The current issue of Fortune has a fine feature on the international buying spree cash-laden Indian companies have embarked upon. Interestingly enough, it's not just India's famous outsourcing services powerhouses making acquisitions, but also manufacturing concerns keen on expanding their international reach. As some commentators suggest, what we may have here is a case or "reverse colonization" as Indian firms buy up those in the West. In a world turned upside down, there's a new sahib on the global scene:Buoyed by a robust economy, a booming stock market, and the sharp appreciation of the rupee, India's flagship firms are pushing beyond their home market into the wider world.Once sheltered from overseas competition by a government fearful of foreign domination, Indian companies now are building global empires with impressive speed, ramping up exports, striking cross-border corporate alliances, snapping up firms in the U.S., Europe, and emerging markets, and attracting billions in foreign portfolio capital to India.
India's largest IT-services companies, which count on foreign customers for more than 90% of sales, remain at the vanguard of India's outward expansion. In little more than a decade, firms like Wipro, Infosys Technologies, and Tata Consultancy Services have evolved from niche players handling basic debugging projects for foreign multinationals into giants in their own right, with operations in every major foreign market, tens of thousands of employees, and equity valuations in the tens of billions of dollars.
But Indian manufacturers are going global too. Consider Bharat Forge in Pune: After six foreign acquisitions in three years, Bharat has emerged as the world's second-largest manufacturer of axle beams, crankshafts, and other forged auto components. CEO Baba Kalyani says he's ready to spend another $250 million on foreign acquisitions and expects to overtake Germany's ThyssenKrupp as industry leader by the end of next year.
Across town Bajaj Auto, squeezed by competition from Japanese motorcycle manufacturers in the Indian market, has repositioned itself as the premium-brand leader at home - and is now taking the battle back to Japanese and Chinese rivals in markets like Indonesia, Egypt, and Brazil.
Ranbaxy Laboratories, India's largest pharmaceutical company, manufactures generic drugs in 11 countries, distributes and markets them directly in 49, and counts on foreign markets for 80% of its revenue. CEO Malvinder Singh touts Ranbaxy as India's first true multinational. "Our headquarters may be in India," he says, "but we have learned to operate locally and in a very decentralized manner."
India Inc. still wrestles with the old demons: bad roads, an inadequate education system, shortsighted politicians. In the most basic categories of development, India's economy lags behind China's. Morgan Stanley estimates that China outspends India on infrastructure by a ratio of seven to one. The result: India's manufacturers pay twice as much for electric power as do their Chinese counterparts and three times as much for railway transport.
It's estimated that 40% of India's perishable goods rot before reaching market. India's vaunted technology institutes graduate hundreds of thousands of engineers each year, but their skills are uneven, and India's broader educational institutions have neglected the rest of the nation, leaving 30% of the population unable to read and write.
India's dysfunctional political system - riven by caste, religion, party, and faction - bears much of the blame for these failures. Prime Minister Manmohan Singh and members of his economic team win high marks for policymaking savvy. But they answer to a fractious political coalition whose leaders seem indifferent to the realities of the global economy. Little wonder that while China attracted $70 billion last year in foreign investment, India took in less than $10 billion.
And yet, for all those handicaps, India is barreling forward. Indeed, for the past two years its economy has managed growth rates of 9%, only a percentage point or two shy of China's. In many ways Asia's two emerging giants have embraced development models that are polar opposites. China's strengths may be India's weaknesses - but the reverse is also true. Says CLSA equities strategist Christopher Wood: "China's economy grows because of its government, while India's economy grows in spite of it."
China's broad highways and bustling factories are the product of an authoritarian regime that puts a premium on control. Growth is stoked by government spending and exports, and the economy is dominated by state-owned companies. India's more chaotic business landscape is dominated by family-owned conglomerates, many founded generations ago during India's years as a British colony.
After India won independence in 1947, state planners parceled out monopolies to these dynasties under an arrangement known as the license raj. When a 1991 balance-of-payments crisis forced planners to loosen up, the family firms scrambled to adapt. Now many of them - including groups bearing names like Tata, Birla, Godrej, and Mahindra - are reemerging as well-managed, globally competitive players.
Lightly regulated sectors like software programming, telecommunications, and pharmaceuticals spawned new players such as Narayana Murthy, who launched Infosys (Charts) from his Pune apartment, and Sunil Mittal, who parlayed a bicycle-parts company in Ludhiana into Bharti Airtel, India's leading mobile-phone company.
The success of Indian ventures, whether old or new, owes much to the quality of their domestic capital markets. Deng Xiaoping launched mainland China's exchanges in the early 1990s as an experiment. More than a decade later they remain badly regulated, wildly speculative, and mostly off-limits to both foreign investors and private Chinese firms.
The Bombay Stock Exchange, by contrast, has been around twice as long as India has been independent. It is one piece of infrastructure India's regulators have gotten right: encouraging new ventures, punishing poor management, and accelerating growth of established players. India, CLSA's Wood argues, "has by far the best growth story of any of the emerging economies."
