Multinational-law-firmAccording to a recent ranking of India’s most internationalized companies conducted by the Indian School of Business (ISB) and Brazilian business school Fundação Dom Cabral (FDC), Indian transnationals are likely to increase their overseas footprint in the coming years. “Despite the general dip in aggregate overseas FDI [foreign direct investment] in 2012 … top Indian transnational corporations [TNCs] continued their aggressive globalization march by showing double-digit growth in international revenue, assets and employees,” the study notes.

Raveendra Chittoor, a professor of strategy at ISB and author of the study, says the extent of globalization “will only increase further as India becomes more integrated with the rest of the global economy and as Indian companies gain more confidence by acquiring experience in overseas markets.”

Chittoor points out that unlike multinationals from developed countries — which typically set up green-field ventures overseas — Indian firms have become transnational primarily through acquisitions. “This is because they are lagging [in their international operations] and if they take only the organic route, they will not be able to catch up fast.”

The ISB-FDC study is based on the transnationality index (TNI) developed by the United Nations Conference on Trade and Development (UNCTAD). The TNI uses a combination of three measures to determine the degree of internationalization of companies — percentage of international assets, percentage of international revenues and percentage of foreign employees. The average of these three measures reflects the TNI of the firm.

Chittoor says that the multidimensionality of the index takes into account the variation in the three indicators across industries and sectors. “For instance, many companies could simply be exporters generating foreign exchange, but not have any assets or employees overseas. The TNI, therefore, truly reflects the degree of internationalization of any organization.”

According to the study which has been published in ISB Insight, the research quarterly of ISB, the top 10 Indian companies that have international assets more than $500 million “have a TNI of more than 50%.” This is comparable to that of the top transnational corporations from the developed countries. “However, the majority of the companies on our list are affiliated to business groups. This is a phenomenon unique to emerging economies,” says Chittoor, adding that research shows that “conditions in the emerging economies are more conducive for business groups to develop and prosper.”

The study also suggests that India’s top transnational companies have a balanced presence in both developed and developing markets. This is in line with multinationals from other emerging markets. “These emerging market multinationals tend to internationalize faster and prefer higher risk entry modes such as acquisitions,” the study notes. “They follow unconventional internationalization paths, sometimes preferring to expand first into developed markets rather than into other developing economies. They display risk-taking behavior and do not hesitate to make large investments and resource commitments even in the initial phases of their international expansion.”

But how do India’s top transnational firms compare with global multinationals? Chittoor points out that the world’s top 100 non-financial transnationals earned 83% of their revenues, owned 79% of their assets and employed 61% of their employees outside of their home country in 2011. In contrast, the top 15 Indian transnationals with assets of $500 million or more earned 75% of their total revenues from international operations, held 57% of their total assets overseas, and employed 20% of their total workforce abroad. Also, the average TNI score of 74% for the top 100 global TNCs is higher than the TNI score of all the Indian TNCs except for the state-owned petroleum firm ONGC Videsh, which holds the top rank with a TNI of 77%.

“Our analysis indicates that while the proportion of international assets and revenues of top Indian TNCs is more or less similar to that of top global TNCs, when it comes to the number of foreign employees, the number for Indian companies is very low,” says Chittoor, adding that “We expect this gap to reduce as India becomes more integrated with the rest of the world.”