Despite the backlash against outsourcing, Indian IT/ITeS companies have aggressively expanded in the US market. In the last two years, leading Indian companies have invested more than $800 million in the form of local IT acquisitions. In fact, the sector accounts for about 54% of the total outbound deals carried out by Indian firms in the US in the last financial year.
A report by Ficci-Ernst & Young says, in FY 09 and FY10, Indian companies made a total of 536 outbound acquisitions, out of which 105 were in the US alone. Also during the FY 11 until June, nearly one-fourth of the global acquisitions by Indian companies were in the US.
Overall, India has emerged as the second-fastest growing investor in the US, after the UAE. The US? share in India?s outward foreign direct investment increased to 6.5% in FY 10 as compared with 5.7% in FY 09.
In value terms, in the last two financial years, Indian investment and trade in the US, which includes greenfield investments, exports and outbound acquisitions was around $50 billion. The top three destinations for Indian investments in the US were Minnesota, Virginia and Texas.
Apart from IT/ITeS, the other most active sectors for outbound acquisitions were manufacturing and pharmaceuticals. The IT/ITeS industry has over the years evolved from a provider of low-margin services such as software maintenance, payroll processing and call centre management to a provider of high-end services such as software development, project management, technology strategy consulting and enterprise software implementation. Many mid-cap IT companies, the report underlines, make acquisitions overseas to add new service capabilities and position themselves better to compete with large IT companies.
The report says that Indian firms are increasingly focusing on strengthening their competitive edge and upward movement in the value chain. Since the US accounts for one-third of global R&D and has a high rate of innovation, the alliance is a strategic step for Indian firms. Moreover, as the demand for natural resources in India is on the rise, the US is becoming an increasingly attractive destination for Indian companies, as Reliance?s recent acquisition of a stake in the shale natural-gas assets of Atlas Energy and Pioneer Natural Resources shows. The recessionary trends in the US have significantly affected the valuation of domestic companies and cash-rich Indian companies are looking to acquire strategic assets at bargain prices, which will further fuel mergers and acquisitions.