Indian MNCs get robust

Clearly ahead of the domestic economy

The robustness of an economy is partly reflected in the health and standing of its multinational or transnational companies. This, in turn, reveals the relative strength of its different industries and the prowess of leading corporate entities. The Indian School of Business, in co-operation with a Brazilian counterpart, has constructed a transnational index to rank Indian multinationals and thereby gain available insights. The index combines size measured in three ways: through revenue, through assets and through the number of employees. The progress that Indian companies have made in the last decade can be gauged from the fact that when at the turn of the century a few leading Indian companies and industries were claimed to be globally competitive, the criteria used were more technical than quantitative. For example, Tata Steel was considered to be globally competitive because it was adjudged a leading low-cost producer, and Reliance Industries emerged as an efficient refiner because of its ability to cut project costs and, thus, improve refining margins. Several auto component firms rose to fame by being able to secure the Deming prize for quality. And most recently, leading Indian IT companies have secured the highest levels of quality certification.

Today the story can be told in terms of share of global revenue and assets in the firms’ total numbers. Now, more than half the assets and revenues of the top 15 global Indian companies are sourced globally. Metal and metal products (Tata Steel and Hindalco), software (TCS, Infosys and HCL) and pharmaceuticals and life sciences (Dr Reddy’s and Jubilant) are prominent in the list. Indian companies have gone global largely through their acquisitions. Tata Steel bought Corus; Tata Motors, Jaguar Land Rover; Hindalco, Novelis — and, most recently, Bharti Airtel bought Zain. But if any business organisation stands out, it is the Tatas, who account for as many as six of the top 15 Indian multinationals. They are the most international in their mindset and willingness to do business. However, recent figures (particularly of the last three years) have to be seen in the right historical context. Most Indian acquisitions took place during the period of ample liquidity (debt-funded acquisitions were easy to accomplish during the boom years before 2008). The only large acquisition that took place afterwards was by Bharti Airtel. Thus, the last three years stand out as a period of consolidation of global business in relation to domestic business, and not of going forward. Building competitiveness and going global are slow processes. Both Tata Motors and Hindalco appear to have absorbed their acquisitions well, although Tata Steel will probably take a bit more time to do so. What is more, the relative health of large Indian multinationals, in sharp contrast to the travails that the domestic economy is facing, suggests that it is only a matter of time before global growth picks up pace.