India (U of Laval)-1

8/8/2019 India (U of Laval)-1

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Facts About India

Area: 3.3 million sq. kmPopulation: 1027 million (2001 Census)

1147 million (2008 July est.)Capital: New DelhiReligion:A secular country where manyreligions co-exist. Major religions practiced:Hindu: 80%Muslim: 14%Christian: 2.4%Sikh: 2%

Buddhist: 0.7%Jain: 0.5%Zoroastrian and others: 0.4%Location: Between latitudes 8 4' and 37 6'north and longitudes 68 7' and 97 25' east.Coastline length: 7,600 kmLanguages: 17 Major languages, 844 dialects.Hindi and English are most Popular

Climate: Three major seasons:winters, summers and MonsoonStates and Union Territories: 28 states and 7Union TerritoriesGovernment: Democratic form of GovernmentPrime Minister: Dr. Manmohan SinghPresident: Ms Pritibha PatilCurrency: Rupees


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States:1. Andhra Pradesh2. Arunachal Pradesh3. Assam

4. Bihar5. Chhattisgarh6. Goa7. Gujarat8. Haryana9. Himachal Pradesh10. Jammu and Kashmir11. Jharkhand

12. Karnataka13. Kerala14. Madhya Pradesh15. Maharashtra16. Manipur17. Meghalaya18. Mizoram19. Nagaland20. Orissa21. Punjab22. Rajasthan23. Sikkim24. Tamil Nadu25. Tripura26. Uttar Pradesh27. Uttarakhand28. West Bengal

Union Territories:A. Andaman and

Nicobar IslandsB. ChandigarhC. Dadra and

Nagar HaveliD. Daman and DiuE. LakshadweepF. National Capital

Territory ofDelhi

G. Puducherry


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BoundariesBoundaries

WestPakistan and

The ArabianSea

South

Palk Strait and the Gulf of Mannar (which separate itfrom Sri Lanka and the Indian Ocean

NorthAfghanistan, China, Nepal, and Bhutan

East

Bangladesh,Myanmar(formerlyknown asBurma), and

the Bay ofBengal


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The IndianThe Indian

MultinationalsMultinationals Globalization has given new meaning and

dimension to corporate India.

Many Indian firms have slowly, but surely,

embarked on the global path, leading to theemergence of Indian multinational companies.

Indian industry has crossed domestic frontiers

and established a credible presence in marketsabroad in a very short time.


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The evolution of the Indian multinational spansdiverse sectors, from pharmaceuticals toautomotive to hotels to textiles to engineeringgoods and entertainment.

With each passing day, Indian businesses areacquiring companies abroad, becoming world-

popular suppliers and are recruiting talentcutting across national boundaries.


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Headlines: Indian

Multinationals Going GlobalTata acquires Corus for $12bn

Hindalco acquires 100% stake in Novelis for $6 bn

Essar Global acquires Algoma Steel for $1.6 billion

UB Group acquires Whyte & Mackay for $ 1.17 Bn

Suzlon acquires REPower of Germany for $ 1 bn

Tata buys Jaguar and Land-Rover for $ 1 bn

Ranbaxy acquires Romanian Terapia for $ 324 Mn

And the list goes on .


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Cross-Border M&As

*Annual forecast for 2006 based on data for first 7 monthsSource: Accenture analysis of Thomson Financial data

Indian companies are going global

with a series of bold acquisitions


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India Globalization Scenario

Globalization wave GDP growth rate - 8% (check) (9.4% - 2006-2007)

Government Policies More and more liberalization

Liquidity and healthy capital markets

Increased confidence of Indian companies Competition from China (Specially in the Manufacturing sector)

Increasing focus toward outbound deals

Rise in deal value


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Why India goes global?

