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5
May 2007
Kumar Mangalam Birla
Chairman, Aditya Birla Group
Outlook Business
India
today is in the mainstream of global consciousness.
There is a new-found sense of self-assuredness.
The entrepreneurship and dynamism its corporate
houses have shown over the last five years
have been and continue to be quite remarkable.
India
has morphed well in the socio-economic dimensions
and it boasts of a robust economic growth
rate. Its demographic advantage is universally
recognised. The rich-poor divide is narrowing.
Many
Indian companies are now globally benchmarkable.
So there is every reason for us to be on
a high. Small wonder then that India commands
a new-found respect in the global arena.
The
acquisitive appetite that companies have
displayed signals the emergence of a new
India. Until recently global multinationals
had been planting their flags here. Now,
the scenario is changing as increasingly
domestic business houses have begun acquiring
companies overseas. This has secured a niche
for Indian business in the global economy
and I believe it can only keep growing in
significance. I believe the value of Indian
cross-border deals between January and October
2006 is estimated at $23 billion, compared
to $7.8 billion during the corresponding
period of 2005 — almost a two-fold
rise.
The
average deal size also grew, from $32 million
in 2005 to $47 million in the first half
of 2006. A Grant Thornton India survey has
very significant pointers. Of the 200 companies
surveyed by it, 162 (that is nearly 81 per
cent) said they were exploring the M&A
option to grow. Of these 162, only 60 had
actually undertaken the M&A route in
the past. This clearly signals intense M&A
activity going forward.
Tata
Steel, Infosys, Tata Consultancy Services,
Wipro, Bharat Forge, Ranbaxy and, of course,
we, at the Aditya Birla Group, have bought
companies overseas or set up service organisations.
Undoubtedly,
Indian companies are going to become much
more global in the coming years. They seem
all set to sign increasingly bigger deals,
in India and overseas. More important, the
deals will happen across a broader spectrum
of industries and in more dispersed geographies.
Significantly, the profile of players will
also change — it won't be just the
larger companies involved in M&As, but
mid-size and small companies as well.
Reforms
perform
The
spurt in India's M&A is the outcome of
a number of converging factors. We have been
fortunate to have had a political system that
backed the bold initiatives integral to change
and reform. Successive governments have been
equally committed to the continuity and consistency
of reform policy. The government has made
financing easier over the past few years so
that Indian companies have the resources for
acquisitions. The reforms to capital markets
such as funding foreign direct investment
through the external commercial borrowing
route, and the removal of regulatory limits
to debt that companies can raise, have facilitated
bold acquisitions across sectors. Second,
the far higher valuations of Indian stocks
compared to the stocks of overseas companies
— together with a stronger rupee —
give Indian entrepreneurs a strong 'currency'
to carry out acquisitions, even as acquisitions
often are funded by cash and debt through
off-shore special purpose vehicles.
A
larger global presence entails potentially
huge benefits. Global market access, state-of-the-art
technology, scale and size then become a
given. Take, for instance, our proposed
acquisition of Novelis. While a landmark
deal for Hindalco and our group, it is in
line with our long-term strategy of expanding
the global presence across various businesses
and is consistent with our vision of "Taking
India to the World." This will establish
a global, integrated aluminium producer
with low-cost alumina and aluminium production
facilities melded with high-end aluminium
rolled product capabilities. The Novelis
deal will give us immediate scale and a
global footprint. We were attracted to Novelis
by its sheer size, scale, and cutting-edge
technology, which would have taken us over
five years to build — a luxury we can
ill-afford. In aluminium, one needs to invest
in downstream to go up the value chain.
India does not offer suitable downstream
investment opportunities of a global scale.
Indian
multinationals
While
the age of the Indian multinational is here,
we in India Inc. have a long way to go. We
have to work constantly to open our organisation's
windows to the winds of new ideas and a multi-ethnic
workforce. It is relatively simpler to address
cross-border issues pertaining to technology,
finance, markets and products but extremely
difficult to cope with challenges relating
to the human dimension. Being a true-blue
multinational is only partly about geographic
spread. It is more about a mindset that wants
to leverage resources seamlessly, across geographic
boundaries. It is a mindset that is eager
to build unique capabilities to transcend
the barriers of language and cultures to create
value. It's about being global in attitudes
without letting go of your roots.
A
major challenge relates to establishing
brand equity. I believe Indian companies
will take some time to move up the ladder
of brand recognition. I say this based on
our experience, where in some countries
our group has a high brand equity. In the
1960s, when my father, fettered by the Licence
Raj, looked beyond the Indian shores, it
was truly a visionary act. We take great
pride in the fact of our group being the
first truly Indian MNC, having established
major companies in the South East Asia.
But in this region, it has taken us years
of sustained performance — following
best employment practices and being a good
corporate citizen — to earn brand recognition.
Let
me give you an example of how we built our
brand in Canada. We acquired a pulp mill
that had been closed. We had to convince
diverse constituencies, ranging from the
union to the provincial government and politicians.
This took long, but our candour, sincerity
and commitment paid off. Today, many employees
in the mill feel that they are better off
as part of an Indian MNC rather than with
a local company that presided over its closure.
As
I look ahead, I believe the war for talent
will intensify and that could become a major
speed-breaker. There is acute competition,
rather, a scramble for inducting and retaining
people with the competencies apposite for
a globalising corporation. When a company
goes global, its internal demography transforms
into a socio-cultural potpourri. There is
an inherent instability. Corporations that
embark on this growth trajectory will face
churn and uncertainty amidst change. On
such a journey, success will come to those
corporations in which the leadership is
alchemical and values-driven.
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