Make In America?

Good Morning. The United States seems to be in no mood to go easy on India, as US commerce secretary Howard Lutnick said that India must fix and react correctly to Washington. But, is it feasible or even viable for Indian companies to manufacture in America? And, must we do it at a gunpoint?  

In other news, these tweet-threats are sinking the markets as all of India’s top-10 companies saw their value erode last week. Meanwhile, artificial intelligence (AI) is everywhere, but are our B-school teachers open to the idea? 

THE TAKE

Is Make In America A Good Strategy For Indian Companies?

By Govindraj Ethiraj

Chennai-based TVS Motor is all set to relaunch the classic British Norton Motorcycles; and is looking to expand its presence in the United States, amongst others. This comes five years after TVS rescued British Norton from administration or bankruptcy, the Financial Times reported over the weekend.

Also, over the weekend, US President Donald Trump unleashed a fresh set of tweet-threats hinting at more tariffs against countries/companies that do not invest in manufacturing capacity in the United States.

With the threats becoming a weekly if not a daily affair, perhaps it’s time to ask: Is there a meeting of objectives somewhere, from India’s perspective? 

India’s Wide Global Footprint 

Indian companies have expanded overseas actively since the early 2000s. The acquisitions of entire companies or stakes have been a mix of brand and capacity. 

In the case of Tata acquiring Tetley or Jaguar Land Rover, it was primarily brand and of course manufacturing capacity that came along. 

In the case of the $12 billion acquisition of Anglo-Dutch steel giant Corus by Tata in 2007, one could say it was capacity and brand, to serve local and export markets. 

The same year, Aditya Birla Group’s Hindalco acquired Novelis in the US, a loss-making aluminum rolling company. 

Today, it’s a $17 billion enterprise and leader in aluminum recycling and circular manufacturing. Novelis has since acquired more companies and capacities.

And yes, as you may have guessed, most cross-border acquisitions during this period were of companies which were in doldrums. 

Back then, Indian companies had firm balance sheets, a strong rupee; and a desire to expand into new and growing markets. At that time, India’s domestic economy was still finding its feet.

Most big ticket acquisitions have worked out one way or the other, it would appear. Though the chronology and timelines may not have been what was hoped for, in the beginning.

Bajaj acquired stakes in Austrian motorcycle brand KTM in 2007, by taking a roughly 15% stake for Rs 300 crore. It was forced to steadily increase its stake, as KTM faced various hurdles over the years.

Today, KTM motorcycles whizz around on Indian roads. They are also exported to the US, Europe and Latin America from plants in China, Brazil and Philippines. And of course, from Chakan in Pune.

The Pharma-Side Story 

Last week, Trump unveiled sweeping new import tariffs, including 100% duties on branded drugs and 25% tariffs on heavy-duty trucks. 

Moreover, the commerce department is believed to be considering a dollar-for-dollar exemption based on investment in US-based manufacturing only if a company moves half its production to the US, according to reports in Reuters and the WSJ. 

How all this will work is not clear. 

Countries like India and for that matter China have of course had fairly clear rules on on-ground investment as a route to access domestic markets. 

The challenge with the United States is that it is already on the higher end of value-addition and labour costs, both in manufacturing and services. 

It may not be the best idea to go back to square one or two; for ostensible manufacturing glory. 

An official of the Indian Drug Manufacturers Association told me a few months ago that the manufacturing cost of medicines in the US was prohibitively higher. 

A Gates Foundation study published on Med RxiV recently pointed out substantial cost differences based on the regulatory market. 

For example, in India, manufacturing active pharmaceutical ingredients (APIs) and finished dosage forms (FDFs) incurs 43% lower capex and 47% lower opex compared to the US. 

The key cost drivers include regulatory compliance, facility infrastructure, equipment standards, quality control, and personnel costs. 

Yet, at least a dozen companies including Dr Reddy’s, Sun Pharmaceuticals, Aurobindo Pharma and Cipla have manufacturing facilities in the United States. 

This is to mostly manufacture generics with the objective of being closer to the market; and build an innovation ecosystem. A bulk of the products take the long route from India.

Indian Cos, US Plants 

The question really is — does anything from our past track record suggest Indian companies can grow in the US with local manufacturing? 

The answer seems mixed. Indian companies surely bring or take manufacturing talent and management capability to run, expand or streamline businesses. Like in the case of Aditya Birla Group as well as the pharma giants.

