Impact of Multinational Companies on Indian Economy

8/12/2019 Impact of Multinational Companies on Indian Economy

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UNIVERSITY OF MUMBAI

PROJECT REPORT ON

IMPACT OF MULTINATIONAL COMPANIES ON INDIAN ECONOMY

SUBMITTED BY

SANTOSH GUNWANT PANDARE

MASTERS OF COMMERCE ( MANAGEMENT )

( M.COM P- I )

ROLL NO -49

UNDER THE GUIDANCE OF

Prof. RACHANA JOSHI

PTVAs

M.L DAHANUKAR COLLEGE OF COMMERCE

Vile Parle (East), Mumbai

2012-2013


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CERTIFICATE

I, Prof.RACHANA JOSHI here by certify that SANTOSH GUNWANT PANDAREof

M.L Dahanukar College of Commerce of M.COM P- I MANAGEMENT (Semester-II ) has

completed project on IMPACT OF MULTINATIONAL COMPANIES ON INDIAN

ECONOMY during academic year 2012-2013. The information submitted is true and

original to the best of my knowledge.

Signature of Project Guide Signature of the principal

Signature of External Guide


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DECLARATION

I, SANTOSH GUNWANT PANDARE of M.L Dahanukar College of Commerce of

M.COM (Semester-II), hereby declare that I have completed project on IMPACT OF

MULTINATIONAL COMPANIES ON INDIAN ECONOMY in the academic year

2012-13, as per the requirement of the University of Mumbai as a part of Master of

commerce (M.COM P-I) programme. The information submitted is true and original to the

best of my knowledge.

( SANTOSH GUNWANT PANDARE )


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ACKNOWLEDGEMENT

Success is not a destination, but a journey. While I reach towards the end of journey, I

realize I may not have come this far without the guidance, help and support of people who

acted as guides, friends and torch bearers along the way.

I take this Opportunity to thank the UNIVERSITY OF MUMBAI for giving me a

chance to do this project,

I take this opportunity to thank our principal Prof. MADHAVI PETHEfor her moral

support and guidance. I would like to express my sincere gratitude toward my project guide

Prof. RACHANA JOSHI whose guidance and care made the project successfully.

Apart from the efforts of me, the success of the project depends largely on the

encouragement and guidelines of many others. I take this opportunity to express my gratitude

to the people who have been instrumental in the successful completion of this project.


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IMPACT OF MULTINATIONAL COMPANIES ON INDIAN

ECONOMY


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INDEX

Chapter

No.

Topics Page

No.

1 INTRODUCTION 7 - 12

2 FOREGIN DIRECT INVESTMENT (FDI) 13 -14

3 SHINING INDIAN MULTINATIONAL 15 -16

4 IMPACT OF MNCs ON INDIAN INDUSTRIAL

SECTORS

17 -30

5 CASE STUDY: IMPACT OF GLAXO-SMITHKlINE

MERGER

31 -32

6 HP MARKS INDIAN EMPLOYMENT MILESTONE 33 - 34

7 CASE STUDY: PEPCI CO 35 -38

8 INDIA v/s CHINA 39 - 40

9 CONCLUSION 41

10 BIBLOGRAPHY AND WEBLOGRAPHY 42


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INTRODUCTION

Till 1991, India was more or less a closed Economy. The rate of growth of the economy waslimited. The contribution of the local industries to the countrys GDP was limited that were

the main cause of shortage of funds for various development projects initiated by the

government.

In an effort to revive the industries and to bring the country back on the right track, the

government began to open various sectors such as Infrastructure, Automobile, Tourism,

Information Technology, Food and Beverages, etc to the Multinational Corporations. The

MNCs slowly but reluctantly began to pour capital investment, technology and other valuable

resources in the country causing a surge in GDP and upliftment of the economy as a hole.

This was the post 1991 era where the government began to invite and welcome giant MNCs

into the country

Opportunities for Developing Economies

The opportunities for developing economies are significant as well. Through the application

of capital, technology, and a range of skills, multinational companies' overseas investments

have created positive economic value in host countries, across different industries and within

different policy regimes.

The single biggest effect evidenced was the improvement in the standards of living of the

country's population, as consumers have directly benefited from lower prices, higher quality

goods, and broader selection. Improved productivity and output in the sector and its suppliers

indirectly contributed to increasing national income. And despite often-cited worries, the

impact on employment was either neutral or positive in two-thirds of the cases.

Foreign direct investment is already having a dramatic impact on the way companies do

business and developing economies integrate with the global economy. Compared to its

potential, however, it's just a drop in the bucket.


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Impact On Developing Economies & Policy Implications

Investments by multinational companies (MNC) allow developing economies to share in the

considerable benefits of the global economy. Official incentives, trade barriers, and other

regulatory policies, though, can result in inefficiency and waste.

Case studies reveal that in virtually all cases, MNC investment had a positive to very positive

impact on the host country. Rather than leading to the exploitation of lower-wage workers, as

some critics have charged, the investments fostered innovation, productivity, and an

improved livingstandard. Therefore, government seeking those advantages would be advised

to favor policies of openness, rather than regulation, when it comes to foreign direct

investment.

The world's service provider

The services sector, which has been growing consistently at a rate of 7 percent perannum, accounts for almost half of the country's GDP. Export revenues from the

sector are expected to grow from $8 billion in 2003 to $46 billion in 2007.

Global investment banks, brokerages and accounting firms have set up large research

establishments in India. A growing number of US companies are hiring Indian

mathematics experts to devise models for risk analysis, consumer behaviour and

industrial processes.


