Group members

Sr. Name Roll

no. No.
1. ---
2. ---
3. ---
4. ---
5. ---

2
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

and friends who have supported and
helped us in the project and constantly
motivated us in doing the project.

Regardless of the source, we wish to

express our gratitude to those who have
contributed to this work even though
anonymously.

3
 Index

1. Introduction…………………………………………..05
2. Foreign Direct Investment (FDI)……………………..09
3. Shining Indian Multinational…………………………11
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 Milestone……………29
7. Case-Study2: Pepsi Co……………………………….31

4
8. India v/s China……………………………………….34
9. Conclusion……………………………………………36

5
 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
country’s 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.

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.

6
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.

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 $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.

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

7
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

Total GDP

1200000
(In Rs. Crores)

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

8
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 $46 billion in 2007.
• 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 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 Goldman Sachs, Aetna, Northwestern
Tata Consultancy Mutual, Arm Ex, DHL, Verizon
Wipro GE, Honda, UBS, HSBC
Transco, HP-Compaq, Nortel, General
Motors, CISCO, Sony
ITES Mphasis BFL Citi group, Accenture, AutoZone, Capital
One
Spectramind Dell, American Express, Capital one
Pharmaceuticals Cipla Ivex, Watson Pharma, Eon Labs
Shashun Chemicals Eli Lilly, GSK Pharma
Lupin Laboratories
Apotex, APP, Watson, Pharma
Manufacturing Bharat Forge Meritor, Caterpillar, Toyota, Ford,
FAW(China)
Tata Motors Rover
Moser Baer Imation, BASF
Essel Propack P&G, Unilever, Colgate

9
 Foreign Direct Investment
FDI or Foreign Direct Investment refers to the investment of foreign
currency and other valuable 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.

10
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 Indian reform process
1977 1991
5 years since 1982 China 5 years since 1991 India
USD 4508 m USD 4488 m
10 years since 1982 10 years since 1991
China India
USD 13791 m USD 15483 m

11
 Shining Indian Multinationals
India Inc. is flying high. Not only over the Indian sky. Many Indian firms
have slowly and surely 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.
• 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.
12
• 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.

13
 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 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. 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
23. Training & Education

14
 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.

15
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 new offerings 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.

16
 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.
• 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

17
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.

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.

18
 • 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.)
• 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.

19
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
Additions during the
0.39mn 0.39mn 0.36mn
month
Mobile 49.77mn 51.49mn 52.17mn
Total additions during
1.77mn 1.67mn 0.73mn
the month
GSM additions 1.27mn 1.13mn 1.24mn
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.

• Japanese conglomerate Kyocera, which has acquired the mobile

equipment division of CDMA technology pioneer Qualcomm, is
setting up a mobile phone manufacturing plant in India, and expects to
ship phones to Africa by the end of the year. It plans to start shipping
to countries in South East Asia, Australia and New Zealand next year.
• Alcatel wants to make GSM mobile phones in India. The French
major is planning a cell phone manufacturing facility in India with an
annual capacity of 2.5-5m units to cater to the Asia-Pacific markets.

20
 • LG recently started assembling phones in India and Nokia plans to set
up a manufacturing plant with an investment of US$ 100-150 million.
• 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

21
a capacity of 4m lines, will require a total investment of Rs 4,000 crore (US$
914.9 million).

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

22
 therapeutics and 85 in basic research, according to the Department of
Biotechnology.
• 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 others — have 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’ Portal server, Web server, Identity server and
India
Engineering Centre meta directory.

23
 Texas Instruments’ Fully developed at least 20 products, including the Ankur Digital Signal
R&D Centre Processor; Sangam, a bridge router for the DSL; and Zeno, which runs
multimedia applications.
SAP Labs The lab has produced some of SAP’s 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 The centre has fully developed a strategic sourcing solution for i2,
Centre 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, Wipro and 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 three have made it to the billion-dollar
club, the remaining two are already half way through to that mark.
According to Karnik, the way things are shaping up the companies that are
most likely to make it are going to be the ones from the current top 10
because the dip-offs in size are sharp beyond the top 10. Experts feel that
even within the top 10 the dip-offs start getting sharper after the top three to

24
five companies. As a result, the likelihood is restricted to only the top five
and, more specifically, to the top three.

The top companies are indeed rapidly expanding their global outlook and
reach, setting up centers across the world and competing with the top tier
global IT companies. TCS is located across over 30 countries and serves
clients in around 60. The global locations for Infosys, Wipro and HCL
Technologies range between 10-20 countries. These companies serve some
of the top clients globally including the likes of GE, American Express,
Ericsson, Ford, Transco, Prudential, Deutsche Bank, and the Standard
Chartered Bank. In the last two to three years, these companies have also
been open to foreign acquisitions and JVs, to expand their global footprint.
And the acquisition list is very long: TCS acquired Phoenix Global Services
(technology solution provider); Wipro acquired Nervewire, a US-based
financial services consultant and utilities' practice of consultancy AMS;
Infosys acquired Expert Information Services of Australia and US-based
Trade IQ product division of IQ Financial Systems, a Deutsche Bank-owned
outfit; HCL Tech has acquired majority stake in Aalayance, a business
integration firm with offices in San Jose, US.

Leading the Charge 2004

S Ramadorai Azim Premji Nandan Nilekani
TCS Wipro Infosys Technologies
Ranking: 1 Ranking: 2 Ranking: 3
Revenue: $1.6 bn Revenue: $1.3 bn Revenue: $1.1 bn
Head Count: 43,000 Head Count: 39,000+6300 Head Count: 35,000+
Market Cap*: $21 bn Market Cap: $14.4 bn Market Cap: $19.84 bn

Some IT MNCs in 2004 Global Fortune 500

Name Revenues ($ bn) Market Cap ($ bn)
IBM 96.23 149
HP 79.9 63
EDS 20.6 10.7
Accenture 15.1 23
CSC 14.7 8.6

25
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.

26
 Impact On Food and Beverages
Sector
New 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 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).

27
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.

28
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.

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

29
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.

30
 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 the Economic 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.

31
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.

32
 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. Pepsico’s
Worldwide President and CFO, Indra Nooyi shares some of them with
Chaitali Chakravarty & Bhanu Pande. An excerpt.

Has Pepsi’s contract farming model changed in India?

It hasn’t 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. Pepsi’s 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 it’s 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?

33
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 weren’t grown in India. So we had to introduce the
suitable varieties via 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 learning’s 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. Doesn’t 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 and observation of the trials. Only last month, due
to the efforts of the CM of Tamil Nadu and her team, Self Help Groups have

34
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.

35
 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

36
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.

" 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.

37
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 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 naïve.

38
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
39