Indian Companies FY

TransnationalityRanking of Indian Companies FY 2012-2013 September 22, 2013

Motivation Transnational Companies (TNCs) accounted for a quarter of the world s GDP (estimated at US$ 61.96 trillion in 2010 1 ) Emerging Market Economies have become an important source of foreign investments for the rest of the world contributing 29% of total Outward FDI (estimated at US$ 1.24 trillion in 2010) 2 Indian companies have internationalized rapidly over the last decade and Outward FDI has grown over 17 times in this period Increased interest on this phenomenon across the world among scholars and practitioners Source: 1. UNCTAD World Investment Report 2011. Visit www.unctad.org for more information. 2. UNCTAD World Investment Report 2011

Globalization by BRICs Trends Source: OECD Economic survey report

Globalization by India India was ranked 21 in the world in 2010 (OFDI) Trends Outward FDI from India (in USD Billion) 3.1 6.1 Global economic crisis reduced OFDI by 26% in 2009-10 as compared to 2008-09 The total OFDI outflow in FY2011-2012 as on estimated to be only US$ 8.8 Billion 0.1 0.9 0.1 1.7 0.3 0.5 1.3 1.5 1.2 1.2 12.1 6.7 Equity 15.4 Loan 12.5 4.3 7.6 9.4 9.2 5.8 5.3 Source: Department of Economic Affairs, Ministry of Finance and RBI How will Indian companies respond to the uncertain economic conditions?

Globalization by India Geographies Geographical Spread of OFDI is expanding to developed countries as well Indian companies are expanding into developed countries primarily through the M&A route Geographical Spread: OFDI 2001-11 Geographical Spread: M&A 2001-11 36% 4% 3% 6% 13% 23% 14% Singapore * Mauritius Netherlands USA UAE UK Others 29% 3% 17% 11% 21% 19% United States Canada UK EU Singapore Others Source: Zephyr Database by Orbis * Mauritius attracts a large part of the OFDI as it is a tax haven and a channel through which most Indian companies fund their overseas expansion.

Globalization by India Industry Segments Manufacturing (Metals, Petroleum Products, Auto & Auto Components, Pharmaceuticals and Energy) and Non Financial Services (Software and BPO) account for almost 70% of total OFDI Contribution of Software and Business Services grown initially, but has substantially reduced over the last 5 years Trends show internationalization to be an industry-wide phenomenon in Pharmaceuticals, and Software and Business services Internationalization in other industries is dominated by a few key players Sector 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 Manufacturing 73% 72% 53% 72% 60% 25% 44% 55% 39% 30% Financial Services 2% 0% 2% 0% 6% 0% 0% 1% 1% 1% Non Financial Services 19% 19% 30% 20% 25% 55% 12% 19% 32% 39% Trading 5% 5% 5% 3% 5% 8% 3% 6% 8% 11% Others 2% 4% 9% 5% 5% 12% 41% 19% 20% 19% Total (in US$ Mn) 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 1000.07 1848.38 1566.58 1995.16 7856.49 13309.9 18506.48 18578.7 13714.07 16843.37 Source: Department of Economic Affairs, Ministry of Finance and RBI

About the Study Study by ISB in collaboration with FDC, Brazil This study was second in a series to systematically rank Indian companies using a globally accepted measure of internationalization, viz., the Transnationality Index (TNI) Enables comparison of Indian TNCs with each other as well as with other global companies from different countries

Methodology The Trans-Nationality Index (TNI) Combination of three measures o Percentage of International Assets to Total Assets o Percentage of International Revenues to Total Revenues o Percentage of Overseas Employees to Total Employees Multi-dimensionality of the index accounts for variations in indicators across industries and across geographies Study is a combination of primary and secondary research as some measures are not publicly disclosed by firms * 28 of the top 50 companies participated in the survey

Methodology Secondary Sources: CMIE s Prowess and S&P s Capital IQ Secondary data used to identify a set of potential firms for the study Of the Top 100 firms ranked by consolidated international assets, Top 50 were targeted for primary research Primary Research: Questionnaire based survey administered to CXO level employees* * 28 of the top 50 companies participated in the survey. We expect response rate to pick up over the next few years as the companies more familiar with TNI-based rankings

