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Indian MNCs display their might - Views on News from Equitymaster
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  • Mar 31, 2009

    Indian MNCs display their might

    The force of emerging market multinationals
    The global economy may be in tatters currently, but this is precisely why emerging market multinationals are gaining prominence on the global map, as highlighted by the Economist in an interesting article. First is obviously the cost advantage that emerging markets (including India) enjoy, especially in the current scenario when companies across the globe are looking at various ways to slash costs. The second is that emerging economies are in a relatively better shape. While the global growth has slowed, they have not slipped into recession like the developed world. This means that even if the export markets are floundering, emerging economies have their respective domestic markets to fall back upon. The third is that many multinationals of developed and rich countries are increasingly concerned about the situation ‘back home' due to the recession. As a result, they are not able to invest much to defend their market positions elsewhere, providing opportunities for disruptive new entrants.

    And that is not all. Given the liquidity crunch and the scramble to generate cash, developed world multinationals are actually selling off some of their business units, which gives emerging market multinationals the opportunity to snap some good businesses, technology or brands at attractive prices. Of course, there is the other side of the coin to be considered, which is that many of these emerging market multinationals have probably become over enthusiastic in their expansion plans and have loaded generous amounts of debt onto their books. But this issue cannot be isolated to them alone and many of the rich world companies are also finding themselves in a similar situation. Therefore, it cannot be denied that companies from the emerging markets, who are increasingly looking to take their standing in the global arena one notch up, are a force to reckon with in the future.

    Rising powers challenge US role in IMF
    The global economic meltdown has certainly raised a question mark over the standing of the US in world affairs. As if China asking for a change in reserve currency was not enough, emerging nations such as China and India believe that the crisis whose origins lie in the US, have diminished the latter's ability to set the agenda. And the agenda that they are referring to is the Obama administration's intention to make the strengthening of the IMF one of its primary goals for the meeting of the Group of 20, which includes leading industrial and developing countries and the European Union. In fact, as reported in the International Herald Tribune (IHT), these rising powers view the IMF as a place to begin staking their claim to a greater voice in global economic affairs.

    The IMF, which looked like sinking into oblivion, was brought into the limelight once the global crisis erupted. In the past one year, it has made US$ 50 bn in loans to 13 countries. The US Treasury Secretary, Geithner, is looking to enhance IMF's lending capacity and has called for its financial resources to be expanded by US$ 500 bn. In this regard, the EU and Japan have pledged US$ 100 bn each and the US is also set to pledge a similar sum. China, however, is not to be easily persuaded and is taking this opportunity to make sure that emerging countries are given more say in matters pertaining to the IMF. The world order certainly seems to be changing, albeit gradually and China's stance has made it clear that the US no longer enjoys the clout that it once had.



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