Corporate India has come a long way since the government opened up the Indian markets for global competition in 1991. Fears that this would spell a doom for the local industry were then strong. Entry of multinational companies (MNCs) in Indian markets stoked a fear of an end to the domestic entrepreneurial spirit.
With their vast pool of resources, knowledge of multiple markets and a force of capable executives with proven track record in global markets, the MNCs were expected to rewrite the script of the Indian business. A decade and a half later, doomsayers have been proved wrong as not only have Indian companies tightened their stronghold on the domestic market, but they have also significantly increased overseas investments.
Indeed, the domestic companies have weathered the so-called onslaught of the MNCs, irrespective of the national and international economic conditions. The Indian firms could sail through the rough patch of the recessionary situation post 9/11.
With the world economy on an upturn from 2003, the domestic companies have consolidated their business. Then, they faced a new challenge in the form of Chinese mass-market phenomenon. Indian companies turned it into an opportunity to streamline their operations with a focus on cost reduction without sacrificing quality.
Today, domestic companies have grown in size and scale. Growth in consumerism in the country and renewed thrust of the government on infrastructural development has augured well for the domestic industry. Local companies have gained enough muscles to carry out consolidation of their business on the global front. This has given rise to the corporate entities popularly known as Indian MNCs —- Indian companies with production facilities located at the strategic places around the globe.
Some examples of Indian MNCs are noteworthy. In the fag end of 2003, Bharat Forge acquired Carl Dan Peddinghaus, a German forging company. The acquisition helped Bharat Forge to become the second biggest forging company in the world after Thyssen Krupp. The former also got an easy access to the European market and eventually to the German automakers. This was the beginning of rising aspirations of an erstwhile small local auto-components manufacturing company.
Today, Bharat Forge has nine production facilities in six countries across Europe, North America and Asia. The company now caters over 35 original equipment manufacturers (OEMs) around the world with wide range of products. Moreover, the proportion of exports in total revenues from operations for the company shot up from just over 17% in 2000-01 to 41% in 2005-06.
Indian companies also showed a keen interest in setting up manufacturing facilities abroad. Moser Baer, the third largest producer of optical disc media in the world, commissioned its sixth manufacturing facility in Germany in 2004. This was the company’s first CD making unit outside India. Today, the company earns more than 80% of its revenues from exports.
The story of Indian MNCs is not only limited to global acquisitions. It is also about turnaround of sick units abroad. Way back in 1998, Wockhardt, a domestic pharma giant, took over UK-based loss making Wallis Laboratories for $8 million. Wockhardt took about a year’s time to convert this company into a profit making entity.
In early 2000, Tata Tea acquired Tetly Tea, a British tea company, which was also the world’s second largest producer of tea bags, for $431 million. Tetley, which was twice as big as Tata Tea, returned to profits after the latter undertook a restructuring of its high cost debt.
In yet another turnaround story, Essel Propack, a global major in production of laminated tubes, brought Arista Tubes and Telecon Packaging back into black. Essel Propack worked out a strategy to improve capacity utilisation of both companies.
Among the various Indian business groups that are targetting global acquisitions, name of the Tata group has appeared in the news for quite often. Apart from grabbing Tetley Tea, the Tata Group made several acquisitions including Tyco Global (a USA based telecom operator), Daewoo Commercial Vehicles, Ritz Carlton hotel in Boston, Eight O’clock Coffee and Energy Brands, which manufactures flavoured water. Recently, the group also offered to buy out UK-based Corus Group, one of the largest steel producers in the world.
Recent global acquisitions by Indian companies reflect an urge of these companies to expand their business beyond the domestic market. This is especially the case with the buyout deals struck by some of the Indian textile companies. In July 2006, Spentex Industries bought Tashkent Toytepa Tekstil, an Uzbek textile company for $81 million.
The deal will fetch an easy access to the vast cotton output of Uzbekistan. It will also facilitate an easy entry for Spentex into the eastern European market. The pace of acquisitions has increased in the home textiles segment. In July 2006, Welspun India, a major producer of terry towels in the world, took over UK-based CHT Holdings, which controls the Christy brand of towels.
In another deal, GHCL acquired Rosebys, UK’s largest textile retail chain company, which has presence in bedding, curtains and kind’s garments. This marked a second acquisition for GHCL in the home textiles business. The company had earlier acquired US-based Dan River.
The deal size of acquisitions made by the Indian companies abroad has also increased substantially in recent times. In February 2006, Dr. Reddy’s offered $570 million in cash for 100% stake in Betapharm Arzneimittel, the fourth largest generic pharmaceutical company in Germany.
In another deal, Ranbaxy acquired 96% stake in Terapia, the largest generic drug company in Romania for $324 million. Again, acquisitions with heavy payouts are not restricted only to the pharma sector. In March 2006, Suzlon Wind Energy paid $565 million to acquire Hansen Transmissions International of Belgium.
Further, the recent offer of over $9.2 billion made by Tata Steel to buy the Corus Group is the highest by any Indian company so far. With bulging profits and swelling reserves, Indian companies are expected to undergo further consolidation on global scale in the near term.
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