Inc. is certainly on a roll. Having tightened their belts over
the past decade, Indian companies are now on a spending spree-enhancing
capacities and buying companies both in India and abroad. Spurring
them on are robust domestic demand and massive global opportunities.
"Indian companies today are taking gigantic steps,"
says Chanda Kochhar, Deputy Managing Director, ICICI Bank. And
she is not talking only of the kinds that Tata Steel is taking
in contemplating a takeover of Corus.
Over the past few years, Indian companies
have re-engineered their processes, reduced working capital cycles
and improved efficiencies several fold. The ensuing competitiveness
gains have spurred their ambitions even further. "The plans
made earlier are being implemented on the ground. Sustained economic
growth and the competitiveness of individual companies are enabling
that change," adds Kochhar.
Add to that the rapid build-up of infrastructure
and other large projects, (see Money's No Issue) and the figures
move into eye-popping territory. Topping the list of big spenders
are energy (oil and gas and power), metals and mining companies.
So, it's no surprise then that top bankers believe corporate India
could well end up spending around $200 billion (Rs 9,20,000 crore)
over the next few years.
A. Michael G. Rees, CEO, Wholesale Bank,
and Director, Standard Chartered Bank, estimates that Indian companies
will spend $150-200 billion over the next 3-5 years. He believes
this will be driven by the "internationalisation of the Indian
economy". The implication: more inbound fund flows and still
greater outbound flows.
Keeping pace with this changing macro-economic
environment is the mergers and acquisition activity both in the
domestic market and overseas. About 300 M&A deals, with a
total value of $13.7 billion (Rs 63,020 crore) have taken place
in the January-August 2006 period, according to Grant Thornton,
compared to 467 deals in 2005 valued at $18.2 billion (Rs 81,900
crore then). Stanchart expects the cumulative M&A activity
by Indian companies to rise to $70-100 billion (Rs 3,22,000-4,60,000
crore) over the next 3-5 years.
While domestic M&As are driven by the
economic rationale of consolidating often fragmented capacities
and increased efficiencies, the logic for overseas acquisitions
differs across acquirers-and spans acquisition of brands, marketing
and distribution networks and technology transfers.
And quite a few of these deals are, or can
be, transformational. "For instance, Tata Steel's proposed
acquisition of Corus, if it goes through, will transform the company
(to a large global one)," says Rohit Kapur, Head, Corporate
How will these plans be funded? "There
is abundance of capital. The challenge for companies is to access
the right kind of funds," Kapur says. A large majority (around
50 per cent or $100 billion or Rs 4,60,000 crore) of these gargantuan
spending plans will be funded out of cash accruals and equity
since Indian companies are generating sizeable cash flows. Companies
such as Maruti Udyog and Tata Steel have doubled profits over
the last two years. However, for smaller and mid-sized companies,
private equity is also emerging as a major source of funds.
On the debt side, while the exposure to foreign
debt is expected to increase, the pinch is likely to be felt on
the domestic side, though few will admit it today. The absence
of a deep and liquid bonds market is yet another constraint. Subir
Mehra, Head, Commercial Banking, HSBC India, believes that companies
will need to keep an eye out for changes in the demand scenario,
since "much of the incremental capacity addition in being
done with an eye on exports".
The slowdown in the US economy will also
need to be closely watched. A sharp look at cost structures is
the other area that HSBC India's Mehra expects corporates to keep
a watch on, "as we do not function in an environment where
shedding high cost structures is easy".
The fortnight's burning question.
Does the government's new Garibi Hatao
slogan mark a setback for economic reforms?
No. Subir Gokarn,
Chief Economist, Crisil
When the economy is growing at more than
8 per cent, you need to make the benefits of growth inclusive.
In any case, I don't see the government trying to wrest back the
ground it has already ceded to the private sector.
Sengupta, Economist and MP
The economic reforms that India has undertaken
are not only about growth, but also about alleviating poverty
and enhancing the well being of the people. So the latest slogan
is nothing but a recognition of India's pressing need to alleviate
poverty. It's obviously different from the Garibi Hatao slogan
of the 1970s.
