Globally, India is one of the fastest-growing economies in the world with a population of more than 1.3 billion – making it an attractive and significant market for businesses. With its strong growth prospects, the bullish business sentiment around India as a hot destination for businesses will continue to gather momentum in the coming years. The global supply chain disruptions and pandemic-induced problems have pitch-forked India as a reliable alternative to China among international investors. A thriving democracy, well-established regulatory framework and competitive spirit among states to attract overseas investments add to India’s attractiveness.
The Indian Paradox
In such a scenario, especially given it is inexpensive labour and large cohorts of English-speaking population, one would expect India to top the list of multinational corporations scouting for an investment destination. A large number of MNCs have, in fact, deciphered the highly diffused Indian market with its multiple facets and built successful business models around it. They have been operating in India for multiple decades and even turned the nation into a global export hub for their products and services.
At the same time, despite the red carpet, liberal policies and incentives, it is also true that India has not exactly been a happy hunting ground for several other MNCs. The government revealed in Parliament in December last year that as many as 2,783 foreign companies and their subsidiaries ceased operations in India between 2014 and November 2021. Some of the notable exits include Cairn Energy, Holcim, Daiichi Sankyo, Carrefour, Henkel, Harley Davidson and Ford.
The Indian Challenge
MNCs may exit a country for a variety of reasons. In India, for example, MNCs have exited due to arbitrary tax regime, accumulated losses, over capacity, land acquisition issues and lack of expected growth due to market anomalies. In case of some companies, the decision to leave India was attributed to multi-nation strategy to get out of non-profitable operations and focus on easier markets. Then, there were some auto players that set up base in India and brought technology and products that had stopped selling in global markets. While they received initial success and paid little attention to upgradation, the domestic firms started making better products slowly and steadily. As a result, the MNCs were eventually pushed out.
However, amidst this long list of unsuccessful attempts to strike gold in the Indian market, there are also some rare cases where MNCs are contemplating an exit from India despite building their business brick by brick, patiently overcoming all hurdles, going past the mandatory gestation period and even turning profitable. Perhaps, the latest such case is that of German wholesale giant METRO Cash and Carry. The company has grown in a robust manner, forged strong partnerships with local kiranas and made steady investments in store expansions and digitalisation. Its deep commitment to domestic customers can be gauged fact that it has stayed in India for the past 19 years despite running losses for 14 consecutive years. Having turned the corner, it’s reportedly making profits for the past four years and its B2B operations across 31 stores have immensely benefitted small retailers.
While it is still not clear whether METRO Cash and Carry will completely move out of India or strike an alliance with a partner to fight another day, it is indeed true that market conditions have become extremely competitive and require massive investments, especially by big players. It is likely that an in-depth assessment of future trends has led the company to rethink its operational strategy, which places new demands on the business, such as making additional investments and the constant pressures to respond to the dynamic market conditions in India.
In balance, considering METRO has done all the hard work and now understands the Indian market and customers at par with its rivals, stitching up a partnership with a strong local player seems to be a better option since it can now expect strong returns on its past investments. Whatever the outcome of the strategic review, the company will face headwinds, even though it is obvious that the public rumours and attacks do not have any basis.
MNCs Beneficial for India
The multiple headwinds and India’s unique challenges notwithstanding, it needs to be acknowledged that the country has gained immensely from foreign investments after it opened its economy to the world in July 1991. Liberalization was a significant milestone in India’s journey towards economic prosperity and development. Yet, the situation has been far from easy for MNCs that established their businesses in India in the years that followed. Companies had to shut their businesses in the country due to multiple constraints and business reasons.
Evidence indicates that insular economies fail to meet the popular aspirations of youthful cohorts in a modern nation. Therefore, all stakeholders must pause and deliberate on ways to attract investment and businesses to the country. Be it domestic or foreign entities, cooperation is always a winning proposition for all stakeholders – the company, the country and the citizens.
Views are personal. The author is CEO, Invest Shoppe.