global is at ion and its impact on india

8/8/2019 Global is at Ion and Its Impact on India

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Globalization and Its Impact onIndian Industry

04 January 2005, New Delhi

Rajen MehrotraSr. Specialist On Employers Activities For South Asia

International Labour OrganizationIndia Habitat Centre, Core 4B (3 rd Floor), Lodi Road, New Delhi 110 003

Tel: 011 24602101 - Extn. 265: E-mail : [email protected]


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Mile Stone Events That HaveAffected Business

End of World War I (1918)

End of World War II (1945)End of Cold War (1989)9/11 (2001)


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MovementEconomy

Open ClosedGoods

People

Currency

Information


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GLOBAL SITUATIONGlobal GDP Growth 2% In 2003, 2002 And2001 While 4% In 2000 And 1999

World Trade Growth Has Slowed

Every country wants to improve GlobalTrade


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Globalization & India

India Went Through Economic Reforms From 1991. Themajor ones are:Reductions In Import DutyRemoval of restrictions on importsDevaluation of CurrencyRemoval of permissions on setting up enterprises andexpansion of capacityRemoval of permission of Controller of Capital on SharePremium Account on issues of SharesPrivatization of Public Sector UnitsMembership of WTOEasier entry of multinationals


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World PerceptionVisualization of Six Major Global Players (U.S.A.,Japan, Europe, Russia, China, India)Goldman Sachs Report (Brazil, Russia, India, China

BRIC major players). Projects India as a potentialwinner ahead of China and would overtake U.S.A.and China by 2025 in terms of Real GDP.India huge market population of 1 Billion with atleast 250 Million middle class with tremendous

buying power Economy with 6% Growth Post Liberalization


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Indias ProblemHigh growth but problem of unemployment.Need to generate 10 million jobs per year.Multi party rule, hence need toaccommodate political ideology witheconomic reality (reservation, labour lawreforms).


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Multinationals History (Prior to

1991) in IndiaEast India Company the first one which also brought British Rule in IndiaLarge number of British/European Owned Companies set up prior to 1947and continued till 1977 though certain restrictions got imposed when India

became free in 1947 and republic in 1950.

FMCG (Lever Bros., Colgate), Tobacco (Imperial Tobacco), Packaging(Metal Box), Banking (Grindlays, Standard Chartered, Imperial),Tea/Plantation (Sterling Co.), Engineering (Siemens, Brown Boveri, BurnStandard, Jessops, Richardson & Cruddas), Beverages (Coca Cola),Computer (IBM), Pharmaceuticals (Glaxo, Burroughs Welcome, Sandoz,Merck Sharp & Dhome, E-Merck, Many others), Chemicals (ImperialChemicals, Bayer).

Period of 1977 to 1991 Multinationals were asked to dilute equity,restrictions on growth, price controls. Two Companies that closed and leftIndia in 1976 were Coca Cola and IBM as they had 100% foreign heldequity and refused to dilute their equity.


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Large Number of Multinationals Have Moved to IndiaPost Globalization (Strategy 100% Equity, Collaboration,

Franchise, Importing, Manufacturing)Beverages (Coke, Pepsi)Fast Foods (McDonalds, Pizza Hut, KFC)Coffee (Barista, Caf Coffee Day)Sports Wear & Goods (Nike, Adidas)Apparels & Garments (Levis, Reid & Taylor)Cosmetics (Revlon, Oriflame, Maybellene)Two/Four Wheelers (Honda, Toyota, Suzuki, Hyundai, GeneralMotors, Ford, Mercedes)Computers (Del, HP, IBM, Samsung, Sony, Compaq)

White Goods (LG, Samsung, GE)ConstructionEngineering CompaniesPharmaceuticals (US, Europe, Britain)Music (Sony, BMG, Warner)Entertainment Channels (Star, National Geographic, Discovery, Sony)

Sourcing (IKEA, Adidas, Nike, many others)


