[Dec 2007, Volume 4 Quarterly Issue] Pdf File size - The IIPM Think ...

REIMAGINING INDIA
Table 4: Acquisitions Abroad By Indian Firms
(From January 2000 To March 2006)
Sector Value (Million $) Number Of Deals
Automotives 427.3 24
Chemicals & Fertilizers 655.2 17
Consumer 668.5 10
Pharmaceuticals/ Healthcare 1,604.2 50
Software / BPO 1,115.4 82
Metals & Mining 970.5 11
Oil & Gas 1,587.0 13
Other 1,525.8 37
Total 8,553.8 244
Source: MAPE Advisory Group, 2006
international market; and a booming
stock market too has had a favourable
impact on their capacity to invest. On
the international front, a changing economic
environment has left many small
to medium-sized manufacturing companies
in the developed economies (such
as, USA and Europe) vulnerable for acquisitions,
as their prevailing business
model could no longer be cost
competitive. At the industry level, the
lowering of trade barriers and entry of
multinational firms has increased competition
in the Indian market; which has
compelled many Indian companies to
look overseas for their growth. In this
new competitive environment, the strategy
of ‘internationalization’ has become
vital for many firms. Secondly, as Nagaraj
(2006) argues, in some industries
such as, pharmaceuticals, import substituting
industrialization regime (of the
pre-1990s era) had encouraged local
technology and skill development and
also created capacities and abilities in
Indian firms, which enabled them to become
cost competitive globally. He
In their overseas investments, Indian firms must try to
focus more on resource-seeking activities like exploration
and development of mineral and energy resources. China,
in order to sustain its rapid growth, has invested the most
in exploration of oil fi elds and industrial raw materials
opines that the international competitiveness
of Indian firms in the pharmaceuticals
sector is attributable, to some
extent, to the Patents Act of 1970 that
did not allow ‘product patents’ but allowed
only ‘process patents’ and thus
facilitated the possibilities of ‘reverse
engineering’. Indian firms at present see
an opportunity to produce a large number
of drugs that are going off patent in
the developed countries. Moreover, getting
access to specialised R&D of firms
in developed nations is also one of the
important reasons for Indian firms’ investments
abroad in sectors like
pharmaceuticals. The World Investment
Report 2006 identifies four specific motives,
for which firms look abroad, viz.
market-seeking (i.e. looking for new
customers), efficiency-seeking (i.e. reducing
the costs), resources-seeking (i.e.
accessing key factor inputs), or created/
strategic-asset-seeking (i.e. such as
technology, brands, distribution networks,
R&D facilities and managerial
competences).
As regards the Indian firms, the key
motives for their cross-border M&As
have been gaining market access and
acquiring new technologies and competencies.
For instance, the acquisition of
the Anglo-Dutch company, Corus, by
Tata Steel (for more than $12 billion)
seems driven by this kind of a strategy.
The key motive of Tata Steel could have
been to gain access to European markets;
since Corus, which controls about
50 percent of the UK steel market (in
volume terms), is likely to offer Tata
Steel a direct gateway into the European
markets (where Tata Steel did not
have a presence until now). It would also
provide Tata Steel the access to advanced
technology of Corus. This acquisition
has made Tata Steel the 5th
largest steel producer in the world.
Thus, the main motive of Indian firms
has been getting access to large markets
and acquiring new technologies, and in
several industries, acquisition of firms
in the developed countries seems to offer
the Indian firms not only better technology
but also a sizeable market.
6. Conclusion
Thus, the strategy of ‘internationalization’
being adopted by Indian firms
seems to have been driven by a host of
114 THE IIPM THINK TANK