indian manufacturer hike and strike

Surat: Even as the leaders of the diamond industry were successful in resolving the wage issue of the diamond cutters employed with around five manufacturing units — these workers took to streets on Tuesday after the factory owners refused to implement the 20 per cent hike announced by the Surat Diamond Association (SDA) —fresh incident of stone pelting by rampaging diamond workers were reported from the Katargam area on the second consecutive day on Wednesday. Around 400 diamond cutters and polishers targeted some 25 manufacturing units located in the Gotalawadi area in Katargam and forced the owners to down the shutters after they refused to implement the wage hike. Some of the agitating workers indulged in stone pelting at two manufacturing units in Katargam. KS Patel, police inspector, Katargam police station, said, “Two units in Katargam were targeted by the diamond cutters. Adequate police bandobast has been deployed in the Katargam area where the units are located.” It seems the decision taken by the SDA to implement 20 per cent hike in the wages of the diamond workers has come as a major disappointment for the small and medium manufacturers in the industry. Most of the small and medium manufacturers have refused to implement the 20 per cent hike announced by the SDA. Sources said around 35 per cent of the small and medium units — facing tough competition due to the dwindling profit margins and shortage of rough — are not in a position to implement 20 per cent hike.indian suppliers “We are not in a position to hike the wages by 20 per cent. Most of the small and medium factory owners are operating on wafer thin margins due to the shortage of raw material and the increasing prices of rough,” said Valjibhai Dhamelia, a small indian manufacturers operating 10 ghantis (emery wheels). Another indian manufacturer said, “Many small manufacturers have shifted to Bhavnagar in the last few months following problems in the industry. If the problems continue for another few months then more people in the industry are likely to shift to their native places.” On the other hand, the leaders of the industry believe the 20 per cent hike in the wage is not going to affect the business of the small and medium manufacturers. “The cost of the raw material is 80 per cent and the labour charge is 20 per cent. However, if the 20 per cent hike in the wages is calculated then the manufacturers have to to implement only two per cent hike in the wages. If the industry wants to retain the workforce then each one of the manufacturers have to comply with the hike in the wages,” said Praveen Nanavati, former president, SDA. Dinesh Navadia, vice-president, SDA said “There are some unscrupulous elements in the industry behind the labour unrest. But the industry leaders are making all possible efforts to convince each and every manufacturer in the industry to comply with the 20 per cent hike in the wages.”

