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BW Businessworld

Desi Going Global

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Indian firms have embarked on a series of large-scale overseas acquisitions, whose magnitude have accelerated with almost each consecutive deal. Many of these moves are driven by the intention to acquire targets' brand name and technology, with the long-term view of establishing a global presence: Tata Motors' acquisition of Jaguar and Land Rover, HCL acquiring Axon Group and Hindalco acquiring Novelis are testimonies to this trend.
Most typically, the acquired firms have been managed lightly by the new Indian owners. Unlike their developed market counterparts, Indian firms have not sought to create synergies with their acquired companies by integrating them into the parent company's existing operations. Instead, they have typically focused on protecting the acquired companies' identity by granting them outmost autonomy. Ratan Tata succinctly presented the approach after Tata Motors' acquisition of Daewoo.
This managerial approach towards acquisitions certainly has its appeal. As late comers in the international markets, it provides Indian firms instant access to advanced technology and brand name — two major assets they often lack. It also allows them to advance from their traditional focus on downstream activities to upstream activities. The skills required for different value-added activities differ substantially and Indian firms possessing strength in downstream activities often lack those required for upstream ones. Some of the examples include Tata's acquisition of Tetley and Corus, Mahindra Group's takeovers in the automotive components business in Europe and VIP Industries acquisition of Carlton International.
Less noticed, however, have been the potential disadvantages of this approach. The now 'lucrative' moves may not serve the ultimate goal of Indian firms well: the development of sustained global presence. The acquisition strategy may provide quick access to the technology and brand but shields Indian firms from establishing their own brands and developing proprietary technology.
For instance, Tata steel's acquisition of Corus provided Tata with more than 80 patents (Tata had none before the acquisition), about 1000 research staff, as well as Corus' market position and brand name. Tata has taken great care to prevent its own identity from surfacing in the deal. Thus, it is doubtful whether such move will serve Tata's long-term goal of establishing a global brand name. This approach represents an attractive short cut, but in business, rarely are there true short cuts; for the most part, just an illusion of their presence.

Indeed, this mode of internationalisation represents a substantial shift from the earlier wave of internationalisation of Indian firms, which was primarily through organic growth. Indian IT firms, the Aditya Birla Group and Tata Hotels are some of the companies that have taken the challenging route of building a brand name and establishing legitimacy on their own over decades.
The time appears ripe for Indian firms to build on the experience they have gathered in international markets and reconsider their expansion strategy. They could perhaps learn a lesson or two from the acquisition strategies of developed country firms, many of which being driven by the intention to acquire technology and market position. This approach does not necessarily have to be associated with organic growth. It could very well be executed through acquisitions, but will require a different approach. Here, Indian firms can play an active role in the management of acquired companies and actively transfer resources, including the brand name and technology.
Lilach Nachum is a guest faculty at the Gurgaon based School of Inspired Leadership and teaches International Business at Zicklin Business School, New York.