India Inc. on a global gambit

By INDRAJIT BASU, UPI Business Correspondent  |  Nov. 24, 2003 at 11:53 AM
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CALCUTTA, India, Nov. 24 (UPI) -- Armed with a strong rupee, easy access to credit and spurred by a new confidence on their performance going forward, Indian companies have embarked on a global acquisitions spree in their quest for global growth, because to many, India is not enough.

In first week of November, when Tata Motors, India's leading light and heavy vehicles maker announced that it has bagged a deal to buy South Korea's Daewoo Commercial Vehicle Corp, the truck-making arm of the failed Daewoo conglomerate, for $118 million, its chairman Ratan Tata wasn't just ecstatic because he got a great truck- manufacturer at a great price.

"Daewoo Commercial Vehicle is the second largest player in South Korea," said Tata Motor's official spokesperson, "and the acquisition will not only give the company (Tata Motors) a foothold in the South Korean market but also facilitate entry into China and other South East Asian markets."

Ratan Tata has a follower. For Venugopal Dhoot, chairman of home appliance company Videocon International Ltd, which is hoping to acquire Thai CRT, one of the world's largest television picture tube makers, it is just not enough to be the backbone suppliers of components for consumer durables worldwide. "Just as you find 'Intel Inside' badges on computers, you could soon be seeing 'Videocon Inside' badges on most durables," says Dhoot.

Ratan Tata and Dhoot are not the only ones dreaming big. Across India, for a slew of companies that were once satisfied with just being big back home, suddenly India is not enough anymore. Starting from drug makers Ranbaxy Lab, and Dr. Reddy's Lab that are currently spoiling the happiness of U.S. and European pharmaceuticals giants by flooding their markets with cheap generic drugs, to other Tata Group companies like Tata Steel, TCS -- India's largest software vendor -- and banks like ICICI Bank, a health food maker Dabur India, and, at least two-dozen other homegrown companies are on an overseas buying spree. And, they are expanding their footprints by acquiring from Azerbaijan to Australia and the United States to United Arab Emirates.

The Center for Monitoring Indian Economy reports that from January until now, Indian companies acquired over 35 foreign firms that ran into a purchase bill exceeding $750 million. And these are only the ones that came through. And, driving their dreams are, the strong rupee, and easy access to credit, and a newfound confidence by Indian companies in their abilities.

Indeed, Indian companies are not only thinking global but are also dreaming of joining global ranks in terms of global competitiveness, capacity, revenue, and global market shares. "The transition is rapid," said DS Brar chairman Ranbaxy Ltd., who also heads industry lobby the Confederation of Indian Industry's Indian MNC Council. "We are seeing a mindset shift among several Indian companies. Exports will never integrate markets. On-ground presence is necessary to understand consumer behavior."

Over the past 13 years since 1990, when the Indian government took the landmark decision of freeing up the country's economy to global forces, Indian companies have been dreaming of going global. But thanks to the pangs of a suddenly liberalizing economy that was fiercely protected for over five decades, the first 10 years following the opening up were spent fighting competition, restructuring and shedding flab, and, "simply overcoming the process of creative destruction," as says Munesh Khanna, an investment banker. "But now, Indian companies have emerged competitive after having learnt the virtues of efficiency both in operations as also resources allocation."

Even the state-owned companies are stretching out. Take the instance of Oil and Natural Gas Corporation's (ONGC) recent decision to target stakes in Russian oilfields. According to Subir Raha, chairman of ONGC, not only is this a move to gain energy security, but it also signals ONGC's ambitions of becoming global oil major. And, after marketing lubricants in Nepal, the Indian Oil Corporation, another state-owned oil giant is planning to set up retail outlets in Sri Lanka, while Mahanagar Telephone Nigam Ltd, the state-owned telecom company is tapping Nepal and Mauritius aggressively.

"The progressive liberalization of the government's policies that have given rise to many financing options for more overseas opportunities are also helping Indian companies to spread wings offshore," says Amit Mukherjee, partner at Ambit Corporate Finance. Burgeoning foreign exchange reserves, exceeding $93 billion, and a rising rupee are the other positive factors. "With the rising rupee, Indian companies are required to spend less to acquire an overseas outfit," adds Mukherjee.

The Center of Monitoring Indian Economy feels that since a lot of local companies are sitting on piles of liquidity, India Inc is forced to go on a global prowl because with few opportunities to invest, the cash reserves have started to raise questions with investors who feel that excess cash destroys value. According to the center, the top 24 privately owned listed companies had more than $10 billion in cash and equivalents at the end of the current fiscal (March 2003) year, which have grown from $7.6 billion in 2001-02.

However, it is also true that most Indian companies are far smaller in size compared to many global counterparts. Moreover, with limited capital at their disposal compared to global standards and even lesser experience of international markets, many find it absurd that these companies are trying to go global with a vengeance. Some even argue that the acquisitions so far, are low-cost and puny on a global scale and can never fulfill Indian companies' dreams of achieving global status.

Still, "Indian industry is coming out of an extended adolescence where firms are being forced to earn their living on their own," says Tata Sons executive director R. Gopalakrishnan. "But most importantly, a small band of Indian companies has figured out a way to compete."

He added: "For many of them now, the next logical step is to search out opportunities not just in the Indian market -- but in the rest of the world as well. And this is a significant development."

Already, the Global Competitiveness Report 2003-04 of the World Economic Forum has ranked India several notches above China. In the Business Competitiveness Index, India's rank is 37 out of 102 countries as against China's 46.

Therefore, feel optimists, the Indian corporate sector is experiencing, perhaps, a start of a movement. And, the pioneers, with their spirit of global competitiveness, could soon pave the way for the rest -- thus, altering the way home-grown Indian companies have been run.

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