Small is big: SMEs on overseas drive

Move over Tatas and Birlas. A new wave of small and midsized ‘indian manufacturer’ is creating ripples on the global M&A stage. Even as inorganic growth opportunities within India become scarce, the economic downturn of Europe and North America has thrown up attractive opportunities for acquisitions. An increasing number of Indian companies is making bids — at times audacious — to gobble up overseas firms. So even though it’s the big ticket acquisitions that capture our imagination, the small and medium companies are increasingly riding the M&A wave abroad. As a result, the trend has brought into spotlight budding multinationals from India. “We are definitely witnessing an increase in outbound transactions by Indian companies over the last couple of months. These companies are from newer segments such as industrial products, chemicals, and even some consumer products brands that are growing steadily within India,” says Ajay Arora, partner, transactions advisory services, Ernst & Young. Companies are increasingly expanding their markets beyond the Indian borders - either to access new cuttingedge technologies or in search of natural resources. Since January 2010, there have been around 35 overseas deals struck by Indian companies. The figure is comparatively large as against the over 40 deals sealed in entire 2009. Apart from larger deals, such as Bharti Airtel’s acquisition of Zain Africa ($10.7 billion), Hindustan Zinc’s acquisition of Anglo-American Zinc ($1.3 billion) in Namibia and Jindal Steel & Power’s acquisition of Shadeed Iron & Steel in Oman ($464 million), the landscape is dotted with many small to mid-sized deals like Banco Products’ acquisition of Nederlandse Radiateuren Fabriek of Netherlands ($24 million), Inox India’s majority stake buy in Cryogenic Vessel Alternatives (CVA) of US ($140 million), Crompton Greaves’ acquisition of Power Technology Solutions in the UK ($45 million), Hindustan Construction Company’s acquisition of a 66% stake in Karl Steiner AG ($33 million), among a host of others. There are many opportunities for Indian companies to globalise across sectors, including the mid-IT space. Africa has witnessed many deals in the consumer products and telecom space. Distressed assets in Europe are now also prime targets for acquisitions. “Six months ago, such an endeavour was not possible for Indian companies due to financing constraints. Today, balance sheets are much stronger and companies are on a better footing to acquire companies overseas,” says Sanjeev Krishan, executive director/partner, transactions group, PricewaterhouseCooper (PwC). Clearly, high interest burden and liquidity crunch are no longer the stumbling blocks in India Inc’s endeavour to make overseas acquisitions. “In 2007, total offshore investment by Indian corporates was to the tune of approximately $32.9 billion. It is fair to say that the transformation of Indian SMEs into Indian MNCs is well underway,” says Bharat Anand, partner, Khaitan & Co, the New Delhi-based firm which helped Suzlon in its acquisition of Hansen Transmission and Inox’s purchase of CVA. indian suppliers With CVA being the world’s largest manufacturer of cryogenic transportation equipment, Inox India has secured its position as a global player in the short span, offering total solutions in cryogenic storage, transportation and distribution engineering across nearly 100 countries with exports accounting for almost 60% of its turnover. There are some companies which belong to larger groups and, by virtue of that, have a global presence. Some of the lesser known or smaller Tata companies too have hit the M&A trail. For instance, TRF, in April, acquired UK’s Hewitt Robins International. Says Rajesh R Jumani, chief marketing officer, Tata Interactive Systems, “In an increasingly flat world, it is often more advantageous to collaborate rather than compete. We can synergise our mutual strengths, reach out to untapped markets or strengthen our positions in a geography, and meet local needs more effectively.” A few years ago, Tata Interactive Systems, a pioneer in e-learning, acquired Tertia Edusoft’s Germany and Switzerland business. The acquisitions have acted as a force-multiplier for the company, helping it ramp up the scale of its operations in Europe. “On the other hand, it has also helped us take formerly localised products to a wider, global audience. So it’s mutually beneficial. After all, ultimately all initiatives need to make business sense,” says Jumani. There is no doubt that the Tatas’ acquisitions of Corus and Jaguar Land Rover, followed by Reliance’s audacious bid for Lyondell Basell and Bharti’s Zain buy, have made small and mid-size Indian companies (SMEs) to venture offshore. Godrej Consumer Products, part of the Godrej group, has made four outbound deals so far this year. The company has said it continues to look out for target companies in overseas markets. In the pharma space, Avantha Group acquired Pyramid Healthcare Solutions ($20 million) in the US and Aegis acquired Sallie Mae (customer service centre) in Texas. Cheap dollar, foreign loans make global buy attractive Avantha Group has an established presence in the IT & ITeS space in the US. This strategic acquisition further strengthens its global presence in the niche healthcare solutions sector. On the other hand, BK Birla group set foot in a new continent with Jay Shree Tea & Industries acquiring tea gardens in East Africa. According to Bala Balachandran, professor of accounting and information management, JL Kellogg, M&A activities will flourish for at least five more years where India will be a global player. “There will be more M&A activity and people will find the best fit strategically. Value migration will take over value proposition,” Balachandran says. The rationale An acquisition is an easy way for small and mid-sized Indian companies, particularly specialising in products like cryogenic vessels, graphite plates, gerkins, etc., to establish a foothold abroad, given that they would have to compete with other MNCs. In some cases, an acquisition ensures an offshore presence along with a competitive supply chain. Some like the Godrej group have gained leadership position in the hair colour space in 19 countries across the globe through the inorganic growth route. With deflated valuations of potential target companies, the global recession has thrown up enough opportunities for Indian companies to make outbound deals. “With the American economy gradually limping out of recession, several businesses set up some time ago are up for sale. Timingwise, this has helped Indian SMEs, which have benefitted from India’s liberalisation in the past 20 years, to acquire these businesses,” says Anand of Khaitan & Co. The appreciation of the rupee against the dollar, along with the availability of foreign currency-denominated loans has assisted these companies by making foreign acquisitions cheaper for Indian SMEs. Difficulties faced In the face of it, everything seems hunky dory at the pace indian manufacturers at which Indian companies are striking deals. However, the road may be riddled with challenges in matters related to corporate governance, competition law, legal risks and cultural fits. Indian SMEs may be accustomed to a cosy relationship between promoters and non-executive directors. But such issues are treated with much more seriousness in the West. “Indian companies will have to transform their thinking over such issues if they want to be regarded as blue chip investors from emerging markets,” says Anand. indian manufacturers Moreover, Indian companies are not accustomed to operating in an environment where there is a strong competition regulator. Indian companies are often prepared to take a high degree of legal risk since the judiciary takes a lot of time to address and resolve issues. However, in the West, the judiciary is much more efficient, and courts award actual costs as well as substantial damages on time. Anand feels managers of Indian companies will require training to deal with such issues. Another big challenge is HR. According to Ashutosh Maheshvari, CEO, Motilal Oswal Investment Advisors, “The biggest impediment remains to be able to adapt to the cultural business conditions to operate in the target company’s country.” “We have seen integration challenges where human resource policies or the processes or systems are different in the two countries and companies find it difficult to integrate them,” says Arora of Ernst & Young. indian manufacturers Certain legislations and regulations, especially on environment issues, are also much stricter in the western countries as are closure regulations. New companies heading out may also find it difficult to deal with these issues. The quicker they adapt, the better. Avantha Group has an established presence in the IT & ITeS space in the US. This strategic acquisition further strengthens its global presence in the niche healthcare solutions sector. On the other hand, BK Birla group set foot in a new continent with Jay Shree Tea & Industries acquiring tea gardens in East Africa. According to Bala Balachandran, professor of accounting and information management, JL Kellogg, M&A activities will flourish for at least five more years where India will be a global player. “There will be more M&A activity and people will find the best fit strategically. Value migration will take over value proposition,” Balachandran says.