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Indian Exports Overview (in Rs. Crore)

YEAR EXPORTS GROWTH RATE

1990-91 32558 17.7

1991-92 44042 35.3

1992-93 53688 21.9

1993-94 69751 29.9

1994-95 82674 18.5

1995-96 106353 28.6

1996-97 118817 11.7

1997-98 130101 9.5

1998-99 139753 7.4

1999-2000 159561 14.2

2000-01 203571 27.6

2001-02 209018 2.68

2002-03 255137 22.06

2003-04 293367 14.98

2003-04 (April-Jan) 222863.90 -

2004-05(P) (April-Jan) 274313.37 23.09

April 2012 $24.4 billion


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Gross Domestic Product (GDP)

Year Total GDP

1985-86 156566

1990-91 212253

1991-92 213983

1992-93 225268

1993-94 238864

1994-95* 861064

1995-96 926412

1996-97 998978

1997-98 1049191

1998-99 1112206

2012 - 6.25%


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The world's service provider

The services sector, which has been growing consistently at a rate of 7 percent per

annum, accounts for almost half of the country's GDP. Export revenues from the

sector are expected to grow from $8 billion in 2003 to $146 billion in 2013.

Global investment banks, brokerages and accounting firms have set up large

research establishments in India. A growing number of US multinational companies

are hiring Indian mathematics experts to devise models for risk analysis, consumer

behaviour and industrial processes.

The brick and mortar companies

India is not merely a provider of services. Besides being an outsourcing hub, it has grown

into a global manufacturing hub. World corporations are now leveraging its proven skills in

product design, reconfiguration and customisation with creativity, assured quality and value


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addition. About 20 percent of Indian automotive production in 2004 is exported to developed

countries.

India: A Services and Manufacturing Supplier to the World

Sector Company Outsourcing Client

IT Services Infosys

Tata Consultancy

Wipro

Goldman Sachs, Aetna, Northwestern

Mutual, Arm Ex, DHL, Verizon

GE, Honda, UBS, HSBC

Transco, HP-Compaq, Nortel, General

Motors, CISCO, Sony

ITES Mphasis BFL

Spectramind

Citi group, Accenture, AutoZone, Capital One

Dell, American Express, Capital one

Pharmaceuticals Cipla

Shashun Chemicals

Lupin Laboratories

Ivex, Watson Pharma, Eon Labs

Eli Lilly, GSK Pharma

Apotex, APP, Watson, Pharma

Manufacturing Bharat Forge

Tata Motors

Moser Baer

Essel Propack

Meritor, Caterpillar, Toyota, Ford,

FAW(China)

Rover

Imation, BASF

P&G, Unilever, Colgate


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Foreign Direct Investment

FDI or Foreign Direct Investment refers to the investment of foreign currency and othervaluable resources by Multinationals into the host country.

FDI allows the host country to earn valuable foreign exchange that can be used for future

imports or to pay off existing loans of the country. The Government of the host country

controls the FDI levels in various segments of the economy such as Telecom, Retail,

Tourism, Infrastructure, Research and Development, Automobile and so on.

Perhaps the biggest advantage of MNCs is the influx of valuable Foreign Exchange. FDI is

required by a developing economy such as ours to tap unexplored resources and put them to

more productive use.

A series of ambitious economic reforms aimed at stimulating foreign investment has moved

India into the front ranks of the rapidly growing Asia Pacific region.

The Finance Minister cleared 46 proposals of foreign direct investment (FDI)

amounting to Rs 408.22 crore (US$ 93.4 million) in July 2004. With a half-billion strong middle class, consumer demand in India will grow sky high.

According to some estimates, 487 million middle-class Indians will spend an

additional $420 billion during the next four years.

It is evident. The investment scenario in India has changed. And the figures say that it is for

the better.

There has been a sharp rise in the number of FDIs approved in 2004. During the first

seven months of 2004, between January and July, Rs 5,220 crore worth of FDI was

approved.

This figure, which accounts for only seven months of 2004, amounts to 96 per cent of

the total FDI approved during the full year of 2003. The actual FDI inflow too is

expected to surpass last year's figure -- during the first seven months of 2004 actual

FDI inflow at Rs 9.503 crore was more than 80 per cent of what the country received

in 2003.


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In a bid to stimulate the sector further, the government is working on a series of ambitious

economic reforms.

The Centre has divested some of its own powers of approving foreign investments

that it exercised through the Foreign Investment Promotion Board (FIPB) and has

handed them over to the general permission route under the RBI.

The FDI cap for aviation has been hiked from 40 to 49 per cent through the automatic

route.

The government has scrapped Press Note 18, which was acting as a deterrent to

foreign investors. It has set up an Investment Commission that will garner investments in the

infrastructure sector among others, and plans to increase the limit for investment in

the infrastructure sector.

India's foreign exchange reserves rose $700 million to a record high of $120.78 billion in July

2004.

Comparison between India and China with respect to FDI

India vs. China FDI Flows

Chinese reform process 1977 Indian reform process 1991

5 years since 1982 China

USD 4508 m

5 years since 1991 India

USD 4488 m

10 years since 1982 China

USD 13791 m

10 years since 1991 India

USD 15483 m


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Shining Indian Multinationals

India Inc. is flying high. Not only over the Indian sky. Many Indian firms have slowly andsurely embarked on the global path and lead to the emergence of the Indian multinational

companies.

With each passing day, Indian businesses are acquiring companies abroad, becoming world-

popular suppliers and are recruiting staff cutting across nationalities. While an Asian Paints is

painting the world red, Tata is rolling out Indicas from Birmingham and Sundram Fasteners

nails home the fact that the Indian company is an entity to be reckoned with.

Some instances:

Tata Motors sells its passenger-car Indica in the UK through a marketing alliance

with Rover and has acquired a Daewoo Commercial Vehicles unit giving it access to

markets in Korea and China.

Ranbaxy is the ninth largest generics company in the world. An impressive 76

percent of its revenues come from overseas.

