The third eye

Five years ago, a research fellow at Université Paris X Nanterre (now the Université Paris Ouest Nanterre La Defensé) presented a paper at an international seminar on Indian Economy in the Era of Financial Globalisation. Christian Milelli tried to analyse how and why there was a surge of foreign direct investment (FDI) from third-world countries to first-world countries. Referring to India, he pointed out that liberalisation and the resulting arrival of foreign multinationals would prompt domestic companies to seek overseas opportunities to expand market share and grow profit margins.

Numerous researchers have echoed Milelli's sentiment since, except for one change: India is not considered third world anymore. Companies in India seem to be using her famous third eye — the mystical concept of spiritual enlightenment, with untapped wisdom, higher consciousness, and futuristic vision — as they embark on ambitions international expansions.

Understanding globalisation

Much has been written about the Indian economy's deregulation and liberalisation in the 1990s, when import licences were nullified, trade tariffs lowered, and impediments to international joint ventures (JVs) and mergers and acquisitions (M&A) relaxed. However, these policies were incremental and the implementation gradual. Foreign direct investment (FDI) outflows stayed constant until they hit the significant $1 billion (Dh3.6 billion) mark in 2002.

The current surge in international investments by Indian companies is interesting because it deploys diverse forms of entry — FDI, M&A, JV or alliances — easily. By not following the sequential path adopted by Western multinationals, analysts feel Indian firms have shown a clear understanding of globalisation. Less impacted by the economic meltdown, these companies can afford to be aggressive in acquiring overseas targets.

According to industry body Assochem, many Indian companies are looking at overseas destinations in an attempt to overcome problems at home. "Despite healthy economic growth in the last fiscal year, several companies are concerned over high inflationary pressures, rising interest rates, poor infrastructure and policy paralysis," the association says in its 2011 survey report of 500 top Indian companies. Eighty-five per cent of respondents said bureaucrats were delaying decision-making processes, partly due to the fear of corruption scandals. But this varies between industries, and there are deviations across different territories.

In spite of international hoteliers furiously trying to milk the tourism cow that is India, their Indian counterparts are looking beyond the country's borders, planning to acquire stand-alone properties in the US and Europe to tap into a growing breed of international Indian travellers. As are India's airlines, which are expanding into new markets. Jet Airways and Kingfisher Airlines already have a strong overseas network; the budget carrier IndiGo will soon commence operations to the UAE.

Billions in mining

The energy, metals and mining sectors choose the M&A route, spending a record $71 billion in 2011. According to deal tracker Dealogic, India announced M&A deals worth $25 billion in the first six months of 2011, compared to $36 billion in the same period last year. Indian outsourcing firms such as Aegis made 18 acquisitions worth $400 million in recent years, while Genpact bought Headstrong for a staggering $550 million in early 2011. Firstsource Solutions has announced a JV with Sri Lanka's Dialog Axiata.

Other emerging markets are also attracting Indian companies. The Indian government encourages corporate movement into Latin America by signing regional trade deals, preferential trading agreements and joint commissions — with telling outcomes. Tata Consultancy Services employs more than 7,500 Indians in Latin America and expects regional sales to double upwards of $1 billion in three years. Jindal Steel and Power spent more than $3 billion to develop more iron-ore mining within South America.

Meanwhile, the Indian pharmaceutical industry's efforts to infiltrate the South African market makes it the second largest in the world, reports AFP. Unlike multinational companies, India's Ranbaxy, Cipla and Dr. Reddy's cultivated local credentials by bringing South Africans into the top echelons, and by providing cheap generic drugs. Indian firms are also exploring the African continent for opportunities to invest in agriculture. The Indian government provides cheap lines of credit to African nations to encourage land acquisitions by Indian firms. Consequentially, Indian investments worth $3 billion have been made in Africa to produce food crops for sustenance and biofuels.

Despite concerns about an impending economic slowdown, weak regulatory environment and high interest rates, optimism is high among Indian companies looking to expand globally. In their mind's eye, it can be done in a blink, and successfully.