telecommunication products

Aone hundred year survey on inflation published by The Economist two years ago contained one stunning fact. The only item of cost to have gone down in a hundred year time span was the cost of a transatlantic telephone call. The telecom sector, nonetheless, attracts the highest level of investment globally, despite the fact that telecommunication products pricing has fallen, thanks to technological innovation. The simple explanation for this apparent inconsistency is that the lowering of prices has spread telephony use by benefiting the customer and thus growing the industry. In this the telecom equipment regulator must work together with the consumer, for they are co-drivers of the industry, with the regulator controlling the wheel and the consumer the accelerator/brake pedals. Thus far the regulator has managed, hopefully, to remove vexatious issues by introducing a unified licensing regime. His next move, following similar progress in the US, would be to have number portability. This means that the consumer is able to retain his number even whilst switching carriers. At present he is loath to switch carriers, and suffers all the poor quality of service which all carriers invariably inflict, for fear of losing his number and having to inform all his contacts. The US Supreme Court has directed adoption of number portability and India should also follow. It is then that there would be true competition and it will be the consumer who will drive efficiency and grow the industry. Already, the falling rates for SMS, roaming and long distance charges are an indication that competition is working and driving the industry; the jigsaw would be complete with number portability. There are several technologies that are emerging, and which will once again throw challenges, for the technologies would cut across regulatory boundaries. The Techonology Quarterly review in The Economist (December 6) mentions ‘software designed radios’ which are radios that are reconfigurable using software. “A mobile phone based on smart radio technology might, for example, be able to switch between cellular standards used in different parts of the world,” says the report. One company has already demonstrated a chip, called the Sandblaster, capable of switching, through software, between CDMA and GSM, (and, in future, Wi-fi) and telephone instruments based on smart radio technology, would make this possible. The ensuing competition would be immensely beneficial to consumers, but would need number portability to make it effective. In macro economy news, the outlook remains positive. Forex reserves have hit $97.5 billion and would hit a century faster than most of the Indian batsmen. The CEO of Crisil expects several rating upgrades, and a doubling of debt issuances, to Rs 500 billion in the fiscal year to March 05. Interest rates, however, appear to have bottomed out, according to several CEOs. Foreign investment continues to pour in and drive the stock market, with the BSE Sensex gaining 184 points to end the week at 5,315. In corporate news of interest, Ranbaxy has announced a deal to acquire RPG Aventis, telecom products manufacturers. The company has a pipeline of 52 molecules which include 18 of the top 20 best selling molecules. The market continues to be in an up run and buying on dips, even small ones (buying fundamentally good shares in honestly managed companies at around 8 - 10 per cent below peak price is as good a strategy as any). The government has promised to drive economic reforms forward after recent electoral victories and if they live up to that promise (though that does not constitute a strong point for a politician) the market can only boom.

