f o r    m a n a g i n g    t o m o r r o w
JANUARY 14, 2007
 Letter From
 Message From
The Prime Minister
 Editor's Letter
 The Great Indian
M iddle Class
 India'S Poor
 The Next 15 Years

Flying High
The Indian aviation industry is growing at a rapid pace, thanks to air transport deregulation, emergence of new operators, lower fares and large untapped demand for air travel. The numbers tell an interesting story: India will require an estimated 1,100 aircraft. The average annual passenger traffic growth in India through 2025 is estimated at 7.7 per cent, well above the world average of 4.8 per cent and China's 7.2 per cent.

Bars Of Gold
The global gold industry is flourishing, largely fuelled by Asian demand and a weak US dollar. The boom is probably only halfway through since prices bottomed out in 2000. Since 1800, the boom and bust cycles have averaged about 10 years. While production is down, the value of gold purchased today is up 47 per cent from a year ago. The super-cycle of high metal prices is seen to be spurred largely by demand from China and India. An analysis.
More Net Specials
Business Today,  December 31, 2006
At Home In The Global Village

Companies of all hues are liberally loosening the purse-strings as they venture on an asset-shopping spree overseas.

Indian MNCs on prowl: Like M&M's Anand Mahindra (centre), India Inc.'s bigwigs are going in for aggressive outbound acquisitions to become globally competitive

Some 30 years ago-and 22 years before the advent of economic reforms-the A.V. Birla group was one of the first Indian business houses to eye foreign markets when the late Aditya Birla set up world-scale production bases in South East Asia. Asian Paints is another company that took its first tentative steps in the outbound direction in the mid to late seventies. Ranbaxy and the HCL group are a couple of other Indian corporations that saw virtue in setting up overseas bases early on. Today, the A.V. Birla group has 24 per cent of its revenues coming from overseas markets, Ranbaxy derives 75 per cent of its top line from developed markets, and Asian Paints claims to be amongst the 10th largest decorative paint makers in the world.

Clearly, the desire to be global, or at least international, is not a recent phenomenon for India's corporate sector. What has changed is that today it's infinitely easier for domestic companies to cross the border and buy up companies. Reason for that? Riding on the back of robust economic growth of 8 per cent-plus, which is translating into bumper bottom lines, a broad swathe of Indian manufacturers and service providers are better placed to think outbound, even as their overseas counterparts struggle to come to grips with saturating demand and flat profits. As the rules of the game change, it's clearly a great time to be an Indian corporation. And as Videocon Group Chairman Venugopal Dhoot puts it: "It is a borderless world today."


» Opportunities in other markets: If overseas markets are showing high-growth rates, it makes sense to look at them
» Cost control: Dominance in more than one market increases the ability of a company to control costs. This helps when the industry is cyclical in nature
» Access to technology and high-quality manufacturing facilities, particularly useful for engineering companies
» If revenues are coming in from many countries, dependence on the domestic market is reduced
» Creating a global company: If the company is cost-competitive and offers high-quality products, the world is its market


» Cultural issues: This could be issues relating to language or any other soft skill required to run a global operation
» Labour law issues: This could be a tricky issue since the company will have to deal with labour issues in a different country
» Lack of exposure to regulations: Regulations vary from market to market and aren't easy dealing with
» Downturn in global markets: This could adversely affect business fortunes since the company is not just a local player anymore
» Corporate governance issues: Stricter accounting regulations, for instance, necessitate Indian companies to be more watchful

The Turning Point

Doubtless, the turning point for India Inc. was the dismantling of the license raj which meant that the country was opening up to foreign investments. Companies which were earlier beneficiaries of a closed economy would now have to contend with the entry of global players with deep pockets. Competition was going to get intensive and only the tough would survive. Promoters were forced to make some hard decisions: Exit businesses that either weren't core, or which were going nowhere, without remorse step down from the top slots and hire professionals, and embrace corporate governance, whether one liked it or not (many wouldn't have liked it, but had little choice). The result is evident today: Companies are in prime shape, not just to withstand global competition but to take the battle to overseas shores. "When we make investments overseas, it is born out of today's compulsions," says Kumar Mangalam Birla, Chairman, A.V. Birla Group. Adds Anand Mahindra, Vice Chairman & Managing Director, Mahindra & Mahindra: "It's not in the last 15 years, but just in the last two or three years, that the mindset of Indian companies has become so globally oriented. It has much to do with the underlying strength of the Indian economy, since the latter boosted the growth rates and hence the financial muscle of our own companies. This was like a tonic of confidence that enabled our aggressive global posture."

