As India Inc Goes Abroad...

This column is not another commentary on the much-vaunted Mittal-Arcelor takeover battle, but let's take off from the comments made by Lakshmi Nivas Mittal during his recent visit to India to attend a high-profile non-resident Indian wedding. The media-savvy steel magnate commented that the highly emotional, if not racist, outburst from France and Luxembourg to his hostile bid was not an issue that concerned only him: "If tomorrow Indian businessmen have to go and acquire companies in Europe and if they face the same racist feeling or same kind of emotions, how would Indian business grow?"

Mittal was, of course, alluding to the fact that it was in the interest of Indian business to fight on these issues if it wanted a place in the global sun. But at a deeper level, he was also drawing attention to what was in store for India Inc if it got as big as him. Although the latter is going to take a lot more time to worry us now -- Mittal himself took a decade or more to become the world’s largest steel maker after inheriting a couple of overseas plants from his father in the mid 1990s -- what indeed has been the experience of the fast globalising Indian corporates in this regard?

Have any of them faced the sort of problems that Mittal is now experiencing in his unsolicited bid for Arcelor? Not really. A caveat, however, is in order as the reference period is limited to only a few years. Indian corporates, in fact, are among the pack of emerging market firms zeroing in on acquisition targets abroad, especially Europe. Emerging market firms as a whole spent a whopping $42 billion last year acquiring targets in the Continent according to research firm Dealogic. So far in 2006, such firms have announced deals worth $9.3 billion in Europe, which tops the total for all of 2003

From India Inc’s standpoint, the most recent Euro acquisition was Dr Reddy’s Laboratories – a leading pharma giant – taking over a German drug maker Betapharm for around $500 million. By Mittal’s standards, of course, this is indeed small potatoes, but it still represents one of the largest overseas acquisitions by Indian companies. During the period in reference, other corporates like auto parts manufacturer Bharat Forge acquired Imatra Kilsta AB of Sweden, Reliance Industries took control over Trevira GmbH in Germany while Videocon bought the picture tubes business of France’s Thomson SA. 

In not a single instance have there been reports of racism or emotional outbursts accompanying such takeovers by India Inc. Arguably; such problems need not surface so long as the scale of investments remains relatively small. But through aggressive acquisitions, some of our manufacturers like Bharat Forge have indeed become second only to the industry’s leader, Thyssen Krupp of Germany. And nobody is seriously arguing that Bharat Forge is desisting from exercising global leadership through more takeovers of companies like US-based Delphi due to perceived problems of racism.

The relatively small scale of India Inc’s investments overseas -- which grew from $0.8 billion in 2001 to $2.3 billion in 2004 -- stems from its relative recentness. Mittal succeeded in his objectives only because he left India decades ago. By stepping into the NRI diaspora, he thus was free of all the restrictions and controls that plague businessmen at home. Naturally, this perception persists even today with surveys done by the World Bank-Confederation of Indian Industry, which find that the median time to start a business in the country is more than double what it takes in China by comparison.

But it is a measure of the distance that we have traversed since the 1970s that very few businessmen now have to flee from restrictive economic regimes. No doubt, the environment isn’t businessman-friendly as yet. But thanks to a liberal regime since the early 90s — especially with forex ceasing to be a constraint with reserves of around $140 billion — he can expand his domestic business and go global through acquisitions much like Mr Mittal did in the early part of his rise to become the world’s largest steel maker in 2004. As if to make up for lost time, India Inc is rapidly globalising with gusto.

As a result, there is not a single Indian business group that doesn’t have a war chest for overseas acquisitions — the hopeful beginnings of a trend that will see more and more Indian MNCs emerging. Leading companies like Tata Steel are beginning to step up their presence in the Asian market through acquiring the Singapore-based NatSteel, for instance, and possible tie-ups with Chinese steel companies. The Tata group has also acquired a South Korean truck maker while its subsidiary Videsh Sanchar Nigam Ltd bought 60,000 kms of undersea cable from Tyco after getting US security clearance. 

Racism or security problems have also not so far bedeviled the efforts of Indian state-owned oil giants to grab oil and gas fields abroad. ONGC Videsh’s patchy track record in finalizing deals in Nigeria, Angola, Kazakhstan etc have, in fact, less to do with the barriers being faced by Mittal and more to do with the elephantine pace of decision-making in government when compared to its nimble-footed Chinese counterparts. ONGC lost out to CNOOC to acquire the Canadian PetroKazakhstan Inc despite submitting a higher bid, for example. But as with India Inc, it will take lots more time before ONGC mounts the sort of challenge as CNOOC did when it sought to snap up Unocal but was scuppered by US opposition, as Mittal rightly warned during his recent India visit.