Welcome to the club

In 1991, economic reforms were implemented in India to stave off a meltdown. This event marked the emancipation of businesses and exposed international markets to a new breed of global firms. Prior to the 1990s, Indian companies were largely restricted to the domestic stage, but the business culture in the country was unique. Corporate culture comprised of a rigorous work ethic and social conscientiousness, and meshed well with the pro-globalisation mindset of a new, enterprising generation. This is apparent in the philosophies of leading Indian companies today. They are ambitious, competitive and as capitalistic as most, but there is a prevailing sense of philanthropy and concern for the collective. Examples are ubiquitous — more than 65 per cent of the sprawling Tata conglomerate is owned by charitable trusts. Pharmaceutical firm Dr Reddy's provides free health care to thousands of Indian children. Infosys has put up hospitals and schools across the country. Bharti Airtel describes its mission as providing an accessible means of communication for India's masses; similarly, ICICI Bank aims to provide basic financial services.

Coming full circle

There arises a cyclical effect from such thinking. Indian firms that make it on the global stage tend to route the fruits of their labour back to the country — pushing the locality to innovate. Now more than ever before, Indian companies are in a position to expose their homeland to the world's best ideas and practices. As of 2010, 56 Indian businesses were present in the Forbes Global 2000 list of companies. Such companies were confined to almost complete international anonymity 20 years earlier. Indians make up a significant portion of Fortune 500 CEOs with Citigroup, Vodaphone, ArcelorMittal and soon to be Deutsche Bank all on the list. There are almost 50 Indian billionaires now as well, a couple of whom are being touted to take top spot on the Forbes list in a few years.

The Indian economy is the second fastest-growing on the planet. Driving that growth are the services and industrial sectors — fuelled by private corporations that are growing at two or three times the GDP growth rate. Skilled labour is highly valued in the country — with world leading engineering, IT, finance and medical learning centres. Factor all this into the token Indian multinational's appetite for foreign acquisitions. It becomes apparent that these companies have a drive to become the world's best, consequentially placing the country in the same echelons.

Over the last year or so, India's cost of borrowing has risen because of central bank efforts to speed up the slowing economy. As a result, companies have started to squirrel away cash — impacting acquisition volumes. Such measures are temporary and take little away from the expectations of high levels of M&A (mergers and acquisitions) activity in 2011 — a sign that forays into foreign assets are strategic moves, and that Indian acquirers are not always motivated by strict financial incentives.

Powering growth

One acquisition sector directly connected to India's economic needs is power and electricity. To sustain its current growth rate, India's fuel supply needs to be roughly twice what it is at the moment. Despite the country's vast coal reserves, efforts are being made on the corporate level to tackle the potential shortfall. State-owned International Coal Ventures is currently in talks to buy a $1 billion (Dh3.67 billion) stake in Minas de Revuboe — who manage a coal mining operation in Mozambique. Essar Energy — a subsidiary of Indian conglomerate Essar, entered a deal to buy Royal Dutch Shell's Stanlow refinery in the northwest of England for $350 million.

According to data provided by Thomson Reuters, M&A transactions emanating from India were valued at around $62.7 billion in 2010 — a three-fold increase on the previous year. Half of this amount is credited to foreign acquisitions by Indian firms. As mentioned before, expansionist appetites in India are also largely being driven by the need to secure resources for the country's rising energy demand. A third of all deals in 2010 were energy-targeted. The largest deal of 2010, however, was Bharti Airtel's purchase of Kuwaiti telecom company Zain — valued at $10.7 billion. The largest acquisition by an Indian company since economic liberalisation 20 years ago remains Tata Steel's 2006 purchase of Corus Group plc — an Anglo-Dutch steelmaker, for $12 billion.

The trend is quite clearly geared toward the industrial side. While firms such as Wipro and Infosys are considered in the top tiers of innovative global service companies (who are also fairly active on the M&A side), their acquisitions are low-key compared to the exploits of India's major industrials.