Archive for June 23rd, 2016

Emerging Indian multinationals and hw are they different from their western counterparts?

June 23, 2016

Prof Mohan Githe Professor at Griffith University has written a recent book on Indian multinationals.

In this post, he sums up the lessons:

While Western multinational corporations (MNCs) have traditionally taken their domestic strengths ‘outward’ to the rest of the world to exploit already existing firm-specific competitive advantages, the multinational from emerging economies have no such pre-existing strengths and therefore, their motive for internationalization is primarily to acquire competitive advantages that they lack, such as marquee brands and managerial expertise. Most of their overseas growth has occurred in the last decade or so and in a very short span of time, they have spread their global network, mainly via acquisitions in a constant cycle of ‘linkage, leverage, and learning’.

Indian multinationals have been quick learners in internationalization both in scale and speed. One of the core strengths of Indian firms is to extract maximum value from even ailing businesses by applying innovative and cost effective methods that they have developed over the years in an extremely resource constrained and uncertain domestic environment. Their unique approach to international growth, which some label as ‘compassionate capitalism’ manifests in several ways, such as a preference for sustainable growth without compromising core values, long-term commitment to their businesses despite economic turbulences, faith in the management team of the acquired overseas companies and commitment to employees in terms of job security and investment in training. The ‘fire in the belly’ attitude of emerging multinationals is evident in the way they are pushing the top management in the companies that they have acquired abroad to stretch their goals.

While their management philosophy is grounded in Indian heritage that focuses on social mission and employee welfare, they have adopted several best practices from developed markets, such as metrics driven performance management. However, unlike Western multinationals which tend to adopt an ethnocentric approach to managing subsidiaries in developing markets, Indian multinationals seem to adopt a highly localized approach as reflected in their staffing and decision making process. They also show clear signs of an ‘adaptive approach’ in managing subsidiaries in developed markets.

Hmm. Well for a history reader it is actually going back to past. Reading several books under Penguin series on Indian Business history, one sees this avatar of Indian MNCs earlier as well. One pretty much saw similar strategies of compassion and cost effective methods earlier as well. The stress even then was on simplicity and yet aggressive.

Good stuff. Should be a great book to read..

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Case of IMF’s wolf: no cry in 2006 and many cries in 2016

June 23, 2016

Howard Davies has a scathing piece on IMF and its forecasting abilities. Like a wolf it does not cry when there are expected fears (as in 2006) and cries when there are fears which apparently are not as much (as in 2016). Despite, repated such articles, IMF continues to catch our imagination. A job at IMF is almost a prerequisite to get a govt/central bank job in developing countries. He/She was at IMF after all is all that needs to be said..

Coming to the article, he picks on Apr 2006 report:

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Why inequality in Germany: How it differs from the US?

June 23, 2016

I had just a few days back pointed to an article on struggles of Austrian economy. It said ironically the reason for Austrian decline was too much of outward looking. They had gone and expanded big time in Eastern European countries whose people were relatively skilled and just needed investments. Once money came in, they filled in the gaps and started doing better than Austrian counterparts.

However, things differed for Germany. They did not go overboard in East Europe:

Germany’s growth was not similarly affected, for three reasons. To begin with, after the fall of Communism, Austria reoriented its foreign direct investment almost exclusively to Eastern Europe, which accounted for nearly 90% of its FDI outflows. In Germany, just 4% of FDI moved to Eastern Europe in the 1990s, reaching 30% at the turn of the century. As a result, Austria became much more integrated with Eastern Europe.

Second, Germany was richer in skills than Austria. In 1998, the share of the German population with academic degrees was 15%, more than double the Austrian level. German firms did relocate high-skilled work to the east, but not to the extent that Austria did. As a proportion of the workforce, German affiliates in Eastern Europe employed three times as many people with academic degrees as their parent firms did. And German subsidiaries employed 11% more researchers than their parent companies.

Finally, many of the Austrian parent companies were themselves subsidiaries of foreign firms, while German firms were German multinationals, which transplanted their corporate culture to their Central and Eastern European subsidiaries. They employed more German managers relative to local managers, which gave them more control over innovation. Furthermore, most German investments were based on the transfer of an established technology; only 8% of the country’s FDI in the region involved cutting-edge research.

By contrast, Austrian firms adapted their business to the region’s environment and employed more local managers than Austrians. As a result, their subsidiaries were more autonomous in their innovation decisions. There was no mechanism that guaranteed that the knowledge created in a subsidiary also benefited the parent company.

In a new piece by the same author Prof Dalia Marin, she says Germany inequality is lower than US. Guess the reason? It is because German firms relocated work to Eastern Europe and reduced the skill wage premium!

Based on both, it seems inequality might be much lower for Austria but has backfired in terms of growth.
Complicated economics. Move one thing and other falls. Save the other and the first falls..game goes on..

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