Indian Multinationals This page intentionally left blank Indian Multinationals The Dynamics of Explosive Growth in a Developing Country Context Amar K.J.R. Nayak Palgrave macmillan © Amar K.J.R. Nayak 2011 Softcover reprint of the hardcover 1st edition 2011 978-0-230-29860-6 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6–10 Kirby Street, London EC1N 8TS. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The author has asserted his right to be identified as the author of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2011 by PALGRAVE MACMILLAN Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of St Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN 978-1-349-33480-3 ISBN 978-0-230-30871-8 (eBook) DOI 10.1057/9780230308718 A catalogue record for this book is available from the British Library. A catalog record for this book is available from the Library of Congress. 10 9 8 7 6 5 4 3 2 1 20 19 18 17 16 15 14 13 12 11 Contents List of Figures viii List of Tables ix Preface xii Acknowledgements xv 1 Introduction 1 Premises 1 Analytical framework 3 Structure of analysis 5 2 Logic and Dynamics of Firm Growth 7 Theories of firm growth 7 Control and efficiency 10 Global structure for industrial growth and regulation 12 Country-specific characteristics and advantages 17 Rapid changes in regulations 20 Network dynamics of growth 22 3 Globalization: Asymmetry Perpetuation and Growth 27 Introduction 27 General perspectives of globalization 29 Globalization and the role of the state 31 Globalization in a developing country context 33 Globalization in and of India 36 Precursors to globalization 40 Perpetuation of asymmetric positions of firms under LPG 43 Globalization: the struggle between firm and society 47 4 Growth of Indian Multinationals 49 Growth patterns of traditional and emerging multinationals 49 Evolution of Indian business houses 53 v vi Contents National development-oriented growth: 1947–77 55 Precursor to explosive growth: 1977–91 60 Explosive growth phase: 1991–2010 62 5 A.V. Birla Group 92 Introduction 92 Genesis of the Birla group and generations of diversifications 100 G.D. Birla phenomenon 116 Managerial processes and methods of growth 125 Project execution 128 Leveraging the industrial policy changes since 1991 132 6 Tata Sons 150 Introduction 150 Trusts and development activities of the Tatas 158 Industrial pioneers and building of goodwill 169 Tata Sons shaping industrial policies in India 176 Building the Tata brand 185 Corporate and management restructuring 186 Financial restructuring and resource reallocation 188 Raising capital, resources and capabilities 189 Has growth been at the cost of principles? 198 7 Reliance Industries Limited 206 Introduction 206 Dhirajlal Hirachand Ambani 210 Building manufacturing plant capacity 211 Growth through acquisitions and mergers 223 Growth through international acquisitions 227 Firm–industry–government network 235 Ambani business strategies 241 Contents vii 8 Asymmetries and Firm Growth 246 Sources of asymmetries 246 Perpetuation of asymmetries 248 Asymmetric growth factors and sustainability 250 Notes 255 Bibliography 259 Subject Index 266 Author Index 272 List of Figures 2.1 Network dynamics of firm growth 25 3.1 Sector-wise percentage share of FDI, 1921–2000 36 4.1 Growth in assets of the top 15 Indian private companies 88 4.2 Growth in revenue of the top 15 Indian private companies 89 4.3 Growth in PBDITA of the top 15 Indian private companies 90 5.1 Birla family tree 114 5.2 J.R.D. Tata’s letter to G.D. Birla regarding business delegation to England and the US 121 5.3 The Birlas’ present network within government, industry and regulatory bodies 130 6.1 Tata trusts 172 6.2 A section of the Tata family tree 174 6.3 Timeline of the Tata group 177 6.4 Letter from J.R.D Tata to G.D. Birla regarding shaping government of India policy 181 6.5 Network of Tata Sons and directors of Tata group 182 6.6 Branding strategy of Tata group of companies 185 6.7 Cross-holdings of Tata group listed firms during the financial year 2000 190 6.8 Cross-holdings of Tata group listed firms during the financial year 2005 191 7.1 Vertical integration of Reliance Industries Ltd 222 7.2 