Motives Driving Cross-Border

Acquisitions:
The Case of India

Presented by
Prof Ashutosh Kumar Sinha
Indian Institute of Management, Lucknow
Email: ashutosh@iiml.ac.in

Reference: Dunning, J. H. (2000). The eclectic paradigm as an envelope for

economic and business theories of MNE activity. International Business Review,
9(2), 163-190. doi: 10.1016/S0969-5931(99)00035-9
 Emerging Economies
• Definition: (Emerging economy)
– A country with rapid pace of economic development and govt. policies
favoring economic liberalization & adoption of free market system
(Arnold & Quelch, 1998)

• Characteristic features:
– Missing institutional features: Skilled labor shortage/ thin capital
markets/ infrastructure problems (Hoskisson et al, 2000)
– Lack of enforcement of disclosure norms (LaPorta et al, 1997; Sevic, 2005)
– Inefficient judicial systems (Khanna & Palepu, 1997)
• Property rights/ contracts difficult to enforce even when enacted
• Lack of strong legal frameworks
– Network based growth strategies are more visible (Peng & Heath, 1996)

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 Motives driving Outbound M&As
• Resource seeking
– Raw materials, including cheaper labor

• Strategic asset seeking motives

– Assets like technology patents, domain expertise, brands, process
knowledge, scalability (global), access to customer base & vendor base
– Strategic context, e.g. utilizing overcapacity, market power, learning,
leveraging distressed target condition

• Market seeking
– Geographical expansion, e.g. entering new markets, top line growth

• Efficiency seeking motives

– Product market rationalization, e.g. entry into new segments, depth in
existing segment, address gaps in product line
– Value chain augmentation,
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Kumarability
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Lucknow
 Resource Seeking Acquisitions
• Chemplast Sanmar Ltd- Trust Chemical Industries (Egypt) (16th
Nov 2006)
– “In a strategic move for assured and cost-effective raw material
supplies to its Indian operations, Chemplast Sanmar is acquiring
the entire chemicals business of Egyptian company Trust
Chemical Industries for $200 million”
– “Over a period of time, the Egyptian company will become a
raw material sourcing point for our PVC and other chemical
operations”

• Gitanjali Gems Ltd- TriStar Worldwide Inc (USA) (14th Feb

2007)
– “The tie-up would enable Gitanjali to increase its diamond
sourcing from the Canadian mine”

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 Strategic Asset seeking Motive
• Ranbaxy Labs Ltd- Signature Pharma Inc (USA) (23rd July 2002)
– “bring in advanced capabilities for research, development,
manufacturing and distribution of controlled substances”

• Amtek Auto Ltd- Lloyds(Brierly Hill)Ltd (UK) (1st Jan 2003)

– “has made Amtek Group the largest manufacturer of flywheel
ring gears in the world”

• Wipro Ltd- American Management-Energy (USA) (12th Nov

2003)
– “brings strong domain expertise, substantial intellectual capital,
strategic vendor relationships and senior level management
with industry experience in this space”

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 Strategic Asset seeking Motive
• Shreyas Shipping & Logistics- Haytrans Ltd (Sri Lanka) (5th Sept
2007)
– “give Shreyas a ready-made clients list apart from allowing it to
spread its wings to international locations including China and
Russia.
– “Shipping companies acquiring freight forwarding companies
could be seen in the context of backward or forward integration
to remain competitive in the logistics space”

• Jain Irrigation Systems Ltd- Aquarius Brands Inc (USA) (15th

Feb 2007)
– “With the acquisition, the company will become the second
largest drip irrigation firm in the world”
– “have a firm foothold in one of the largest markets in irrigation
business and access to the latest technology for irrigation
components”
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 Strategic Asset seeking Motive
• Uniphos Enterprises Ltd- Cerexagri Inc (USA) (14th Nov 2006)
– The proposed acquisition of Cerexagri from Arkema is expected
to catapult United Phosphorus limited into the No.4 slot of
leading generic manufacturers in the world. Cerexagri has a
strong presence in North American and European Markets with
73% of revenues coming from fungicides

