Introduction
The case describes how the British construction equipment manufacturer JCB managed to expand into the Indian market through a joint venture with the Indian engineering conglomerate Escorts. Despite having a relatively small share of the global market, JCB became on the biggest manufacturers of backhoes in India. This paper will cover the rise of JCB in India, their strategy, and how this case shows that India can be a competitive destination for manufacturing FDI.
JCB and the Indian Market
India is a highly competitive destination when it comes to manufacturing FDI (Mandal 172). JCB was able to invest in the country almost at the ground floor, way before the recent trend of FDI inflow. Its Indian branch started with the joint venture with an Indian engineering conglomerate Escorts in 1979. This was a new tactic for the company, and it was forced by the high tariff barriers, which prevented direct exports from being financially viable. At the time, the company held a minority share of 40 percent. JCB was not entirely happy with the arrangement, but the company was able to see the untapped potential in the Indian manufacturing market. In 11 years the joint venture became one of the largest companies on the Indian market. By then, the regulations have become less strict, and JCB saw this as an opportunity to expand the business and to buy out their shares from Escorts. Over the next few years, JCB was able to regain majority control of the venture, and eventually purchase all of Escorts’ remaining equity. As a wholly owned subsidiary, JCB focused on serving the Indian market. The company built a second factory in Pune, overhauled and expanded its first factory in Ballabgarth, and rapidly increased their network of dealers. Ultimately, this move made the company the leading manufacturer of backhoes in the country.
This case shows how foreign direct investment can be beneficial to the investor and the investee. By investing in India, JCB improved the technical and industrial base of the country. Infrastructure can be considered the foundation of the economic growth of the country (Rath 78). The case shows how with each time the government restrictions loosened; the company was able to expand their Indian branch more. In turn, this would lead to the greater contribution to the economy of the country. Subsequently, this would lead to looser restrictions until the company was able to become a wholly owned subsidiary. But then it has not stopped benefiting the country. With full control over the company, JCB proceeded to create jobs by opening a new factory and expanding the old one. This symbiotic relationship is one of the reasons that attract manufacturing FDI into the country (Malhotra 18).
Conclusion
The history of the Indian Branch of JCB is an impressive one. Going from a minority owner in a joint venture to a wholly owned leader of the industry is no small feat, and it is exactly the type of story that every company operating on a global market aspires to have. By increasing their profits tenfold over a ten year period, they have shown that investing in India was one of the best decisions JCB has ever made. With the recent trend of increased FDI inflow, it is clear that other companies have taken notice, and with time it could lead to a new economic boom.
Works Cited
Malhotra, Bhavya. “Foreign Direct Investment: Impact on Indian Economy.” Global Journal of Business Management and Information Technology, vol. 4, no. 1, 2014, pp. 17-23.
Mandal, Pankaj Kumar. “Make in India and Recent Trend of FDI Inflow.” International Journal of Commerce, Business, and Management, vol. 5, no. 1, 2016, pp. 172-176.
Rath, Ramesh Chandra. “An Impact of Foreign Direct Investment (FDI) on Infrastructure Development for the Economic Growth in India: An Economic Survey on Indian Scenario.” International Journal of Interdisciplinary Research, vol. 2, no. 5, 2015, pp. 78-95.