Tiger stepping out?

First Bharat Forge acquired CDP of Germany, then Sundaram Fastners bought Dana Spicer Europe and now Crisil has announced the acquisition of Economatters, and Infosys of Expert Information Services, all of these having come in the past month. And then there is the mega deal-in-progress of Reliance Infocomm acquiring Flag Telecommunications.

A little while ago there was the attempt by Mahindra & Mahindra Ltd to acquire Valtra. Does this procession signify a new trend? What motivates these deals? What are its implications for the Indian corporates and economic system?

A number of Indian companies have emerged stronger after their initial bout with a reforming economy. They have a greater appreciation of both their own strengths and of market forces. They are also much more alive to the challenges that confront them.

They have navigated their companies through choppy waters and have seen the awesome strength of global competition, market's power, financial uncertainties and globalising aspirations of Indian talent. Those that have contended with the agni-pariksha, are now enjoying a sense of renaissance!

As they survey the world around them, suddenly they see no boundaries. The fences which held their markets within came crumbling down over the reform period. The ghost they were haunted by in the recent past was their global competition.

In the domestic battlefield, they have learnt the mantra to tackle this challenge. Their new vision of the boundaryless world and new-found self confidence offers the beginnings of the insight into their international forays. However there is more to come.

There is the important aspect of sustainability. How do you sustain your operations in this globalising India, without being globally competitive? If you make yourself globally competitive, what holds you back from the global markets? Those companies that are making these forays, would have to believe that they have a competitive cost structure.

They believe they have an acceptable offering, having consciously worked on quality, delivery and packaging. They feel confident of acquiring the marketing clout to succeed in distant markets. These in their calculations make for a reasonable chance of success in their overseas ventures.

Then there is the huge advantage they have in terms of the substantial domestic market they serve. The stabilising strength this brings to bear will be attested to by almost all major European, Canadian, and Asian countries (with the exceptions of China and India).

For instance Nokia, Ericsson, Alfa-Laval, Taiwanese chip makers, South Korean chaebols and the Thai tigers will also recount their long sob stories relating to the collapse of their export markets, and their inability to find any safe harbour.

The large domestic market which now yields an attractive and viable business for Indian majors, will undoubtedly give three distinct advantages to them: investible surpluses, cross margining and switching between attractive zones. It also hedges geo-political country risk for Indian businesses.

Last, but most important, the reception to the Indian business in local overseas markets has become more hospitable. Here the nation must salute its software giants for paving the way for the rest of India to follow "" especially Mr Narayana Murthy's ambassadorship of Indian entrepreneurship, quality delivery standards and knowledge and talent base.

Wipro, Satyam and TCS have undoubtedly contributed but Mr Murthy's statesmanship over and above his company's business success has meant the world has taken note of the change in the so called 'Made-in-India' brand.

These advantages and fair valuations of businesses overseas suggest that this trend is all set to strengthen in the coming months. How many and in what fields? I would not be surprised if it was across sectors, as we can count strong companies in almost all sectors in India and weak companies in other countries.

Competitors to the companies that are going overseas are also bound to join the bandwagon in order to stay in the race. The environment is also favourable. When Crisil carried out its recent acquisition, it was amazing both to us, and to the negotiators from the UK, that the RBI and government have made our regulations so conducive to overseas acquisitions: the process was so simple that we took legal counsel to ensure that we were indeed fully compliant! It should therefore not surprise us that this movement will gather momentum and become a regular phenomenon.

In what way will this new phenomenon be good for India? First, it will strengthen the leading Indian companies. It will make them bigger, better risked, better governed and more attractive employers, and will provide access to knowhow and technologies developed for other markets.

Second, it will improve brand India, which in turn will have several collateral benefits including a better environment for Indian exports and wider and readier recognition of Indian financial markets. It will help us utilise the massive foreign exchange reserves we have garnered, and improve yields on them while stabilising external liquidity.

It will help tackle the unemployment problem in India, by providing several growth opportunities to Indian workforce, either through displacement or direct work tied to investments. It will further liberate consumer choices in India as these growing Indian multinationals will offer contemporary international offerings in the domestic market.

Finally, there is bound to be a pick up in foreign direct investments, as the perception that India is a competitive source of global supply will get strengthened on the back of increasing Indian influence internationally.

What could be the concerns? Will our external economic situation be affected in any way? Will this shift jobs out of India? What will be the reception to a mass scale investment from Indian companies in the global markets? Some of these questions are rhetorical and perhaps premature.

However, since policymakers will be vigilant and seek to understand this phenomenon, they will be challenged to address a different set of issues. Therefore the next few sentences have to be read with the perspective of constructing a fresh policy to encourage this trend while strengthening the system to take into account possible new balances that will be created in this process.

For instance, it will be good for RBI to evolve new metrics for inward to outward flows, and flag it if the imbalance reaches levels where it becomes a significant issue. As far as job creation is concerned, as we have earlier noted, the trend towards overseas acquisitions is likely to create more jobs than it destroys.

What is required as an enabler is legislation to facilitate labour mobility, and action to put in place the beginnings of an evolved social security system; with these measures we can ease the redeployment of this very important resource within the economy.

Finally, concerning the reception Indian companies get abroad as acquirers, there is an urgent need for measures which incentivise companies to enhance process quality and improve corporate governance, thereby creating demonstrable sources of value-add for any acquired enterprise.

Corrigendum
In the 13th paragraph of Ila Patnaik's article ('Feel bad factor,' December 17), the last line should have read as follows: "Tens of thousands of crore will flee from income funds, who will have to sell bonds as a consequence."