textiles manufacturers

China said it “strongly objected” to the new measures taken by the European Union against imports of Chinese textiles, calling the move a potential blow to the global clothing trade. “This departs from the spirit of free trade proposed by Europe and seriously violates the basic principles of the World Trade Organization,” commerce ministry spokesman Chong Quan said in a statement on the ministry’s website. The Chinese response came a day after the European Union unveiled “alert levels” for growth rates in Chinese clothing imports which will trigger investigations and informal consultations with China. “This will have a negative impact not just on Sino-European textile trade, but on global textile trade as a whole,” Chong said in the statement. Chong said China and the EU each have “complementary strengths” in the textiles manufacturers field, and that “common interests do exist” in the industry. “Any action that prevents the integration of the textile industry will cause damage to the common interests of China and the EU,” he said. “The two sides should seek to solve the problems they face through strengthened dialogue and cooperation,” he said. The EU action, and other parallel actions by the US, reflect a world coming to terms with the end on January 1 of a 31-year-old international textile import quota system. The expiry of the system has left producers in developed and developing countries bracing for a wave of imports from China, whose leather products manufacturers benefit from cheap labour and huge economies of scale. China has reacted angrily to the groundswell for protectionist measures in the West against its textile exports, insisting that it should not be penalised for having more competitive industries. “As a responsible member of the WTO, China has taken a series of active measures to ensure the smooth transition to an integrated textiles and leather products market,” said Chong. “We hope the EU fully understands the efforts made by the Chinese in this respect and cautiously handles the issue. The overall trade relationship between China and the EU shouldn’t be impacted by unilateral moves,” he said. According to the measures unveiled by the EU on Wednesday, the “alert levels” range from 10-100% growth over the 2004 trade volume, depending on the type of product. The system of “alert levels” means the EU, which is trying to build up strong commercial relations with China, is not going as far and as fast down the road to safeguards as a US investigation into Chinese textiles. The US garment industry on Wednesday demanded government action to curb 14 types of apparel exported from China as tensions over surging Chinese textile shipments escalated. The National Textile Association (NTA) said urgent measures were needed in addition to US government’s announcement this week that it has launched an investigation as a first step to slapping restrictions on the Chinese exports. The NTA filed petitions with government demanding restoration of textile quotas scrapped globally on January 1, claiming that textile and apparel imports from China had leapt by 63% since then. AFP