Key Findings Ranking by TNI (A) Top 15 companies by TNI with International asset base >= US$ 500 Mn Rank - FY 12 Rank - FY11 Name of Company TNI Revenue FY 2011-12 Assets FY 2011-12 Employees FY 2011-12 Total Foreign Total Foreign Total Foreign 1 NR ONGC Videsh 77% 227 221 255 252 246 83 2 1 Tata Steel 63% 1,329 977 1,258 757 81,622 45,829 3 2 Tata Global Beverages 60% 66 46 64 50 2,218 732 4 11 Motherson Sumi Systems 60% 149 105 120 89 44,208 15,359 5 5 HCL Technologies 57% 208 199 183 108 84,319 15,201 6 NR Tata Communications 56% 142 107 134 86 7,954 2,276 7 3 Hindalco Industries 55% 808 618 885 466 33,600 12,000 8 4 Suzlon Energy 55% 211 133 326 223 12,951 4,179 9 6 Tata Motors 53% 1,657 1,115 1,246 761 59,759 18,090 10 9 Dr.Reddy's Laboratories 49% 97 80 119 51 15,200 3,007 11 10 Jubilant Life Sciences 47% 43 30 78 37 6,327 1,493 12 7 Tata Consultancy Services 44% 493 451 414 135 238,583 17,329 13 12 Infosys 44% 337 330 386 101 149,994 10,350 14 8 Punj Lloyd 43% 103 63 146 74 33,442 5,576 15 13 Tata Chemicals 40% 137 39 191 109 4,746 1,576 * Data obtained from secondary sources : Capital IQ: Sum of employees in subsidiaries outside India

Key Findings Ranking by TNI (A) In Current year s ranking, the state owned company ONGC Videshhas displaced Tata Steel as the most Internationalised large company. The top 10 companies have a TNI of more than 50% which is comparable to transnational corporations from the developed countries The majority of the companies in our list are affiliated to business groups a phenomenon unique to emerging economies - with the Tata group companies dominating the list Most of the firms have followed a strategy of inorganic growth through aggressive overseas acquisitions in the past few years

Key Findings Overview and Trends Overview of the Top 15 Transnational Companies by TNI FY10 FY11 FY12 Growth over FY10 Growth over FY11 Revenue Total 4,109 4,867 6,007 18% 23% India 1,051 1,257 1,492 20% 19% International 3,058 3,610 4,514 18% 25% International/Total 74% 74% 75% Assets Total 3,943 4,740 5,807 20% 23% India 1,591 2,030 2,509 28% 24% International 2,352 2,710 3,298 15% 22% International/Total 60% 57% 57% Employee Total 595,837 684,282 775,169 15% 13% India 474,476 547,288 622,089 15% 14% International 121,361 136,994 153,080 13% 12% International/Total 20% 20% 20% Revenue and assets numbers in INR billion

Key Findings Overview and Trends Regional Split (average) of international Revenue, Assets and Employees for Top 15 TNCs Average distribution North America % Europe % Others % Total International % International Revenues International Assets International Employees 2009-10 37 28 35 100 2010-11 35 29 36 100 2011-12 36 27 36 100 2009-10 29 31 40 100 2010-11 29 31 40 100 2011-12 28 30 42 100 2009-10 20 29 51 100 2010-11 20 29 51 100 2011-12 20 30 50 100

Key Findings Ranking Companies by Geographical Diversification Overview and Trends RANK REVENUES ENTROPY RANK ASSETS ENTROPY RANK EMPLOYEES ENTROPY SCORE SCORE SCORE 1 Tata Global Beverages 1.4 1 Hindalco Industries 1.3 1 Hindalco Industries 1.1 2 Hindalco Industries 1.4 2 Tata Global Beverages 1.3 2 Tata Chemicals 1.0 3 Tata Communications 1.4 3 HCL Technologies 1.2 3 Suzlon Energy 0.9 4 Dr.Reddy's Laboratories 1.3 4 Tata Chemicals 1.2 4 Tata Communications 0.9 5 Jubilant Life Sciences 1.3 5 Tata Communications 1.1 5 Tata Global Beverages 0.8 6 Tata Motors 1.3 6 Dr.Reddy's Laboratories 1.1 6 Core Education & Technologies 0.8 7 Glenmark Pharmaceuticals 1.3 7 Tata Motors 1.1 7 Mastek 0.8 8 Suzlon Energy 1.2 8 Glenmark Pharmaceuticals 1.1 8 Emmsons International 0.8 9 Tata Consultancy Services 1.2 9 Suzlon Energy 1.1 9 Tata Motors 0.7 10 HCL Technologies 1.1 10 Infotech Enterprises 0.9 10 Infosys 0.7 Source: ISB- FDC Transnational Companies Survey, 2012-13

