February 17, 2004

Bait and Switch

Everyone seems to think the outsourcing phenomenon mainly benefits U.S. corporations first, in the form of lower labor costs, and foreign wage earners in the second, in the form of higher relative wages. But it may turn out to benefit shareholders of domestic-listed shares in countries where the outsourcing is done. At least that's what the quote below from this article suggests. Here are the key graphs: "At present it is spoken of in hushed tones, but it's a reality. US companies, especially if the founders are of an Indian origin, are definitely thinking of a flip, where the subsidiary in India becomes the parent company and the erstwhile US parent company becomes its subsidiary. This is done through a swap of shares. The newly-formed Indian parent company then proceeds to get listed in India. "Service companies command better valuation in India compared to the US. Also cost for listing in the US is comparatively high and regulations more stringent. Thus, many US-based service companies having development centres in India are looking at an Indian listing that is achieved through a flip," said Shefali Goradia, head (international tax practice), Nishith Desai Associates. "A couple of IT-enabled services (ITES) companies, where the parent was set up in Silicon Valley with subsidiaries in southern India, are in the final stages of discussions with their consultants on adopting this model." I counted 31 Indian shares trading on major international exchanges. I've listed them below but haven't begun to dig into them for specific recos. That's next. For now, anything with a three our four letter symbol trades on the American market either NYSE and AMEX (3 letters) or Nasdaq National Market (four letters). There are ten U.S. listings. Anything more than that is an issue that trades over the counter, either on the Nasdaq bulletin board or overseas. They are: Arvind Mills Ltd. (AVRNF) Dr. Reddys Labs (RDY) Gail India Ltd. (GAILY) Grasim Industries Ltd. (GRSJY) Gujarat Ambuja Cements Ltd (GUJRY) HDFC Bank (HDB) Icici Bank Ltd (IBN) Indian Petrochemicals Ltd. (IDNCY) Indian Rayon and Industries (INRXY) Indo Rama Synthetics (IDRMY) ITC Limited (ITCTY) Infosys (INFY) JCT Ltd. (JCCTY) JK Corp. Ltd. (JKCXY) Larsen and Tourbo (LTORY) Mahanagar Telephone Nigam (MTE) Ranbaxy Laboratories Ltd (RBXLY) Rediff.com (REDF) Reliance Inds Ltd (RLNIY) Satyam Computer Services (SAY) Sify Ltd (SIFY) Silverline Technologies (SLTTY) Southern Petrochemical Inds (SXPCY) Ssi Ltd (SSXGY) State Bank of India (SBKIY) Sterling Biotech Ltd. (STLGFM) Tata Motors Ltd. (TENKY) Tata Tea Ltd (TTAEY) Videocon Intl Ltd (VDOIY) Videsh Sanchar Nigam Ltd (VSL) Wipro Lts. (WIT)


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