The Hindu Business Line : SHOPPING ABROAD

By the standards of cross-border investments happening across the globe, even the spate of acquisitions by Indian companies in recent times may not amount to much, the buys being still in the sub-billion dollar range. But notwithstanding their size, the acquisitions signify an increasing outward orientation of Indian corporates. This is a logical outcome of the official policy of integrating the Indian market with the rest of the world through a combination of lowering the tariff walls and dismantling quantitative controls on imports. The policy resulted in Indian enterprises first weathering in the home market the challenge posed by external competition and then their taking the battle, as it were, to foreign shores. In a sense, what we are witnessing now is perhaps the final phase in the evolving dynamics of the global market place where the more efficient domestic enterprises end up picking up assets of competitors overseas.

Of course, there are sectoral features to the broader pattern of competition as it has emerged in a globalising world. The recent acquisitions in the pharma industry are a good example. They are a strategic response to the sluggish growth of the domestic market. The expenditure on health is not a discretionary one in the sense that consumers cannot be persuaded by clever advertising to increase their outlay on medical treatment as they could be made to do so for lifestyle products. The scope for volume growth through this route is per se limited. Acquisitions are also a way of beating regulatory constraints in penetrating markets overseas. The earlier strategy of penetrating a market by securing exclusive `generic manufacturer' status for a drug, in the run up to the expiry of a patent on it, was stymied by legal hurdles from the patent holders. The Indian pharma industry has hit upon the alternative strategy of buying into existing generic drug marketing companies holding valid drug licences in the markets of the West.

Acquisitions occasionally flame passions as Dubai Ports' attempts at acquiring facilities in the US have or the rough weather that Mittal Steel's bid for Arcelor has encountered. For New Delhi support for India Inc's efforts and protection of investments constitutes a new dimension to the conduct of its foreign policy. For investors such big-ticket acquisitions also enhance their risk-reward equation. The buying companies ought to share more information than what they now do. In the event the Securities and Exchange Board of India ought to examine the level of disclosure about the target company financials, the price paid for acquisitions, etc.

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