Given the challenge from upstarts, developed countries may change their approach to globalisation, but India must continue on its path.
When the world’s largest steel company, Mittal Steel, made a bid for the world’s second largest steel maker, Arcelor, the whole of the cosy European Union was set aflame. The governments of France, Spain, and Luxembourg — countries where Arcelor’s facilities are located — have been united in expressing their angst and opposition to the bid. The government of Belgium, which is the fourth country of operation for Arcelor, has maintained a studied silence. The European Union has spoken with a split tongue that the deal will be decided on merits, and being important should be discussed in the European parliament for it affects lives of people living in the EU. Arcelor’s Board itself has rejected the offer and announced its intention to battle it.
This follows the much debated rejection last year of China National Offshore Oil Corporation’s (CNOOC) bid for US-based Unocal. Even though CNOOC’s all cash bid of US$ 18.5 billion might have been more attractive financially, the deal went in favour of another US-based company, Chevron Texaco. These deals follow some other high profile bids by foreigners that have not succeeded or been forced to be modified for non-commercial reasons, such as Chinese Lenova’s bid for IBM’s personal computer business and Hutch’s bid for Global Crossing.
These deals are examples of new entrants to the global market that are bidding for companies that have well established global presence. These deals faced tangible, yet unofficial opposition, from the domestic system in which the companies operate, and not necessarily because the shareholders of these publicly listed entities decided for themselves. These episodes raise important issues on the rules of global investing and trade. Given that the changing world economic order is giving room to companies from emerging economies, players from the developed economies, who were ardent proponents of global access to investment opportunities and trade, might have a rethink. If they do so, then these fuzzy, part overt and part covert resistance to overseas investments might get consolidated into more explicit policies, making it difficult for the emergent companies to make a play for established companies from developed nations.
These episodes take on a deeper meaning when seen in conjunction with the masterstroke dealt by India at the Hong Kong WTO summit. India agreed, with support from other developing countries, to consider reducing tariff barriers, provided the western agriculture markets were opened for global competition. This move has certainly added a new dimension to global trade negotiations, where the western block, which was pushing for greater access to developing markets, has turned defensive and adjourned to evaluate its options.
Given the new challenge from the upstarts, developed countries may re-strategise their approach to globalisation. Thus, emerging countries might want to think about how they can incorporate the possible domestic resistance into their policy repertoire to help their companies make international forays.
The growing resistance in the developed world is in sharp contrast to what has been happening in India and a few other countries. Sector after sector has been opened up to foreign investments. Tariffs have steadfastly come down. While policy makers seem intent on pursuing this path, there is the obvious clamour from the industry asking for some measure of protection. Given these developments, what policy direction would be best for India — use the excuse of other countries and revert to a level of protectionism, or aggressively open the economy since that is paying rich dividends?
So far the opening of our economy has had two important positive impacts — one hard and one soft, but both equally telling. The hard impact has been that businesses have restructured their operations, attitudes, and strategies to compete internationally. By and large, most Indian businesses have not only managed to hold their own in the domestic market, but have also begun spreading their wings internationally, both by investing in facilities abroad and increasing exports. The softer benefit has been no less spectacular. The confidence level of most Indian business heads is at an all-time high, which is really a refreshing change from the past decade when there was marked diffidence and penchant for protectionism.
China displays a similar optimism, both at the policy level and in the business order. The common thread may be the success in the domestic markets that gives rise to such ebullient confidence, especially since these large markets have been opened up to their true potential in the past decade. Lower tariffs have reduced costs and rising income levels have increased affordability, leading to a sustained increase in market size for most products. The efficient businesses at hand in both these countries have been, therefore, the rightful beneficiaries. Favourable foreign exchange situation in these countries is also allowing policy makers to encourage businesses from both economies to make overseas investments. Hence, the optimism, confidence, and perhaps a touch of bravery as these new corporate and policy warriors take on the world.
In other words, several pieces of policy are now coming together to enable this resurgence of Global India. It is clear that opening the economy has indeed reduced input costs and enabled Indian businesses to become more competitive. This has attracted international investors to our shores, bringing in the much valuable foreign exchange. Not only has our IT success set us on the right path to tap into global business opportunities, but almost all segments of our economy are now well clued into this mother-lode.
The results of opening the Indian economy are just coming in and are positive. The positive results ought to encourage us to become even more globally integrated and assert ourselves as a new force to be reckoned with. Greater attention from both business leaders and the government on needs of businesses as they go overseas and encounter stumbling blocks in other countries is needed. The government might try using its global negotiations to help pave way for Indian multinationals to gain greater foothold in foreign markets, which in turn opens good employment opportunities and helps raise our country’s per-capita income. This orchestration of policies and business competitiveness is a true amalgam that has the potential to help India grow into an economic power.
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