Dr Reddy's Laboratories became the first Asia Pacific pharmaceutical company

outside Japan to list on the New York Stock Exchange in 2001.

Asian Paints is among the 10 largest decorative paints makers in the world and has

manufacturing facilities across 24 countries.

Small auto components company Bharat Forge is now the world's second largest

forgings maker. It became the world's second largest forgings manufacturer after

acquiring Carl Dan Peddinghaus a German forgings company last year. Its workforce

includes Japanese, German, American and Chinese people. It has 31 customers across

the world and only 31 percent of its turnover comes from India.

Essel Propack is the world's largest manufacturers of lamitubes - tubes used to

package toothpaste. It has 17 plants spread across 11 countries and a turnover of Rs

609.2 crore for the year ended December 2003. The company commands a staggering

30 percent of the 12.8 billion-units global tubes market.


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About 80 percent of revenues for Tata Consultancy Services comes from outside

India. This month, it raised Rs 54.2 billion ($1.17 billion) in Asia's second-biggest

tech IPO this year and India's largest IPO ever.

Infosys has 25,634 employees including 600 from 33 nationalities other than Indian.

It has 30 marketing offices across the world and 26 global software development

centres in the US, Canada, Australia, the UK and Japan.

Sundram Fasteners is not merely a nuts and bolts company. It believes in thinking

out of the box. Probably that is why it decided to acquire a plant in China. The plant

in Jiaxin city in the Haiyan economic zone has ensured one fact: that its customers

who were earlier buying Sundram products in Europe and the US, did not have to go

far from home to access the product.


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Impact of MNCs on Indian Industrial Sectors

So far, we have analyzed the Indian Economy and the way in which multinational have added

more value and increased the exports, GDP and productivity, resulting in all rounddevelopment.

Further more, we have the actual analysis of the effect of MNCs on various Indian Industrial

Sectors. Certain important sectors are considered and the actual effect of MNCs i.e. the

practical way in which they are affected are studied viz.

1. Cement

2. Aviation

3. Automobiles

4. Auto Components

5. Biotechnology

6. Financial Services

7. Food Industry

8. Gems and Jewellery

9. Healthcare

10. Information Technology

11. IT enabled Services

12. Media & Entertainment

13. Oil & Gas

14. Pharmaceuticals

15. Real Estate

16. Retail

17. Research & Development

18. Science & Technology

19. Steel

20. Textiles

21. Telecommunications

22. Tourism & Hospitality


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Training & Education

Impact Of MNCs on Automobile industry

The present scenario is a highly transformed one. Multinational giants are vying with one

other to launch their models. Big names of the vehicle industry like the Korean giant,

Hyundai, General Motors, Mitsubishi etc. have already opened their account. In other vehicle

segments too, Volvo, Mercedes Benz, Audi etc. have carved out their niche. In the two-

wheeler segment besides the other major MNC brands made available to the Indian

consumers.

As a result conducting business in the Automotive Industry has become more competitive

and sophisticated, which increases the demand for multi skilled personnel. Employment

opportunities are emerging with Manufacturers, Dealership Operations including Parts, Sales,

Service, Leasing & Financing, as well as in the fast developing Automotive Aftermarket

sector.

On the other hand, Manufacturing in India has also come of age. The post liberation

economical scenario has resulted in all the big names such as General Motors, Ford, Toyota,

Honda, Suzuki, Mitsubishi, Mercedes-Benz, Fiat to come up with plants in India. The Indian

automotive giants like Telco, Mahindra, Ashok Leyland, Bajaj are revamping their

production strategies and launching new models designed and developed indigenously. This

has opened up numerous opportunities or employment in this sector for trained and skilled

professionals who are well versed in the latest manufacturing process.

The growth curve of India Auto Inc. has been on an upswing for the past few years. The high

growth observed since 2001-02 in automobile production continued in the first three quarters

of the 2004-05. Annual growth was 16.0 per cent in April-December, 2004; the growth rate in

2003-04 was 15.1 percent. Consequent to liberalisation, the arrival of new and contemporary

models, easy availability of finance at relatively low rate of interest and price discounts

offered by the dealers and manufacturers appear to have stimulated the demand for vehicles

and a strong growth of the industry.


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The automotive industry is the barometer of any major economy and the same holds true for

India as well. There has been a phenomenal growth in the automotive manufacturing sector in

our economy.

India has become a launch pad

Rising sales and strong growth prospects heightened the popularity of auto stocks in July

2004 as foreign institutional investors (FIIs) increased their stakes in key automobile

companies like Mahindra & Mahindra, Ashok Leyland, Maruti Udyog, TVS Motors and

Hero Honda.

Global names such as Daimler Chrysler and Porsche have begun introducing their newofferings in India. DaimlerChrysler plans to launch the new Mercedes SLK roadster, which

has just hit European roads, in India by October-November 2004. Porsche is bringing in the

Cayenne and Toyota is planning a simultaneous release of its IMV.

Note, these models are the latest cars zipping on international roads and not the dated

versions that were passed on earlier.

Impact on the Indian Manufacturing sector

The resurgence of India's manufacturing sector has been quite magical. Not only are profits

soaring, the sector is fast spreading its tentacles abroad as many Indian manufacturing firms

inch close to becoming true blue multinationals.

The Indian economy grew by 7.4 percent in the April-to-June quarter, FY2005, buoyed by

growth in manufacturing and services. Manufacturing grew 8 percent in the quarter,

compared with 7.6 percent in the previous quarter. The picture is about to brighten further.

According to a CII-McKinsey report, manufacturing exports from India are likely to

grow to $300 billion in 2015 from $48 billion in 2003. The country would then have a

3.5 per cent share of the world manufacturing trade.

To reach the $300 billion target, the industry has to clock a growth of 17 per cent

every year as against the 11 per cent rate at which it is growing at present.

