The Global Indian Firm: Growth & Value Creation through Overseas Acquisitions

Introduction In recent years emerging multinationals have begun attracting attention in the business press (Economist 2008), as well as academic literature (Aulakh 2007, Khanna & Palepu 2006). They generally refer to a class of firms from emerging economies that are seeking to establish global presence and competitiveness in their respective business. From almost a negligible presence among global companies at the turn of this century, over 70 companies from emerging economies are in the FT Global 500 list by 2008, of which 62 are from Brazil, Russia, India and China (the BRIC economies). Indian firms form an important part of this category--as per a recent BCG study, 20 Indian firms are among the top 100 global challengers from developing countries. They include companies in the Tata or Aditya Birla Group, Reliance Industries, Infosys, Mahindra and Mahindra, Bharat Forge, Vedanta, and others (BCG 2009). The multi-nationality of these firms has broadly evolved through three phases (Aulakh 2007): a first phase wherein they expanded mainly into other developing economies (Lall 1983), a second phase wherein they became either more globally competitive in their home markets, or an integral part of the supply network of established multinationals, and a third phase wherein they are emerging as strong competitors in developed markets with capabilities to provide products/services to globally demanding customers. Indian companies have used a variety of strategies to build their international presence and position, and acquisition of overseas, companies has been one of the widely used approaches in this endeavor. This new trend has received significant attention in the popular business press, wherein acquisitive Indian companies have even been referred to as 'marauding maharajahs' (Economist 2007). The growing interest and euphoria surrounding overseas acquisitions by Indian companies notwithstanding, several issues remain less understood in this context: what are the primary motivations for undertaking these acquisitions? How have Indian companies fared with their overseas acquisitions thus far? How are they managing their overseas acquisitions, and what challenges and opportunities lies ahead in their quest to establish global competitiveness and growth through acquisitions? In this article, we attempt to take a small step in examining some of these issues. Indian firms' Overseas Acquisitions During the last decade overseas acquisitions by Indian firms have exploded, both in terms of the number of deals they have done, and the value of those transactions. From just 11 deals valued at less than $500 million in 1998, the number of overseas acquisitions crossed 230 with an aggregate value of over $30 billion by end 2007 (Accenture 2008). The transactions include acquisitions by companies from large multibusiness groups such as Tata (e.g. Tata Motor's acquisition of Daewoo Trucks and Jaguar-Land Rover, Tata Steel's acquisition of NatSteel and Corus, Tata Chemical's acquisition of Brunner Mond and General Chemicals, Tata Tea's acquisition of Tetley), Aditya Birla (e.g. Hindalco's acquisition of Novelis), or Mahindra and Mahindra (e.g. Mahindra Systech's acquisition of Stokes Plc., Jeco Holdings, etc.), large single business corporations like Bharat Forge, Suzlon, Wipro, or Dr Reddy's, or by medium sized companies such as United Phosphorous, Rolta and others. Our study of 412 overseas acquisitions by publicly traded Indian firms during 1998-2008 shows that these acquisitions occurred in a variety of industries; among them, the primary industries were computer software (26%), chemicals and pharmaceuticals (15%), auto and auto ancillaries (11%), consumer goods (8%), engineering (6%), metals (6%). In terms of geographical break-up, majority of the acquired companies were in developed countries (74%). Among developed countries, US-based companies account for the largest group (over 40%), followed by those in Europe (UK, Germany, France, Belgium). …