Attain the size factor expand assets

Gain access to new customers, new markets (widergeographic presence)

Acquire skill set enhancement

Obtain access to valuable natural resources

Help achieve lower costs and better price control

Merger & Acquires (M&A) essential for Indian Companies to go global - capturing Synergies


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Geographic Distribution of New Markets Captured(1995 to August 2006)

Asia

22

North America

2

Midd e eastouth America

2

urope

29

acific

5

Africa

6

Source: Accenture analysis of Thomson Financial data


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Why Indian Companies Look

Beyond Their Borders The need to capture new markets 1995 to August 2006 29% of Indian cross-border M&As occurred in the

European Union and 32 percent in North America Large consumer markets Transparent business processes

Rule of law Advanced technologies Skills Knowledge capital

Markets in these economies - mature and saturated

Difficult for Indian companies to gain market share without acquisitions

The need to expand capabilities and assets

The need to expand product or service portfolio

The pressures of domestic competition


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Industry Experience

GLOBALENVIRONMENT

INDIANENVIRONMENT

SEBI

Tex LawsCompaniesAct

RBI

FEMA

CompetitionAct

GAAP

Other Laws and Statutes

Industry Environment

Company

Environment

Strategy


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Execution Experience Commercials

Identification and Commercial Identifying Target

Indian valuations expensive

Increasing focus toward outbound deals

Transaction Support Valuation, DD, Documentation Identifying Team

Financing Funding Internal / External

Liquidity and healthy capital markets

Pay out Cash / Equity / Deferred Growing proportion of M&A deals that are settled in cash


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Execution Experience Regulatory

FEMA Rupee virtually convertible

Tax Limited resources for structuring / compliance foreign

transactions vis--vis Indian tax system Direct Tax Not major litigation Exceptions sections 80IA & 72

Indirect Tax State level legislations lag behind Stamp Duty and Sales Tax

Acquisition Structure - SPV Considerations

SEBI Hostile acquisitions not possible

Securitization based M&A not successful


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Execution Experience Other areas

Brand India

Beyond the Back Office

Cultural Issues

Contractual Permissions


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Average M&A deal sizes, India versusglobal


8

AverageM

&A

dealsize

U

D

illions

an une

India

lobal


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Breakdown of Indias Cross-Border M&AActivity by Industry Group

Breakdown of industry groupsCommunications & High TechnologyCommunications, Electronics and HighTech

Financial ServicesBanking, Capital Markets, Insurance

ProductsAutomotive, Consumer Goods andServices,Health and Life Sciences, IndustrialEquipment,Retail, Transportation

Professional ServicesConsulting, Financial analysis, IT Services,Outsourcing

ResourcesChemicals, Energy, Forest Products,Metals,Mining, Utilities*Annual forecast for 2006 based on 7 months of data from Thomson Financial



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Key Indian capital control policies

1999Foreign ExchangeManagement Act: Regulatingforeign exchange transactionsincluding foreign investment

Indian companies allowedUS$15 million in overseasinvestment

2002Competition Act: Law to ensure

free and fair competition inmarket

Annual limit of overseasinvestment raised to US$100million (up from US$50 million)

Indian companies in SpecialEconomic Zones can makeoverseas investment withoutthe restriction of US$100 million

2004Indian companies can invest

up to 100 percent of their networth even if the investmentexceeds the previous US$100million ceiling

Indian companies can investor acquire abroad in areasunrelated to their business athome. Can be overseas joint

ventures or wholly ownedsubsidiaries

2006 onwardsIncreased liberalisationexpected

2001Professional servicescompanies and registered

partnership firms allowed tomake overseas investments

Companies can make overseasinvestment up to US$50million under automatic route

2003Indian companies allowed toinvest up to 100 percent ofnet worth in a foreign entity

(up to US$100 million),through the automatic route

Indian companies maypurchase foreign exchange upto 100 percent of their networth as of the date of theirlast audited balance sheet

2005Special Economic Zones (SEZs)Act: Provides for establishment,

development and managementof SEZs to promote exports

Indian companies are allowedto fund foreign directinvestment using externalcommercial borrowing

Source: International Monetary Fund Annual Reports on Exchange Arrangements and Exchange Restrictions, 1996-2005


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Challenges in Going Global Survey

Key challenges Indian companies face while going global

Note: The percentage figures represent the percentage of respondents rating each item as 1 or 2on a scale of 1-5 (where 1=critical, 5=not critical)

Source: India Meets the World, Accenture, September 2006

Inade a e s ppo

f om sha eholde s

ac of f nding

ac of nowledge

of o he co n ies

eg la o y faco s

anagemen

mindse o p ocess

imma i y


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M&A Commandments

Muster resources for speedy execution

Devil is in the details

Focus on culture and communication

Be prepared for surprises

Be prepared to be evaluated

Plan on the acquisition structure

Tailor made Agreements


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Summary

In recent years most media references to India's growthhave focused on outsourcing and investment, but nowthe subcontinent is seen as a force that shapes globalmarkets.

