THE MNC ONSLAUGHT
The massive entry and consolidation of multinationals (MNC) in the Indian markets constitute the next major challenge. It is not a simple case of a few foreign firms setting up shops or expanding their existing shops. It is a major phenomenon, with many grim ramifications.
Intensification of competition is just one facet of this phenomenon. There are several others, with far more serious implications. It resulted in the Indian enterprises of the MNC gaining a new strategic edge in the Indian markets. In joint ventures, it shifted the power equation between the MNC and the Indian partners in favor of the former. It also resulted in a brand war in which the MNC brands squeezed the local brands. The takeover threat is another major ramification.
With Majority Stake for the Parent MNC, their Indian Subsidiaries Gain a New Strategic Edge
The acquisition of majority equity by the parent MNC equipped their Indian enterprises with a new strategic edge. Backed by the strength of the majority stake, the parents readily brought in superior technologies and more modern products. In addition, they brought in their global brands to the Indian market. They also brought in their full marketing and management might. In short, all the resources of the parent companies now became available to their enterprises in India. In some cases, a new opening for exports also became available through the parent companyâ€™s expertise and connections. More than everything else, the acquisition of majority equity meant the parentsâ€™ commitment to the aggressive growth of their Indian enterprises.
P & G, Cadbury, ABB
P & G, for example, started giving added importance to its operations in the Indian markets, especially in respect of washing products, the market for which was growing at 30% per year to the 1% growth in the USA. P&G planned to flood the Indian market with its famous detergent brands, aiming at a fivefold growth in turnover within a short span of time. As for Cadbury Schweppes, once it acquired 51% stake in its Indian enterprise, it launched its full range of confectionery products. In the case of ABB, India topped the list of its priority markets among non-European countries after it hiked it stake. ABB now planned to invest $17.5 million in various projects in India. Its Indian enterprise is given the task of exploiting the strength of the parent firm in robotics, transportation and environmental control system.
Glaxo helped its Indian company secure the required foreign exchange resources for implementing new schemes and upgrading technology. Indian Shaving Products, the subsidiary of Gillette, acquired the corporate name Gillette India and the Gillette brand name for its products. It also plans to diversify into deodorants and writing products, the parent companyâ€™s line of products.
Indian Sewing Machine Company now became Singer India and started producing the latest series, the 900 range of sewing machines using the new technology of Singer Corporation, USA. The company also launched a major diversification into washing machines, audio and video system, dishwashers, toasters and food processors, using the parentâ€™s financial and technological support.
Bull India, Bata
Similarly, PSI Data System became Bull India. And using the expertise of the parent companyâ€”Group of France â€“and the strategic alliance Group Bull had with IBM, Bull India introduced in the Indian market the full range of Group Bull hardware and the large and medium range of IBM hardware. For Bata India, expansion and modernization followed the parent companyâ€™s acquisition of majority equity. It launched Adidas products in India in line with its new plans for growth.
MNC Gain Majority Stake in JVs too-
The Power Equation in JVs Shifts in Favor of the MNC:
In joint ventures, there is a significant shift in the power equation between the MNC and the Indian partners. The shift, obviously, is in favor of the MNC and to the disadvantage of the Indian partners. The MNC secured a more active role in these ventures and their Indian partners, who were till then exercising control, were forced to accept a subordinate position. In practically, all the JVs, the MNC partner demanded majority equity stake and in most cases, the Indian partner quietly acquiesced.
It was not possible for the Indian partners to resist the demand of the MNC partners; the price to be paid was the loss of the alliance and the Indian would be bigger losers if the alliance broke up. In other words, Indian partners did not have a choice; they had to concede majority control to the MNC partners. And as a corollary, they also had to forego the managerial autonomy, which they were enjoying hitherto.
In sum, it means a total battle, a grossly unequal one, for some of the Indian firms. But we cannot say all the while the Indian firms were at the losing end. Some of them are having the advantage of increasing their market share because of better and more products from the parent company.