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Acknowledgemen
t
Any accomplishment requires the effort of
many people and this work is no different.
We would like to thank
Prof. ---- for giving us an opportunity for
doing the project together and for helping
and guiding us in completion of the
project.
We would also like to thank our parents
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anonymously.
Index
1. Introduction..05
2. Foreign Direct Investment (FDI)..09
3. Shining Indian Multinational11
4. Impact of MNCs on Indian Industrial Sectors..13
Automobile Industry.14
Manufacturing Sector...16
Telecom Industry..18
Research & Development.21
IT Industry.23
Food & Beverages Industry..25
5. Case-Study1: Impact of Glaxo-SmithKline Merger.27
6. HP marks Indian Employment Milestone29
7. Case-Study2: Pepsi Co.31
8. India v/s China.34
9. Conclusion36
Introduction
Till 1991, India was more or less a closed Economy. The rate of growth of
the economy was limited. 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.
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 living
standard. Therefore, government seeking those advantages would be advised
to favor policies of openness, rather than regulation, when it comes to
foreign direct investment.
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
Total GDP
1985-86
1990-91
1991-92
1992-93
1993-94
1994-95*
1995-96
1996-97
1997-98
1998-99
156566
212253
213983
225268
238864
861064
926412
998978
1049191
1112206
Total GDP
1200000
1000000
800000
600000
400000
200000
0
1985-
1990-
1991-
1992-
1993-
1994-
1995-
1996-
1997-
1998-
86
91
92
93
94
95*
96
97
98
99
years
Company
Outsourcing Client
IT Services
Infosys
Tata Consultancy
Wipro
ITES
Mphasis BFL
Spectramind
Pharmaceuticals
Cipla
Shashun Chemicals
Lupin Laboratories
Manufacturing
Bharat Forge
Tata Motors
Moser Baer
Essel Propack
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.
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.
10
Some instances:
12
Impact of MNCs on
Industrial Sectors
Indian
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 round development.
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.
2.
3.
4.
5.
6.
Cement
Aviation
Automobiles
Auto Components
Biotechnology
Financial Services
13
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
23. Training & Education
14
16
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.
ONGC's 25 per cent stake buy-out in a Sudan oil firm from Talisman
Energy of Canada for $720 million (around Rs 3,312 crore)
The Hinduja's purchase of controlling interest in C3, a call centre in
the Philippines
17
Manufacturing Outsourcing
India is fast developing into a manufacturing hub for world corporations
wanting to leverage the sector's proven skills in product design,
reconfiguration and customisation with creativity, assured quality and value
addition. About 20 percent of Indian automotive production in 2004 is
exported to developed countries.
While some MNCs enter into OEM deals to source components, others have
Indian arms to supply to global markets.
million at the end of 2004. The gross telecom user base stood at 70.58
million at the end of 2003. (According to the Telecom Regulatory
Authority of India (TRAI), the growth in the mobile subscriber
segment picked up in December 2004 after remaining at around 1.5
million per month for the previous two months.)
The year 2004 ended with the tele-density reaching an all-time high of
8.62, as compared to 6.65 at the end of 2003, an increase of over 30
per cent.
In the mobile segment, additions consisted of 1.42 million GSM
subscribers and 0.53 million CDMA subscribers. The total of 19.51
million mobile users in 2004 marks an increase of 11.5 per cent over
the 17.49 million additions made in 2003.
Even in fixed line, 2.67 million subscribers were added as compared
to 2.15 million new users during 2003, registering an increase of 24
per cent.
The non-voice market (message and data services) for mobile operators has
also registered tremendous growth in 2004. According to a study by IDC, it
had a growth of 139 per cent year on year in 2004.
At present non-voice revenue contributes around 4.7 per cent to the total
mobile services revenue, which is around Rs. 14,560 crore (US$ 3.3 billion).
Analysts believe that if the current rate of growth is maintained, it could add
up to amazing figures in the next few years. A study released by Ernst and
Young says revenues from the sector could touch US$ 25 billion by 2007.
Telecom statistics
January' 05
February'05
March'05
Total subscribers
94.92mn
97.03mn
98.08mn
Tele-density
8.80
9.0
9.08
Fixed line
45.15mn
45.54mn
45.90mn
0.39mn
0.36mn
Mobile
49.77mn
51.49mn
52.17mn
Total additions
during the month
1.77mn
1.67mn
0.73mn
GSM additions
1.27mn
1.13mn
1.24mn
19
CDMA additions
0.5mn
0.54mn
0.52 mn
Source: TRAI
Foreign interest
The growth statistics combined with the government's decision to increase
the foreign direct investment cap in the sector to 74 per cent is generating
interest among global investors. While the government expects over US$
800 million investment from foreign telecom companies in the coming year,
a number of them are already here.
The Tata group's Videsh Sanchar Nigam Ltd. (VSNL) struck a $130million 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.
20
Within days of bagging TGN, VSNL inaugurated its own 3,175kilometre, 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).
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,
22
Products
Sun Microsystems
India
Engineering Centre
meta directory.
Texas Instruments
R&D Centre
SAP Labs
The lab has produced some of SAPs products meant for the 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
Impact on IT Sector
23
S Ramadorai
Azim Premji
Nandan Nilekani
TCS
Ranking: 1
Revenue: $1.6 bn
Head Count: 43,000
Market Cap*: $21 bn
Wipro
Ranking: 2
Revenue: $1.3 bn
Head Count: 39,000+6300
Market Cap: $14.4 bn
Infosys Technologies
Ranking: 3
Revenue: $1.1 bn
Head Count: 35,000+
Market Cap: $19.84 bn
Revenues ($ bn)
IBM
96.23
149
HP
79.9
63
EDS
20.6
10.7
Accenture
15.1
23
CSC
14.7
8.6
25
26
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 2004 crossed 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 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.
27
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 younger urban population is increasingly
shifting to Western-style fast food items, the study observed.
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.
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.
29
30
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 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.
31
32
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.
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.
34
36
CII says effective communication is key to reduce India 's risk further,
saying, "The biggest challenge is spreading the right message to the global
investing community." Jalan pointed out the need to reduce fiscal deficit.
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 interaffiliate 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.
37
Webliography
www.ibef.org
www.google.com
www.cii.com
www.ficci.com
www.indoinfoline.com
Bibliography
International Marketing Management
- M.V. Kulkarni
International Marketing
- Francis Cherunilam
38