toys manufacturers

There’s trouble brewing in Toyland. The sixmonth ban on import of Chinese toys may be a welcome move for the Indian toy industry. It may also ensure ‘safer’ toys for our children, provided our own toys are put under the scanner too. But it would also mean depriving children — and harassed parents — of a big range of attractive and affordable toys. The weekly visits to the toy shops will get quite expensive and may eventually stop. Retailers say the ban will have little impact on market supply for now as the stocks of Chinese toys lying in warehouses of importers and wholesalers would easily last for the next five to six months. But if the ban is extended, Indian children may have to look to the west as our own toys are not as attractive. ‘‘The Indian toy industry is still not properly evolved. The price factor apart, Chinese toys are much more attractive and have a wider range compared to what is manufactured in the country. A blanket ban on all imports from China would only deprive children as toys suppliers made in Europe and US will prove too expensive,’’ said Satish Sundra, owner of Ram Chander and Sons, one of theoldest toy stores in the capital. Toy sellers claim that more than 70 per cent of the stocks of toy shops in the city comprises of Chinese toys. There are some Indian companies which give them competition in terms of quality and range but the Chinese toys are more cost-effective overall. ‘‘They sell more because they are cheaper and at the same time offer better quality and more variety than toys manufacturers India. Children like to get a new toy every week, and since the ‘Made in China’ variety is about 75% cheaper than the Indian counterparts, parents have taken well to them. Also, Indian manufacturers still can’t match the quality of these toys,’’ said Saurabh Kharbanda of Maya Sports, who have been in the trade for over 40 years. Though the real reason for the ban is still being debated, sources said this could be a move by the government to protect the Indian toy industry. Since the Chinese invasion, small Indian toy manufacturers have suffered as they hardly find any takers. The indigenous toy industry has come a long way since and a marked improvement is seen in Indian toys owing to competition. But retailers feel we still have a long way to go. toys manufacturers have welcomed the move. ‘‘It’s a step in the right direction. Chinese goods are substandard and have been a threat to the unorganised toy sector. The reason for this is that toy manufacturing was a small-scale sector in India till recently. The Chinese goods came in just when big investment started because of which the sector was never allowed to develop. It will get a breather now,’’ said Rajan Handa, owner of OK Play Toys. Industry sources feel that doubts of the west about the toxicity of Chinese toys are not baseless. According to reports, nearly 80 per cent of our toys are imported from China and a large chunk is non-branded. Their quality is highly suspect. But parents in India are still not as conscious about child safety as is the case in the US and Europe, due to which there is still a huge demand for Chinese products. So, are Indian toys safe? Said Rajesh Arora, general secretary of Toys Association of India: ‘‘India is now exporting toys to US and Europe, and our exports have shown a growth rate of about 20% per annum. This can’t happen without quality production. But toy making also happens in the unorganised sector, with little checks. We are trying to create awareness about that to make our toys safer.’’ A better solution, feels Sundra, would be to impose strict quality control at the customs to ensure only ‘‘safe’’ toys come in. ‘‘A blanket ban on Chinese toys is no solution,’’ he feels.

