Multinational companies continue to exit India as the country’s markets mature

Switzerland-based Holcim Group is the latest to join the bandwagon of multinational corporations (MNCs) leaving India due to macroeconomic and regulatory concerns, and focusing on their core businesses.

Holcim, which sold its India businesses (Ambuja Cements and ACC for $10.5bn) said its exit would focus on green revenue as it intends to reduce exposure to the carbon-intensive cement sector. and increase environmental, social and corporate governance (ESG) credentials. . The firm has also exited cement assets in countries including Russia, Brazil, Sri Lanka, Malaysia and Northern Ireland.

The long list of companies that have left India in the past included Cairn Energy, Hutchison Telecommunications International, Docomo, Lafarge, Carrefour, Daiichi Sankyo and Henkel, while foreign banks such as Citi, Royal Bank of Scotland and Barclays are entirely focused on wholesale banking in the country. In December 2021, Trade and Industry Minister Piyush Goyal informed the Lok Sabha that between 2014 and November 2021, 2,783 foreign companies and their subsidiaries closed operations in India.

“Many of these outflows are driven by global macroeconomic factors. The regulatory issues that affected some of the investments in the past are no longer an issue. The regulators have welcomed them, they have assisted them and when they have wanted they have also left. Many of these exits are sector-specific and also influenced by the last two years of epidemic-related slowdown,” said Manoj Kumar, founder and managing partner of Delhi-based law firm Hammurabi and Solomon.

In the last 10 years, several companies such as Gruppo SES and Dragados from Spain, and Leighten Construction from Australia have explored investment options, but did not advance further. Companies like GE and Bombardier, in addition to selling products, have also invested in many European countries, but not in India.

According to Manish Agarwal, former Head of Infrastructure at PwC and co-founder of AskHow (an organization that simplifies complex public policy debates for the general public), while foreign direct investment (FDI) continues to flow into India, investors strategic have stayed away.

“India must ensure proper project preparation timeframes for public-private projects, provide balanced risk-sharing guidelines, and contracts must be properly enforced,” Agarwal added.

As many as five multinational car companies (Ford India, Harley Davidson, UM & Lohia, Man Trucks and General Motors) have left India over the last five years, which, in addition to the erosion of dealer investments worth 2,485 million of rupees, also resulted in the loss of almost 64,000 jobs. .

“Some of the auto companies originally set up business in India, thinking that the country would be a dumping ground for their products that were not sold in global markets. At that time, Indian companies did not manufacture products that could compete with the quality of these multinationals. While most of these foreign companies did not take Indian conditions or customers into account, the domestic companies also slowly and steadily started to produce quality products,” said Vinkesh Gulati, President of the Federation of Automobile Dealers Associations. of India (FADA).

“There were no regulatory or political concerns that would have hurt them. The move has hurt both distributors and customers, as there are no services for the products they have sold in the country, and this has also resulted in huge job losses,” he added.

With domestic markets maturing and government initiatives like ‘Make in India’ and ‘AatmaNirbharBharat Abhiyan’ gaining traction, India is increasingly becoming a difficult market for multinationals.

“Before making a strategic acquisition or establishing a vertical in India, it is imperative that multinational companies gain a solid understanding of the local regulatory and operational aspects of the industry in which they operate. Therefore, they must seek to partner with national actors and understand the environment. better, get the right local talent and then potentially take sole control,” said Shivam Bajaj, founder and CEO of private equity and M&A advisory firm Avener Capital.

The departures also come at a time when the Center and several state governments were rolling out red carpets, with exemptions such as tax breaks, for multinationals seeking to shift their base from pandemic-battered China. According to a Parliamentary Standing Committee report released in February 2021, for companies moving out of China, India ranks behind countries like Vietnam, Taiwan and Thailand as preferred destinations.

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