Posted by: Captain Haddock October 20, 2006
A growing Indian empire
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From the Economist: A growing Indian empire Oct 20th 2006 From Economist.com Tata Steel�s $8 billion purchase of Corus, an Anglo-Dutch rival, says much about consolidation in the steel industry and about India�s acquisitiveness WHAT a difference a year makes. In 2005 Tata Steel, India's largest private-sector steelmaker, was an industry minnow ranked as only the 56th largest steelmaker in the world, by production. It was a likely meal for bigger fish to swallow. Now, after striking an $8 billion agreement to take over Corus, a much larger Anglo-Dutch rival, it is poised to become the sixth largest such firm on the planet, with a likely annual output (judging by last year�s performances) of some 22.6m tonnes. The deal was announced on Friday October 20th, with the two firms pledging to complete by January, leaving time for a possible�though some say unlikely�rival bid for Corus to emerge. For Tata it represents a significant triumph in a fragmented industry that is fast consolidating. Analysts who monitor the big metals and mining firms, where there has been a frenzy of activity in recent months, increasingly classify companies as either �hunter or hunted�. Mittal Steel (a Europe-based firm run by an Indian tycoon, Lakshmi Mittal) has devoured Arcelor, a Luxembourg-based steelmaker, for $32.2 billion, and is easily the world's biggest steelmaker. Consolidation in the steel industry seems to be the result of firms seeking more leverage over the few global suppliers of the raw materials (iron ore and coking coal) for making the metal. The expansion of Tata is also a reflection of a rapid growth in confidence among Indian firms. This deal is by far the largest foreign purchase ever made by an Indian company. Corporate India has matured dramatically since 1991, when reforms cut away bureaucratic controls and encouraged the creation of a more competitive marketplace. Tata Steel is emblematic of the successful parts of Indian manufacturing and is known as the lowest-cost producer in the world. Indian companies are in an expansive, acquisitive mood. So far this year Indian firms have announced 131 foreign acquisitions, with a total value of $18.7 billion, a huge increase on previous years, and much more than foreign firms have invested in Indian purchases. The shopping spree spans industries from information technology (IT) and outsourcing to liquor. Wipro, for example, one of the country's big three IT firms, has this year acquired technology companies in Portugal, Finland and California. In pharmaceuticals Ranbaxy, an Indian maker of generic drugs, bought Ethimed of Belgium and Mundogen, the Spanish generics arm of GlaxoSmithKline. Bharat Forge, the world's second-biggest maker of forgings for engine and chassis components, based in the Indian city of Pune, has since 2004 bought six companies in four countries�Britain, Germany, Sweden and China. Suzlon, another Pune firm, which makes wind turbines, this year bought Hansen, a Belgian gearbox-maker. And United Breweries, a booze conglomerate from Bangalore, has made an unsolicited bid for Whyte & Mackay, a Scottish whisky distiller. Behind this push overseas lies a combination of forces: a domestic boom; the availability of credit; a rush to achieve global scale; and a new self-confidence about Indian business's ability to add managerial value. India's economy is in its fourth successive year of growth at around 8%. In the first two quarters of this year GDP grew at rates of 9.3% and 8.9% respectively over the same periods in 2005. What is noteworthy about many of the firms is that the root of their success is not India's obvious competitive advantage: its vast, low-cost labour force. In the IT and outsourcing industries, lower salaries for college graduates are an important reason behind Indian firms' rapid growth. But in manufacturing the stars tend to be experts in automated, capital-intensive production. Bosses who have flourished in such businesses in India, with its poor infrastructure and still-daunting regulatory environment, understandably feel confident that they have lessons to teach their new purchases in other countries.
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