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TECH TALK: India Rising: Rise of the Indian MNC

January 23rd, 2006 · No Comments

One of the highlights of recent times has been the rise of the Indian multinational. What is surprising about this is that just a few years ago it seemed that Indian enterprises were inefficient (in global terms) given the labour laws, prevailing interest rates and poor local infrastructure all of which added up to higher costs. Then, there was also the China factor which seemed destined to dominate any and every type of manufacturing. The past few years have turned the tables on the nay-sayers. Indian companies have become much more efficient in their domestic operations and in many segments on international competitors quite effectively. In addition, theres been an outward focus built on the realisation that scale matters.

Whats interesting is that the story of the Indian multinational is now extending beyond software. While companies like TCS, Infosys and Wipro are giving the global IT majors a run for their money on outsourcing contracts, Indian manufacturing is also coming into its own. What is helping these enterprises is a growing domestic market combined with their ambition for greater marketshare.

Business Week wrote in October last year: Companies such as Tata, Birla, Sterlite, and Gujarat Ambuja are rushing to meet the demand of ever-higher exports of steel to China and cement to the Middle East and Asia. But it’s not just commodities that are flourishing. A hefty part of the capital expansion is going into autos, auto components, machine engineering, textiles, and pharmaceuticals. According to Projects Today, investment in these sectors grew 8.2% this year, compared with a decline of 3.6% last year. These industries have spent the past decade restructuring, battling with government to implement better economic policies, and preparing for global competition. The result has been a surge in productivity for the best companies.

The one company which epitomises the rise of the Indian multinational is Bharat Forge. Forbes wrote recently about its rise:

India’s commercial-vehicle market tanked in the mid-1990s after a false start during the country’s liberalization drive. Baba N. Kalyani, managing director of one of the country’s largest forging companies, decided that it was time to accelerate his global push.

Over the next decade Kalyani plunked about $140 million into capacity expansions at his Pune headquarters plant. He courted auto manufacturers in North America and Europe in a bid to sell engine and chassis components from Pune. And he chalked out a strategy to take over small forging companies abroad to enlarge his customer base. “We want to be the world leader in our business,” says the 56-year-old chairman and managing director of Bharat Forge.

With $1.8 billion in market capitalization, Bharat is now the second-largest forging combine in the world. It manufactures forgings like crankshafts and axle beams. The company supplies Ford, General Motors and Volvo, among others. Acquisitions have given it eight manufacturing locations across Asia, Europe and the U.S.

Kalyani says that Bharat can operate a forge business more profitably in Europe or the U.S. by using back-end manufacturing from its Indian operation to bring down costs. For instance, it can churn out forgings at its Pune factory while staff in Germany work with clients in designing and engineering products. Having a front end “gives you the ability to get involved in the design and development of new products for your customers, which is not possible from a long distance,” says Kalyani.

Financial Times wrote recently after Bharat Forge acquired a company in China:

If managers in developed economies already fear their lower-cost rivals in India and China, what about a manufacturer that combines the strengths of both places under one roof?

That prospect moved an inch closer to reality last month when Bharat Forge, Indias largest auto-components company, gained control of its counterpart in China, a division of First Automobile Works (FAW), the countrys largest vehicles manufacturer.

The deal with FAW Forging provides capacity of 100,000 tonnes and a 30 per cent local market share, boosting Bharat Forges total capacity to about 600,000 tonnes and placing it in the same ballpark as the industry leader, Germanys Thyssen Krupp.

Bharat Forge is by no means one-of-a-kind. The most positive development in recent times has been the confidence among Indian market leaders to take the battle international. Because if they dont, their competitors will come into India. The world is now a playground for the best Indian enterprises, entrepreneurs and managers.

Tomorrow: Other Positives


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