Kanika Datta: Yesterday, today and tomorrow

By : Kanika Datta
Last Updated: Wed, Sep 26, 2012 20:07 hrs

A reader of last fortnight’s column (“Same difference”) angrily described it as “Pipe-dream unreal unsound thinking verging on stupidity!” (sic). The burden of his argument was that it was short-sighted and grossly unambitious to talk exclusively, as I had, of the prospect of foreign companies coming into India in the early nineties. Why did I not think in terms of Indian companies developing similar capabilities, he asked. Should we not have the courage and tenacity to think in terms of Business Standard replacing the Financial Times in the UK, he added.

Luckily, I am not the editor so I can escape the rigours of contemplating the potential global ambitions of my employer. Nevertheless, the writer makes a valid point, though it is my humble submission that it carries the assurance of hindsight. Indian industry has certainly emerged as a significant participant both in India and on the global stage, and it has remained a lone beacon of pride through the darkest days of policy stasis.

But this transformation is a late-nineties/early noughties development. For a good part of the nineties, Indian industry, with its licence raj legacy of high costs and low productivity, didn’t really look as though it was in a position to compete. More to the point, Indian companies did not even behave as though they could do so. Long-term observers of the scene will recall the way powerful corporations initially reacted in the time-tested manner by strenuously lobbying against lower tariff barriers and foreign competition.

Once it was clear that the tide would not be reversed, more realistic corporations made haste to tie up with foreign companies — IBM (Tatas), GE (Wipro, among others), Fiat (Premier Automobiles), Daewoo (the DCM group), General Motors (Hindustan Motors), to name just a few. In most cases, the role of the Indian company rarely extended beyond providing escort services, so to speak, and many of them parted company, some bitterly, others amicably, once the foreign entity had found its feet.

Now, in the second decade of the 21st century, it would be fair to say that many Indian companies have successfully negotiated the shoals of globalisation and newer entrants have ridden the new opportunities of liberalisation with elan. The interesting point to note, however, is the way Indian and foreign companies have performed in a range of industries that opened for business after 1991.

Let’s start with consumer goods, where the impact is most visible on the average middle-class household. From TVs, refrigerators, washing machines, it’s Korean, Japanese, German and, lately, even Chinese brands that dominate. Among the older domestic brands, only Godrej holds its own in refrigerators, though not as the market leader. Older brands like Onida and BPL have vanished; Videocon converted itself into a contract manufacturer for the Samsungs and LGs at the cost of its own brand (which it is trying to reposition).

The variety of cars on the road is another visible result of liberalised industrial policy. The leader by a long margin is Suzuki-owned Maruti. This can be considered a special case since it had a head start (1983) and was generously chaperoned by the government. Who’s next in line? Korea-based Hyundai. Indian company Tata Motors comes in only third (albeit a close one). Yesteryear’s domestic incumbents, Hindustan Motors’ trusty Ambassador and Premier Automobiles’ Padmini, rapidly succumbed.

In the more fragmented markets of fast-moving consumer goods, pre-liberalisation multinationals like Levers, Colgate, Johnson & Johnson and Britannia do hold their own in shampoos, soaps, toothpaste and baby care. They, however, no longer enjoy the old dominance; smaller domestic and foreign competitors have exploited the low entry barriers to nibble at their heels.

Overall, if we exclude IT, which is a uniquely new point of opportunity, Indian companies appear to have dominated either in areas in which foreign collaboration was necessary for financial or technological reasons, or where foreign entry was disallowed or restricted by policy.

This is true of most of the new biggies of the post-1991 years. They figure in areas like telecom, banking, civil aviation, airports, ports and power. Companies like Bharti, GMR and GVK are all beneficiaries of foreign collaboration (a rival sourly commented that Bharti should actually be called SingTel). On the other hand, Indian airlines like Jet Airways, SpiceJet, IndiGo, retailers like Future Group, Shoppers Stop, new-generation private banks like Axis and Yes (ICICI and HDFC Bank have pre-liberalisation provenance) are beneficiaries of restricted foreign entry.

This does not mean that Indian companies are unable to match global standards. The fact that many of them already do and the rate at which many groups, large and medium, have moved to acquire global critical mass over the past decade certainly contradict that point. But as the government opens more and more swathes of industry to foreign investment, it is also worth wondering how many of today’s domestic incumbents will be there a decade hence. Or maybe their names will be up in lights in the heart of global capitalism, as one new-age banker still dreams.

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