived on the world stage!

To some extent, Indian investments look impressive because of lumpy natural resource seeking investments made by companies such as ONGC Videsh Ltd in oil equity. Yet they do indicate the trend of increasing internationalisation. Recent research at RIS has shown that Indian enterprises are increasingly using their ODI for strengthening their external competitiveness. ODI is becoming a crucial element in the corporate strategy for external competitiveness.

The major driver of the ODI trend is the growing technological capability of Indian enterprises which provides them a niche or the so-called ownership advantage in foreign locations. Therefore, the bulk of Indian ODI is concentrated in the areas of their strength such as pharmaceuticals and in IT services. Several pharma companies have been able to build substantial process development capability, helping India emerge as the world’s most competitive supplier of a large number of life saving generic drugs. Almost all of the export effort is undertaken by domestic enterprises which have built-up their own technological and industrial capability, brand names and overseas presence: Ranbaxy,

Dr Reddy’s Laboratories, Cipla, Wockhardt, Nicolas Piramal, Sun Pharma, Ajanta Pharma, among others.

Similarly, India’s emergence as a competitive producer of IT software is widely recognised. The top exporters of IT are all domestic companies such as TCS, Infosys, Wipro, among others. India exported software worth $12.2 billion in 2003/04. In terms of international standards of benchmarking in the industry, viz. SEI-Capability Maturity Models, Indian dominance in high levels of maturity (ie levels 4 and 5) is overwhelming among non-US companies. Indian companies have presence in many countries. TCS, for instance, has overseas offices in over 50 countries.

In the auto industry too, four Indian companies have demonstrated their ability to successfully put in the market home-grown models of autos: Tata Motors, Mahindra & Mahindra, TVS and Kinetic. All the four are planning to use their technological capability for establishing a foreign presence. Tata Motors is considering assembly plants in a number of countries including Egypt, China for its Indica and Indigo models. Mahindra & Mahindra, TVS Motors and Kinetic are also exploring possibilities of making investments abroad for their indigenously developed vehicles. Titan Industries has emerged as a watchmaker that is trying to establish its brand in a highly skill-intensive and competitive industry. It has set up a network of foreign subsidiaries in Europe and Asia to conduct its overseas business.

A considerable proportion of Indian ODI has taken the form of acquisitions of enterprises abroad rather than greenfield investments. What is more interesting is to observe that Indian companies have finally begun to see acquisitions as a mechanism to fill up the gaps in their capabilities or product range, marketing networks or access to established brand names. In this respect, acquisition in 2000 by Tata Tea of Tetley of the UK, one of the world’s biggest tea maker for $430 million was a trend setter. With this acquisition, it got control of the full value chain in tea processing and established market presence worldwide. Asian Paints acquired Berger International and thus got a foothold in 22 countries. Recently, Tata Motors acquired Daewoo Trucks to complement its range in heavier commercial vehicles.

Indian companies are also undertaking acquisitions abroad for getting access to markets. There have been a number of acquisitions by auto component makers whose ability to deliver quality components at competitive prices has attracted a lot of interest from global auto majors. As a result, India exported auto components worth $1 billion in 2003. They are also undertaking acquisitions abroad. For instance, Sundaram Fasteners acquiring Dana Splicer Europe; Bharat Forge has acquired Carl Dan Peddinghaus GMBH; Amtek Auto: GWK UK.

Outward investments and acquisitions have also been undertaken to expand capacity. For instance, Tata Steel is not only exporting a growing proportion of its output to countries like China, it is also exploring opportunities for overseas acquisition for expansion of output. It set up a subsidiary in South Africa and recently announced acquisition of NatSteel in Singapore.

To conclude, the internationalisation of Indian enterprises has become a noticeable trend. It’s clear that they have begun to employ ODI and overseas acquisitions for exploiting the fruits of their technological capability built over the years as well as to fill the gaps in their capability and expand their reach. These emerging national champions could be assisted by the government in their R&D, product development, brand-building and market-seeking activities as a part of strategic trade policy as many developed countries do to further our economic interests.