Das, Columnist and Strategic Consultant
When the economic growth is helping the poor, where
is the need for Garibi Hatao? I suspect it reflects a mindset
that has already manifested itself in schemes like the National
Rural Employment Guarantee Scheme, which offers the poor jobs
that don't exist.
"Indian BPOs Are Very Secure"
Karnik, 59, president, NASSCOM,
tells BT's that
despite a recent sting operation by a British channel, India remains
a most trusted location for outsourcing. Excerpts:
How serious is the problem of data theft
in the Indian BPO industry?
India ranks highest in a detailed analysis
comparing 40 sourcing destinations across the world (The A.T.
Kearney Global Services Location Index 2005). And despite a few
security breaches and some media-instigated cases, India remains
very secure from a data protection viewpoint. A PWC study says
there are many more such cases in the US and the UK.
What is NASSCOM doing to tackle this issue
and what are the challenges you have faced?
NASSCOM has mooted the idea of constituting
a Self Regulatory Organisation (SRO) for the IT-ITEs industry
to help further upgrade data protection and security practices.
Industry is solidly behind this initiative and the first phase
of its rollout is already underway.
Will the Indian BPO industry be affected
by these incidents?
Offices which deal with such issues in the
UK, like the Information Commissioner, and even companies outsourcing
to India, have not indicated any special concern with regard to
outsourcing work here, because of the recent incidents. We do
not see any business impact of stray-and unverifiable-incidents
of alleged data theft.
Or Damp Squib?
|Keeping track: It's a long way away
from attracting traffic
city may have been the first station in the country to get partially
rigged for wireless internet access, but four months since its
launch, it doesn't seem to have taken off. Local officials blame
the lack of publicity for the slow offtake of pre-paid vouchers
that are required to access the web. "We sell around five
or six pre-paid Wi-Fi coupons every week at Bangalore City Station,
but we believe this amount will increase as more people become
aware of this facility," says a senior Railways official
in Bangalore. Despite the slow start, officials say they are now
gearing up to add more hotspots to the station and expect to soon
have the entire facility covered. "The few users who've accessed
the internet, have given us positive feedback," he says.
Incidentally, pre-paid vouchers are today restricted to the station
of purchase, but the railways is also planning to introduce "roaming"
pre-paid vouchers, costing Rs 20, with top-up amounts varying
between Rs 50 and Rs 500. "This could spur the growth of
our Wi-Fi initiative," the official adds. Verdict: The speed's
not too bad, but since passengers can access the net at just a
handful of locations (this writer tried it at the main concourse),
there's some way yet before it becomes pervasive. Railtel wants
to make 500 stations across the country Wi-Fi enabled. But its
pilot project in Bangalore seems to have been a damp squib.
Competition And Technologies
|Managing the future: Speakers at the
AIMA convention in Delhi
the economy revs up, it makes sense to peer into the future and
psych up for it. So, the All India Management Association's 33rd
National Management Convention, held in Delhi on October 6-7,
was appropriately themed 'Managing the Future', and attracted
an impressive roster of speakers-Peter Schwartz, Chairman, Global
Business Network of Monitor Group, (who is as well known as a
futurist as a business strategist), Mohanbir Sawhney, the McCormick
Tribune Professor of Technology, Kellogg School of Management
(named by Business- Week as one of the 25 most influential people
in e-business), and Raj Reddy, Mozah Bint Nasser University Professor
of Computer Science and Robotics, Carnegie Mellon University.
Schwatrz identified the increasingly real-time
trade in goods and services, new technology, spread of education,
and the growing middle class as the global "megatrends"
of the next decade. "The IT revolution has just begun and
quantum computing is only some years away," he reminded the
"China and India, in that order, will
be the world's largest economies after the us in less than 30
years, according to Goldman Sachs. That projection underlines
the need for the two Asian giants to collaborate in areas where
they complement each other," said Hong Chen, Chairman and
CEO, The Hina Group, a China-focussed investment banking and private
Speaking on the sub-theme of 'The Talent
Imperatives', Pramod Bhasin, CEO, Genpact, the BPO company, said:
"In future, management is increasingly going to be about
managing talent. The BPO sector, like other industries, has been
hungry for talent and hard-pressed to retain it. Today, every
employee in my industry has at least three job offers in hand
at any given point in time."