Manufacturing exports from India grew 20 per cent in 2003 over the previous year.


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Of the total $300 billion, $70- $90 billion is expected to come from just four sectors -

apparel, auto components, speciality chemicals and electricals and electronic

products. India's exports in these sectors were $10 billion in 2002.

Manufacturing firms on expansion binge

Manufacturing companies are planning to invest as much as Rs 200,000 crore over the next

two years.

Of Rs 200,000 cr, Rs 100,000 cr will come from internal generation

Half of this debt may come through the ECB route

Most corporates are going for brownfield expansion

Rising interest rates won't impact India Inc's investments

With annual outflows averaging at $1 billion, the country's ranking in UNCTAD's outward

FDI performance index has already shot up from the 107th position in 1999 to the 61st spot

in 2003.

The two most important destinations for Indian FDI last year were the US and the Russian

Federation, accounting for around 37 per cent of the total Indian overseas investments during

last year, while Europe accounted for 40 per cent of the total outflow.

Some large Indian investments

ONGC's 25 per cent stake buy-out in a Sudan oil firm from Talisman Energy of

Canada for $720 million (around Rs 3,312 crore)

The Hinduja's purchase of controlling interest in C3, a call centre in the Philippines

Msource's Spanish language centre in Tijuanna, Mexico

Manufacturing Outsourcing

India is fast developing into a manufacturing hub for world corporations wanting to leverage

the sector's proven skills in product design, reconfiguration and customisation with creativity,

assured quality and value addition. About 20 percent of Indian automotive production in 2004

is exported to developed countries.


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While some MNCs enter into OEM deals to source components, others have Indian arms to

supply to global markets.

GE has entered into an OEM deal with Thermax India to supply chillers for the latter's

power systems.

South Korean two-wheeler major Hyosung is making India the manufacturing hub for

its 250cc cruiser bike, Aquila through a technical tie-up with Pune-based Kinetic

Engineering.

Ford Motor Company is aiming to source US$ 120-160 million worth of auto

components from Indian manufacturers over the next two years under its India

Sourcing Program.

Global consumer electronics giant Matsushita of Japan has decided to source

Panasonic colour television sets from India for its international market.

Colgate is setting up a brand new toothpaste facility in western India which will be

one of 15 such facilities across the world.

Impact on Telecom Industry

One of the fastest growing sectors in the country, telecommunications has been growing at a

feverish pace in the past few years. The speed of growth can be gauged by the fact that in

2004, ten years after private telephony was introduced in India, the mobile subscriber base

had crossed the number of fixed line connections.

While fixed lines touched 44 million at the end of 2004, the cellular user base

registered a 68 per cent growth to touch the 48-million mark. More than a third of

these subscribers were added during 2004.

The total telecom subscriber base, consisting of fixed as well as mobile users,

registered a growth of 31.42 per cent to touch 92.76 million at the end of 2004. The

gross telecom user base stood at 70.58 million at the end of 2003. (According to the

Telecom Regulatory Authority of India (TRAI), the growth in the mobile subscriber

segment picked up in December 2004 after remaining at around 1.5 million per month

for the previous two months.)


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Global handset major Siemens India Ltd is planning to invest over US$ 500 million in

India in the next three to four years for setting up new factories and expanding its

existing capacities.

Indian companies going global

India offers an unprecedented opportunity for telecom service operators, infrastructure

vendors, manufacturers and associated services companies. As the sector has been

performing well, the bulging bottom lines of Indian telecom companies are making them

invest in assets.

The Tata group's Videsh Sanchar Nigam Ltd. (VSNL) struck a $130-million deal to

pick up Tyco Global Network's (TGN) 37,208-mile (60,000 kilometre) submarine

fibre optic network that connects northern Asia, America and Europe. As part of the

TGN deal, VSNL also received a dark (uncommissioned) fibre that links Japan to

Singapore and 200 employees of TGN. The Tyco cable has the largest capacity

globally. It is of the order of 7 terabits on the Pacific route. Within days of bagging

TGN, VSNL inaugurated its own 3,175-kilometre, 5.12-terabit Chennai-Singapore

submarine link. Tyco has supplied the optic fibre for the Chennai-Singapore link.

VSNL's was the second submarine cable deal struck by an Indian company in 2004.

Reliance Infocomm had also picked up FLAG Telecom for $210 million a few

months before VSNL bought TGN.

The Tata Group has also won a bid to acquire 26 per cent stake in South Africa's

second network operator (SNO) that gives the company a mandate to develop and

operate both national long distance (NLD) and fixed-line networks in the country. The

development helped Tata gain a foothold in the South African market.

Technology advancements

Among other tidings in the telecom sector are the technology upgradations being effected in

Delhi and Mumbai. India will soon join the elite club of countries that have 3G mobile

services. The Mahanagar Telephone Nigam Limited (MTNL), the state-run telecom services

provider, is setting up India's first 3G network in Delhi and Mumbai. The network, which

will have a capacity of 4m lines, will require a total investment of Rs 4,000 crore (US$ 914.9

million).


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Impact on Research & Development

India has emerged as the hottest destination for multinational companies (MNCs) starting or

relocating their research & development (R&D) centres over the past two years. China comes

next, though it continues to be the leading destination for MNCs relocating their

manufacturing operations.

These are some of the underlying trends that emerge from the Ernst & Young Transfer

Pricing 2005 global survey that polled 348 multinational parent companies and 128

subsidiary corporations in 22 countries.

Around 10% of the respondents reported either new or relocated R&D operations in the past

two years. Of this, 27% identified India as the leading relocation destination for R&D,

followed by China with 17%.

The best-known Indian R&D companies are in pharmaceuticals and biotech sectors.

Companies such as Ranbaxy, Dr Reddy's Laboratories, Sun Pharma and Biocon and Shanta

Biotech are attracting interest from companies in the US and Europe, which are seeking a

strong platform for development skills.