Infosys co-chairman Nandan Nilekani claims the India model is evolving into "something unique. On the one side, there's this array of entrepreneurs and a large pool of inexpensive talent. And on the other we've created a very market-oriented mechanism for raising capital. Put those things together and there's a real ferment. In India all it takes is a little deregulation, and whole sectors go from sleepy oligopolies to highly competitive environments almost overnight."
The bullishness of India's business Brahmans was on display in New York City last month during a four-day, $10 million marketing blitz. The campaign, billed as a celebration of India's 60th year of independence, featured billboards in Times Square, Bollywood dancers performing atop a replica of the Taj Mahal in Bryant Park, and posh dinners attended by dozens of business and political leaders flown in from India.
The objective, said Bharti's Mittal, president of the Confederation of Indian Industry, which organized the events, was to "present the picture of a confident nation ready to engage with the world."
That willingness to engage is manifest in a rising tide of Indian acquisitions. In 2000 the Tata Group, one of India's oldest and proudest conglomerates, made headlines by paying a then-record $430 million for the company that invented the tea bag, Britain's Tetley Tea. Indian purchases of that magnitude are now routine.
In April, Hindalco Industries, part of India's Aditya Birla group, paid $3.6 billion for Canadian aluminum company Novelis. In May, as Suzlon closed its deal on REpower, Vijay Mallya's United Breweries snapped up Whyte & McKay, the world's fourth-largest distiller of Scotch whisky. In August, Wipro (Charts) pocketed New Jersey software house Infocrossing for $600 million. In the first three quarters of this year, Indian companies announced 150 foreign acquisitions with a total value of $18.1 billion, according to Dealogic - a fourfold increase over all of 2005.
But none can match Tata Group for ambition. In April, Tata Steel paid $13 billion for Corus, an Anglo-Dutch steel company, securing mills in Ohio and Pennsylvania and quintupling its steelmaking capacity. That remains India's biggest foreign purchase to date. But between Tetley and Corus, Tata scooped up a slew of other overseas assets: an undersea-cable business, the truck-manufacturing operations of South Korea's Daewoo group, a stake in one of Indonesia's largest coal mines, and a raft of foreign hotels, including the Ritz-Carlton in Boston.
This year, for the first time, the group will take in more revenue overseas than it does at home. Tata is well on its way to becoming India's first truly global brand. And chairman Ratan Tata, who wouldn't talk to Fortune for this story, is still shopping. In August he declared his interest in buying Jaguar and Rover, now owned by Ford Motor.
In Mumbai, India's financial hub, bankers joke about "reverse colonization." An oft-heard lament is that the deals reported in the financial press are nothing compared with the ones considered and then rejected. Ranbaxy, which gobbled up no fewer than eight firms last year, passed on an opportunity to buy Germany's Merck. The drugmaker was sold instead to Mylan Laboratories in the U.S. for $6.6 billion. "Acquisitions, yes," says CEO Singh, "but not in a reckless manner."
Ranjit Pandit, managing director of the Mumbai office of General Atlantic, a U.S. private equity group, says it wouldn't surprise him to see a $50 billion deal. "Suddenly," he says, "bankers the world over are beating a path to India."
Remarkably, few of India's foreign acquisitions have gone awry. For now at least, there is no Indian equivalent of TCL, the Chinese TV manufacturer still struggling to digest its 2004 purchase of the troubled television division of France's Thomson. Nor have Indians encountered the sort of political backlash that thwarted efforts by CNOOC, China's state-owned petroleum giant, to purchase U.S.-based Unocal in 2005.
Tata's bid for Jaguar and Rover, which are expected to go for at least $1.5 billion, will test his limits. That deal would bring Tata's automotive unit new technologies and a broad international sales network. But industry analysts question how Tata Motors, whose products and sales service finished at the bottom of J.D. Power's 2007 India customer-satisfaction ranking, would revitalize the two money-losing British luxury brands. It's hard to see how either company will mesh with Tata's push to produce the world's cheapest passenger car, at about $2,500.
Anand Mahindra, CEO of Mahindra & Mahindra, India's largest manufacturer of tractors and SUVs, wonders whether India's global expansion resembles corporate Japan's buying binge during its 1980s bubble economy. "Is this really the carpe diem moment for India?" he asks. "Is this part of a well-considered strategic roadmap? Or is it all just steroids?"
Mahindra won't comment on reports he dropped out of the bidding for Jaguar and Rover. But he is hardly shrinking from other opportunities. Over the past several years he has purchased a tractor plant in China and diversified into the forging industry by purchasing companies in Germany and Britain. Each acquisition made sense, he argues, because it brought new technologies, new customers, or significant economies of scale.
Mahindra has also entered into an alliance with Renault to build a passenger car based on the French automaker's low-cost Logan sedan. Together with Renault and Nissan, he is investing in a $900 million passenger-car plant on the outskirts of Chennai. That facility, which will be India's largest auto factory, is scheduled to open in 2009 with an annual capacity of 400,000 vehicles. That same year Mahindra plans to launch a range of compact pickups and hybrid SUVs in the U.S.
