Foreign Investment

It is simply not possible to maintain substantial market standing in an important area unless one has a physical presence as a producer. Otherwise, one will soon lose the ‘feel’ of the market. Besides the advantage of getting a feel of the market, offshore investments are encouraged by such factors as cost advantage, trade barriers etc. The demand for ‘local content’ is also satisfied by production in the respective countries. In many cases exporting is the beginning which in, due course will be replaced by production in the foreign market.

Foreign investment by Indian companies has so far been very limited. The attractiveness of the domestic market, lack of global orientation, government regulations etc. have been responsible for this.

With economic liberalization and growing global orientation, many Indian companies are setting up manufacturing/assembling/trading bases abroad either wholly or in partnership with foreign firms. These would help these companies to increase their international business. Indian companies have also been making huge investments abroad on acquisitions.

The leader in establishing manufacturing bases abroad is the Aditya Birla group. Aditya Birla , whom the Forbes called India’s only international businessman, made this strategic move as early as 1970s. The group’s drive to set up business overseas is that “we want a pre-dominance in the industries that we enter. The objective is to be a low cost, high quality and global standard player”.

With economic liberalization and growing global orientation, many Indian companies are setting up manufacturing/assembling/trading bases abroad either wholly or in partnership with foreign firms. These would help these companies to increase their international business. Indian companies have also been making huge investments abroad on acquisitions.

The leader in establishing manufacturing bases abroad is the Aditya Birla group. Aditya Birla, whom the Forbes called India’s only international businessman, made this strategic move as early as 1970s. The group’s drive to set up business overseas is that “we want a pre-dominance in the industries that we enter. The objective is to be a low cost, high quality and global standard player.

By the beginning of 1995, a total of 300 wholly owned subsidiaries (58 in operation and 242 under implementation) were established by Indian companies. The operational ventures were dispersed in 40 countries. In 2007 (this year) there are many leading Indian companies like Satyam computers, Infosys, AV Birla group, Tata Group have established their production facilities even in advanced countries and are even employing foreign nationals along with the deputed Indian employees.

A number of large and small Indian companies are investing abroad as part of their globalization strategy. Several of these overseas investments aim not only at expansion of production base and business abroad but also at consolidation of the domestic business. The Ballarpur Industries of the Thapars are setting up a giant paper mill in Indonesia at an estimated cost of Rs. 1800 crores. A plantation put up on 250,000 hectares of land will feed the mill. Any surplus pulp may be exported to India to feed Thapar paper mills here. The significance of it should be viewed against the possible wood and pulp shortage in future in India. The Ceat expects that when the tariff barriers between the SAARC countries comedown, part of the South Indian Market could be served by its tire plant in Sri Lanka.

Indian companies are also establishing production facilities abroad to get an easy entry into the regional trade blocs. For example, a base in Mexico opens the doors to the NAFTA region for the Aravind Mills. Similarly Cheminor Drugs, one of the Dr. Reddy’s Labs Group of companies, has set up a subsidiary in New Jersey.

Mergers and Acquisitions (M&A):

Mergers and Acquisitions (M & As) are very important market entry as well as growth strategy. M & A has certain advantages. It may be used to acquire new technology. M &A would have the effect of eliminating/ reducing competition. One great advantage of M & A in some cases is that it provides instant access to markets and distribution network. As one of the most difficult areas in international marketing is the distribution, this is sometimes the most important objective of M &As. For example, Vijay Mallya’s U B group acquired a small British company, Wiltshire Brewery. The attraction of Wiltshire for UB was that the former offered a readymade chain of 300 pubs throughout Britain which could be used for the marketing of UB’s brands of beer like Kingfisher, Kalyani etc. The UB group has gone for such acquisitions in USA and South Africa. A number of other Indian companies have also resorted to acquisition of companies abroad to gain a foothold in the foreign market and to increase the overseas business. Apart from the big players, a host of lesser known companies have bought out cash strapped plants in Europe, USA etc.

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