In acquisitive mode

Tata Steel's proposed acquisition of Singapore's NatSteel marks yet another global foray for the Tatas.

The group has always been international in intent""as evidenced by the expansion of Indian Hotels abroad, TCS's organic growth as a global software player, and the earlier acquisition of Tetley by Tata Tea""but many observers were still inclined to view the Tatas as being too conservative in the M&A game.

The acquisition of Daewoo's truck division and NatSteel in quick succession should dispel any doubts about the Tatas' global ambitions. For Tata Steel, the move will, at one stroke, give it access to seven markets in one of the world's fastest growing regions. Few acquisitions could have offered it a presence in so many countries.

NatSteel brings to the table not only the steel mills in Singapore, Malaysia, Vietnam, Malaysia, Australia, the Philippines, and China, but also several downstream units.

Unlike many of the steel mills that were put on the block after the dismemberment of the erstwhile Soviet Union, NatSteel is a well-run company.

It uses Singapore as the hub for procurement, technology development, R&D, and distribution, allowing each individual mill to enjoy economies of scale while focusing on the supply of value-added products to the local markets they serve.

Tata Steel will benefit from the fact that the Asian region has been a huge consumer of steel products, with China, in particular, displaying an insatiable appetite for it.

The construction boom in the region has led to the consumption of substantial amounts of long steel, and NatSteel will help the Tatas cater for this demand. It can also hope to cash in on NatSteel's reputed brandname in these markets.

The acquisition will lead to the addition of around two million tonnes of annual capacity for rebars, pre-stressed concrete wires and strands, and wire rods, all falling into the category of long products.

At the same time, it will also boost the company's revenues considerably, at a time when it has no spare capacity and when the scope for revenue increases is largely dependent on rising prices.

Analysts are agreed that the acquisition price of NatSteel's business is reasonable and much lower than the price Tata Steel would have had to pay for greenfield expansion.

The addition to Tata Steel's profits will be far less than the addition to its revenues because NatSteel's margins are currently low. But this is where synergies could kick in.

Tata Steel runs one of the lowest-cost steel operations in the world, and by exporting billets for NatSteel's operations it could help bring down the latter's cost of operations and increase margins. Semi-finished steel from Tata Steel could also be sent to NatSteel plants for finishing.

The numbers may look good on paper, but the Tata management will surely face a huge challenge in digesting this acquisition. Globally, the biggest problems with M&A emanate from people and culture issues.

Improving margins in NatSteel's steel businesses are one part of the challenge; the harder nut to crack will be the challenge inherent in managing a culturally diverse workforce across the globe. This will call for an entirely new set of skills""especially the softer ones of people management.

Like the Tatas, several Indian businesses have already made""or are in the process of making""this transition, with the IT and pharma sectors being the obvious examples.

The Birlas, who run several successful companies in South-east Asia and elsewhere, have shown that Indian companies can manage this transition well.

Another entrepreneur of Indian origin, Lakshmi Mittal, has already achieved that goal in precisely the industry that Tata Steel is in.