| Sunil Munjal, MD, Hero Honda: Treading
the middle path
The press note 18-a policy that denies
foreign companies automatic approval for new projects if they have
a JV/technology transfer agreement in India-has always evoked strong
reactions ever since its introduction on December 14, 1998. Whilst
the division between the pro-changers and no-changers has always
been clear, of late there seems to be some meeting ground. Says
Sunil Munjal, MD, Hero Group: "Press Note 18 should continue,
but it must be modified so that the interests of both the domestic
and foreign players are protected." Last fortnight, reports
indicated that the PMO was almost ready to consign Press Note 18
Munjal's argument for its continuation is simple. "Infrastructure
issues are far more important in attracting foreign investments."
After all, fulfilling the obligations of Press Note 18 simply means
getting a "no-objection certificate" from the Indian partner
and nothing more.
But many analysts remain convinced about the restrictive power
of this note since it does not treat foreign players on an equal
footing. It also allows the government to intervene in matters that
are in the domain of the contracts, and hence should be settled
between the two parties in the court of law.
The note, according to many analysts, becomes a weapon in the hands
of Indian partners for extracting greater exit value or challenge
termination, which may otherwise be legally and contractually valid.
It also enables the Indian partner despite not having a "non-exclusive
arrangement" to refuse an "NOC'', in which case there
is very little that the foreign partner can do, except take recourse
to the courts on specific issues. As Vivek Mehra, Partner in the
consulting firm PricewaterhouseCoopers, point outs: "If the
parties had agreed to an exclusive agreement then it should be respected
and left to the commercial understanding of the parties.''
But the no-changers too have their own justifications. "Suppose
Honda were to walk away from Hero overnight and stop the supply
of technology while creating a 100 per cent subsidiary of Honda,
what would happen to the shareholders of the Hero-Honda brand? What
would happen to the loans from financial institutions like IDBI,
IFCI and ICICI?" he asks.
After all, both of them have worked together to develop the brand
and one partner cannot just leave the other in the lurch. So the
needs and interests of shareholders and promoters should be considered.
That's food for thought for the PMO.
Parmar Takes On Dhoot
The raider wants respect, not quick bucks.
| Ashok Kumar Parmar: Springing a surprise
Parmar's clearly done his research when buying
into the company. He acknowledges that "the shares are one
of the lowest priced in the industry"-only three months ago,
Videocon Appliances was hovering around par levels-that the company
has a high book value (Rs 73), and a low promoter's holding (the
Dhoots control 36.7 per cent). But you have to wonder whether the
man's serious when he says he's bought into Videocon "to secure
my children's future"-two of his three sons have studied at
So how far will Parmar go with Videocon? The
stock price has more than doubled in the past couple of months,
and even if Parmar doesn't get that board seat, he-along with many
small investors-would have made a neat killing. That's one way of
unlocking value, Mr Dhoot.
Up Isn't Easy
Doing business in India is a pain. Nepal or
Bhutan make more sense, reckons the World Bank.
|It's official now: Starting a business
in India is akin to asking for a headache
Doing business in India continues
to be an extremely difficult proposition,'' contends Simeon Djankov,
Manager, Monitoring Analysis and Public Unit at the World Bank.
Djankov should know. After all, as the author of the recent World
Bank study on Doing Business In 2005, he has studied in minute detail
the regulatory cost of doing business in as many as 145 countries.
The parameters, which among others include entry regulations (cost
of starting a business), employment regulations (hiring and firing
of workers), property regulations (registering and transfer of property),
and bankruptcy regulation (closing of banks), clearly indicate that
the business of doing business is still a costly affair.
Take the issue of starting a business, for instance, both in terms
of the time required and the cost involved. While it needs just
five days to start a business in the US and just two in Australia,
in India it takes as many as 89 days. What really hurts is that
even in neighbours Pakistan, Nepal and Bangladesh, it takes just
24, 21 and 35 days respectively to start up. The reasons for such
delay, as Djankov points out, are simply too many rules and regulations,
and too much paperwork.
