One more, and hopefully, this time the link works as intended :) India'sacquisition spree Circle the wagons Oct 12th 2006 | DELHI From The Economist print edition The Indians are coming—to buy Western companies INDIAN companies are in an expansive, acquisitive mood. For proof, one need look no further than the confirmation from Tata Steel, India's largest private-sector steelmaker, that it is mulling a bid for Corus, a much larger Anglo-Dutch rival. If the deal came off, it would be worth several billion dollars, by far the largest foreign purchase ever made by an Indian firm. In the first three quarters of this year Indian companies announced 115 foreign acquisitions, with a total value of $7.4 billion, a huge increase on previous years, and almost as much as foreign firms have invested in Indian purchases (see chart). 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. Research into 127 Indian companies by Motilal Oswal, a firm of stockbrokers, forecasts that their sales will have increased by 27% in the third quarter, compared with the same period a year earlier. Profit margins are widening: net profits are predicted to have grown by 39%. This week Infosys, another IT star that is one of the first firms to report its quarterly results, actually beat these forecasts. In rupee terms its quarterly net profits had grown by 53% year-on-year. The firm, which crossed $1 billion in annual revenues only in the financial year ending in March 2004, expects to pass $3 billion in this one. With strong balance sheets, finance is not an obstacle. The stockmarket has been booming—this week its main index was just below its historic peak. Rupee interest rates, although they have been edging upwards for the past two years, are still, in real terms, at about half their levels of a decade ago. And, despite capital controls that place limits on external borrowings, India's big companies can raise huge amounts of money abroad. In August Reliance Petroleum raised the largest-ever syndicated loan for India, of $1.5 billion. Tata Steel is reported to have secured financing commitments of $6.5 billion for its putative bid for Corus. Going global That an Indian firm should even be contemplating borrowing so much for an acquisition shows how much corporate India has matured since 1991. That was when the government began to dismantle the “licence raj” of bureaucratic controls that had hobbled Indian business. It was also the year Ratan Tata became chairman of Tata Sons, which has been at the forefront of Indian business's globalisation. He oversaw a rationalisation of the group's hundreds of businesses. But it is still so diverse it sometimes seems to resemble a private-equity fund rather than a conglomerate. Besides steel, its interests include cars, hotels, mobile telephony, chemicals, tea and India's largest software firm. Most of these arms have expanded abroad through acquisition. About one-third of the group's revenues now come from overseas. In 2000, for example, Tata Tea spent $435m to buy Tetley Tea, a British business with a global brand. That was the first big foreign acquisition by an Indian company, and is in some ways a forerunner of the Corus bid. Both involve a high degree of leverage and would link an Indian resource base—tea plantations and iron ore—with global marketing reach. Tata Steel is emblematic of the successful parts of Indian manufacturing. It is known as the lowest-cost producer in the world. It is one of the firms that thrived in the more competitive marketplace that emerged in India after the 1991 reforms, and have since been able to take on the best in the world. What is noteworthy about many of them 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.