Column : Buying abroad

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A particularly impressive aspect of India’s economic performance is the manner in which its firms are internationalising. Hardly a day goes by without news of an Indian firm acquiring some venerable Western brand. This phenomenon isn’t limited to the largest Indian companies. Increasingly, smaller Indian companies, such as telecom firms Tulip IT and Kavveri Telecom, are also engaged in strategic acquisitions in countries like Canada, the US and Ireland. So much so that last year alone, Indians firms bought nearly $18 billion worth of western companies.

For Indian firms, like firms everywhere, a global platform offers greater potential for growth. Moreover, those firms that have been successful in the growing domestic market find themselves flush with funds that they can now invest in overseas expansion (unlike prior to 1991 when there were crippling restrictions on how much foreign exchange they could spend on such expansion). Yet, this isn’t the whole story. From the perspective of the West, it seems that India’s global success is as much due to a shift in consciousness as the reasons provided above. For the first time in history, Indian firms and their management appear to have world beating self-belief and global ambition.

Can this performance be sustained? Over seven decades of research on the performance of acquisitions paints a gloomy picture of the odds involved. The overwhelming conclusion is that, more often than not, mergers & acquisitions end in failure and that, on average, they produce zero gains for shareholders. The statistics are even less favourable for cross-border acquisitions where differences in culture are involved. Are Indian firms likely to buck these trends?

My own research suggests that the answer to this question depends on two things: the motives behind the acquisition and who is doing the acquiring.