Carry on Shopping

November 2012 was a rough month for Indian-owned multinational companies (MNCs). The Tata Group cut jobs in Britain, and Lakshmi Mittal received flak for trying to kill some more jobs in France. In the past, too, the Tata Group had faced problems after they acquired steel maker Corus, and the Aditya Birla Group’s acquisition of Novelis was a bumpy ride as well. It does not look as though the sailing will be smooth in the future.

But there are success stories, too: the Tatas again, with Jaguar Land Rover, for instance, and Novelis’s turnaround.

The gumption and success of a few have inspired even relatively modest-sized companies to go multinational. In October 2012, for example, L&T Finance Holdings acquired French company Family Credit Ltd for $21.82 million(around `120 crore). In November, minnows such as Magma Fincorp, and VLCC Healthcare also bought companies abroad, alongside big-ticket deals such as Sun Pharma’s purchase of Dusa Pharmaceuticals and Gulf Oil acquiring Houghton International.

The Mahindra Group has bought companies to gain access to technology and design capabilities. The Tatas have gained substantially from the brand value of Tetley, while Corus’s technologies have been implemented at the Jamshedpur steel plant of Tata Steel.

In a 2010 report, PricewaterhouseCoopers (PWC) predicted that by 2018, India would produce more multinationals than China every year. It added that by 2024, India would have 20 per cent more MNCs than China. This is not as farfetched as it sounds.

Indian companies are seeking out their share of the global pie, even as India attracts a limited amount of foreign direct investment (FDI) every year. In 2010, for example, Indian companies invested $22 billion abroad to buy foreign companies (or stakes in them). By contrast, companies from other countries spent $8.96 billion to acquire companies or stakes in India, according to audit and accounting firm Grant Thornton’s annual deal tracker. In 2011, the numbers reversed. Again, from January to November 2012, the situation has flipped back, with Indian companies spending more than$12 billion abroad and foreign ones $8.09 billion in India.

“Companies should go where their customers are,” says Timothy Hanley, US-based global leader for manufacturing at Deloitte Touche Tohmatsu Ltd, a professional services company. He notes that Indian companies have an advantage over large Chinese companies, which are mostly government-owned and focused on their domestic market.

Jaya Prakash Pradhan, economics professor at the Sardar Patel Institute of Economic and Social Research, Ahmedabad, noted in a 2011 paper on Indian and Chinese MNCs that Chinese companies preferred to invest in nearby countries that were small and rich in natural resources, while their Indian counterparts tended to choose big countries with which India had a bilateral investment treaty, regardless of distance.

In another paper in 2007, Pradhan noted that Indian multinationals had played an important role in promoting exports. “Therefore, instituting favourable policies for promoting outward FDI activities of Indian multinationals could be instrumental in boosting India’s export performance,” it says. Pradhan, who has studied at least 2,000 Indian companies that have bought companies or stakes abroad, says: “Indian companies acquire to be able to export from India, especially in certain sectors like pharma, where they get access to distribution channels by acquiring abroad.”

For Indian companies, it’s a good reason to carry on shopping abroad. SUMAN LAYAK