Here is a question that was posed to a panel of marketers –
If “Made in Japan” – stands for quality, and, “Made in China” – stands for price then what does “Made in India” – stand for?
Of course they failed to resolve the issue and arrive at a consensus.
In the last few years Indian companies have been making foreign acquisitions. India is a new kid on the M&A block. Our activity, in the last five years has been a mere 1.4% of GDP with neighbouring China over 6% of their GDP. Some would say what were these companies thinking? Our track record has not been that great. Let me put things in perspective – we are as good or as bad as the international companies.. Just 3-4 companies out of 10 are successful in delivering shareholder value. Our last few big acquisitions accounting for 30% of total acquisitions have been Tata Steel buying Corus, Tata Motors buying Jaguar and Land Rover, Birla acquiring Novelis …….
Of these only two have delivered any value; Aditya after struggling for 5 years is not giving 8% return – nothing to write home about – and Tata Motors of course has done exceedingly well.
The reasons are the same as in the rest of the world – bad timing hitting the bottom of the economic cycle and over paying
Taj Hotelshave been making a host of acquisitions – considering these are prime location properties and the top dollar they must have paid one wonders if they will make any money given the predicted occupancy and room rates. So why does stand out head and shoulders above the rest – they not only bought a marquee brand but also bought the innovation pipeline. That has helped them launch new models and capitalise on the growing demand for Land Rover in China. What happens when the pipeline dries up – anybody’s guess since Tatas have not had a great record in passenger cars.
What does Made in India stand for in the international market – this is a question uppermost in companies on a buying spree. You do begin to get a sense of where they are heading when Tata Tea buys Tetley but does not prefix it with Tata or leaves Jaguar as a stand alone brand.
IT was Y2K that put India on the global business map. Companies like Infosys, WIPRO, TCS etc became the poster boys for Indian business. It was the cost arbitrage at the lower end of the value chain that started them off. Offshoring and outsourcing became buzzwords earning the sobriquet of ‘clever, hard workd IT guys’. One of our best exports has been CEOs to global companies. Unfortunately, 12 years on they still operate in the same space without moving up the value chain. Nano signalled to the world that we were very good at lo cost innovations. Scorpio became known to the world as a best value for money – Mahindras designed it a fraction of the cost in India. However the design was adapted here – it was not a breakthrough in auto design. Mahindra tractors are sold to hobby farmers in the US as an affordable – lo cost option to their rivals – John Deere. Taj Hotels might be top end hotels in India but abroad they fight against the mid tier segement hotels. We have signalled to the world we do ‘affordable quality’ and ‘good management pool’. Unfortunately, IT companies are now struggling ; the west countries faced with recession unemployment are now trying to bring jobs back home and as the rupee gets stronger Indian IT companies get uncompetitive. In addition there are other countries that are now vying for the IT dollars – in Latin America and Asia. And if you add poor infrastructure, terrible governance, corruption, lack of reforms and political will – India begins to stand for a question mark – there seems to be consistency in our message. So India evokes the response –‘ you never know with them’
Indian companies are employing different strategies as they move outwards. They are looking to leverage low cost innovations built on scale in the home market. Godrej and Marico are buying companies in similar emerging markets with similar needs and consumer segments. They are also exploring niche markets that are below the radar of MNCs. Marico has produced a hair gel that does not use alcohol – a winner in the Middle Easter markets. Titan is producing water proof watches for this market where hands are washed more often and meticulously before reading of the prayers 5 times a day. However, these remain niche markets and are unlikely to threaten global players.
Unless Indian companies start spending significant amounts on R&D they will not be able to compete in the global markets and compete with the big boys. We spend 0.9% of our GDP on R&D, South Korea, Japan, China and the US are all close to 3%. In a recently published report by BCG on the top 50 innovative companies in the world – 4 were Chinese and not a single Indian company.
We cannot forever be the backroom boys, tweaking and adapting foreign designs and providing cheap intellectual capital to MNC rushing to set up R&D centres that are only churning out more of the same global brands this time adapted for Bottom of the Pyramid.
Given today’s economic scenario, how sustainable are global acquisitions by Indian companies?
Made in Japan’ stands for quality, ‘Made in China’ stands for price, What does ‘Made in India’ brand stand for?
What are the strategies employed by Indian brands to succeed abroad? What are the challenges?
Here is a question that was posed to a panel of marketers –
If “Made in Japan” – stands for quality, and, “Made in China” – stands for price then what does “Made in India” – stand for?
Of course they failed to resolve the issue and arrive at a consensus.