Despite fears that India would be overrun by foreignmultinationals, Indian companies have not only managedto fight off competitors on their home ground, they alsohave taken the commercial battle abroad.

The increase in major cross-border transactions inrecent years has been facilitated by the relaxation ofregulations on overseas capital movements as well as asupportive political and economic environment.


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India Goes Global

Indian companies see "going global" as a strategic priority and Merger &Acquire (M&As) is increasingly seen as an attractive way to achieve this.

Ninety-five percent of Indian respondents highlighted the importance of goingglobal, with 62% seeing this as an overriding objective driving strategy.

The number of cross-border deals has increased steadily: from 30 in 1995 to 71in 2000, and is expected to be 183 in 2006.

About three-quarters of acquisitions conducted by Indian companies since 2003have been cross-border.

Acquisitions are spread across geographies, but are clearly focused ondeveloped markets. From 1995 to August 2006, 29% of Indian cross-border M&As occurred in the

European Union and 32% in North America. Less developed economies are attractive due to low acquisition costs and

favorable terms due to a high demand for foreign direct investment (FDI).

Acquisition targets have diversified to cover a wide range of industries. Pre-2000, key M&A target industries included consumer goods and services,

energy, pharmaceuticals and health care. Post-2000, industries as diverse as forest products, human resources and

market research have been targeted.


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India Goes Global The need to capture new markets: 81% of respondents said the keymotivation for going global was to find new markets to sustain top-line

growth.

The need to expand capabilities and assets: Many Indian companies areseeking to expand their distinctive capabilities by acquiring specific skills,knowledge and technology abroad, which are either unavailable or of

inadequate quality in India. The need to expand product or service portfolios: Most Indian

companies are endeavoring to increase market share by building the size oftheir product and service portfolios.

The pressure of domestic competition: Domestic competition is pushingsome Indian companies into less competitive overseas markets, therebyspreading their risk across geographies.

The next chapter: The increase in cross-border M&A will lead toconsolidation of key industries, intensification of competition in manyindustries as Indian companies apply their low-cost business models inWestern markets, and greater interdependence between economies asinvestment flows become more complex and multidirectional.


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Business India


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Liberalization

1947 1991 Ongoing


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1991: Narashimha Rao Government

A lot of reform strategies were introduced

Opening of the financial markets

Foreign investment was permitted

Flexibility in the ownership structure


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Strengths

Major strength in

Information technology

Auto components Chemicals

Apparels

Pharmaceuticals

Jewellery

Petrochemicals


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NaturalNatural ResourcesResources

Coal (fourth-largest) Iron ore (major producer) Manganese Mica

Bauxite Titanium ore Chromite Natural gas

Limestone Arable land (49%) Diamonds (Gold, silver, and diamonds) Petroleum (Maharashtra and Gujarat )


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Attracting International InterestAttracting International Interest

Top Investing Countries: Mauritius, the USA, UK, the Netherlands, Japan, Germany,

Singapore, France, south Korea, Switzerland

Top Sectors Attracting highest FDI inflows: Information technology, Electrical equipments, Services sector

(financial and non financial), Telecommunications,Transportation industry, Fuels, Chemicals, Constructionactivities, Drugs and pharmaceuticals, Food processing, Cementand gypsum products.

Exports:

US$ 34,303.50 million (April 2006-June 2007) Imports:

US$ 54,908.83 million (April 2006-June 2007)

Source: http://www.indiainbusiness.nic.in/know-india/know-india.htm


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India: Technology

Superpower Geneva based STMicroelectronics one of the largestsemi conductor companies to develop integrated circuitsand software in India

80 of the worlds 117 SEI CMM Level-5 companies arebased in India

Some of the worlds major automobile makers areobtaining components from Indian companies

New emerging industries include Bio Informatics, BioTechnology, Genomics, Clinical research and Trials (eg.

