Drishtikone
This is a very topical article. Indian companies are indeed lining up to buy the US firms. Granted, the acquisitions are not as high profile as the acquisitions by the Chinese, but then the Chinese companies are not based entirely on private initiative – they are in fact representative of the Government mandate! That is why the Chinese go for the bigger things – while the Indian firms are buying only those assets that make sense business-wise and not trying to make a big splash unless the dominance of the entire Global sector is at stake – like stake. That is what Tata did by bidding for Corus – the second biggest Steel company.in Europe. But despite the fact that a company like Infosys has a higher market capitalization than Accenture, BearingPoint and other consulting companies – still it has stayed away from acquiring any.
It remains to be seen whether the Chinese are correct or “Small is Beautiful”?
What accounts for all the M&A activity? Faculty members at Wharton and a New York investment banker who is advising an Indian firm on the acquisition of a chain of U.S. jewelry stores point to a combination of factors — means, motive, confidence and opportunity.
“Over the last decade, Indian firms in various industries — most visibly in information technology but also in areas like auto components, the energy sector and [food products] — have been slowly building up to become emerging multinationals,” says Wharton management professor Saikat Chaudhuri. The outsourcing phenomenon, in which Western firms have hired Indian companies for call center work and other tasks, has reaped benefits for Indian managers, exposing them to Western companies and management practices and, at the same time, demonstrating to non-Indian firms that India is a reliable source of low-cost, yet high quality, products and services.
Moreover, Indian firms are becoming more profitable — the result, in part, of an ever-booming economy — and can access significantly more capital than in the past. “Incomes have grown phenomenally in some companies in some sectors,” says Anil Kumar, managing partner at Virtus Global Partners, an investment and advisory firm with offices in the U. S. and India. “But the biggest factor [in the growth of acquisition activity] is that suddenly, there’s a lot more cash available in the Indian market than earlier on. Many companies are underleveraged; they don’t have much debt. Their capacity to borrow from others is a lot better. They can borrow sizeable amounts of cash, which can be deployed for acquisitions.”
A number of Indian firms see global markets, not the domestic market, as their chief pathway to growth. “If you are a large company, you have to have a good presence in the U.S,” Kumar notes. Another factor: “India is much more confident now. Companies are taking a lot more risk than earlier on.” Astute managers, he adds, “are realizing that taking on risk [can be] a good thing.”
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