What does Made in India stand for in the international market – this is a question uppermost in companies on a buying spree. You do begin to get a sense of where they are heading when Tata Tea buys Tetley but does not prefix it with Tata or leaves Jaguar as a stand alone brand.
In the last few years the world has watched in amazement and fascination as Indian companies have been making foreign acquisitions. India is a new kid on the M&A block. Our activity, in the last five years has been a mere 1.4% of GDP with neighbouring China over 6% of their GDP. Some would say what were these companies thinking? Our track record has not been that great. Let me put things in perspective – we are as good or as bad as the international companies.. Just 3-4 companies out of 10 are successful in delivering shareholder value. Our last few big acquisitions accounting for 30% of total acquisitions have been Tata Steel buying Corus, Tata Motors buying Jaguar and Land Rover, Hindalco acquiring Novelis . Bharti Airtel buying Zain
……
As of now, only two of these have shown the ability to increase profits and only one ie jaguar has delivered a good return on capital.
Of these only two have delivered any value; Aditya after struggling for 5 years is not giving 8% return – nothing to write home about – and Tata Motors of course has done exceedingly well.
The reasons are the same as in the rest of the world – bad timing hitting the bottom of the economic cycle and over paying
Let us look deeper at one group, the Tatas.
They have been hugely successful with Jaguar where they have bought a GREAT BRAND and A GREAT INNOVATION PIPELINE which they have launched to grow Jaguar and capitalise on Land Rover demand especially in China.
On the other hand, Tata Steel is struggling with the economic cycle.; it is hard to say whether it will ever deliver a great Return on Capital.
Or take the TATA acquisitions in hotels? Will TATA hotels ever make money with their international acquisitions.,,,probably not! Given the prices they paid for their properties in the developed world and current and predicted room rates.
So the devil is in the detail
Some will work some will not
IT was Y2K that put India on the global business map. Companies like Infosys, WIPRO, TCS etc became the poster boys for Indian business. It was the cost arbitrage at the lower end of the value chain that started them off. Offshoring and outsourcing became buzzwords earning the sobriquet of ‘clever, hard workd IT guys’. One of our best exports has been CEOs to global companies. Unfortunately, 12 years on they still operate in the same space without moving up the value chain. Nano signalled to the world that we were very good at lo cost innovations. Scorpio became known to the world as a best value for money – Mahindras designed it a fraction of the cost in India. However the design was adapted here – it was not a breakthrough in auto design. Mahindra tractors are sold to hobby farmers in the US as an affordable – lo cost option to their rivals – John Deere. Taj Hotels might be top end hotels in India but abroad they fight against the mid tier segement hotels. We have signalled to the world we do ‘affordable quality’ and ‘good management pool’. Unfortunately, IT companies are now struggling ; the west countries faced with recession unemployment are now trying to bring jobs back home and as the rupee gets stronger Indian IT companies get uncompetitive. In addition there are other countries that are now vying for the IT dollars – in Latin America and Asia. And if you add poor infrastructure, terrible governance, corruption, lack of reforms and political will – India begins to stand for a question mark – there seems to be consistency in our message. So India evokes the response –‘ you never know with them’
In the global market the India brand first caught global attention with the IT companies, Infosys, TCS and WIPRO gaining momentum with their work over Millenium 2000 Since then the IT brand is well established, but in the ” low value added” end of the market
This is the key challenge for Brand India… It is seen as good at “affordable products” but not with any leading technology
Even in the case of Jaguar, Tata Motors bought both the brand and innovation pipeline. They did not export the innovation from India.
Mahindras were able to develop an affordable SUV the Scorpio as they designed it in India at one fourth the design cost.( 120m$). They are now able to export this to other emerging markets but do not seek to compete in the premium SUM market
Take the TAJ hotels abroad. In India the Taj is the epitome of luxury and service. Internationally the TAJ acquired properties are nowhere near the top end. They are in the middle league.
Another export from India is “Good management talent” IIT graduates are well known in every corner of the world especially in Silicon Valley. And there are several Indian managers who have made their mark in the international board room. Multinationals like Unilever and Citigroup were amongst the first to spot and leverage Indian talent globally, and today this is being done by many companies.
So I would summarise this as saying that the Indian Brand stands for
AFFORDABILTY
GLOBAL MANAGERS
Q1. How sustainable are global acquisitions given the global scenario?
Let me put this into perspective….
India is just about getting into the global M&A game In the last decade Indian acquisitions represented a mere 1.9% of the worlds which is less than our fair share ( India’s share of global GDP is 2.6%)….China at 6.2%.
Second, just like everywhere else in the world, the success rate at delivering real value is low
Globally only 3 or 4 out of 10 acquisitions deliver meaningful value to the shareholders.
