Moving to the centre

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Indian investors are on the march, but what is fuelling their quest for acquisitions overseas?

Is it a desire for new markets and access to resources, or an attempt to hedge bets as unclear policies and the status quo at home trigger frustrations?

Either way, the growing global footprint of companies from India points to a realization that a competitive presence outside the country is vital to their continued well-being. And it’s not just the big names that are snapping up assets abroad. Many mid-size players, emboldened by their domestic successes, are just as eagerly seeking out promising deals across the globe. But the jury is still out on how successful they will be.

In this issue’s Cover story (Calculated moves, page 17) we provide a timely and in-depth look at the track record of India’s outbound investments. We speak to practitioners in jurisdictions where investments are channelled and in India to analyse what it takes to succeed in competitive markets across the world.

We find that although the world is getting flatter and smaller, the rules of the game may not have changed much. As Justin Shmith at Blake Dawson in Melbourne points out, “familiarity with local context” and “deal experience” continue to be critical if investors are to avoid the pitfalls that can arise when they venture far from home.

Leader 1111Add to that the need for an investor to move swiftly while courting a target company. As Stephen Besen at Shearman & Sterling in New York highlights, this can be hard to achieve if the investor is a family-owned company where the promoter is involved in every decision. “Getting the promoter’s attention is very difficult,” says Besen bluntly. But in the end what matters is effective integration between the companies involved in an M&A transaction. Here, Indian companies have a mixed record.

An Indian conglomerate that has acquired several high-profile assets in recent years is Tata. After Ratan Tata’s 20-year reign, it is to have a new chairman: Cyrus Mistry. On his relatively young shoulders will rest the daunting task of ensuring that Tata – a household name in India for at least half a century – can build on its past success and consolidate its place in international markets.

The challenges facing Mistry are the subject of one of this issue’s Spotlights (A hard act to follow, page 33). As we describe, he will need to fix the glitches in the existing business, while simultaneously creating and grabbing opportunities for growth. This will not be easy but that’s nothing new. According to Arun Maira, a member of India’s planning commission who has worked at Tata, it “will remain a challenge as it has been in the past few years”.

Many observers think Mistry is too young and lacks the international experience required for the job. But some, such as Deepak Parekh at HDFC Bank, say Tata has picked the right person to succeed Ratan Tata. Mistry’s appointment is “a happy ending to a long awaited issue,” Parekh says.

Despite the tendency of India’s big-name conglomerates to grab the headlines, it is vital to remember that the country’s economic buoyancy stretches far beyond the realm of these companies. Writing in this issue’s Vantage point (Contemporary Marco Polos, page 16), Gordon Mathews, a professor of anthropology at the Chinese University of Hong Kong, argues that miles below the tycoons who run family-owned companies such as Tata and Reliance lies another layer of equally important businesspeople.

These people are migrants who earn low wages as traders. By buying used or copy merchandise under the radar of the law, and transporting these goods across continents to be sold by street vendors at minimal prices with no questions asked, they are engaging in what Mathews calls “low-end globalization”.

Mathews believes that to understand how globalization really works, we need to take low-end globalization as seriously as we take high-end globalization because these modern-day Marco Polos play a vital role in introducing developing-world consumers to goods that would otherwise be inaccessible to them. An interesting perspective worthy of consideration.

In another Spotlight (An educated choice, page 29) we look at the education sector in India. India’s education infrastructure and facilities cry out for investment but current regulations make the sector less than attractive. We detail how investors are using innovative investment structures to bypass the limitations imposed by the government.

Demand for education is skyrocketing – not least on account of the new jobs created in India’s burgeoning outsourcing industry. Tucked into the higher end of the outsourcing industry are the niche providers of legal services. These legal process outsourcers (LPOs) are increasingly becoming an important part of the infrastructure of in-house legal departments and law firms in more high-cost jurisdictions.

It is against this backdrop that India Business Law Journal announces the winners of its 2011 Legal Process Outsourcing Awards (Intelligence report, page 41). Although competition among LPOs is growing, one provider has stood out from the rest. Pangea3 wins the coveted LPO of the Year Award for the third consecutive year. That it continues to be the trendsetter of the industry is clear from the glowing endorsements it has received from its clients and industry peers alike. What is evident from our survey is that by enabling the commoditization of legal services, LPOs are forever changing the face of the legal services industry. This is no mean feat.