There is some nuance in how these expansions happened and the fact that they were driven by both opportunistic and market imperatives. 

Going by Norton, KTM, Corus or JLR, it would appear that the ‘global plays’ were driven by the opportunity to grab a company in tough times. 

Can Indian companies enter the USA from a position of strength today and set up capacity, like Ford, GM, Toyota, Honda, BMW and Hyundai did in India many years ago?

It’s tough to say; because unless there is a clear brand and domestic market play, the economics are stacked up against it. 

Ford and General Motors left India and found that leaving India is tougher than getting in, as a recent Wall Street Journal article pointed out.

Another question is —  do companies and business leaders operate better under a gunpoint (in this case tariffs); or a strategic advantage over time? 

Creating capacity to keep the Trump administration happy today may prove counterproductive in a few years if a new administration changes its mind. But building locally with a long term view is feasible.

Indian companies can surely do it at least in some sectors. 

Importantly, they need policy certainty. 

As it happens, this is the same problem foreign investors complain and point to when asked to invest in India.

Life and business do have a way of coming full circle.

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CORE NUMBER

Rs 2.99 lakh crore

That’s how much market cap India’s top-10 most valued companies of India shed last week. H1-B visa fee hike, 100% tariffs on pharmaceuticals, coupled with sharp drop in rupee value pulled down the Sensex by 2,199 points or 2.6%. The ripple effect of this news hit the markets, with the tech majors losing the most. Tata Consultancy Services (TCS) took the hardest knock, with a sharp fall in market value.

This is how much value they lost

All top-10 companies ended in the red during the week, with RIL remaining the most valued company, followed by HDFC Bank. TCS is now the fourth most valued company, followed by Bharti Airtel.

FROM THE PERIPHERY

Relief To Reliance Retail

Mukesh Ambani-owned Reliance Retail got relief from National Company Law Appellate Tribunal (NCLAT) in a petition filed against an order passed by National Company Law Tribunal (NCLT). The tribunal observed that non-promoters received a ‘fair value for their shares in the company’; and saw no reason to ‘upset a reasoned order’ passed by NCLT.

Backstory: The case dates back to 2023 when Reliance Retail board decided to reduce and cancel 78,65,423 equity shares of the company. These shares were held by minority shareholders, other than the promoters and or the holding company. It was challenged by a shareholder N G Joshi, before the Mumbai bench of the NCLT, which dismissed the petition.
The Shift: As per NCLAT, selective reduction is permissible if objecting shareholders are paid a fair value for their shares. An overwhelming majority voted in favour of the special resolution to reduce shares. The company offered Rs 1,380/share to the said shareholders, who constituted 0.09% of the total shareholding.

Few AI Experts In B-Schools

As many as 51% of business school faculty said that they’re confident of the favourable impact of artificial intelligence (AI) on their students, as per a survey by MBAUniverse.com. However, only 7% of the faculty identified as expert users, even as B-schools are adopting generative AI in teaching, research and curriculum design.

By the Numbers: The other half of the surveyed faculty believed that AI’s role will increase in the coming 12 months. In the survey, 21% indicated it was too early to assess its impact, and 18% observed an unfavourable impact. Only 10% reported no significant impact.

Setup: ChatGPT was rated most relevant app of teaching, followed by Microsoft Copilot and Perplexity, with Google Gemini and Claude receiving moderate ratings. Meta AI received the lowest ratings. The survey was conducted amongst 235 faculty members from IIMs, IITs, ISB, XLRI, SPJIMR, MDI, NMIMS etc.

UK Govt. Backs JLR Loan

The United Kingdom government will guarantee a 1.5 billion pounds ($2 billion) loan to Tata Motors-owned Jaguar Land Rover (JLR). The loan, which will be repaid over five years, will be provided by a UK commercial bank, with backing from UK Export Finance.

The Backstory: Earlier this month, a cyberattack crippled the luxury carmaker, which had to halt its production till October 1. While some of its systems were back online, it has to work through a backlog of suppliers, invoices, as well as sales and registrations. In September, Collins Aerospace was also hit by a cyberattack, impacting dozens of flights in Europe, indicating growing cyberattacks on large institutions.

How We Got Here: JLR is a key cog in the British economy, as the attack affects the company as well as its wide supply chain. It employs 34,000 people directly and 120,000 jobs are tied to its supply chain. The support given to the company will help save a lot of skilled jobs linked to the auto sector, government officials said.  

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