MNCs : India's Strategy Needs Rethinking

The MNCs Agenda is access to a growing Indian market and to a very competitive Indian human and natural resource base which enables them to be competitive and to enlarge marketing.

There is, therefore, a mutuality of interest in partnership which has been the objective and the process seen especially since 1991 in India.

Looking back at the last few years and reviewing the situation between MNCs and Indian companies there are clearly several errors in strategy and approach on both sides. Indian companies are reaching out to MNCs to access products and technology essentially to raise their market share and market presence but in a quite a few cases it is unclear what the Indian company brings to the table, what the Indian company adds in terms of values to the Joint Venture other than local knowledge and Government access and liaison (which is of less consequence now). Indian companies have strong points - knowledge of domestic markets and managerial resources - to mention only two; sometimes, also, a strong local brand image and equity.

There are some trends emerging which need to be highlighted, debated and understood so as to move towards a stronger partnership mode in the context of the obvious mutuality of interest.

The first trend is the sales approach towards India as distinct from manufacturing. This is an issue which reflects reluctance to invest in India but to access the market through minimum production on the ground and maximum production at home, wherever that is. A byproduct of this approach is to rely on continued import of components rather than India-made components and parts.

The second trend is focusing on the short-term rather than the

long-term. Strategy seems to be to generate profits quickly rather than go for the long haul, be patient, stay in India and build credibility as a steady process.

The third is to bring in technology and products which are being phased out in the home country of the MNC. Not to bring in state-of-art technology or the most modern products.

The fourth is to leverage an Indian partner to get into India on a 50/50 or 40/40 basis, to get sanctions and approval quickly and then having reached a certain minimum level of comfort in India, to want to move quickly to 51% equity holding.

Another trend is that inspite of having a Joint Venture company with an Indian partner, the MNC sets up a 100% subsidiary without any partner and where it has total control.

Another trend is the use of expatriate, managers and CEOs for the Joint Venture company rather than the competitive Indian management available in the country. Often, the expatriate CEO comes with little understanding of India, Indian culture, Indian ethos, Indian Government or Indian Industry. Orientation at best is inadequate and, therefore, the expatriate faces differently.

Another trend is that the MNC investment is limited essentially to the supply of second-hand plant and machinery which has been declared obsolete in their country and is available for relocation to a country like India.

Another trend is the "Cowboy" approach of landing in India, hastily choosing a partner, making a mistake and then wanting to break the relationship. A similarly. Renegotiation has taken place in almost every case and the project cost as well as the price of power have been reduced. The perception has, therefore, developed that some kind of cartel might have been operating and renegotiation has been helpful to India and the States concerned.

These are early days for freer Foreign Direct Investment into India. In fact, the process is in its infancy if 1991 is taken as a watershed for opening up the economy and deregulation of Foreign Investment. And, in this process, India has been more open, certainly, to prove itself and its credentials of liberalisation, than some of the South-East and East Asian Countries where limits on foreign equity are more stringent and Joint Venture partners are insisted upon where the domestic market is to be accessed.

Perhaps, the greatest concern relates to actual management. Here, Indian management capability is underestimated by MNCs because of the pre 1991 environment but the deregulation process has given space and opportunity to Indians and there is a resurgence of spirit and confidence and a realisation of both leadership and management potential. Therefore, a mature, strong partnership with MNCs based on mutuality of respect and advantage is possible. Perhaps, it has not been possible in other countries. Perhaps, the management and the entrepreneurship capability in several other developing countries is not as well- developed as India.

The feedback from Indian Industry is that they want to have MNCs here but even though MNCs have much to contribute to India's development and a great deal to gain from being a strong partner, there is discomfort with dominance and control, there is discomfort with one way street approach and there is clear discomfort with outdated or obsolete technology and products.

There is a initiative by the MNCs also to improve their image through trying to involve themselves in community related activities. Here again, some initiatives are limited to developing an exclusive club for MNCs. Fortunately, MNCs have been in India, in the long-term, wish to be integrated with Indian efforts and Indian projects rather than charting their own independent path into the community area in India. Both are therefore happening side by side.

On the whole, consensus are growing. There is new whisper in the wind going beyond ideology and focusing on practical issues such as finance, management, technology, products, control, etc. These whispers in the wind within business and industry who do want partnerships and who realise that going forward rapidly, without MNC partnership, will be much more difficult though not impossible.

On the other hand, there are clear success stories of MNCs in India such as ABB where management is completely Indian including the CEO, where no expatriates are employed except for short-term technical assignments and where there is a true merging of interests with India. There are many ABB, in India and there are long-term players, like ICI, which have expatriate CEOs but have adopted a strong India-based strategy and policy. The focus is on two-way "win-win" policies not one-way "win-win" policies. Therefore, MNCs generally can learn from such successful long- term players in India which have operated with success and have totally absorbed themselves into India.

On the Indian side, there is need to have clarity on their objective and what they contribute to a Joint Venture so as to add to the Partnership. Government relations is now of less consequence and the real strength must be in management and in the market place.

Indian industry must also invest/insist on product/technology upgradation to strengthen the company in the long-term and to avoid excessive reliance on continued imports.

India must continue its open door policy and actively and strongly promote foreign investment. In this policy framework the onus shifts from Government policies to industry strategy, industry thinking and industry action - both Indian and foreign companies.

Policy on Economic Affairs