Corporate response to economic reforms in India

Abstract

Recent economic liberalization in India has significantly changed the policy environment and has forced the domestic firms to review their strategies. As the situation is still evolving, the paper essentially explores changes in some key corporate strategies during the 1990s through an analytical description of available evidence. Some salient aspects of corporate strategies followed in the post-reform period are: (a) Vigorous restructuring, mainly geared towards consolidation to retain competitiveness in few chosen areas and correct the inefficiencies created by over-diversification in the pre-reform era; (b) Active participation of MNCs in the merger and acquisition process to get quick market entry and access to various complementary assets; (c) Better position of MNCs vis- -vis domestic firms in the acquisition game because of their deep pockets and relatively cheaper access to capital; (d) Increased reliance of Indian corporate sector on foreign technology purchase (usually tied with equity) while in house technology generation has taken a backseat; (e) Increased efforts to improve manufacturing capability (especially quality upgradation) through building alliances as well as through initiatives within the firm; although these efforts may still prove to be inadequate to meet the competitive challenges; (f) Dominance of product differentiation strategy over strategies of building R&D and manufacturing capabilities and distribution and marketing related complementary assets; (g) Adoption of export based growth strategies by some of the corporate sector firms but such strategies are not widespread and exposure to the international market is still inadequate to put the Indian firms on higher growth and learning trajectories. The paper argues that the policy initiatives will need to encourage investments in R&D and complementary assets like manufacturing etc. and a rapid increase in exports. Besides cost of capital advantage of the MNCs is real and needs to be tackled squarely. Else, the Indian corporate sector may not be able to benefit from the strategic initiatives taken in recent years.