Following in the footsteps of the information technology enabled services (ITeS) industry,

which put India on the world map, yet another sector -- Research and Development (R&D) --

is witnessing increasing vitality and growth. More than 125 Fortune 500 companies have

opted to have their R&D base in India. The reasons for this are obvious. India's wealth of

scientific talent is unmatched in the world.

India conducted its inaugural test flight for Saras, the country's first indigenous

civilian light-transport aircraft, in August 2004.

About 165 institutions in the country are engaged in genetic engineering research,

comprising 55 in transgenic work, 25 in therapeutics and 85 in basic research,

according to the Department of Biotechnology.
http://economictimes.indiatimes.com/articleshow/articleshow/1299528.cmshttp://economictimes.indiatimes.com/articleshow/articleshow/1299479.cmshttp://economictimes.indiatimes.com/articleshow/articleshow/1299479.cmshttp://economictimes.indiatimes.com/articleshow/articleshow/1299528.cms


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The country has already started commercial cultivation of genetically modified cotton

in Gujarat and some southern states, with several other crops in various stages of

getting approvals for commercial plantation.

India is the only developing country and sixth worldwide to manufacture and launch

its own satellites in geo-stationary orbit and even plans a moon mission in 2008. It has

also launched satellites for foreign customers such as Germany and Korea.

Having proved its scientific mettle, India has begun to appear on the outsourcing radar with a

monotonous regularity. Gone are the days when international companies retained R&D jobs

at home and sent abroad work that were clerical and of a repetitive nature. Now, even

innovation and design work have begun to move offshore, especially to India. More than 100

Fortune 500 companies including Delphi, Eli Lilly, General Electric, Hewlett Packard,

DaimlerChrysler and othershave put up R&D facilities in India over the past few years.

GE's John F. Welch Technology Center in Bangalore is the company's largest such

facility outside the US. With an investment of US$60 million, it employs 1,600

researchers and plans to raise the number of staff to 2,400.

The DaimlerChrysler Research Centre in Bangalore is involved with fundamental and

applied research in avionics, simulation and software development.

Boeing is working with HCL Technologies to co-develop software for everything

from navigation systems and landing gear to the cockpit controls for its upcoming

7E7 Dreamliner jet.

MNC products developed by R&D centres in India

Companies Products

Sun Microsystems

India

Portal server, Web server, Identity server and

Engineering Centre meta directory.

Texas Instruments

R&D Centre

Fully developed at least 20 products, including the Ankur

Digital Signal Processor; Sangam, a bridge router for the

DSL; and Zeno, which runs multimedia applications.

SAP Labs The lab has produced some of SAPs products meant for the


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global market, including the Channel Management Solution,

which helps chip manufacturers negotiate prices with their

dealers online; Dealer Portal for the automotive industry;

mobile laptop solutions and oil and gas upstream solutions.The lab is also working on a solution for Value Added Tax

(VAT).

i2 Technologies

R&D Centre

The centre has fully developed a strategic sourcing solution

for i2, besides delivering nearly eight manufacturer-industry

templates and retail solutions from India.

Philips Innovation It develops most of the software required for Philips

products. Almost

Impact on IT Sector

Information Technology enabled Services (ITES) by MNCs has probably generated the

maximum number of sunshine stories in the Indian industry in the last few years. According

to Nasscom, the software industry has overtaken the gems and jewellery as well as textiles

industries, to become the number one exporter in the country. Currently India is the Power

House, The world software Arena.

IT is now an industry, which is growing by leaps

and bounds both through participation by

captive units of multinationals and third party

providers of Indian origin. Some of them are the big

home-grown IT Services companies like

Infosys, Wiproand Tata Consultancy

Services(TCS).

The Top Five

The top five Indian IT companies based on FY04 revenues-TCS, Wipro, Infosys, Satyam and

HCL Technologies-are the prime contenders in the race to the Fortune 500. While the first


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IBM 96.23 149

HP 79.9 63

EDS 20.6 10.7

Accenture 15.1 23

CSC 14.7 8.6

Rules of the game

But, will this be enough for our top three to join the ranks of the likes of Wal-Mart Stores,

BP, Shell Group, Citigroup, General Motors, BMW, IBM, HP, etc. While TCS, Wipro and

Infosys may have crossed the psychological billion-dollar barrier, achieving the next few

billion dollars is going to be a tough task, warranting a much more rapid growth. Karnik

points out that along with organic growth these companies will have to go in for acquisitions

to be able to achieve the required rapid growth. "The organic growth will continue to happen

but that is not going to be good enough for rapid growth. Acquisitions will help these

companies to add expertise in terms of both new markets and technologies," he adds.

Impact On Food and Beverages SectorNew Delhi: India's booming tourism sector and its rapidly growing Western-style fast food

joints offer unlimited opportunities for foreign food and beverage exporters, as Indian food

imports are likely to grow 6-7 per cent over the next few years, says a study.

Eyeing the over 250 million-strong middle class, a US department study says the prospects

for investment in Indian markets could be gauged from the fact that total Hotel, Restaurant

and Institutional (HRI) service sector sales of F and B amounted to $ 8 billion during 2003-

04.

An upswing in the Indian hotel industry since 2003 following turnaround of the global

tourism industry, positive impact of 'Incredible India' tourism promotion campaign and the


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world's increasing interest in India's rapidly growing economy are some of the main reasons

cited for growth.

Though Indian consumers, on an average, spend only 2.5 per cent of their food expenditure in

hotels and restaurants, the HRI service sector is expected to grow by 6-7 per cent over the

next few years.

