Most surveys have it that two-thirds of acquisitions don't work — apparently the synergies don't come through as anticipated because all that the buyers seemingly think of, when the deal is being inked, is the price. Indian companies too have done their share of shopping overseas but by all accounts, things aren't going too badly. They have managed to shift production back home, leverage distribution networks across countries and acquire new clients. But, what they seem to have done well — and what has been crucial to their success — is manage people, which is not always easy in an alien environment.
Take the case of Daewoo CV, the Korean truck maker that the Tatas acquired way back in 2002. Revenues for this subsidiary were up 32 per cent for the year-ending March 2008, while profits soared 91 per cent at a time when the global automotive market is going through difficult times. Tata Motors exploited the opportunity in the CV market that always existed; it utilised the capacity better and marketed the product well. But it succeeded because, from the very beginning, it focussed on winning the confidence of the employees.
The good news is that Indian firms have learnt to let go of controls. When it bought out UK-based Christy's, also a terry towel player, Welspun didn't send a single person from India to the UK office. Instead, it empowered the existing management to do what was needed: simply putting in place some financial targets. Of course, there was a concerted effort to realise synergies — for instance, Christy's brands were marketed in the US through Welspun's better distribution network in that country. The results are showing. Christy's net profits for FY08 were Rs 7 crore. When it was taken over in July 2006, the company was just about breaking even.
Crompton Greaves is another a good case study that promoters wanting to go global might want to check out. Crompton took over the ailing Pauwels in May 2005 and had turned it around by March 2007. It managed that by retaining the core team and posting very few Indian executives in Belgium. As for blue collar workers, Crompton recruited rather than retrenched and increased wages. It's well known that labour unions are very powerful in most European countries and that labour laws are strict, making the operating environment a difficult one. So, it's to their credit that our companies have operated within those constraints and successfully turned around loss-making units, taking tough decisions when needed. Alok Textiles, for instance, has retrenched workers at its loss-making Mileta plant in the Czech Republic and continues to do so. By shifting production back home, it has cut costs, allowing Mileta to break even.
Even with white collar workers, Indian companies have not always opted for the kid-glove treatment. When it took over Hungary-based Ganz, Crompton replaced what it believed was an inept top management. Today, Crompton has gained market share across markets and before the year is out, Ganz should break even. In short, Indian promoters appear to have learnt the ropes fairly quickly. It is relatively simple to handle the executive cadre by giving earn outs or performance-linked pay and convince senior executives about future prospects and synergies that the acquisition throws up. But it can be far more difficult to motivate blue collar workers. That's because in several countries there are no individual performance criteria for blue collar workers; the target is more for the factory as a whole and it is not easy to improve productivity. With inflation low in many countries, workers don't really strive for too much and are happy just to retain their jobs.
The challenges can be particularly big in large people-driven businesses like telecommunications. When Tata Communications took over Tyco in June 2005 and Teleglobe in February 2006, it decided that it would not control everything out of Mumbai. It headquartered the voice business in Montreal and the data piece in New Jersey: and instead of sending people from India to head those divisions, it recruited from the global pool of professionals. Even today, not too many Indian companies are comfortable delegating and even multinationals prefer to post their own people in different parts of the world. But Tata Communications' strategy seems to have paid off. The company today has 5,200 people on its rolls across the globe and though it has taken a while, both Teleglobe and Tyco are in far better financial health today than they were when acquired.
What has stood Indian managements in good stead while working in foreign countries is the fact that workplaces in India are already a mix of people from diverse cultures. So, to that extent, they are better equipped to deal with people from different regions. It's not that everyone has succeeded — there are those who are taking time to turn around loss-making units. Bharat Forge, for instance, hasn't really achieved the kind of profitability it was looking for while Keyline, acquired by Godrej Consumer, doesn't have the kind of margins it did eight quarters back. But given that most acquisitions are less than three years old, it's been a good start.