• GMR Infrastructure Ltd- InterGen NV (Netherlands) (25th June

2008)
– “The acquisition also gives the Bangalore-based infrastructure
firm technical skill to boost its fledgeling electricity business and
firepower to take on competition”
– "GMR will gain access to InterGen's technology, processes and
financial engineering skills. Importantly, it strengthens our
position to bid for large projects, as earlier we could not qualify
since we didn't meet certain technical requirements"
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 Strategic Asset seeking Motive
• MosChip Semiconductor Tech Ltd- IntellaSys Inc-Audio Video
Div (USA) (18th June 2008)
– gained access to two products that go into camcorders. These products
bring down the number of chips, packing various features into one. The
company has also acquired nine patents through this acquisition

• Nirma Ltd- Searles Valley Minerals Co (USA) (27th Nov 2007)

– making the Indian company among the seven largest soda ash producers
in the world with net sales in excess of Rs 3,500 crore per annum.
– The new acquisition will place Nirma among the top seven world
producers of soda ash at a combined annual capacity in excess of two
million tonnes.
– Unique position as the only company in the world to use three different
techniques for production process namely Solvay in Porbandar, dry lime
in Bhavnagar and solution mining in California.
– Nirma has so far been engaging in sale of soda ash in small and big
packages. With SVM, Nirma will now be able to serve customers by bulk
sales
– Nirma follows in theProf
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footsteps of Tata Chemicals
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 Market seeking Motive
• Dr Reddys Laboratories Ltd- BMS Laboratories Ltd (UK) (12th
March 2002)
– “expand into the U.K.--and ultimately European--generics
market”

• NIIT Ltd- AD Solutions AG (Germany) (14th Nov 2002)

– “This acquisition facilitated NIIT Technologies to effectively
address the over $27 billion IT services market in Germany,
Switzerland and Austria.”

• EL Forge Ltd- Shakespeare Forgings Ltd (UK) (23rd May 2005)

– “The acquisition places EL Forge, with a dual advantage of as
manufacturer and as a supplier with an India base in the UK”
– “The acquisition also brings ready market in the Europe and
particularly in the UK”
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 Market seeking Motive
• Marksans Pharma Ltd- Relonchem Ltd (UK) (28th Aug 2008)
– "The acquisition gives us an immediate and deep marketing,
distribution and sales presence in the highly profitable but
regulated generic markets of UK and Europe."
– will become one of the key drivers to Marksans' global growth
strategy

• Berger Paints(India)Ltd- Bolix SA (Poland) (29th April 2008)

– "The acquisition will provide synergy benefits to Berger's
presence in the region, both in terms of new business
opportunities and regional markets. The growth prospects are
enormous”

• Pidilite Industries Ltd - Pulvitec do Brasil Industria (Brazil) (12th

July 2007)
– The acquisition helps
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Pidilite enter large Latin American market10
Prof Ashutosh Kumar Sinha, IIM Lucknow
 Efficiency seeking Motive
• Jubilant Organosys Ltd -Pharmaceutical Services Inc NV
(Belgium) (1st June 2004)
– “Jubilant will now have presence across the pharmaceuticals value
chain from manufacturing of Active Pharmaceuticals Ingredients (API)
to sale of formulated products”

• Ranbaxy Laboratories Ltd - Efarmes SA-Generic Drug (Spain)

(9th June 2005)
– “The acquisition fortifies our presence in Spain while augmenting our
existing product portfolio”

• 3i Infotech Ltd - Rhyme Systems Ltd (UK) (20TH Oct 2006)

– “the strategic acquisition of Rhyme Systems would complement the
Company's foray into UK’s lucrative BFSI market. We, as a solution
provider, constantly evaluate our BFSI offering vis-à-vis market
demands and grow our business by filling the gaps in our range of
products and solutions”
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 Efficiency seeking Motive
• HOV Services Ltd - LASON Inc (USA) (26th Feb 2006)
– HOV Services, a Pune-based BPO, has acquired the US-based
Lason, the largest acquisition of a BPO outside India.
– “This (Lason) acquisition will help us gain entry in new business
verticals like transaction processing, healthcare and media,
where we are willing to gain market prominence”

• HCL Technologies Ltd - Control Point Solutions Inc (USA) (25th

Aug 2008)
– "This acquisition enhances HCLs ability to become an end-to-
end provider of business process outsourcing services in the
attractive TEM space"
– “The strategic acquisition will enhance HCL’s BPO offerings in
the Telecommunications Expense Management (TEM) space”

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 Thank You

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