"Though new, unorganised and untapped so far, the HRI service sector in India has vast

potential for growth as there are approximately 55,000 registered restaurants in the organised

sector and in the range of 1,00,000 to 5,00,000 in the unorganised sector, comprising

innumerable roadside eateries and tea/snack shops," the study noted.

The institutional food service sector consists of food service facilities for Railways,

government and corporate offices, education institutions, hospitals, prisons, armed services,

and airlines.

The Indian middle-class, which some estimate is 250 million-strong and growing at 30-40

million a year, is the main drivers of the economy, the study pointed out.

The economy of the country is widely anticipated to double by 2010 (Merrill Lynch 2004) to

become the world's third largest by 2050 (Goldman Sachs).

According to the study, hotels managed to get a miniscule five per cent of total sales of

Indian food service sector while restaurants and institutional caterers together cornered 52

and 43 per cent respectively.

In recent years, the Indian hospitality industry has benefitted from a steadily growing

economy and a booming tourism sector. Foreign tourist arrivals into the country in 2004crossed 3.36 million, a growth of 24 per cent over the previous year.

This growth is expected to remain strong over the next few years, the study said, adding that

the Indian hotel industry was gearing up to cater to the food needs of the international

visitors.

A rapidly growing Indian economy (6 per cent annually over the last decade) has increased

incomes of the consuming class. By 2007, approximately 22 per cent of households (44


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million) are expected to have an average annual income of $3,150 (USD 17,300 on

purchasing power parity basis) compared to less than seven per cent in 1995, the study

pointed out.

An expanding young population, more women in the workforce and increasing urbanisation

support HRI food sales, the study said, noting that close to 30 per cent of the population live

in urban areas. This share was likely to grow to 40 per cent by 2025.

Sixty-five million people are expected to enter the 20-34 year age group from 2001 to 2010 in

India and the number of dual income households has been expanding rapidly in urban areas,

the study observed.

The eating-out culture is evolving fast in India, as more consumers seek variety in their food

choices. Urban Indians are aware of international cuisines and an increasing number are

willing to try new foods.

About 4.5 per cent of urban consumers eat outside their home at least once a week, and about

12 per cent eat out once a month, it said quoting a survey.

There has been double-digit growth in the Western-style fast-food outlets and coffee shops,

both multinational chains (McDonald, Pizza Hut, Dominos etc) and Indian chains (Nirula's,

Pizza Corner, Barista, Cafe Coffee Day).

It is believed that the multinational and domestic multi-unit restaurant segment will drive the

future expansion of the Indian restaurant industry.

Most Indians still prefer Indian food, as regional cuisines offer many choices, it said, adding

"vegetarianism" was still a widely popular culinary tradition in India. However, the youngerurban population is increasingly shifting to Western-style fast food items, the study observed.


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Impact of Glaxo, SmithKline merger on India Economy

The merger of Glaxo India and SmithKline Beecham Pharma will create the second largest

pharmaceutical company in India, based on the results for the year ended 31 December 1998,

after Ranbaxy Laboratories, with its sales of Rs 1,382.06 crore. The new entity will have

combined net sales of Rs 1,278.26 crore (not counting the sales of SmithKline Beecham

Consumer Healthcare).

Glaxo Wellcome holds 51 per cent in Glaxo India and Burroughs Wellcome India, while

SmithKline Beecham is a 40 per cent affiliate of the UK-based parent.

Nutritional products will stay out

SmithKline Beecham Consumer Healthcare, or SBCH, is unlikely to be a part of the merger

in India. This is because the parent companies have decided to sell their worldwide

nutritional business as part of their merger plan. SBCH India is a 40 per cent subsidiary of

SmithKline Beecham plc. Glaxo India has already sold its consumer business to Heinz India,

which comprised popular brands such as Complan and Glucon-D.

SmithKline's consumer business in India comprises of nutrition drinks (Horlicks, and Boost,

which together account for a 63 per cent share of this market); oral care products Aqua Fresh

toothpaste and tooth brushes; and over-the-counter products Crocin and Eno.

Large market share

In terms of retail drug sales, the merger of Glaxo, Burroughs Wellcome and SmithKline

Pharma would further widen the gap between the number one company and the rest of the top

five drug companies in India. According to the IMS 1999 audit (Dec 98 to Nov 99), the

merged entity will have combined annual sales of Rs 1,084.87 crore and a 7.92 per cent share

of the Indian pharmaceuticals market.

Market leader Glaxo's IMS audited sales were Rs 879.36 crore, while SmithKline recorded a

retail turnover of Rs 205.51 crore. SmithKline Beecham Pharma is ranked 20 in terms of

retail sales.


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The emerging entity will have a combined annual prescription base of 23.5 million (IMS

medical audit Dec 98 to Nov 99). Glaxo, along with its affiliate companies Burroughs

Wellcome and Biddle Sawyer have a prescription base of 19 million, while SmithKline

products generate 4.5 million prescriptions per year.

The two companies complement each other very well in terms of therapeutic classes. Glaxo is

the market leader in therapeutic categories such as cephalosporins, plain corticosteroids, anti-

ulcerants and topical corticosteroids. SmithKline is the market leader in pure vaccines and

has a sizeable presence in broad spectrum penicillins, anti-infective antidiarrhoeals and iron

preparations.

Problems to be overcome

The amalgamation of the two entities is likely to pose some problems for Glaxo, which is in

the midst of a major restructuring excercise. Glaxo has split the product portfolio of Glaxo,

Burroughs Wellcome and Biddle Sawyer into seven business units, based on therapeutic

categories.

"The existing imbroglio between the Burroughs Wellcome union and the Glaxo management

is yet to be resolved before Burroughs Wellcome can be integrated with Glaxo. This may

cause some delays," says Devinder Pal, chief executive of Mumbai-based Catalyst Pharma

consulting. Glaxo spokesperson declined to comment on the merger, but a company source

says that a board meeting was held today for preliminary discussions.

