[Dec 2007, Volume 4 Quarterly Issue] Pdf File size - The IIPM Think ...
[Dec 2007, Volume 4 Quarterly Issue] Pdf File size - The IIPM Think ...
[Dec 2007, Volume 4 Quarterly Issue] Pdf File size - The IIPM Think ...
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MORE MARKETS, LESS GOVERNMENT<br />
Table 3: Cross-Border Mergers And Acquisitions By Indian Firms<br />
Year Purchases Sales<br />
No. of deals Value No. of deals<br />
Value<br />
(Million $)<br />
2000 55 910 111 1219<br />
2001 35 2195 84 1037<br />
2002 35 270 66 1698<br />
2003 57 1362 83 949<br />
2004 64 863 80 1760<br />
2005 91 2649 126 4210<br />
2006 133 4740 163 6716<br />
Source: FDI Database, UNCTAD<br />
have also made <strong>size</strong>able overseas investments.<br />
Large Indian companies in industries<br />
such as steel and chemicals<br />
have also begun to ‘internationalize’ by<br />
acquiring upstream companies, for instance,<br />
in countries like, Australia and<br />
Canada. 18 In the energy sector, India’s<br />
State-owned groups, such as ONGC<br />
Videsh, Indian Oil Corporation and Oil<br />
India, have acquired stakes abroad in<br />
exploration, refining and retailing.<br />
Table 3 presents a snapshot of Indian<br />
firms’ purchases and sales in the form of<br />
cross-border Mergers and Acquisitions.<br />
It shows that the number of Indian companies<br />
investing abroad has been steadily<br />
rising and in some of the years, the<br />
value of outbound deals was more than<br />
the value of in-bound deals.<br />
Presently, systematic information on<br />
cross-border M&As by Indian companies<br />
is not available from any government<br />
agency. <strong>The</strong>refore, in this paper,<br />
we rely mainly upon a study on Indian<br />
Acquisitions Abroad by MAPE Advisory<br />
Group 19 and refer to some other<br />
sources as well. According to the said<br />
study, Indian companies acquired 244<br />
foreign companies over the period 1st<br />
January 2000 to 31st March 2006.<br />
Table 4 shows the sectoral distribution<br />
of the 244 acquisitions by Indian<br />
companies covered by the MAPE study.<br />
<strong>The</strong> software and business process outsourcing<br />
industry saw the largest deal<br />
count, followed by pharmaceuticals and<br />
automotive. In terms of the value of the<br />
acquisitions, however, Manufacturing<br />
sector dominated with more than 40<br />
percent of the acquisitions in industries<br />
such as pharmaceuticals, automotive,<br />
consumer goods, chemicals, fertilizers<br />
and metals; whereas software and business<br />
process outsourcing accounted for<br />
almost 30 percent of the total value of<br />
acquisitions during this period. <strong>The</strong><br />
largest number of Indian acquisitions<br />
was in North America and Europe accounting<br />
for (approximately) 34 percent<br />
and 40 percent of the total, respectively.<br />
This reiterates the fact that Indian companies<br />
are investing more in the developed<br />
economies. <strong>The</strong> MAPE Study<br />
also reports that a certain degree of<br />
concentration can be found among the<br />
Indian firms that made these acquisitions<br />
abroad. Out of the 244 deals, 163<br />
deals involved Indian companies which<br />
have made more than one acquisition<br />
abroad. For instance, ONGC made a<br />
total of 9 acquisitions and Ranbaxy has<br />
made 8. <strong>The</strong> other main players include<br />
United Phosphorous, Bharat Forge, Dr<br />
Reddy’s, Tatas, HCL Tech, Mahindra &<br />
Mahindra and Nicholas Piramal,<br />
among others.<br />
This outbound M&As activity by Indian<br />
firms has continued to increase.<br />
<strong>The</strong> year <strong>2007</strong> has already witnessed<br />
two major acquisitions of Tata-Corus<br />
and Hindalco-Novelis. <strong>The</strong> former acquisition<br />
by Tata Steel was worth over<br />
$12 billion, which has been the largest<br />
acquisition ever by an Indian company;<br />
whereas the latter by Aditya Birla<br />
Group’s Hindalco Industries was worth<br />
$6 billion.<br />
5. Driving Factors And Motives<br />
For Overseas Investment<br />
<strong>The</strong> recent wave of outward FDI from<br />
India has been boosted by both domestic<br />
and international factors. In some<br />
In some industries such as pharmaceuticals, import substituting<br />
industrialization regime (of the pre-1990s era) had<br />
encouraged local technology and skill development and<br />
also created capacities and abilities in Indian firms which<br />
enabled them to become cost competitive globally<br />
cases, industry specific factors have also<br />
favoured the outward FDI. As regards<br />
the domestic factors, the policy regime<br />
on outward FDI from India has been<br />
liberalized significantly since 2003; a<br />
liberalised investment regime has provided<br />
Indian firms with easy access to<br />
cheap credit from both domestic and<br />
THE INDIA ECONOMY REVIEW<br />
113