Mr. M.N. Chaini - Vice-President

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Competition Policies in EU and India

• Presentation
• By
• Mr. M.N. Chaini - Vice-President
• Indian Merchants Chamber, Mumbai

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MA Background Scenario

• In 1990, only six developing and transition
  countries had made any outward investment.
• In 2005, the number increased to 25.
• Between 1987 and 2005, the share of global MAs
  by MNCs from developing and transition countries
  rose from 4 to 13 in value terms, and their
  share in greenfield and expansion projects
  exceeded 15 percent in 2005.

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MA Background Scenario...Contd.

• A survey shows that 81 of the companies have
  considered MAs and 30 have actually done a
  transaction in the past 3 years. Over 70 say
  that they expect to do a deal in the next 3
  years. All this denotes that we are set for an
  MA boom in the years to come. Global MA volumes
  of 10bn a day, Indias 18bn for the year 2005
  indicates that there is still a long way to go.
  The trend is clearly on the way up.
• MA in 2006-07 - 3.6 Trillion
• MA in 2005-06 - 3.55 Trillion (data by
  Bloomberg)
• October 2006 MA deals - 262 Billion
• The Asian MA market saw 5792 deals worth
  255.07 billion
• China alone was the largest market with 1862
  deals worth 54.76 billion

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Indian Scenario - Major Deals

• Corporate India has gone on an acquisition spree,
  powered by the urge to go global, strong market
  fundamentals and the drive to dish out
  cost-competitive products. Acquisitions were not
  limited to the domestic market, but spread out in
  the global arena also.
• Though India's public sector took the lead in
  investing abroad, especially looking for oil
  assets, the private sector is now going full
  speed ahead, driving overseas investments e.g.
• Arcelor acquired by Mr. Lakshmi Mittal.
• Mahindra Mahindra's takeover of 90 percent
  stake in Schoneweiss, a family-owned German
  company.
• Tata's takeover of Corus Tetley Tea Co.
• Hutchison Whampoa of Hong Kong sold their
  controlling stake in Hutchison - Essar to
  Vodafone for a whopping 11.1 billion.

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Indian Scenario - Major Deals .Contd.-

• Swiss cement major, Holcim, which acquired a 67
  per cent stake in Ambuja Cement India Ltd (ACIL).
• Videocon Group's acquisition of Thomson's colour
  picture tube business in China, Poland, Mexico,
  and Italy for a total of 290 million.
• The other large overseas deal was by
  pharmaceuticals Matrix Laboratories, which
  acquired 100 per cent of the Belgian Pharma Co.,
  Docpharma for 263 million).
• Birla-Hindalco Indian business conglomerate
  Aditya Birla group-owned flagship company
  Hindalco Industries Ltd. Took over Atlanta-based
  aluminum giant Novelis Inc. for US 6.4 billion

• Indian firms concluded 70 MA deals between April
  and September, spending 14 billion and would
  have saved as much as Rs.6500 crore (1.66
  billion) because of the over 10 rupee
  appreciation against the greenback, an Assocham
  Eco Pulse study said.

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Why M A ?

• Quicker way to growth.
• Accessing new markets.
• Taking on the global competition.
• Improving operating margins and efficiencies, and
• Acquiring visibility and international brands.
• Buying cutting-edge technology rather than
  importing it
• Developing new product mixes

Objective behind MA Transaction Responses (in)
To improve revenues profitability 33
Faster growth in scale quicker time to market 28
Acquisition of new technology or competence 22
To eliminate competition increase market share 11
Tax shields investment savings 3
Any other reason 3
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Determinants of M A

• Ever-growing appetite of entrepreneurs to strike
  deals across sectors.
• Availability of financing options both in Debt
  as well as in Equity due to low interest-regime
  of recent years and high stock-market valuations.
• Barriers Surmountable? And Legal System.
• Liberal approach of Anti-trust authorities /
  regulators in recent years.
• Availability of the unit / business.
• Strategy, planning environment.
• Corporate Governance.

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Corporate Governance

• Tata could acquire so many units outside India,
  against stiff competition due to good corporate
  governance strategic fit.
• Corporate governance is essential to acquire a
  company and then make the acquisition successful.
  In absence of good governance, acquisition may
  fizzle out.

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DYNAMICS

• Interplay of following factors
• Strategy
• Planning
• Personnel
• Legal
• Finance
• People
• Media
• Management Philosophy Corporate Governance

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MA as a Business Strategy

• Analysis
• Only 19 of the respondents state that they do
  not believe in MA and 81 look at it as a part
  of strategy or will look at it opportunistically.

• Conclusion
• MA is definitely a key
• agenda for India Inc

MA as a part of Business Strategy
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Enhancing Valuation

• Conclusion
• The perceived quality of a management team a key
  driver. To enhance valuation along with
  transparency. Interestingly Press interaction is
  seen as another way to enhance valuation.

• Analysis
• The key drivers for valuation according to India
  Inc are Management quality, Industry factors and
  Financial performance.