It is too early to estimate the success rate of Indian global M&A, but my hunch is that the success rate will be lower.
The Economist recently analysed the big four acquisitions in the last five years …
Tata Steel buying Corus
Tata motors buying Jaguar
Hindalco buying Novelis
Bharti Airtel buying Zain
As of now, only two of these have shown the ability to increase profits and only one ie jaguar has delivered a good return on capital.
Why?
For the same reason as global acquisitions from any country….
Either they happen at too high a price!
Or they are at the wrong timing in terms of the global economic cycle…
Let us look deeper at one group, the Tatas.
They have been hugely successful with Jaguar where they have bought a GREAT BRAND and A GREAT INNOVATION PIPELINE which they have launched to grow Jaguar and capitalise on Land Rover demand especially in China.
On the other hand, Tata Steel is struggling with the economic cycle.; it is hard to say whether it will ever deliver a great Return on Capital.
Or take the TATA acquisitions in hotels? Will TATA hotels ever make money with their international acquisitions.,,,probably not! Given the prices they paid for their properties in the developed world and current and predicted room rates.
So the devil is in the detail
Some will work some will not
Companies would be well advised to use the same disciplines that drive success in global M&A Buy STRATEGIC ASSETS Buy THEM AT THE RIGHT TIME AND RIGHT PRICE.
It is crucial to have the discipline to walk away if the price during what can be a very competitive process goes higher than what you believe to be fair.
Q2. What does brand India stand for?
In the global market the India brand first caught global attention with the IT companies, Infosys, TCS and WIPRO gaining momentum with their work over Millenium 2000 Since then the IT brand is well established, but in the ” low value added” end of the market
This is the key challenge for Brand India… It is seen as good at “affordable products” but not with any leading technology
Even in the case of Jaguar, Tata Motors bought both the brand and innovation pipeline. They did not export the innovation from India.
Mahindras were able to develop an affordable SUV the Scorpio as they designed it in India at one fourth the design cost.( 120m$). They are now able to export this to other emerging markets but do not seek to compete in the premium SUM market
Take the TAJ hotels abroad. In India the Taj is the epitome of luxury and service. Internationally the TAJ acquired properties are nowhere near the top end. They are in the middle league.
Another export from India is “Good management talent” IIT graduates are well known in every corner of the world especially in Silicon Valley. And there are several Indian managers who have made their mark in the international board room. Multinationals like Unilever and Citigroup were amongst the first to spot and leverage Indian talent globally, and today this is being done by many companies.
So I would summarise this as saying that the Indian Brand stands for
AFFORDABILTY
GLOBAL MANAGERS
Q3. Taking Indian brands abroad
Some companies have been successful in
A )leveraging their scale in India to be low cost operators elsewhere Ala Mahindras with the Scorpio
B )tackling niche markets globally that other MNcs are not focused on eg Marico Godrej They have taken their brands and products and focused on the niche segments which they serve so well in India, which are too small for the big multinational companies to serve
But Indian companies will find it very difficult to truly build a global brand till they invest in TECHNOLOGY ala Samsung LG etc .
Indian spend on R&D is about 0.9% of GDP. This compares with China at 1.5% of GDP which because of the size of the Chinese GDP makes it the second largest absolute R&D spend country after the US!
South Korea spends about 3.4% of GDP, Japan spends about 3.5% of GDP, and the US spends about 2.8% of GDP. It almost appears that you need to spend about 3% of GDP to be world class leader in technological innovation.
It is not surprising then that it is hard to identify even one Indian company which has brought technological breakthroughs to the world or indian market that they can use to develop a global brand organically.
On the other hand, the Korean companies, Samsung or LG did just this by producing outstanding new products and priced them cheaper! That is how they built the brand.
Look at the indian IT companies…they are all stalling because they have not been able to innovate up the value chain.
China too started with companies that used scale to deliver low cost manufacturing. However, a number of Chinese companies are now moving up the technology chain and providing new innovations to China and to the world. BCG recently published a list of the 50 most innovative companies in the world. 4 of these were Chinese. ( needless to say, none were Indian). These were BYD, Haier, Lenovo, China mobile.
I am sure you must have heard of the last three…let me tell you about BYD. It started only 17 years ago and is in IT, Automobile, New energy. It beat Toyota, GM and Nissan to market with a hybrid car. And has now launched a full electric car with a range of 300 km based on its unique lithium iron, ferrous phosphate battery which costs 50% less than a Lithium Iron battery and lasts twice as long, and the battery fluid is non toxic( the CEO recently drank it in public)
So china will surely develop global brands as Japan and Korea did. India will need to invest in technology before it can do the same.