By Graeme Davies
One of the signs of an emerging economy is beginning to mature is when its key business players step up investments outside their domestic economy, something Indian companies have done in a big way in recent years.
Until the middle of the last decade, Indian businesses investing outside of the sub-continent were few and far between. But what started with marquee acquisitions by some of the largest Indian conglomerates such as Tata Steel’s acquisition of Corus, which made the Indian giant Wales’ largest private sector employer, has expanded as Indian companies look to invest in countries such as the UK to both expand their businesses overseas and diversify their interests in an increasingly interconnected global economy.
Indeed, the UK has proved to be particularly popular with Indian companies due to the shared heritage and language. Around half of Indian investment into Europe finds its home in the UK, and some of the most successful Indian overseas investments have been in the UK.
Take Tata’s takeover of Landrover Jaguar, for example. At the time there was some doubt about the merits of the acquisition, but recent impressive financial results by the car maker, which is enjoying strong growth in emerging markets, illustrated the rationale behind the deal.
Bringing in a foreign investor need not be the death knell for a domestic company and can indeed open up new opportunities which would not have been previously possible. Foreign investment brings in new financial backing as well as offering new sales channels into overseas markets.
During 2010-2011, Indian investment overseas more than doubled from the previous year, as buoyant economic conditions gave Indian businesses confidence and cash. Almost $44bn was invested by Indian companies outside their home country during that year, up from $18bn the previous year. This was also partly facilitated by liberalisation of outward investment rules by the Indian government.
Some investments have generated big headlines – witness the acquisition of the Grosvenor House Hotel in London for £470m by Sahara India Pariwar and the potentially ill-judged purchase of Blackburn Rovers Football Club by Venky’s Chickens.
But increasingly there are lower profile but equally substantial investments in the UK, such as the acquisition of the Stanlow oil refinery by Essar Energy, Tata Chemical’s purchase of British Salt and travel business Cox & Kings buying Holidaybreak. Such acquisitions give market share and local expertise via a far quicker route than a start-up operation.
The past year has been tougher for Indian companies as the domestic economy has stalled a little and the value of the Indian rupee has slumped. But, with India’s economy still growing faster than most others and many western countries likely to suffer a prolonged period of low growth, Indian investors are likely to come knocking again.
And some established players continue to invest in their UK operations, witness Tata Steel’s decision to invest £800m over five years in its Welsh steel plants, announced earlier this year. The list of other Indian companies who have already invested in Wales is substantial including the likes of IFGL Refractories, Exide, Pix Transmissions, Grabal Alok Impex and JSW Steel Group.