Another important aspect of the merger is SmithKline Beecham's 100 per cent subsidiary in

India SmithKline Beecham Asia. While SmithKline Pharma has already announced its

intentions to launch research products through this subsidiary, Glaxo products too may use

this subsidiary to launch certain new products, analysts feel. Glaxo is also not averse to

setting up another 100 per cent arm in India. Its chairman Sir Richard Sykes has already

conveyed this during his recent visit to the subcontinent.


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HP marks Indian employment milestone

Hewlett-Packard has become the largest multinational IT employer in India

Beating more well-known contenders such as IBM, Intel and Microsoft, Hewlett-Packard has

recently become India's largest multinational IT employer, with more than 10,000 employees.

Measuring the size of multinational corporations (MNCs) in India is difficult, as most do not

disclose country-specific revenue figures. Headcount provides one reliable standard, reported

theEconomic Times, an Indian daily.

HP is in the process of acquiring the public stake of Indian software services exporter, Digital

GlobalSoft (DGS), turning its current 51 percent stake into an acquisition. Including the DGS

employees, IBM's headcount goes over 10,000 staff.

DGS had a headcount of 4,400 by the end of September this year, with another 2,600

employees in software operations and 3,000 in HP's Global e-Business, the back office

division. With another 800 from sales and support teams, HP's total rises to around 10,800

staff, reported the daily.

This puts HP far ahead of its main rival, IBM, which has an Indian headcount of 6,000.

However, IBM is growing quickly in India, and a rise to 8,000-plus is expected.

Big Blue also has a relatively weaker presence in India compared to HP. Of the estimated

320,000 global employees, 6,000 is just under 2 percent, while HP has a smaller overall

headcount of around 140,000, which makes its India operations account for well over 7

percent of headcount.

Other large foreign companies in India are also expanding. Accenture, the IT consulting and

services corporation, wants to rise from its current 3,000 to rival HP with more than 10,000

employees within the next two years.

While Microsoft officially says it only has 700 staff in India now, human resource recruiters

in Bangalore told the Economic Times that Microsoft was aggressively recruiting for back-

office operations, and that they expected it to hire 3,000 people by the end of 2004. Cisco has


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3,000 now and Oracle will expand to 4,000 by the end of this year, and Intel plans to hit

3,000 in India in 2005.

However, beating HP and the rest of the MNCs in India for IT employment by a broad

margin is US-based General Electric (GE). The conglomerate has 22,000 employees in India,

most of them working for GE's business-process outsourcing and call-centre operations.

With Indian outsourcing a hot topic in the US and other source markets, the Economic Times

said none of the IT MNC executives it contacted were willing to comment on their hiring

plans. Outsourcing is seen as a threat to US IT jobs.


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Pepsi Co. Case Study

Pepsico has been an early starter in engaging farmers in India. With an elaborate contract-

farming programme underway for the last 15 years, there have been learnings along the way

for the cola and foods major. Pepsicos Worldwide President and CFO, Indra Nooyi shares

some of them with Chaitali Chakravarty & Bhanu Pande. An excerpt.

Has Pepsis contract farming model changed in India?

It hasnt changed but evolved over time. In 1989, when Pepsi came into India, we set up a

potato processing plant for our snacks business and a tomato processing plant in Punjab for

exports. The latter was primarily set up to meet our export obligations. P epsis entry into

contract farming was triggered by the need to make available sufficient quantities of tomatoes

& potatoes of the right quality for our domestic plant. To start with, there was no blueprint

available either in India or internationally of an appropriate model which could be emulated

to structure our contract farming initiative. In that scenario, starting from the basics of

application research, we created a model which has evolved to its current form. However,

when you take up contract farming for different crops in different areas, suitable

modifications and adjustments have to be made to ensure its relevant to local conditions.

Have the objectives changed?

The objective of contract farming is to backward integrate the supply chain to ensure timely

availability of right quality and quantity of materials. This basic objective has not undergone

any change.

Contract farming models rarely generate profits. Why then should an MNC expend so

much time and energy on them? What are the collateral benefits of entering the rural

economy?

Contract farming in itself is not a business. It is an integral part of a business model which

ensures that raw material is available at the right time conforming to the quality standards in

required quantity at competitive prices. All this to ensure the profitability of the business. Our

snacks business requires low sugar potatoes to produce the right quality of potato chips as

such varieties werent grown in India. So we had to introduce the suitable varieties via


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contract farming. Our efforts were also made to increase productivity to ensure higher income

for the farmer and to reduce our procurement costs. In order to succeed we had to undertake

extensive trials of various varieties and evolve agronomic practices suited to local areas. We

then put in place an extension team to transfer these learnings to the farmers. Efforts to

increase agricultural productivity also go a long way in improving farm incomes, thereby

bringing our efforts in sync with the national priorities.

Why has Pepsi not been able to scale up contract farming of various crops? The latest

seaweed project started out with a different objective. But it suffered delays and is now

being touted as a liquid fertiliser project. Doesnt this show the lack of clarity with

which MNCs enter contract farming in India?

The contract farming programme gets scaled up in line with business needs. Our potato

programme starting from Punjab has a footprint across the country to support manufacturing

capacities established in Maharashtra and West Bengal. Today, the number of farmers who

participate in our contract farming programme is higher than what we started with, and many

of the pioneers are still with us. Close to 50% of the potatoes processed by us come from our

contract farming programmes.

Do MNCs face any special hurdle entering the rural areas in contract farming?

