Is globalisation killing Indian entrepreneur? This is a funny thought. The established wisdom is that globalisation has created the milieu for the emergence of Indian multinationals and that our companies are taking over foreign companies.
The sale of Ranbaxy to the Japanese Daiichi last week disturbed many Indians. Ranbaxy is not just one of the Indian companies. It is a pioneer in its field. And it withstood global pressure in a highly competitive field. Its service to Indian health care is legendary, for, it successfully held the pharmaceutical price line by manufacturing affordable drugs. The take-over is happening at a time when Indian companies are going in for large-scale cross-border mergers and acquisitions and the globalisation experts will say it is an example of the two-way process. Indian corporates can go abroad looking for compatible partners.
The Ranbaxy deal has made the Japanese more competitive in the global market because of the former'sexpertise in low-cost medicines. And Ranbaxy has a huge share in Latin American, Eastern European and African markets where the Japanese company has not much of a presence. Ranbaxy is a market leader. Its sale is being seen in some quarters as Indian pharmaceutical industry'scoming of age and a sign of global recognition of the importance of the Indian forte in low-cost generic capability and marketing networks.
In the early stages of liberalisation many Indian companies went for mergers and joint ventures. It created a panic initially. The outright sales or shotgun marriages, as they call it, in the nineties mostly ended in divorce or break-ups and a more prudent approach in the Indian business leaders. But that has not changed the ground reality.
Our medium, small and tiny industry base is steadily giving way to the big corporate entities. The telecom companies and service providers are also mostly MNCs. Automobile sector is largely under their domination. So is the tourism sector, another growing industry.
Now even traditional family business houses are being sold out. Perhaps, India'snew generation of business leaders unlike their fathers and grandfathers are not sentimentally attached to family heirlooms. The Indian market share, take it sector wise, is being swallowed by foreign giants. The consumer durable market is entirely in their control. So are the cosmetics, beauty industry, snacks, eateries and soft drinks business. These are the areas Indian entrepreneurs once had the monopoly.
One could console that this is the inevitable consequence of globalisation. What about the Tata-Jaguar deal which the paranoid nationalists cheered? No denying this fact. In 2007, Indian companies made a foreign foray. According to one estimate, in the first five months of 2008, announced inbound investments have crossed $ 9 billion inclusive of private equity investments against outbound investment of $ 8.4 billion. The Ranbaxy take-over announced last week will only add to this statistic. Though in the recent past we have also seen smaller family stakes being sold like in Matrix Labs and Dabur Pharma, Ranbaxy exit is the largest single family exit of its kind. A Price waterhouse Cooper (PwC) study has shown that in the next five years $60 billion drugs are coming off patents, but after the initial five years the going is likely to get tougher for generic companies. Indian pharma companies will face challenging conditions due to global pricing pressures, litigation costs and expensive drug discovery efforts. Even large MNCs are facing huge competition and consolidation as a consequence becoming inevitable, both globally and locally.
The biggest challenge here for India is that other Indian pharma companies will also be forced to give up and sell out. This will push drug prices to unaffordable heights. There is a feeling that the foreign companies are not interested in selling their medicines cheap. They are not very innovative and are highly bureaucratic and it is their financial muscle that makes them unbeatable.
Ramesh Chauhan, chairman, Bisleri, one of the early Indian entrepreneurs who sold his trademark to Coca-Cola because of franchisees pressure, wrote in The Economic Times, last week: ?The unfortunate part of the MNC story here is that they charge exorbitant prices because they think and operate in terms of the western market, where the purchasing power of the consumer is much more and where virtually every citizen is covered by medical insurance. A case in point is the cost of medicine for HIV. It was so high that Cipla was able to supply it at one-tenth the price to HIV patients here.?
This is how the Indian pharma companies created a huge market in developing countries. As adviser with the former S&T Minister Dr. Murli Manohar Joshi, I remember he used to proudly declare in every meeting how the biotechnology department then headed by Dr. Manju Sharma had developed a number of cheaper and effective indigenous medicines for AIDS, malaria, TB, anthrax, dengue and common cold which gave tough competition to the MNCs. They were forced to sell cheap in India. Chauhan says, there has been a lot of criticism about the inflated cost of creating medicines by the MNCs and the wasteful expenditures they incur because of their phenomenal resources. In future there will be more Ranbaxy-type sales. And like Suzuki India soon the possibility is that Daiichi-Ranbaxy will become Daiichi India. So this will prove another setback to the rise of the Indian MNC. This will also send strong signals to similar, smaller and younger companies to feel nervous and sell out.
There were earlier instances of Indian promoters selling out their stake but this one because of its scale, Rs 10,000 crore, is the largest. Swadeshi proponents were always arguing that with the onset of the product patent regime in 2005 the environment will become difficult for local pharma companies. Opportunity to adapt patented drugs through reverse engineering has disappeared. The Indian companies? relatively small size has made it difficult to take up extremely costly new drug discovery. And the competition is becoming incompatible.
Ranbaxy was often cited as the market leader who is an example of withstanding patent restraints. A swadeshi role model. They handled global pressure effectively and overcame the intellectual property regime rather coolly. That story is now past. Yes, in India the acquisition did not raise the kind of xenophobic reactions as in Europe, when their companies were taken over by foreigners. But the fact remains, Indian entrepreneur space is shrinking. We are making more CEOs, commission agents, franchisees and salesmen.
(The views expressed in this column are personal. The writer can be contacted at [email protected])