India as managerial number one

When India opened its economy in 1991, leftists warned that uncompetitive Indian companies would be killed or swallowed up by multinationals. Fifteen years later, the shoe is on the other foot: Indian companies are taking over giant multinationals.

In 2006, Indian companies raised $ 19 billion from global markets to finance foreign takeovers and internal expansion. This far exceeded the inflow of foreign direct investment (around $ 10 billion).

India has once again leapfrogged the conventional path of economic growth. Countries normally succeed in manufacturing exports before succeeding in services, but India leapfrogged to stunning success in services first. Countries normally attract large amounts of foreign investment before venturing abroad themselves, but here too India has leapfrogged into massive investment abroad without waiting for massive foreign investment in India.

The biggest takeover story of 2006 was Tata Steel’s bid to take over Britain’s Corus (the outcome is still awaited). There is a delicious historical twist in this. When Jamsetji Tata first proposed to manufacture steel a century ago, Sir Frederick Upcott, head of the Railways, was so contemptuous of Indian capabilities that he undertook to eat every ounce of steel that Tata could produce.

One century later, Tata Steel is set to take over the whole British steel industry (which is part of Corus). Sir Frederick Upcott must be turning in his grave. The empire has struck back with a vengeance.

How can Tata afford to buy Corus, which is thrice its size? Because global financiers are happy to lend Tata $ 8 billion, confident that it will do a better job than the current British owners. The Corus management itself agrees, and has backed Tata’s bid.

This is the real revolution of 2006. India has left behind the stage of being seen as a global supplier of software, generic drugs and auto components. It is now seen as a global managerial power, one that can take over multinationals across the world and improve their performance. So, global financiers are tripping over one other to fund foreign acquisitions by Indian companies.

This new Indian image owes much to Lakshmi Mittals’ success in acquiring and turning round steel plants in many continents, becoming global number one in steel. His key managers are mostly Indians. Their success has established Indian managerial capabilities in steel as being superior to American and European ones.

But Mittal is not an isolated example. Virtually every top Indian company in software, pharmaceuticals and auto has acquired foreign companies or set up greenfield factories abroad. I don’t want to bore readers with the full list of Indian acquisitions in 2006, but here are some prominent examples.

Tata Tea acquired US energy drinks manufacturer Energy Brands for $ 677 m. Dr Reddy’s Labs acquired Betapharm of Germany for $ 570 m. Suzlon acquired Eve Holdings of Belgium to become one of the world’s top manufacturers of windmills. Ranbaxy acquired Romanian pharmaceutical producer Terapia for $ 324 m. Tata Coffee acquired US company Eight o’Clock Coffee for $ 220 m.

Medium Indian companies have rushed into foreign acquisitions no less than big ones. Bharat Forge has acquired half a dozen companies in the US and Europe and become global number two in automotive forgings. It hopes to become number one by 2008. Amtek Auto would like to become number one in castings, Jain Irrigation in drip irrigation and sprinklers, Sundaram Fasteners in industrial fasteners. Essel Packaging took over Switzerland’s Propack some years ago to become global number one in laminated tubes (used for packaging toothpaste and cosmetics).

Many medium Indian companies (eg. Havells, Bharat Forge, Wockhardt) have managed to raised billions abroad for unspecified takeovers at some future date. India Inc. has acquired such a good image that it matters less and less which Indian company is raising finance, for what purpose and in which country. Global finance is willing to back Indians to take over the world.

Till recently, Indian businessmen were terrified of competing with China. But now a dozen Indian companies including Mahindra, Infosys and Sundaram Fasteners are investing in China, confident of beating the Chinese in their home ground. Essel Propack has long been number one in China.

The world now believes that Indians are excellent managers, better than those in several American and Eruropean countries. What used to be the biggest companies in the world, General Motors and Ford, today have a credit rating far lower than that of Tata, Birla, Reliance and other Indian groups. Indian companies can raise cheap international finance to acquire ailing American giants, but not the other way round. Hundreds of Indian companies have become MNCs with growing empires.

This is only the beginning of the great Indian takeover. Indian companies should aim for the sky over the next two decades. I look forward to the day when ICICI Bank takes over Citibank ; when Infosys acquires IBM: when Reliance takes over Exxon; and Tata Motors takes over General Motors. And, of course, The Times of India should take over the New York Times.

What do you think?