Till a few years back, the term MNC in India meant an organization with its headquarters located outside India and having presence in India as a part of its global network. In other words, in Indian eyes,”MNC” meant a foreign company, which has come into India.
In recent times, however the business world has seen the emergence of a new breed of companies, which is beginning to be referred to as “India MNCs”.The Indian MNC is a company which is Indian in 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.
Reasons for going global:
Over the last couple of years, 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.
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 labor 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 centers’ in case of systems failure.
4) Technology: The manufacture of certain products requires technology that is not available to the Indian companies. By acquiring companies abroad, they also acquire advanced manufacturing technologies that further help reduction in the cost of production.
5) Expanding product mix: Companies acquire to obtain a new product mix or to acquire products that will otherwise require huge investments and a long time to manufacture indigenously. For instance, Tata Motors acquired Korean Daewoo Commercial Vehicle Co Korea, the truck-making arm of Daewoo. With this deal Tata Motors Ltd. gets access to Daewoo’s 93 models in cargo, dump, mixer and tractor categories that it can introduce in other markets.
6) Averting domestic cycles: The cyclicality in some products, for example, commercial vehicles...