"We knew the country was being liberalised and we, therefore, had to become more competitive," says Ravi Kant, Managing Director, Tata Motors, which was largely a truck maker 15 years ago. Today, it is a major player in passenger cars with a 15 per cent market share, and has made a key acquisition in South Korea-that of Daewoo's truck manufacturing facility. In addition, Tata Motors has struck joint ventures with Spanish and Thai manufacturers. The Tata Indica car is today on South African roads and a geographical presence that is restricted to just India is a thing of the past. And there are reasons for this change in mindset. "Ours is a cyclical industry and we did not want to be dependent on just one geography," rationalises Kant.

"It is important to understand how an acquisition is adding value to your company"
Tulsi Tanti
"Going international is one way to diversify the tatas' geographical risk"
Ratan Tata
Tata Group

The biggest reason of course for eyeing foreign markets is there's a huge market waiting to be tapped. Malvinder Singh, CEO & MD, Ranbaxy Labs, says his company was aware that 99 per cent of the pharmaceutical market was outside India. "Internationalising our business, therefore, made sense. The strategy was to leverage our core competence and use the home advantage to offer world-class products at affordable costs," he adds. The results are there for all to see: Ranbaxy has a workforce of over 10,500 people across 51 nationalities which in Singh's words, "reflects the company's true international character."

What is noteworthy is that the action is not restricted to just a handful of sectors but is across the spectrum-unlike five-seven years ago when pharma and it services were the industries doing most of the outbound acquisitions. And the size of deals too has steadily increased. At the end of 2005, the total number of outbound deals was 136 and the deal value was $4.3 billion (Rs 19,350 crore). Between January and October this year, the total value of outbound deals was about three-and-a-half times that figure at $15.72 billion or Rs 70,740 crore. If Tata Steel's proposed buyout of Corus does go through, it will mark the single largest outbound deal ever by an Indian company. It is estimated that the size of this deal will be close to $10 billion. According to Ravi Menon, Managing Director (Investment Banking), HSBC Securities, M&A transactions like those of Tata Tea's acquisition of Tetley, Tata Steel's buyout of Natsteel, Reliance Industries acquiring Trevira and Reliance Communications' buying over Flag Telecom have shown the way forward for India Inc. "In a nutshell, the last 15 years have seen India transform from an emerging FDI destination to an emerging foreign direct investor," he adds.

"Globalising our business made sense for us"
Malvinder Singh
"It was vital for us to reduce our dependence on India"
Venugopal Dhoot
Videocon Group

Even sectors that are largely confined to the domestic market-like banking and telecom, where the local geography is still vastly under-penetrated-are taking baby steps overseas. For instance, Bharti Tele is a service provider in Seychelles, and VSNL has a joint venture in South Africa for wired and wireless services. In May this year, Bharti got the go-ahead to be the operator in Jersey in Europe, an island situated on the edge of the English Channel and is a part of the Channel Islands. "The way I see it, going global means integrating with global markets. This is obvious when India Inc. is opening large offices in different countries and is transporting people from India to work at these locations," says Sunil Mittal, Chairman & Group Managing Director, Bharti Enterprises.

Of course, like all good things, going global runs the risk of being provoked more for faddish reasons rather than anything strategic. Says Mahindra: "Going global should not be a reflexive action. The most important mantra is that we need to do what our strategy requires us to do in order to be major players in our chosen industries. If that involves global actions-and I personally don't see how that can be avoided-then so be it." Adds Tulsi Tanti, Chairman & Managing Director, Suzlon Energy, which acquired Hansen Transmissions for m465 million (Rs 2,697 crore) in 2006: "It is important to understand how an acquisition is adding value to your company apart from looking to answer questions like how it will increase the capability of your company." Tata Motors' Kant sums up the going global imperative succinctly. "Yes, the opportunity does exist though there are also big challenges along the way."




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