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INTERNATIONAL BUYERS APPROACH ONCOMPLIANCE OF CODE OF CONDUCT BY

SUPPLIERS

COMPANIES HAVE DEVELOPED THEIR OWN CODE OF CONDUCT TO BEFOLLOWED BY THE SUPPLIERS COVERING MAINLY THE FOLLOWING THREE:

- UNIVERSAL DECLARATION OF HUMAN RIGHTS (UN 1948)- FUNDAMENTAL PRINCIPLES OF RIGHTS AT WORK (ILO 1998)

- RIO DECLARATION ON SUSTAINABLE DEVELOPMENT (UN 1992)

LEGAL REQUIREMENT:- SUPPLIER MUST COMPLY WITH NATIONAL LAWS AND REGULATIONS AND WITH

INTERNATIONAL CONVENTIONS CONCERNING SOCIAL AND WORKING CONDITIONS,CHILD LABOUR AND THE PROTECTION OF THE ENVIRONMENT

COMMUNICATION METHODOLOGY TO SUB-SUPPLIERS AND WORKERS. ALSOCODE AVAILABLE ON WEB SITE

AUDITS AND ACTION ON REDUCING/ELIMINATING DEVIATIONS IN TIME FRAME

EXAMPLES OF IKEA, NIKE


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ILO DECLARATIONFUNDAMENTAL PRINCIPLES AND RIGHTS AT

WORK

ILO in 1998 adopted the following 8 conventions as core and has beenpursuing with each country to ratify them and even if a country has notratified ILO has been collecting annually a report from the country on itspresent status:

- Forced Labour Convention, 1930 (C.29)

- Freedom of Association and the Right to Organise Convention, 1948 (C.87)

- Right to Organise and Collective Bargaining Convention, 1949 (C.98)

- Equal Remuneration Convention, 1957 (C.100)

- Abolition of Forced Labour Convention, 1957 (C.105)

- Discrimination (Employment and Occupation) Convention, 1958 (C.111)

- Minimum Age Convention, 1973 (C.138)

- Worst Forms of Child Labour Convention, 1999 (C.182)


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Interests of Stake Holders

Enterprises In Wealth CreationGovernment In Revenue And EmploymentEmployees In Development And Increase InStandard Of LivingCustomers - Value For Money (Choice,Affordability And Speed)


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GOI POLICY - FDI AND FII

1990 FDI $ 234 Million1998-2003 FDI $ 2.5 Billion Per Year Target FDI $ 10 Billion Per Year

Over 620 FIIs Compared to 500 in 2003 andEarlier

China FDI & FIIFDI $ 50 Billion Per Year FII $ 20 Billion Per Year


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FOREIGN INSTITUTIONALINVESTORS

Capital International, Morgan Stanley, Templeton,Goldman Sacs, Alliance Capital Management, JardineInvesting And Merlion Investment in IndiaCurrently FII investment at $ 6.5 Billion Compared to $ 2

Billion In 2001Stock Market Booming (Sensex Around 6000)Learnings From Last 2 Scams (Harshad Mehta, KetanParekh), SEBI Guidelines and Controls

Hot Sectors For FIIs Automobiles, Banks, Pharma,Software, Energy, TelecomFII Favourites Infosys, Reliance, ICICI Bank, Satyam,MTNL, ONGC, Ranbaxy, ITC, SBI, Tata Motors,Hindalco


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WHY TNCS BRING FDIMarket Seeking TNCs (Consumer Durables)

Market Size & Growth

Per Capita Income

Access To Regional Market

Consumer Preference

Market Structures

Resource/Asset Seeking TNCs

Raw Material Availability & Cost Low Energy Cost

Low Cost Labour

Fiscal Benefits


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Efficiency Seeking TNCS

Freight Advantage (Host V/S Home Country)Membership Of Regional BlockBilateral Country Agreements

