The Hindu Business Line : Cultural issues hinder global M&As by Indian cos: Expert

CULTURAL divide and adapting to management systems overseas are the primary limitations Indian companies face in expanding abroad, according to Prof Marti G. Subrahmanyam, Charles E. Merrill Professor of Finance and Economics, Stern School of Business, New York University.

Addressing the golden jubilee convention of the Madras Management Association on overseas mergers and acquisitions on Saturday, he said that cultural integration is the main constraint for the globalisation of the Indian industry.

"People need to be sensitised to this important message that needs to be hammered in." Indian companies have not successfully handled recruiting and motivating non-Indian managers.

"No Indian company has learned to manage non-Indian managers," said Prof. Subrahmanyam. Other concerns are securing financing and deal structuring; legal and regulatory issues; integration with Indian operations; and leveraging the brand being acquired (there are a few substantive brand acquisitions.)

These issues would be multiplied several fold when the acquisitions reach the $100-200 million level. Companies need the expertise and the personnel to address the issues.

Indian companies are taking the first small steps in overseas acquisitions. This is heartening, but "despite the hoopla in press, it is still a small activity on the global scene." The acquisitions are as much as those by companies in New Zealand, a third of those by the Chinese and a hundredth of those by US companies.

Up to November 2005, Indian companies finalised over 118 deals valued at $2.9 billion. Comparatively, overseas companies concluded over 134 deals in India valued at $7.2 billion. The value of Indian acquisitions has to increase for the companies to fully integrate with the international economy, he said.

But the encouraging signs are the confidence of the Indian corporate sector that could be compared with that of the Chinese and Japanese companies of the 1980s. There has been a phenomenal change in the mindset and learning of international affairs — but there are lots more to learn, he said.

Mr Adil S. Zainulbhai, Managing Director, McKinsey & Co, said that a survey of fast growing Indian companies would show that expanding overseas is a major priority. But they are limited by the availability of managers overseas. Cultural integration is an issue, companies would rather send a "trusted executive" from India whether the person knows the business or not.

With overseas expansions happening, they also need to set up corporate centres to integrate operations, he said.

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