Investment spree follows explosion in entrepreneurship
Thursday, 6 September 2007
Joe Leahy
IN this year's hit Bollywood movie Guru, the film's main protagonist, a rags-to-riches businessman, gives a rousing speech against state interference in industry in the era before India's 1991 market reforms. "When I wanted to work hard and earn, I found all doors were closed to a poor man like me," the businessman, Gurukant Desai, rails. "But I could not take no for an answer and was prepared to do whatever it took to open the door - if it needed to be kicked down, I did it. Because I wanted to become rich."
Loosely based on the life of Dhirubhai Ambani, the industrialist who built the country's largest private company, Reliance Industries, the film attempts to capture the spirit of the evolution of the Indian corporate - the transition from traditional industrial groups protected by state-sanctioned monopolies to the entrepreneurial classes of today. This has been so successful that Indian companies today view themselves as globally competitive. The trend culminated this year in Tata Steel's fiercely contested £6.7bn takeover of Anglo-Dutch rival, Corus, a deal that has spawned a wave of similar large global takeovers by Indian companies.
"The willingness to take on the challenge of a deal like Corus speaks volumes of the level of confidence that Indian businessmen have in themselves and the future," says Sanjay Bhandakar, managing director of investment bank Rothschild in Mumbai.
Following independence, the private sector was subordinated in favour of a planned economy. Private businessmen were reduced to hanging around in Delhi hobnobbing with officials to secure new licences and protect existing ones from rival incursions. When the economy was thrown open in 1991, there was an explosion of entrepreneurship. "Indians have been entrepreneurial for 2000 years. In a sense, all that liberalisation did was unleash them," says Adil Zainulbhai, managing director, India, at McKinsey, the consultancy.
The corporate sector can be categorised into four groups. There are the traditional conglomerates that survived liberalisation, such as Tata, Mahindra & Mahindra or the Aditya Birla Group, which still dominate most heavy industry. Then there are the first or second-generation business families, led by entrepreneurs, such as Sunil Bharti Mittal, who took advantage of liberalisation to build the largest mobile phone operator, Bharti Airtel, or the Ambani brothers, the sons of Dhirubhai. A further category is the professionals who have turned into entrepreneurs, such as NR Narayana Murthy, one of the founders of Infosys Technologies, the outsourcing company. Finally there are the large, reformist state-owned companies, such as State Bank of India or Life Insurance Corporation of India.
Having overhauled their balance sheets, the companies are embarking on an investment spree never seen before in India and many are increasingly looking to expand offshore. It is a mindset that comes naturally to Indians, bankers say. "If you look at the pattern set by the non-resident Indians, you can find them in virtually any country you can imagine. So it is a natural instinct for corporate India to go abroad to seek new opportunities," says Jitesh Gadhia, managing director with ABN Amro in London.
But there is still much to do at home to create a more transparent business environment. Arun Sarin, Vodafone chief executive, complained that he faced a web of hostile vested interests when he launched the largest foreign takeover of an Indian company earlier this year with his $11bn takeover of mobile operator Hutchison Essar. One issue is concentration of ownership, protected by rules that make hostile takeovers difficult or nearly impossible in India. "You could gather 100 people in Mumbai or wherever in India and they would actually control pretty much everything that's happening here," says one banker. The country was ranked third in Asia by a 2005 corporate governance study by CLSA, the emerging markets brokerage - well ahead of China but still far behind Singapore or Hong Kong. Chetan Modi, representative director of Moody's Investors Service in Mumbai, points to structural issues in the way companies are governed. In most family-controlled groups, for example, both the chairman and the managing director are non-independent from the controlling shareholders, or "promoters".
As corporate India grows richer, it is also facing pressure to play a greater role in alleviating acute poverty. This could not have been put more bluntly than by Prime Minister Manmohan Singh in a recent speech to a group of businessmen. "An area of great concern is the level of ostentatious expenditure on weddings and other family events. Such vulgarity insults the poverty of the less privileged," he said. He went on to warn companies against price-fixing and cartel-like behaviour. One wonders how the fictional character, Gurukant, with his obsession about getting rich, would have reacted to that.
