Divergent trends

It should not cause much surprise that, among India Inc's top companies, the multi-national corporations have been able to increase their share of net profits in the last decade or so, as has now been reported.

For one, most transnational firms have a high credit rating and they have been able to take the most advantage of the fall in interest rates.

Secondly, they have been generous with voluntary retirement schemes, and as a result their salaries and wages bill has been kept firmly under control. The upshot has been that gross margins have improved for most of these companies.

The study also shows that the domestic private corporate sector has seen its share of profits come down. A closer scrutiny, however, shows that the major share of profits has not been lost to the transnational companies but to the public sector, especially to the oil companies within the public sector.

As a matter of fact, the transnational corporations' share of net profits rose pretty dramatically from 7.70 per cent of the total in 1994-95 to 10.82 per cent in 2002-03, while the share of domestic private firms fell equally dramatically from 60.76 per cent to 40.17 per cent.

Most of the decline in the share of profits of the private sector was appropriated by the public sector, which saw its share of profits rise impressively from 31.54 per cent to 49.01 per cent over the period.

Further, since the share of profits of the non-oil public sector companies actually declined, the entire improvement in the public sector's share of profits can be attributed to the strong showing of the PSU oil companies.

And since the PSUs have a virtual monopoly in the sector, their robust performance is due to the sector as a whole doing well.

The study also shows that, despite the increase in their share of net profits, the multinationals' share of total sales fell from 8.68 per cent in 1994-95 to 6.80 per cent in 2002-03.

Despite dire predictions of the domestic corporate sector being wiped out by competition from these MNCs, no such thing has happened, although the sharper edge to competition is there to be seen in the numbers.

The study was confined to listed companies, which doesn't do full justice to the MNC presence in this country.

For instance, international firms have been able to do very well in the consumer durables sector, with companies such as LG and Samsung pushing Indian companies down the ladder.

Many MNCs also took advantage of the lacklustre stock markets prior to last year to de-list their stocks. But if these multinationals have been able to show their mettle in consumer durables, they have fared poorly in the FMCG (fast moving consumer goods) sector, with low-cost competition nibbling away at their market share.

In the pharmaceutical industry, domestic companies have grown far more rapidly than the MNCs. In other industries, ranging from engineering to telecom to BPO, local companies have been able to compete successfully with the MNCs.

In fact, the MNC versus domestic companies approach may not be the right one to take. In a global economy, opportunities for growth arise in a variety of ways.

In the pharmaceutical sector, for instance, while a few companies are tying up with MNCs to develop molecules, others are exploiting the expiry of patents in the US. Many companies are taking advantage of outsourcing by MNCs, ranging from call centres to auto ancillary companies.

Franchising and licensing are yet other options. In short, the objective for India Inc is to become globally competitive, and partnering with MNCs is one way of achieving that objective.