Indian Investments Abroad

In the last financial quarter of 2006-2007, the total value of out bound deals exceeded that of inbound ones. There were 167 total outbound deals in the Jan’06-,Nov’07 period totaling about US $ 8.4 billion as against 71 inbound deals worth US$ 4.99 billion.

In the first 10 months of 2006, Indian companies cut more than US$ 10 billion worth of cross border deals, up from about US $1 billion in all of 2000, the Time magazine said in a report. The figure of US$ 10 billion represents twice as much as foreign companies have invested in India, according to Dealogic, which tracks global merger and acquisition activity.

India Inc is scaling up the size of its overseas acquisitions but Indian companies been buying out companies abroad that are larger in size compared to them.

Tata Coffee’s buyout of the third largest coffee chain in the US, Eight O’Clo-ck (EOC) which had a sales of US $ 109 million, when Tata’s revenue was US$ 43 million for the year 2006, at an estimated US$ 220 million is a case in point. Oil drilling major Aban Loyd which had a turnover of US$ 114.2 million in 2005-2006, acquired a 33.76 per cent stake in Norwegian drilling Sinvest ASA for US $ 446 million. The above trends will continue in future also because, the acquirer brings in the management skills and technology and agrees to pay a premium for acquiring the market share of the target form. These deals are funded through internal accruals and external funds due to financial industry liberalization India.

In the year Indian companies went out in full force and bought good companies around the globe for strategic investment and leveraging India’s competitive advantage globally. The year 2006 – 2007 is being remembered in India’s corporate history as one of the most exciting on the mergers and acquisitions (M&A) front.

There were 60 per cent of the total M & A activity in India in 2006 of which almost 99 percent of acquisitions were made with cash, including the big ticket acquisitions such as Suzlon Energy’s acquisition of Hansen Transmission, Denmark, for US $531 million, and Aban Offshore’s buy of 33.76 percent in Norway’s Sinvest for US $ 474.5 million.

The pharma energy, IT, telecom and plantation industries respectively, were the sectors that saw the highest number of M&A deals. Activity in the pharma industry was boosted by the largest inbound deal in 2006 – the acquisitions of a 51.5 per cent stake in Matrix Labs of the US at a cost of $ 736 million. Mylan will eventually increase its stake to 71.5 per cent on completion of the open offer to Matrix shareholders. Deals such as Dr Reddy’s–Betapharm and Ranbaxy –Terapia helped push the Pharma industry to the top of the M & A league, with total deals of a little over US$ 2.2 billion.

Interestingly small players were not left behind. For example United Phosphorus was involved in six of the eight major deals in the chemicals industry and spent more than US$ 339 million in the process of acquiring stakes in overseas players such as Advanta Netherlands and Cerexagri.

Aspects of the Foreign Environment:

In addition to uncontrollable domestic elements a significant source of uncertainty is the number of factors in the foreign environment that are often uncontrollable. A business operating in its home country undoubtedly feels comfortable in forecasting the business climate and adjusting business decisions to these elements. The process of evaluating the uncontrollable elements in an international marketing program, however, often involves substantial doses of cultural, political, and economic shock.

A business operating in a number of foreign countries might find polar extremes in political stability, class structure, and economic climate – critical elements in business decisions, the dynamic upheavals in some countries and economic climate critical elements in business decisions. The dynamic upheavals in some countries further illustrate the problems of dramatic change in cultural, political and economic climates over relatively short periods of time. A case in point is China, which has moved from a communist legal system in which all business was done with the state to a transitional period while a commercial legal system is developing. In this transitional phase, new laws are passed but left to be interpreted by local authorities, where confusion prevails as to what rules still in force and what rules are no longer applicable.