Starting a business in India is also a costly affair. On an average
it would cost an entrepreneur nearly half his total income (or 49.5
per cent of the gross national income per capita), which is 100
times more when compared to setting up a business in the US. Again
poorer cousins Bhutan, Pakistan and Sri Lanka are better off.
Even running a business in India can be expensive. Firing costs,
calculated in terms of the notice period that has to be given to
a worker, are on the higher side. Firms in India have to give an
average notice of 79 weeks, compared to eight weeks in the US and
virtually no time in New Zealand. While China may be lagging behind
India in terms of giving termination notice-90 days-that does not
provide a true picture, says Djankov. "There are a number of
other work contracts available in China, which require little or
no termination notice,'' he adds.
But where India lags behind most countries is in the time needed
to register property and in the actual cost of registration. In
both cases, costs are extremely prohibitive and not for the faint-hearted.
For instance, while it takes only one day to register property in
Norway, 49 days in Pakistan and 44 in Bhutan, it takes 67 days to
register property in India. And the registration costs too are huge-13.9
per cent of the total value of the property. It is only 5 per cent
in the US, 3.1 per cent in China, 4.2 per cent in Pakistan and 1
per cent in Bhutan. Even in other regulatory issues such as the
time required to go through insolvency (10.3 years), and contract
enforcement (425 days), India clearly remains a laggard.
So what should India do to put things in order? "India desperately
needs to bring in administrative reforms,'' contends Djankov. In
simple terms it means bringing in a more flexible labour policy,
reform the painfully-slow judiciary and drastically cut down red-tapism,
to allow much-needed foreign direct investment to flow in. Yeah,
Insurance outsourcing will be worth close to
$800 million by 2007.
If outsourcing is today's sunrise
industry, it's close to high noon for the banking, financial services
and insurance (BFSI) vertical, which generated revenues of $1.1
billion (Rs 5,060 crore) in 2003. Break that up further and you
have a flourishing insurance segment, which accounted for $367 million
(Rs 1,688 crore) last year of the BFSI sector. And that figure is
expected to grow to $790 million (Rs 3,634 crore) by 2007, according
to an insurance outsourcing report put out by Pune-based research
and business intelligence firm, ValueNotes Database. Unsurprisingly,
63 per cent of those revenues are courtesy business from the US.
If all these numbers appear mammoth, remember they're just a fraction
of the global market for global insurance outsourcing, which was
worth all of $6.8 billion (Rs 31,280 crore) in 2003. In just the
US-which accounts for 63 per cent of the Indian insurance outsourcing
pie-there are some 2,700 companies selling insurance. The good news
for India and other offshore destinations is that these companies'
shrinking margins and higher claims disbursement coupled with increasing
competition leaves them with little choice but to look at outsourcing
and, more importantly, offshoring to improve efficiencies. ValueNotes
estimates that offshoring to countries like India or Philippines
can yield savings from 10 per cent to 33 per cent or more depending
on the number of processes outsourced.
Unsurprisingly then, a number of global insurance majors have
redirected chunks of their business to Indian shores. The UK-based
Cox Insurance Holdings, for instance, has handed out a $246 million
(Rs 1131.6 crore), 10-year contract to CGI Europe, which will execute
the project out of facilities in India and Canada. Another UK insurance
major Aviva has annual contracts worth $50 million (Rs 230 crore)
with Indian outsourcing firms WNS, EXL and 24 by 7. Then, global
outsourcing firm CSC has bagged a $700 million (Rs 3,220 crore),
10-year contract from Swiss Re Life & Health, which will be
executed out of centres across the world including India.
Meantime yet another UK insurance giant, Prudential, set up a
captive unit in India last year. Other insurance companies that
have outsourced to India either through captives or third party
players over the past year are AXA Sun Life, Cornhill Direct and
Metlife and Australia Insurance Group. India it seems is assured
of a fair chunk of the offshore insurance pie.