Biocon, Panacea Biotech, Wipro Health Sciences)


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Auto Manufacturing

India is also making great strides in manufacturing industryReliance Industries, India's largest private corporation, has build thelargest oil refinery site in the world on the country's western coast near

Jamnagar in Gujarat State

Hero Honda with 1.7M motorcycles a year is now the largestmotorcycle manufacturer in the world

India is the 2nd largest tractor manufacturer in the world

The 5th largest commercial vehicle manufacturer in the world


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India: Trade

India is one of the worlds largest diamond cutting andpolishing centres, exports were worth $6 billion in 1999

Wal-Mart sources $1 Billion worth of goods from India half its apparel and plans to increase

Gap sources about $600 million and Hilfiger $100 million

worth of apparel from India


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Infrastructure & Other

Benefits Sea 7,600 km of strategic coastline Air International airports

Roadways Railways

SEZ Zones:

Independent and functional regulator for theelectricity sector

Tax holidays

Business Language - English


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CULTUREIS THE ART OFCULTUREIS THE ART OF

LIVINGLIVING Our cultures define our fundamental beliefs

about how the world works

Forms ways in which we interact and

communicate with others Develop and maintain relationships.

Doing business in a particular nation requires afocus on a multi-dimensional understanding of itsculture and business practices.

Understanding those differences and adapting tothem is the key.


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Indian Institute ofTechnologys

(Engineering) Indian Institute of

Management (premierbusiness school)

All India Institute ofMedical Sciences(Medicine)

Illiteracy - literacy rate of the country is around 57%.

Rural India is dominated by illiteracy

The IITs were ranked3rd best worldwide fortechnology, after MITand University ofCalifornia, Berkeley.

Medical colleges andinstitution survey(MCIS) conducted byWHO, AIIMS ranked1st in Asia

The aim is todevelop a skilledworkforceThese form the elite club of the

best centers for highereducation in India and arecomparable to the best in the

world


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BollywoodBollywood

The Indian film industry is the world's largestproducer of feature films

Mumbai-based "Bollywood," producescommercial Hindi films as its most recognisableface.

Other strong cinema industries are based on theTamil, Telugu, Kannada, Malayalam, Bengali,and Marathi languages.

One of India's well-known filmmakers wasSatyajit Ray, who received many internationalawards during his life, including an Oscar in1992 for Lifetime Achievement.


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Bollywood films are generallymusicals, and they have catchymusic in the form of song-and-

dance numbers woven into thescript.

A movie is normally three-hour-long extravaganza with an

intermission after one and a halfhour.


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ApproachApproach

Direct approach (eg. through net yellowpages)

Appointing a representative in thecountry

Trade shows, exhibition, fairs

Indian Embassy in Canada

Chamber of Commerce Strategic Alliance


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AttractivenessAttractiveness

High potential market

Large population offers both - Blue and White collarworkers

Good Customer base Growing economy

English The Business Language


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Further Recommendations

Flexible organization structures are essential: Successful integration requires aflexible and fluid approach by management to ensure the ability to adapt to cultural,social and other factors that vary across markets. Eighty-three percent of Indianbusiness leaders identified the development of flexible organizational structures asthe most critical capability for the success of globalization strategies.

Due diligence must be comprehensive: The due diligence needs to cover unknownmarket landscapes as well as additional factors like governance and legislative andregulatory rules and processes. Seventy-seven percent of respondents identified"complying with regulations in overseas markets" as a critical capability forglobalization.

Location decisions need a strategic approach:A wide range of country-specific

factors must be incorporated into decision-making process. "Coping with country risksin overseas markets" was selected as a critical capability for success by 76 percent ofrespondents.

Strong communication is fundamental to success:A successful integrationprocess relies on effective, consistent and regular communication from companyleaders to all constituencies, including customers, employers, regulators, suppliers,shareholders, competitors and partners.


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