M&M's Anand Mahindra: Taking on the US auto giants

The rise of nations as economic powers has been accompanied with their attempt to capture the mindshare and wallet of the US consumer. With consumption contributing to more than 70 per cent of the global gross domestic product, the large and lucrative us market remains the ultimate destination for any international company.

Japan, as it recovered from the World War to emerge an economic superpower, launched its assault on the US automobile market in the 70s. The J-three (Toyota, Nissan and Honda), by 1980, had captured about 22 per cent of the cars and trucks market in the US. Today, Toyota's strong presence in the world's largest market (North America contributes 34 per cent of Toyota's sales and 43 per cent of its profit) could enable it to emerge as the world's largest car manufacturer, overtaking General Motors. Meanwhile, consumer electronics majors like Sony, Matsushita and Sharp replicated the success of their automobile counterparts by capturing more than 50 per cent of sales of television sets in the US. Korean chaebols Samsung, Hyundai, LG too followed the same path as Japan. Samsung made an effective transition from a strong local player to a major international brand by adapting the brand to fit the needs of the foreign markets. And then China demonstrated its new-found confidence when Lenovo acquired Big Blue IBM's PC division, making it the third largest pc maker in world. Till then, Chinese products could be found in every us retail store, but with a us label.

Indian companies are now taking their first, although tentative, steps towards this mother of all markets-and with their own labels. The phenomenon is a result of Indians shedding their inhibitions about the 'Made in India' brand, explains Brand Consultant Harish Bijoor of Harish Bijoor Consults. "Earlier, anything made in India was considered a lousy or cheap product. That is not the case anymore. Indian brands are getting aspirational and want to move out of the artificial territories they created of being within their country. The first overseas impact was made by technology firms, the second will come from physical brands," adds Bijoor. Investment bankers responsible for running cross border acquisitions concur. Says Udayan Bose, a veteran investment banker and Chairman of Thomas Cook (India) Ltd: "Per capita consumption of any product is the highest in the us, so it is only logical for consumer product companies to want a share of the pie." Adds Amit Chandra, Managing Director and Head (Global Markets and Investment Banking), DSP Merrill Lynch, "It is the most competitive market globally, but offers those who can penetrate it the advantages of unmatched business volume and fair business environment."

Yet, Bose is cautious. While he believes that corporates today have the cash and ability to invest overseas, he sees a greater opportunity for sectors such as it, rather than Indian FMCG companies. "I don't see deals such as the Tata Tea one happening with other FMCG companies. There are no Indian brands in the top 100 global brands, so how can you expect one that occupies say number 299 to suddenly explode on the us scene and make a mark? It's difficult and unlikely. Tata Tea's was an opportunistic acquisition," explains Bose.

What he says is true. Indian it majors like Infosys, Wipro and TCS have been building their brands in the US for more than a decade now. (Of the cumulative 306 outbound acquisitions tracked by FICCI from January 2000 to July 2006, the it services/BPO sector accounted for 28 per cent with 90 deals across the globe.) An FMCG company, Tasty Bite Eatables did take its ready-to-serve products to the US markets a decade ago. As CEO Ashok Vasudevan recalls: "Building a brand in the us is arduous, time-consuming, expensive and often proves to be a very steep learning curve. It has taken us this long to establish Tasty Bite as India's largest food brand in the US. While this has taken time, the resultant sales, marketing and supply chain infrastructure became robust, scaleable and can now be used to carry other products and brands. This also acts as a strong entry barrier."

Tasty Bite may well be an exception, as it targets mainly people of Indian origin. Yet, perhaps taking inspiration from the J-three, it is clear that the US is a market Mahindra & Mahindra cannot afford to ignore in any of its businesses. While it set up a separate tractors company in Texas in 1994, Anand Mahindra, Managing Director, is looking to set up Mahindra Finance outfits in the US. In a recent interview to Business Today, Anand Mahindra said: "This will help us finance our tractors and vehicles, and it will start just as it did in India by financing our own products and services."

But the question everyone is asking Anand Mahindra is: When will he launch the Scorpio in the US? "Like the tractor in the us, the Scorpio has done the same thing in South Africa. The hardest market to crack is the us market." Is it possible to crack it, then? "Nothing has taken the us off our radars, and if you're making vehicles you always want to try to crack the us market. With a specialist product like ours, it's much easier," he adds.

Indian Hotels' Bickson: Making Taj a global brand

Meanwhile, the Indian textiles industry too is trying to make inroads into the $30 billion (Rs 1,41,000 crore) US and EU home textiles market by aligning its low cost manufacturing base with us-based brands. Gujarat Heavy Chemicals Ltd (GHCL) has chosen a different path by recently acquiring Dan River, the third largest player in the us home textiles market and the owner of the brand 'Bed in a Bag' and preferred supplier to large retailers like JC Penny and Linen & Things, Wal-Mart and Bed, Bath & Beyond. Says R.S. Jalan, Joint Managing Director, "The us is one of the largest markets no company can afford to ignore, and acquisitions provide the opportunity to quickly move in that market with a ready customer base and infrastructure in place."

As India readies to open up its banking industry to competition by 2009, and Indian banks strengthen themselves to face the onslaught of new entrants, the larger players like SBI and ICICI Bank too might look to establish more meaningful operations in the US. The foray, however, say industry sources, will depend on the US regulators, who have stringent 'know your customer' norms. As of now, the case appears weak in the wake of rising terrorist activities across the globe.

Another Tata company that's eyeing the US is Indian Hotels. The company entered into a 30-year lease deal with Pierre Hotels in New York in July last year. "We are concentrating on the us (east and west coast), Sydney, Dubai, Thailand and China," Managing Director Raymond Bickson told BT recently. The company, in five years, aims to have a third of its revenues from overseas operations. The provocation for outbound growth is clear: "If the Hyatts and Hiltons of the world have entered India, why can't IHCL with the Taj brand in tow, build its own global network and leverage loyalty programmes and fill rooms in India and overseas," adds Bickson.

Companies like Indian Hotels, Tata Tea, M&M and GHCL are showing the way. Many more will follow.