leather products manufacturers

China said it “strongly objected” to the new measures taken by the European Union against imports of Chinese textiles, calling the move a potential blow to the global clothing trade. “This departs from the spirit of free trade proposed by Europe and seriously violates the basic principles of the World Trade Organization,” commerce ministry spokesman Chong Quan said in a statement on the ministry’s website. The Chinese response came a day after the European Union unveiled “alert levels” for growth rates in Chinese clothing imports which will trigger investigations and informal consultations with China. “This will have a negative impact not just on Sino-European textile trade, but on global textile trade as a whole,” Chong said in the statement. Chong said China and the EU each have “complementary strengths” in the textiles manufacturers field, and that “common interests do exist” in the industry. “Any action that prevents the integration of the textile industry will cause damage to the common interests of China and the EU,” he said. “The two sides should seek to solve the problems they face through strengthened dialogue and cooperation,” he said. The EU action, and other parallel actions by the US, reflect a world coming to terms with the end on January 1 of a 31-year-old international textile import quota system. The expiry of the system has left producers in developed and developing countries bracing for a wave of imports from China, whose leather products manufacturers benefit from cheap labour and huge economies of scale. China has reacted angrily to the groundswell for protectionist measures in the West against its textile exports, insisting that it should not be penalised for having more competitive industries. “As a responsible member of the WTO, China has taken a series of active measures to ensure the smooth transition to an integrated textiles and leather products market,” said Chong. “We hope the EU fully understands the efforts made by the Chinese in this respect and cautiously handles the issue. The overall trade relationship between China and the EU shouldn’t be impacted by unilateral moves,” he said. According to the measures unveiled by the EU on Wednesday, the “alert levels” range from 10-100% growth over the 2004 trade volume, depending on the type of product. The system of “alert levels” means the EU, which is trying to build up strong commercial relations with China, is not going as far and as fast down the road to safeguards as a US investigation into Chinese textiles. The US garment industry on Wednesday demanded government action to curb 14 types of apparel exported from China as tensions over surging Chinese textile shipments escalated. The National Textile Association (NTA) said urgent measures were needed in addition to US government’s announcement this week that it has launched an investigation as a first step to slapping restrictions on the Chinese exports. The NTA filed petitions with government demanding restoration of textile quotas scrapped globally on January 1, claiming that textile and apparel imports from China had leapt by 63% since then. AFP

Indian transport companies

Indian companies which engaged in oil-for-food transactions with the Saddam Hussein regime paid bribes to the former Iraqi ruler to get oil contracts. A probe conducted into their dealings with the Saddam regime by Enforcement Directorate (ED) shows that many Indian companies, including some big names belonging to both public and private sectors, paid bribes to the Saddam regime through a Baghdad-based transportation agents company owned by the ruling family. ED, however, has found the Indian companies prma facie ‘not guilty’ of wrongdoing. Though the probe into the companies is still going on, the evidence with ED suggests that they complied with RBI guidelines on both the oil they brought home and the commission they paid to agents to procure it. The finding takes on significance in view of the demand of CPM and SP to take action against the companies who did oil-for-food business with the Saddam regime. The probe, which is about to be wrapped up, brings out the readiness of Indian companies to step outside the box to get lucrative oil contracts. “These companies had either made surcharge payments through shipping liners, commission agents or directly to Allai transport company, owned by the Saddam Hussein family. In most of the cases, the alleged bribe went through Allai transportation services. The deals of all major companies have been investigated and the pattern remains the same,” ED sources said. “The alleged surcharge payments were shown by the companies as having paid commission to their agents which was duly conveyed to RBI after the deal was struck,” a senior source said. “There is prima facie no FEMA (Foreign Exchange Management Act) violation as the total money earned by these companies was brought into the country with due acknowledgment,” sources added. After showcause notices are issued to Natwar Singh and his kin, ED will begin cross-examination of representatives of the Indian transport companies on the Volcker allegations of surcharge payments. ED’s scope of investigation hinges on how the Indian companies paid surcharge money to Saddam Hussein. The findings may take the sting out of Left’s attack against government for alleged leniency towards corporates. On Saturday, CPM general secretary Prakash Karat had demanded a probe into the dealings of Indian companies with the Saddam regime. He found support from SP leader Amar Singh on Monday who attacked the government for not proceeding against the corporates. Sources, however, said that the companies may get a clean chit. The ED finding is sure to add to the angst of Natwar Singh. He has made no bones of his anger over being singled out as somebody whose oil-forfood dealings were not above board. SLIPPING ON OIL ED evidence suggests the firms complied with RBI guidelines on both the oil they brought home and the commission they paid to agents to procure it These firms had either made surcharge payments through shipping liners, commission agents or directly to Allai transport company, owned by the Saddam family The alleged surcharge payments were shown by the companies as having paid commission to their agents which was duly conveyed to RBI after the deal was struck No FEMA violation as the total money earned by these companies was brought into the country with due acknowledgment