Reliance’s financial engine 244 viii List of Tables 2.1 Comparative socio-economic-geographic and infrastructure position of the BRIC countries 18 3.1 History of FDI in India: 1882–2005 37 3.2 Privatization in Europe, 1981–2008 42 3.3 Privatization in BRIC nations, 2000–8 43 3.4 Disinvestment of PSUs in India, 1991–2009 45 3.5 Gini index of a few industrially advanced countries and BRIC countries, 1975–2007 46 4.1 Private business group buyers of some key state-owned enterprises through the disinvestment policy of the government of India 66 4.2 Mergers, takeover of equity stakes, purchase of assets by top 20 Indian private firms, 1991–2010 68 4.3 Growth in size and profits of the top 100 Indian private and state-owned companies 80 4.4 Exports of the top 50 Indian private companies, 2010 91 5.1 Major companies of the Birla group 93 5.2 Key financial indicators, Hindalco Ltd 95 5.3 Major milestones of Hindalco Ltd 96 5.4 Key financial indicators, Grasim Ltd 98 5.5 Major milestones of Grasim Industries 99 5.6 Financial history of Aditya Birla Nuvo Ltd 101 5.7 Major milestones of AB Nuvo Ltd 102 5.8 Financial history of Idea Cellular Ltd 103 5.9 Major milestones of Idea Cellular Ltd 104 5.10 International companies of A.V. Birla group 105 5.11 Major companies of the Birla brothers and their key financial indicators 108 5.12 Trusts and foundations of the Birlas 129 ix x List of Tables 5.13 Grasim Industries: acquisitions, mergers and restructuring 133 5.14 Hindalco: acquisitions, mergers and restructuring 134 5.15 AB Nuvo: acquisitions, mergers and restructuring 135 5.16 Hindalco: mode of raising capital and restructuring 136 5.17 Group companies of Hindalco Industries Ltd, 2007–8 137 5.18 Grasim Industries Ltd: modes of raising capital and restructuring 139 5.19 Group companies of Grasim Industries Ltd, 2007–8 139 5.20 AB Nuvo: modes of raising capital and restructuring 140 5.21 Subsidiaries of AB Nuvo 141 5.22 Equity base of Hindalco 142 5.23 Equity base of Grasim Ltd 144 5.24 Equity base of AB Nuvo Ltd 145 5.25 Shareholding structure of Birla group companies 147 6.1 Financial history of Tata Sons Ltd 151 6.2 Subsidiary companies of Tata Sons Ltd 152 6.3 Comparative study of key financial figures of the Tata firms 154 6.4 Tata Steel Financial: 1931–2008 159 6.5 Financial history of Tata Steel Ltd 160 6.6 Financial history of Tata Motors Ltd 161 6.7 Financial history of Tata Consultancy Services Ltd 162 6.8 Financial history of Tata Power Ltd 163 6.9 Financial history of Tata Communications Ltd 164 6.10 Financial history of Tata Chemicals Ltd 165 6.11 Financial history of Tata Tea Ltd 166 6.12 Financial history of Tata Investment Corp. Ltd 167 6.13 Financial history of Indian Hotels Ltd 168 6.14 Financial history of Tata Teleservices Ltd 169 6.15 Sir Dorabji Tata Trust 170 6.16 Shareholders of Tata Sons 173 6.17 Fostering the brand Tata: heights attained by Tata chairmen 175 List of Tables xi 6.18 Tata group initiatives in labour welfare 176 6.19 Milestones of the Tata group 178 6.20 Business policies that regulated the iron and steel industry of India 183 6.21 Extent of Tata Sons Ltd’s interest in subsidiaries 192 6.22 Book values of Tata Sons Ltd: quoted and unquoted investment 194 6.23 Merger and acquisition activities considered by the Tata group 199 6.24 International projects by the Tata group 202 7.1 Financial performance of Reliance Industries Ltd 208 7.2 Growth milestones, RIL 213 7.3 Reliance manufacturing facilities 217 7.4 Business division and growth of Reliance 219 7.5 Asset base of RIL through control of IPCL 225 7.6 Mergers and acquisition direct deals of RIL 226 7.7 Various group companies of Reliance, 2008 228 7.8 Major subsidiaries and associate companies of RIL 231 7.9 Brief description about GAPCO 233 7.10 Brief description about Trevira 234 7.11 Textile policy in India 237 7.12 Oil and Gas Policy, 1991–2008, government of India and Reliance Industries 238 7.13 Telecom Policy and Regulations 239 7.14 Telecom circles and growth of Reliance Telecom business 240 7.15 RIL financial milestones 242 Preface Several Indian firms have grown explosively for about two decades, after India adopted wholesale neo-liberal policies in 1991.