THE INDIAN GLOBAL MARKET: DOMINANCE OF FOREIGN BRANDS In Recent Times, several media reports have drawn attention to the extraordinary increase in royalty payments to overseas entities. The ET Intelligence Group in one such report brought out that royalty payments by Indian arms of top MBCs have trebled over the past 5 years. The report points out that in FY12, 306 listed companies paid royalty and technical fees aggregating almost 35,000 crores. A similar analysis by Business Standard of 75 BSE500 companies reveals that these firms paid out royalty equivalent to 32% of their net profits in FY12. It is perfectly legitimate that owners of intellectual property seek returns for the use of their assets. However, these media reports have highlighted that the sudden surge in payments took place following the removal of the ceiling on royalty payments in December 2009. These reports seen to suggest that a substantial part of this increased outflow was on account of payments made by the Indian subsidiaries to their overseas parent for the use of brand names established several decades ago. It was further indicated that this spurt in payments did not reflect any noteworthy value-addition from technology transfer by the foreign entities. These media articles also expressed concern at the adverse impact of this huge outflow on minority shareholders and on the exchequer. Reflecting on these reports, it must be said that the concerns expressed are not without merit. At the core of this issue is the increasing consumption of foreign-owned brands by a rising population with growing per capita income. These range from run-of-the-mill to high end luxury products. A closer look however reveals an unnerving picture. Today, even for items of daily consumption, the brands consumed by millions of households in India are predominantly owned by overseas enterprises. The list is large and unending. Be it baby food, baby care products, home care & personal care products, toothpastes, toothbrushes, shaving creams, razors, breakfast cereals, snack foods, tea, coffee, cosmetics, soaps, shampoos, detergents, dish cleaners, beverages, ice creams, chocolates, confectionery, non-generic pharmaceuticals, washing machines, music systems, personal computers, laptops, refrigerators, mobile phones, televisions, cameras, air conditioners, apparel & fashion accessories, stationery products, toys, console games, sports and fitness equipment, luggage, diapers, sanitary napkins, burgers and pizzas, automobiles and many others, including even packaged drinking water, the leading brands in the Indian market are the property of foreign enterprises. Every time these products are consumed, value flows out of the country to pay for trademarks used, licenses provided, services consumed and so on. With rising aspirations and growing disposable incomes, this outflow has the potential to increase exponentially over time. These foreign brands have so much been a part of the daily lives of Indian households, and for so long, that most people would genuinely think that they are Indian brands. A majority would have no linking that every purchase would send value out of the country to the foreign owners. This unenviable situation is indeed a disheartening reflection of the competitive capacity of India’s home grown brands. Despite so many years of Independence and the country’s multi-dimensional strengths, it is a sad augury that we do not possess globally competitive brands created by Indian enterprises. True there are worthy exceptions. Indian consumer brands such as Airtel, Amul, Bajaj, Godrej, Hero, Mahindra, Reliance, Tata, amongst others have found a pride of place in Indian households. Yet these examples are few and far between. For the most part, India’s market space has been abdicated to foreign owned brands. Be that as it may, apart from a re-examination of the merits of the revised policy currently in force, this issue also needs to be looked through a different lens altogether. Instead of bemoaning the huge outgo in terms of royalty or other payments, it is much more important to align national and corporate energies to create world-class Indian brands. Domestic enterprises must build globally competitive brands that can compete with the best in the world on equal terms. In the first instance, such brands by gaining larger franchise in the Indian global market would reduce the outflow on account of consumption of foreign brands in India. Over time, such world-class Indian brands can aspire to win global markets generating an additional flow of wealth into the country.
Posted on: Tue, 06 Aug 2013 11:04:35 +0000
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