India Inc prefers M&A route to expand in developed mkts

Domestic companies, which are looking at overseas expansion especially in developed markets, prefer the merger and acquisition (M&A) route, says a survey by the Indian School of Business (ISB).

"Domestic companies are preferring the M&A route to establish their footprint in developed countries. The motive is to acquire intangible and knowledge assets through the inorganic mode," ISB professor Raveendra Chittoor told reporters here today.

Against this, penetration in developing countries is mainly through greenfield investments, he added. "Private and government-owned enterprises are becoming increasingly transnational as they are trying to move up the value chain and capture a larger share of the global markets.

While overseas penetration in developing/ under-developed economies is primarily through greenfield investments, in developed countries, most Indian companies adopt the M&A route," Chittoor said. Group companies from the Tatas, Aditya Birla, Reliance, M&M and Godrej account for over 60% of overseas acquisitions by value, the survey said.

"Inorganic growth strategies through overseas acquisitions by the Tatas, Hindalco, Bharti Airtel are the main reasons for large outward FDI," Chittoor said. Outward FDI has been primarily driven by the manufacturing sector, including petroleum, pharma and automobiles as well as non-financial services.

The main contributors to outward FDI in the non-financial services sector are the IT firms like TCS, Infosys, Wipro and HCL Tech which have established offices globally to be close to their key clients. In the last decade, most M&As by the domestic companies were witnessed in the US (21%)followed by Canada (19%) the European Union (17%) and Britain (11%), the survey said.