Key Findings Overview and Trends A highly geographically diversified company earns its revenue from multiple geographical regions of the world, and therefore better able to spread its revenue risk by not being overly dependent on any geographical market. A less diversified company will have its revenue concentrated in one or two geographical regions. Based on the entropy score, Tata Global Beverages is the most geographically diversified company in terms of revenue, while HindalcoIndustries is the most diversified in terms of assets and employees.

Globalization by India Acquisitions increased 180 substantially since 160 2000, peaking at 150 140 acquisitions in 2008, 120 but have slowed down over the last three 100 years 80 Indian TNCs show a tendency for direct acquisition rather than minority acquisitions and joint ventures 60 40 20 0 Mergers & Acquisitions Number of Overseas Acquisitions Majority Stake Source: Zephyr Database by Orbis

165 Other Overseas Acquisitions Number of overseas Acquisitions by Industry 473 148 139 62 60 58 31 Agriculture Financial Services Metal and mining Wholesale & retail trade Machinery & Equipment Chemicals, pharma & other non metallic Software and business services Source: Zephyr, Bureau Van Dijk sm&a database

Key Motivations Firms undertake acquisitions for four broad reasons Penetrate new markets or maintain existing one (Market seeking) Acquire factors of production, primarily natural resources (Resource- seeking) To increase efficiency (Efficiency seeking) Acquire knowledge assets such as brands, patents and relationship with clients (Asset seeking) Asset Seeking Efficiency Seeking Resource Seeking Market Seeking 1.8 2.2 3.7 4.2 1 2 3 4 5 Note: The figure shows response to the question: For the following completed acquisition, please indicate your company's motivation for undertaking the named acquisition: 1= not a motivation at all, 5= primary motivation Source: ISB-FDC Transitional Companies Survey, 2012-13

Key Motivations The four distance factor s (Economic, Geographic, Administrative & Cultural )do not have significant influence in acquisitions decisions. Market seeking and assetseeking considerations precede over distance considerations Indian companies showed a high preference for investing in the developed countries of North America and Europe Influence of Distance Factors on Overseas Acquisitions Economic Distance Geographic Distance Adminstrative Distance Cultural Distance 1.5 1.6 1.9 2.4 1 2 3 4 5 The figure shows response to the question: For each of the following completed cross-border acquisitions, how important were the following "acquisition target country specific" factors in influencing the acquisition decision? 1=Not a factor at all, 5=very important factor Source: ISB FDC transnational Companies Survey, 2012-13

Post-Acquisition Integration Partnering approach to integration In about 63% of acquisitions, the acquired companies were kept separate and not absorbed by the acquirers. In about 97% of the cases the top management team of the acquired company retained; in about 95% of the cases, the retained team was also accorded a high level of autonomy in managing operations. In 70% of the acquisitions, the acquirer preferred a gradual pace of integration over a rapid one.

Acquisition Performance Results suggest that top Indian TNCs are reasonably satisfied with the outcome of their cross border acquisitions. Operational and Financial Performance Overall Performance 3.9 Operational Performance 4.0 Financial Performance 3.6 1 2 3 4 5 Note: The figure shows responses to the question: For each of the following completed cross-border acquisitions, please rate your company's level of satisfaction with theacquisition performance on financial, operational and overall measures: (1=very dissatisfied, 5= very satisfied) Source: ISB-FDC Transnational Companies Survey, 2012-13

Future Plans A Comparative study of Indian and Brazilian TNCs in collaboration with partner school FDC, Brazil Future studies to include insights on the geographic spread of TNCs, modes of entry and so on Collaborations underway to conduct TNI surveys in Russia and China, so that comparative analysis can be carried out among TNCs from BRIC countries a pioneering attempt in this domain Exclusive study on how service multinationals differ from manufacturing MNCs