Trans-shipment/ Port facilitiesProductivity Of Labour


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IMPACT OF REFORMS IN INDIA

Positive :Easy Availability Of Imported/ForeignCollaborated Locally Produced Consumer ItemsPlus Consumer Durables.Reliable Communication System Of Telephone(Landline And Mobile), E-mailAvailability Of Large Number Of Qualified YouthIn Most Disciplines

State Governments Trying To Attract InvestmentBy Offering Incentives / Benefits

Continued


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Speedy Mode Of Travel And TransportationEconomic Growth Of 6%MNCs Have Entered The Market Both For Sourcing As Well As Selling Their Products

Well Established And Developed Stock ExchangeGrowth In Automobile, IT, Construction, Pharma,Telecom, Energy, Entertainment And ServiceSectors

Foreign Exchange Reserves Presently At US$ 120Billion With US$ Pegged Between Rs. 45/- AndRs. 46/-


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IMPACT OF REFORMS

Negative :Presently No Change In Existing Labour LawsManufacturing Companies have restructured anddownsized (Engineering, Metals, Cement,Electrical Machinery, Textiles)Lot Of Companies Offered Voluntary Retirement

Schemes (VRS) And Reduced The Number Of Employees.Continued


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Shift In Employment From Large Companies ToMedium And Small CompaniesShortage Of Power Continues In Spite of Investment in Power

Qualified Persons Are Prepared to Work at Lower Level Jobs


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Value Chain Migration

Problem for Indian CompaniesProfessionally vs. Family Managed

MNCs vs. Local CorporateMarketing/ Distribution vs. ManufacturingBranded vs. Commodity Products

Low vs. High Capital Intensity


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APPROACHES ADOPTED BY INDIANCOMPANIES TO IMPROVE PROFITABILITY

Post Globalisation

1. Strategy To Be Effective, Price Sensitive, MarketAdaptive And Customer Friendly Through :Restructure Sources And Uses Of Funds

No Place For NPAsTight Control On Working CapitalEfficient Management Of Raw Material, WIP, Finished GoodsSuppliers And SubcontractorsUtilization Of Manufacturing PlantsDistribution ChannelManpower

Continued


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2. Research Based Export By Pharma CompaniesDRF Licensed DRF 4158 To Novartis For $ 55Million Plus When Drug Is MarketedRanbaxy Ciprofloxacin For $ 65 Million ToBayer

Torrent, Wockhardt, Sun, Cadila, Orhid, Lupin,Cipla With Potential

3. The BPO-ITES Industry in India revenue $ 3.6Billion in 2004 expected to fetch $ 21 to 28Billion in 2008


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4. Value Addition Approach by a Milk Cooperationin India (i.e.Amul)Concept Of Value AddedMilk, Flavoured Milk, Condensed Milk, Curd, Cottage Cheese(Paneer), Khoya, Butter, Cheese, Ghee, Dairy Whitener, BabyMilk Powder.

Market Share

Item Market Size Amul Share Britannia OthersRs. Million Share

Butter 6500 85% 5% 10%Dairy 2750 45% 15% 30%Cheese 1400 60% 33% 7%


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5. Collaborations, Mergers, Acquisitions (Eg.Pharma, Cement, Aluminium, Telecom)

6. Niche Markets7. World Class Manufacturers (Titan, Sundaram

Clayton)

8. Tackled Onslaught Large Companies(Reliance, Nirma, Piramal Health Care, Dr.Reddys Laboratories, Ambuja Cement, BajajAuto, Jet Airways, NTPC, BHEL, L&T,

Aditya Birla Group, Asian Paints)9. Strong Brands (Wagh-bakri, Vadilal, Frooti,

Real, Rasna, Bisleri, Haldiram)


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Conclusion

Companies in India That HaveSuccessfully Met Competition byMultinationals & Domestic CompaniesHad A Spirit Of Innovation Not Only InTheir Products And Services But AlsoWith Reference To All Their ResourcesAnd Effectively Restructured Them In ATime And Cost Frame And MetCustomer Needs And Improved TheirTop And Bottom Line

global is at ion and its impact on india

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