Should Ranbaxy Have Sold Out?

June 17, 2008

Rama Bijapurkar, Independent Director and Market Strategy Consultant

If we want opportunity for Indian companies to grow abroad, we have to open up our backyard

Should Ranbaxy have sold out? To begin with, please let us use the phrase "sold", and not "sold out". The dictionary meaning of 'sell out' is betrayal. That sort of prejudges the case! No, I do not believe that the Ranbaxy sale is a setback to the rise of Indian MNCs.

Let's define what we mean by the emotionally loaded phrase "a setback to the rise of Indian MNCs". It means that the phenomenon we all desire, of seeing more and more Indian companies expand their business operations to different countries around the world, will not pick up steam and grow exponentially. Worse still, it could slow down, or, even worse, could come to a grinding halt.

So the question is, will the act of Ranbaxy promoters and shareholders selling 51% to a foreign company be a setback to the rise of Indian MNCs? Yes it will be, if (a) Ranbaxy was the only company in India that was an Indian MNC, and now there are none left; or if (b) the example set by Ranbaxy spooks other 'big boy' companies in similar situations to do the same thing; and / or if (c) this sends strong signals to several smaller, younger companies in India Inc as evidence of "we can't do it", thus causing us to lose the battle for dreams even before we get to the battle for global markets.

All three possibilities seem very remote. Fortunately, there are several other Indian companies, which are or will very soon become globally respected Indian MNCs; so we really are in no danger of losing sight of or running short of role models to keep inspiring the great Indian business dream and showing the way through actions and results. In the future, there will be more Ranbaxy-type sales, but there will also be more Tata Motor-type overseas purchases too, so there is no cause for concern yet.

In fact, if the Daiichi-Ranbaxy marriage leads to a stronger, more globalised Ranbaxy, retaining its name and country of origin, then this would be a decided boost to the rise of the Indian MNC. If it ends up becoming Daiichi India, with little trace of Ranbaxy, then yes, this will mean one less candidate in the potential Indian MNC list. But then, as we said earlier, there are several other companies in that list, so let us not get paranoid.

Also, before we get dispirited, let us project from our very recent history. Wave 1 of the "foreigners are coming" panic, just after liberalisation, led to a lot of outright business sales or shot-gun marriages in the form of joint ventures (JVs). They all mostly ended up in divorce or regret very soon, and the result was a chastened, stronger and more confident India Inc. The future is yet to unfold, and there is enough reason to bet on the side of the rise of the Indian MNC.

Yes, acquisitions are a two-way street. If we want a larger share of the world and opportunity for Indian companies to grow abroad, unfettered by prejudices of country of origin, we have to open up our backyard. However, if we feel that in certain situations, there should be conditionality to such sales for the greater good of country competitiveness, then across-the-board regulation is the weapon to use to achieve that.

The interesting corporate governance question to think about is: what role should boards of companies play, when there is a proposal for a change in management control of the company? Should they treat it as a "we are not involved if one set of shareholders wants to sell to another, and an open offer is adequate protection to all"? Or does the spirit of good governance require that the board be asked to take a view and communicate it to all shareholders? Or even go and step further and, as is done elsewhere, invite other strategic buyers to get the small shareholders the best deal?