India Buys Global
October 4th, 2011A recent NY Times article highlights an increasing trend: emerging market firms expanding into developed markets. Although the trend reflects a broader emerging market phenomena, the Times article focuses in particular on the global expansion of Indian companies (see With Growing Confidence, India Pursues Mergers Abroad).
Recent Indian deals include auto maker Mahindra buying South Korean SUV maker Ssangyong Motor and energy and gas conglomerate Essar buying an oil refinery from Shell. These follow Tata’s widely-publicized acquisitions of Corus Steel and Jaguar Land Rover.
In addition to the typical motivations for foreign expansion including market access and/or access to basic resources, firms from emerging markets often expand in an effort to tap into, and assimilate, state of the art technologies available in developed markets.
According to the article:
Long kept away from the rest of the world by protectionist government policies, Indian companies are increasingly going global. In the last 18 months, Indian companies spent $28.4 billion on outbound mergers and acquisitions, a little more than the $26.4 billion that foreign companies spent on Indian deals
“As Indian companies move into more frontline products, they need specialized technology,” said Rajiv Kumar, secretary general of the Federation of Indian Chambers of Commerce in New Delhi. “They are also seeking market access. And third, they are buying natural resources.”
As I have written in the past, I am generally skeptical of these kinds of moves, as effectively integrating advanced technological knowledge is challenging. Closing the skills gap with advanced countries is no easy task (see Technological Ascendancy). Not only that, but in many of these deals, emerging market firms often overpay for the assets of struggling developed market firms (see Chinese Acquisitions in the Auto Industry, Tata and JLR I, Tata and JLR II, Tata and JLR III, Tata and JLR IIII).
That notwithstanding, it is certainly a trend worth monitoring…
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October 18th, 2011 at 9:59 am
[...] FDI: Role Reversal: As I noted in my post India Buys Global, emerging market firm are increasingly buying developed market firms. The motivations include [...]
October 19th, 2011 at 10:41 am
I found your post interesting. I work for an Indian based MNC which has seen it’s international operations grow in size over last decade.
There are a few thoughts/questions which crossed my mind as a i read your post.
There are 2 specific trends which are there:
1) Indian companies making their presence felt in developed markets.
2) Indian companies expanding into developing markets.
There are a number of Indian manufacturing companies that are consciously not targetting developed markets but putting their resources into developing markets. It makes sense for them given large growth potentials in developing markets. Rate of growth international operations of these companies seem to be justifying their decision. This expansion is both organic and inorganic in nature.
A refrain i have heard from a number of managers of Indian MNCs working on assignments in developing markets is that ‘cultural diversity of people they have to deal with is much higher in India’. If a company were to have a country wide distribution network in India, it’s managers to have manage distributors/dealers with widely varying motivations/attitudes/beliefs. Hence Indian experience seems to set up managers to work effectively in foreign locations.
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Sourav
January 29th, 2012 at 7:11 pm
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