Sweet Land of Liberty

Back in 2001, when Indian Hotels Corporation Limited (IHCL) was implementing Total Productivity Maintenance (TPM) and the Kaizen approach across its properties, it benchmarked with the Ritz Carlton on customer satisfaction measurements in luxury hotels. Just five years later, IHCL has signed an agreement to acquire the Boston-based Ritz-Carlton hotel, a luxury property in operation since May 19, 1927, for about $170 million. With the deal scheduled to close mid-January, this will be the second us hotel to be acquired by the Tata Group company (which owns the Taj chain of resorts and hotels), after it took management control of The Pierre, a luxurious landmark hotel on New York's 5th Avenue, for $50 million. Clearly, Indian Hotels is morphing from being a leading Asian chain of luxury hotels into a global one with presence in the gateway cities of the world. In five years, it aims to have a third of its revenues from overseas operations-and the US would account for a fair share of those sales.

Indian Hotels is not the only company for which the US is a key fragment of a globalisation blueprint. According to a CRISIL report titled "Creating the Indian MNC", acquisitions by Indian companies overseas have touched $7.3 billion in the April 2005-September 2006 period. A little over a quarter of these target companies are in the US, with the total deal value amounting to a cool $1.9 billion. Tata Tea's $677-million acquisition of a 30 per cent stake in the Glaceau, an enhanced water company, is till date the largest us acquisition by an Indian company and skews the us share substantially in 2006-07 to 52.7 per cent, but the us was the #1 destination even in 2005-06 with an 18.3 per cent share of all overseas acquisitions.

Whilst niche American buyouts have been taking place for some time now-it services majors like TCS, Wipro and Satyam have been particularly busy as has a clutch of pharma majors-a handful of Indian corporations are now beginning to make us acquisitions for sheer size and scale. Rain Calcining Ltd, Asia's largest manufacturer of calcined petroleum coke (CPC), acquired a 20 per cent stake in GLC Carbon Corporation and is reportedly looking to acquire full control. If successful, Rain will emerge the world's largest producer of CPC. Rain has the capacity to manufacture 480,000 tonnes per annum of CPC, while GLC, with its four facilities in Texas, Oklahoma, Louisiana and Argentina, is about four times the size with an annual capacity of 2.3 million tonnes. Clearly, scale is an important factor in influencing the decision for Rain Calcining as market leadership brings with it the ability to influence pricing, especially in a commodity industry.

For other manufacturers with global ambitions, the US is one land that they just can't ignore. When last June, Bharat Forge, the second largest forgings firm in the world, purchased Federal Forge Inc., a company engaged in the design and manufacture of complex forged steel components, for $9.1 million, it gained an immediate foothold in the us passenger car and light truck market; and most importantly, a manufacturing base close to some of Bharat Forge's largest customers.

Access to markets has been a key driver of these acquisitions and the US being the largest market in the world, has been a big draw. Says Sunil Alagh, Chairman, SKA Advisors, a Mumbai-based marketing and branding consultancy: "The level of importance of entering the us markets depends on the product. Indian companies should enter any market and more specifically the US, from a position of strength, that is in sectors like it, textiles, specialty teas, Indian cuisine-based foods, etc. It will be of little importance in areas like soaps, cosmetics, confectionery or air conditioners. Entering the us market should not be a 'fashion' but 'opportunity-based'."

The Indian textiles industry has been trying something similar-to make inroads into the $30-billion (Rs 1,35,000-crore) US and EU home textiles market by aligning its low-cost manufacturing base with us-based brands. Companies like GHCL have chosen to grow via the inorganic route-it acquired Dan River, the third largest player in the us home textiles market, the owner of the brand 'Bed in a Bag' and preferred supplier to large retailers like JC Penny and Linen & Things, Wal-Mart and Bed, and Bath & Beyond. GHCL Joint Managing Director R.S. Jalan says: "The acquisition provides us the opportunity to quickly move into the us market with a ready customer base and infrastructure in place." S. Kumars, too, is reportedly bidding for one of the largest American home furnishing manufacturing and distribution companies, America Pacific, and the deal size is rumoured to be in the range of $100-120 million (Rs 450-540 crore). America Pacific supplies bedding, bath and window products to many us brands, including Nautica, Dockers and Liz Claiborne. It also makes and markets home linen under its own brand.

So, how much of an imperative is penetrating the us-the final frontier in some ways-for Indian companies with MNC ambitions? Rama Bijapurkar, an independent market strategy expert, explains that America shouldn't be blindly pursued because it's potentially the most lucrative market. Rather, the importance of a country must be based on how feasible it is to build a decent sized, profitable, and competitive position. "So, if that is better done in Africa or Uzbekistan or UK, why not?" asks Bijapurkar. That may explain why some Indian companies have made big-ticket acquisitions in less likely regions-Suzlon in Belgium, Aban Loyd Chiles in Norway and Gail in Bermuda.