The seaweed contract farming project is a path breaking initiative as cultivation of seaweed in

the open sea had never been undertaken before in India. Initially, effectiveness of the

technology to deliver a viable and sustainable income model for the growers had to be

established. Its efficacy had to be demonstrated to the funding and partnering institutions,

who would manage the Self Help Groups undertaking this activity. Last, being a new activity,

regulatory clearances were required, which could be granted only after due evaluation andobservation of the trials. Only last month, due to the efforts of the CM of Tamil Nadu and her

team, Self Help Groups have been given the go ahead to take up this activity. Very soon it

will work on a commercial scale. CSMCRI, which provided the technology for this while

working on the process optimisation discovered an additional application of the weed. They

discovered that it could also deliver a by product a liquid plant growth nutrient. It made

sense for us to acquire this technology for which CSMCRI had taken a global patent. We

hope to now make available this organic and cost effective growth nutrient to the Indian

farmers and we believe this will have a significant impact on the yields and their incomes.


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What kind of challenges, if at all, do you see in partnering with farm workers?

Any successful initiative requires clear understanding of the ground realities of the terrain

and the needs of its people; their resource base and their constraints.

Any corporate, Indian or multinational entering this field has to make the effort and spend

time and money to learn in order to build a successful partnership with the farmers. Indian

farmers have no bias against the multinationals and our 10 years of successful partnership

with the Punjab farmers is a testimony of the same.


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For investors, India is less risky than China

NEW DELHI : India continues to be less risky than China as a business destination,

according to a corporate study. India has been ranked 10th among 29 emerging markets in the

latest country risk analysis by Economic Intelligence Unit (EIU), an information service arm

of the Economist group.

With a score of 39 out of 100 in the risk scale, India has got 'B' risk rating and has outranked

China (41), Saudi Arabia (41), South Africa (45), Mexico (45), Brazil (48) and Egypt (49),

who have got 'C' rating.

However, Singapore (11, A rating), Hong Kong (21) continue to be the safest place for

foreign investment, followed by Taiwan (25), Israel, Hungary and Poland (37), who have

qualified for 'B' rating. Not surprisingly, Iraq is the most dangerous country to do business,

with a score of 91 out of 100, followed by Argentina (76).

A low risk rating is an important indicator of a country's global credit rating and the

willingness of foreign investors to invest in a country. Industry representatives said India has

an opportunity to gain from China 's slowdown.

Experts said country risk report comes in handy as a decision making tool for MNCs to enter

or expand in new markets.

EIU country risk rankings combine measures of political risk (like threat of war) and

economic risk (like size of fiscal deficits). They also include measures that affect a country's

liquidity and solvency (debt structure and forex reserves). Some of the operational factors

that are considered in determining country risk include security, political stability,

government effectiveness, legal & regulatory framework, macroeconomic conditions,

financial & tax policy, labour market and infrastructure. EIU reviews the risk ratings of over

100 emerging markets on a monthly basis.

Rapid growth, highly skilled labour and opportunities in outsourcing boosted India 's ratings.

While change in government brings no decline in risk for India , EIU says that Manmohan

Singh-led coalition must support reforms to sustain current ranking.


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" India is watched closely by overseas investors on whether reforms will continue in the Left

supported government. There is little awareness about economic policies adopted by Left in

West Bengal ," says Amit Mitra, secretary general, Ficci. He said FDI investment will gather

momentum. " India is as safe as what it was and change in government has not changed the

situation," says N Srinivasan , DG-designate, CII. "Indian industry is upbeat and full of self-

belief."

Former RBI governor Bimal Jalan is confident that the country can handle any economic

crisis. Compared to China , India has become marginally safer in 2004. This perception could

be partly attributed to the strong external sector performance and reduced border-tension that

India experienced a year back.

EIU says that India is poised to grow at 8.3% in 2003-04 (April-March) and will grow at

7.3% in 2004-05 owing to a "smaller harvest and hence less robust growth in personal

incomes". It also predicted a slowdown in China . " China 's GDP is likely to grow by 9.4%

this year and by 8.1% in 2005, with the slowdown being led by an easing of investment

growth," projects EIU. India has an edge over other global competitors in outsourcing

opportunities, R&D. China has scored over every country in cheap labour.

Despite slowdown, China will continue to be among top emerging markets for FDI, but India

is also becoming very attractive to global investors. EIU has projected FDI flows to India to

touch $13 billion in 2008 from $5 billion in 2003. However, China is forecast to receive $58

billion in FDI this year. " India 's performance as one of the most attractive destinations for

FDI is based on several criteria, considering Indian authorities' commitment to attract more

FDI is yet to be fully matched by more investment-friendly policies," says EIU.

CII says effective communication is key to reduce India 's risk further, saying, "The biggestchallenge is spreading the right message to the global investing community." Jalan pointed

out the need to reduce fiscal deficit.


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Conclusion

Multinational companies are like double-edged sword. The sword can harm if not handled

properly. Similarly the Multinational companies have their own pros and cons.

The extent of technology and management of know-how transfer by the MNCs depend to a

large extent on their corporate strategy; for example, firms desiring to have a longer-term

relationship with the suppliers (rather than those simply using the host country as a

marketing/export base) will be more inclined to effect transfer technology.

As pointed out in the World Investment Report, 2000, MNCs may restrict the access of

particular affiliates to technology in order to minimise inter-affiliate competition. It is noted

that MNCs are more likely to licence older technologies from which they have already

derived significant rents than newer technologies on which there are still relying for market

leadership. Further, they may hold back the upgrading of the affiliate technology or invest

insufficiently in host-country training and R&D in accordance with their global corporate

strategies. Therefore, arguing that FDI inflows and economic liberalization automatically

facilitates technology transfer is being extremely nave.


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BIBLOGRAPHY AND WEBLOGRAPHY

Economics times

www.ficci.com

www.indoinfoline.com

www.ibef.org
http://www.ficci.com/http://www.indoinfoline.com/http://www.ibef.org/http://www.ibef.org/http://www.indoinfoline.com/http://www.ficci.com/

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Impact of Multinational Companies on Indian Economy