The Rise and Fall of India’s International Expansion Picture this: It’s the early 2000s, and Indian companies are conquering the world. From 2004 to 2007, Indian firms were expanding globally at a breathtaking pace – growing their international investments by 98% annually, outpacing even China. But then came 2008, and everything changed.
The Perfect Storm Like a ship caught in a hurricane, Indian companies faced multiple challenges:
- Global credit markets froze, making it harder to finance overseas ventures
- The Indian rupee’s value swung wildly against the dollar
- Export earnings plummeted as global demand collapsed
- Stock markets tumbled, with India’s Sensex falling 48% in just one year
Tale of Two Dragons: India vs. China While both nations faced the same global storm, they weathered it differently. China’s outward investment doubled in 2008, while India’s fell by 6.3%. Why? The answer lies in who was driving the expansion:
- China: Government-backed firms supported by massive foreign exchange reserves
- India: Private companies relying on market conditions and business opportunities
The Hidden Impact: When Overseas Dreams Turn to Nightmares The research reveals a fascinating pattern: For many Indian companies, their international operations actually amplified their problems during the crisis. Consider these cases:
- Hindalco: Parent company profit of $585 million became a $132 million loss when including overseas operations
- Wockhardt: A healthy $99 million domestic profit transformed into a $55 million global loss
- Dr. Reddy’s: Parent company earnings of $159 million flipped to a $143 million consolidated loss
Silver Linings in Dark Clouds Not all sectors suffered equally:
- Oil & gas companies showed resilience, continuing their overseas expansion
- IT services firms maintained relatively stable performance
- African investments actually increased by 69% while other regions saw declines
Lessons for the Future
- Diversification isn’t always protection: Having international operations can amplify risks during global crises
- Sector matters: Some industries are more resilient to global shocks than others
- Funding sources are crucial: Over-reliance on external financing can become a vulnerability
- Geographic strategy counts: Different regions offer different risks and opportunities
Looking Ahead The paper suggests that recovery depends on three key factors:
- Revival of global and domestic growth
- Improvement in corporate profitability
- Easier access to financing
For today’s business leaders, this historical analysis offers valuable insights about managing global expansion and preparing for future crises. It’s a reminder that international growth, while attractive, comes with its own set of risks that need careful management.
Academic Abstract:
This article reviews the emerging trends of outward investment flows from India in the period of global slowdown and presents the preliminary findings on the changing behaviours of emerging Indian transnational corporations (TNCs). It shows that during the early 2000s, Indian outward investment registered a faster and sustained growth as an increasing number of Indian firms turned to the global market for growth, technologies and natural resources. However, it displayed a decline in 2008 and the first half of 2009. The global financial and economic crisis appears to have seriously dented overseas expansion plans of emerging Indian TNCs. Indian investment slowdown considerably as Indian firms are faced with declining domestic demand, falling exports, rising debt burden, uncertain and difficult financial markets, and a volatile exchange rate. Deteriorating profit and sales levels of their overseas affiliates are found to have negative impacts on the global performance of a number of Indian TNCs. Nevertheless, as global assets have become cheaper in the crisis period and there are signs of recovery in the domestic demand, Indian foreign investment could regain its growth dynamism in the coming few years.
Learn More:
Full citation: Pradhan, Jaya Prakash (2010), ‘The global economic crisis: impact on Indian outward investment’, Transnational Corporations, 19(1), pp. 69–84, Publisher: United Nations.
Learn More:
