MUMBAI, Sept 20 (Askume Breakingviews) – Indian Prime Minister Narendra Modi has spent much of the past decade easing barriers to foreign investment in India. However, companies including BlackRock (BLK.N) , BMW (BMWG.DE) and Shein are partnering with local giants to expand in the country. It solidifies the control of powerful families over the world’s fifth-largest economy and positions them as future global rivals.
Superficially, the once socialist country is open for business. Its thirst for capital is intense. In most industries, foreign companies are free to enter the market on their own, unlike China, where large parts of the economy are off-limits and some sectors such as automotive are open on the condition that foreign firms get permission from local companies.
The problem is that India’s federal political system and cultural and geographic diversity make it a difficult destination for international businesses. Powerful families offer a shortcut to establishing influence across the country, avoiding intense domestic competition, or both.
BlackRock’s decision to re-enter India is an example of this dilemma. The Larry Fink-run company, which manages more than $10 trillion, is in a deal with Mukesh Ambani’s Jio Financial Services (JIOF.NS) on assets and cooperation in the field of asset management . The US company exited its India joint venture with DSP in 2018 as it was unable to establish control.
Fink has no control over Jio, but the rapid financialization of savings in recent years means the market is very attractive to BlackRock. For an American company, partnering with a tycoon is less risky than trying to displace India’s richest man, who wants to move into financial services and is known for shutting out rivals.
Foreign companies want to protect their market position in India, which partly explains why Reliance’s (RS.N) business unit rushed to raise capital in 2020. Here , Facebook-owned Meta Platforms(META.O) acquired a 10% stake in Reliance’s digital and telecoms business for $5.7 billion. India is open to big U.S. technology companies, but as more Indians buy smartphones, Indian companies are also flexing their muscles in digital businesses from telecoms to e-commerce.
On the other hand, New Delhi is promoting manufacturing through subsidies to encourage participation in its flagship production-linked incentive scheme. This gives the government an opportunity to decide which foreign companies will partner with which Indian families to become the next leaders in the industries of the future.
Taiwan Hon Hai Precision Industry (2317.TW) , also known as Foxconn, last yearAnil Aggarwal’s Vedanta to make chips amid widespread concerns about the Indian company’s ability to raise debt VDAN.NSMeanwhile, multinationals such as French oil giant TotalEnergies (TTEF.PA) are working with Indian giant Gautam Adani on regeneration to improve its environmental credentials. Easy access to subsidies is one reason why companies such as Japan’s Fujifilm ( 4901.T ) seek local partners before starting production in India.
Significantly, many of the new partnerships are in the technology sector. The Adani Group will join hands with Israel’s Tower Semiconductor (TSEM.TA) to build a chip manufacturing plant ; German automaker BMW and Tata Technologies (TATE.NS) plan to use Indian IT talent to develop intellectual property rights to power the cars of the future.
While India’s approach to foreign investment differs from China’s in many ways, India wants the same thing from foreign multinationals as its neighbour: technological know-how.
The government wants the South Asian nation to become a manufacturing powerhouse. India’s major companies also want to dominate the domestic market and become leaders on the global stage. Bharti Enterprises Chairman Sunil Bharti Mittal told reporters after buying a stake in British telecom firm BT (BTL.L) last month that the Indian government is constantly encouraging the handful of companies that have become global giants to make this process a reality.
This makes it likely that at least some new Indian alliances will go awry, as has happened with many Chinese joint ventures. Certainly, some foreign companies that come to the People’s Republic of China have failed to adapt to the fast-changing preferences of local consumers. Others, however, say they are forced to hand over technology to private or state-backed joint venture partners, local authorities or Chinese regulators as a condition of doing business in the world’s second-largest economy.
The complaint became a focal point of the 2018 trade war launched by US President Donald Trump. Stellantis (STLAM.MI) will acquire Guangzhou Automobile Group in 2022Carlos Tavares, CEO of the European automaker (601238.SS)This was attributed to increasing “political influence” when doing business with Chinese partners .
It is perhaps not surprising that Chinese companies have the least freedom to act autonomously in India. The government increased pressure on businesses in the People’s Republic of China after deadly clashes between the two countries’ militaries along the Himalayan border in 2020. This tension has led to some particularly lucrative joint ventures by Chinese companies looking to continue expanding in the fast-growing Indian market.
Four years after New Delhi banned Shein’s app, the Chinese-founded fast-fashion company has reunited with Ambani’s $240 billion Reliance Industries. Together they plan to digitize the group’s retailers’ supply chains, manufacture and export goods worldwide. Similarly, India is planning to ban Chinese auto giant SAIC Motor Corp (600104.SSLess than two years after launching a probe into the local unit of Toyota Motor (600104.SS ) , the company launched a joint investigation into the local unit of Chinese auto giant SAIC Motor (600104.SS) and Sajjan Jindal’s JSW Group in March finalised a joint venture to sell its MG brand of cars.
Newcomers have at least a few examples of successful foreign joint ventures in India to look at.Take Maruti Suzuki (MRTI.NS) , which supplies 40% of the country’s cars and is worth $46 billion. Suzuki MotorsOver the past ten years, with(7269.T) has delivered annual returns, including dividends, to shareholders beating the benchmark Nifty 50 index. Meanwhile, Adani Wilmar International (ADAW.NS), the Adani Group’s partner with Singapore’s Wilmar International (WLIL.SI ), founded a quarter-century ago, is behind India’s best-selling cooking oil brand.
Aside from joint ventures, some foreign companies have had more success than others in India. South Korea’s Samsung (005930.KS) has enjoyed impressive success in smartphone sales and has long held a leading position in the consumer electronics market, but British telecoms operator Vodafone (VOD.L) had to contend with a price war in 2017. Whether India opens up to trade or not, foreign business alliances are handing more power to the country’s major giants.
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(The author is a columnist for Askume Breakingviews. Views expressed are entirely her own.)