IT TO BT
|I saw that coming: Forrester's Colony
F. Colony, Chairman and CEO, Forrester, a technology and
market research company, is known to stick his neck out and make
bold predictions, most of which come true. Here are some more:
On why the US downturn will help Indian
companies: Tech spending in the US, which is projected to
grow 8 per cent in the current year, will slow down to 3-4 per
cent next year. When budgets are cut, low-cost destinations give
the biggest bang for the buck.
On the fourth wave in technology: It's
the X-Internet, for Executable or Extended Internet, and will
happen in 2008-09. (The first three waves were mainframe computing,
the PC wave and the network computing wave, each of which lasted
about 15-20 years). Even mission critical applications like ERP,
CRM or accounts payable or receivable will have ad-supported software
that is free in the hands of the end user.
On Indian IT companies.
They are at the apogee of their profitability.
As they grow larger and more international, cost structures will
start reflecting reality. They will continue to enjoy good times,
but it will never be as good as the present.
On why IT should be called BT.
It is no more just about information,
it is about business. It is time to call it Business Technology.
"We Are Excited About India's Talent"
Friedman, president and CEO,
Harper Collins Worldwide, was in India recently on a "long
overdue" visit. She spoke to BT's on the company's plans in this country. Excerpts:
Despite the huge English-speaking population
in India, the market for English language publications is a little
thin in this country. How do you propose to tackle this?
Let me begin by saying that we are excited
about our growth potential in India and equally excited about
its writing talent. Harper Collins is already among the leading
publishers here, but we need to do more. One way, obviously, is
to strengthen our retail and distribution network across the country.
Our distribution agreement with The India Today Group will make
our titles available in over 2,000 outlets across 80 cities and
towns. We are also looking at alliances with retail chains like
Reliance, Odyssey and Landmark to reach out to a wider audience.
Then, we also plan to fully utilise the potential of the internet.
It's a great marketing tool and we're exploring the possibility
of making some books partially downloadable. This will raise our
visibility in the market and help generate interest in our titles.
However, I must clarify here that we have no plans to actually
market e-books in India.
Any plans of entering the market for Indian
That is one of our focus areas. We are making
a beginning by publishing international bestsellers in Indian
languages. Harper Collins will soon launch The Chronicles of Narnia
by C.S. Lewis in Hindi. We are committed to serving the vast numbers
of local language readers by providing them with literature of
the highest caliber. In the same way, we are also committed to
deliver works by Indian authors to the wider reading public the
There is a feeling that Indian authors
have to write exotic literature to sell in the West...
(Laughs) It's part of the process of acceptance.
Twenty years ago, even British writers were considered exotic
in the US. It's just a matter of time before Indian authors also
become part of the global mainstream. Vikram Chandra and Vikram
Seth have already made that transition. They happen to be authors
who are Indians; but they're not considered "exotic"
Will you be outsourcing any core editorial
and design work to India as well?
It is high on our agenda and we are exploring
opportunities in this regard. Price is an obvious driver, but
we have to keep in mind that very aggressive pricing can also
devalue a book.
Kingdom Goes Into Overdrive
Disney Company India seems to be getting its act together in India.
The company bought Hungama TV, a cable and satellite channel for
children, for $30.5 million (Rs 140.3 crore) three months ago,
announced a franchisee agreement with Delhi-based RJ Corp last
week to launch Disney Artist, a retail chain that sells its branded
stationery and craft products, launched Disney Jeans, an apparel
brand and also plans to launch its global news channel, ABC News,
on Dish TV. Besides, it will produce films in India. New mobile
phone and internet properties are also on the anvil. "I expect
all our businesses to grow three-to-four fold in the next two
years," says Rajat Jain, Managing Director of the company.