........................................
— FT Syndication Service
IN this year's hit Bollywood movie Guru, the film's main protagonist, a rags-to-riches businessman, gives a rousing speech against state interference in industry in the era before India's 1991 market reforms. "When I wanted to work hard and earn, I found all doors were closed to a poor man like me," the businessman, Gurukant Desai, rails. "But I could not take no for an answer and was prepared to do whatever it took to open the door - if it needed to be kicked down, I did it. Because I wanted to become rich."
Loosely based on the life of Dhirubhai Ambani, the industrialist who built the country's largest private company, Reliance Industries, the film attempts to capture the spirit of the evolution of the Indian corporate - the transition from traditional industrial groups protected by state-sanctioned monopolies to the entrepreneurial classes of today. This has been so successful that Indian companies today view themselves as globally competitive. The trend culminated this year in Tata Steel's fiercely contested £6.7bn takeover of Anglo-Dutch rival, Corus, a deal that has spawned a wave of similar large global takeovers by Indian companies.
"The willingness to take on the challenge of a deal like Corus speaks volumes of the level of confidence that Indian businessmen have in themselves and the future," says Sanjay Bhandakar, managing director of investment bank Rothschild in Mumbai.
Following independence, the private sector was subordinated in favour of a planned economy. Private businessmen were reduced to hanging around in Delhi hobnobbing with officials to secure new licences and protect existing ones from rival incursions. When the economy was thrown open in 1991, there was an explosion of entrepreneurship. "Indians have been entrepreneurial for 2000 years. In a sense, all that liberalisation did was unleash them," says Adil Zainulbhai, managing director, India, at McKinsey, the consultancy.
The corporate sector can be categorised into four groups. There are the traditional conglomerates that survived liberalisation, such as Tata, Mahindra & Mahindra or the Aditya Birla Group, which still dominate most heavy industry. Then there are the first or second-generation business families, led by entrepreneurs, such as Sunil Bharti Mittal, who took advantage of liberalisation to build the largest mobile phone operator, Bharti Airtel, or the Ambani brothers, the sons of Dhirubhai. A further category is the professionals who have turned into entrepreneurs, such as NR Narayana Murthy, one of the founders of Infosys Technologies, the outsourcing company. Finally there are the large, reformist state-owned companies, such as State Bank of India or Life Insurance Corporation of India.
Having overhauled their balance sheets, the companies are embarking on an investment spree never seen before in India and many are increasingly looking to expand offshore. It is a mindset that comes naturally to Indians, bankers say. "If you look at the pattern set by the non-resident Indians, you can find them in virtually any country you can imagine. So it is a natural instinct for corporate India to go abroad to seek new opportunities," says Jitesh Gadhia, managing director with ABN Amro in London.
But there is still much to do at home to create a more transparent business environment. Arun Sarin, Vodafone chief executive, complained that he faced a web of hostile vested interests when he launched the largest foreign takeover of an Indian company earlier this year with his $11bn takeover of mobile operator Hutchison Essar. One issue is concentration of ownership, protected by rules that make hostile takeovers difficult or nearly impossible in India. "You could gather 100 people in Mumbai or wherever in India and they would actually control pretty much everything that's happening here," says one banker. The country was ranked third in Asia by a 2005 corporate governance study by CLSA, the emerging markets brokerage - well ahead of China but still far behind Singapore or Hong Kong. Chetan Modi, representative director of Moody's Investors Service in Mumbai, points to structural issues in the way companies are governed. In most family-controlled groups, for example, both the chairman and the managing director are non-independent from the controlling shareholders, or "promoters".
As corporate India grows richer, it is also facing pressure to play a greater role in alleviating acute poverty. This could not have been put more bluntly than by Prime Minister Manmohan Singh in a recent speech to a group of businessmen. "An area of great concern is the level of ostentatious expenditure on weddings and other family events. Such vulgarity insults the poverty of the less privileged," he said. He went on to warn companies against price-fixing and cartel-like behaviour. One wonders how the fictional character, Gurukant, with his obsession about getting rich, would have reacted to that.
........................................
— FT Syndication Service