Key Drivers for enhancing valuation of a company
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Competition Policies in EU and India- Is it
transparent and Non discriminatory? Lessons for
India EU to work together

• Indian economy today is a competitive and
  de-regulated open economic system.
• Various restraints to competition existed in the
  pre-reform era such as

• Investment restraints (licensing).
• Control over acquisition of economic power
  through Monopolies Restrictive Trade Practices
  Act (MRTP).
• Public sector reservation for infrastructure and
  other industries creating monopolies in various
  areas.
• Product reservation for the small-scale sector.
• Government procurement policies favoring public
  and small-scale sectors.
• Trade restrictions and high tariffs.
• Restrictions on foreign direct investment.
• Contd.

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• All these restraints (protective measures as well
  as controls) have been or are being relaxed now.
• One key issue in the current phase of transition
  of India is of ensuring and managing competition
  and to derive the most out of liberalization.
• The task is all the more difficult because the
  nation is not starting with a clean slate as
  various institutional structures continue to be
  in place.
• Although, decontrol, deregulation privatization
  initiatives are being taken, global economic
  environment is also undergoing a major change and
  hence the economic system is becoming more
  complex.

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New Needs for Competition Policy

• The Indian corporate sector adopted a variety of
  strategies in the post-reform period to cope with
  the increasing competitive pressures due to
  internal and external liberalization.
• With the maturing of the Indian oligopolies, the
  competition policy needs of the country are also
  undergoing changes.

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Changing Indian corporate sector

• Some salient aspects of the changes in the Indian
  corporate sector

• The Indian corporate sector is vigorously
  restructuring itself.
• Restructuring is mainly geared towards
  consolidation in few chosen areas to correct the
  inefficiencies created by over-diversification in
  the pre-reform era.
• MNCs have actively participated in the merger and
  acquisition process to get market entry or to
  strengthen their presence.
• Acquisitions have been used by MNCs to quickly
  get access to various complementary assets.
• MNCs are better placed vis-a-vis domestic firms
  in the acquisition game because of their deep
  pockets and relatively cheaper access to capital.

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Changing Indian corporate sector

• The intentions to invest in India by MNCs are
  significantly influenced by differences in the
  cost of capital and huge Indian market.
• The reliance of the Indian corporate sector on
  foreign technology purchase has increased.
• More and more technology flows are now tied with
  equity.
• Purchase of technology (especially foreign) is
  taking precedence over RD.
• In house technology generation has taken a
  backseat. Besides, a large variety of inter-firm
  alliances are taking place.
• Firms are making efforts to improve manufacturing
  capability. This is being done through building
  alliances as well as through initiatives within
  the firm.
• Quality upgradation seems to be an important
  priority.
• These efforts at improving manufacturing
  capability may still prove to be inadequate to
  meet the competitive challenges.

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Changing Indian corporate sector

• These inadequacies may also adversely affect
  Indias chances of seeking FDI, the need for
  which has been emphasized.
• Product differentiation strategy seems to be
  dominating over strategies of building
  distribution and marketing related assets.
• Such a strategy helps Indian firms to stand up to
  transnational with their strong and
  internationally recognized brands.
• Export based growth strategies are being adopted
  by some of the corporate sector but such
  strategies are not widespread.
• Export orientation increased appreciably.
• Overall, exposure to the international market is
  still inadequate to put the Indian firms on
  higher growth and learning trajectories.

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Objective of our competition policy

• Creating an active competitive environment, and
  in aiding the process of creating globally
  competitive firms with enhanced investment
  technological capabilities.

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Progress made in Indian competitive Policy

• India has had a legislation to address
  competition issues since 1969, when the Monopoly
  and Restrictive Trade Practices Act, was enacted.
• This Act primarily dealt with Monopolistic
  Restrictive and Unfair Trade Practices. A
  Statutory Commission, the Monopoly and
  Restrictive Trade Practices Commission, was set
  up under this act, with an adjudicatory role.
• With the changing economic environment , need was
  felt to have a new law tuned to the needs of
  modern times, and towards this end, a new
  Competition Act was enacted in 2002.
• This Act deals with anti-competitive agreements
  (including cartels), abuse of dominant position,
  regulation of combination (including mergers and
  acquisitions) and advocacy.
• Contd

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Progress made in Indian competitive Policy

• The Act also envisages establishment of the
  Competition Commission.
• However, the Commission set up under the Act is
  not yet fully operational for the present.
• While some issues relating to its functioning are
  being addressed, it is carrying out only advocacy
  functions, as of now and thus competition issues
  continue to be adjudicated by MRTPC.

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India Going Global

• India is at a stage of development where
  cross-border activities are growing rapidly and
  are likely to grow more in the near future.
• The level of cross-border activity between India
  and EU is also significantly increasing.
• The EU is the leading investor in India and also
  a major destination for Indian investors.
• The EU invested 1.1 billion euros in India in
  2004. But it's the reverse flow which is more
  interesting.
• In 2005-06, the EU was the main destination for
  Indian investment. One in every four dollars
  invested abroad by an Indian company went to the
  EU.
• Many of the major Indian IT companies such as
  Infosys, TCS and Wipro have operations in Europe.
  There have also been several high-profile
  acquisitions of European companies by Indian
  corporates, the famous being of course Tata's
  headline-grabbing Corus deal.

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Need for Convergence and Cooperation in
Competition Policies

• India is reviewing its competition policy apart
  from trying to influence international agreements
  on competition policy related issues.
• Cooperation can be closer and effective, if laws
  and procedures of the countries involved are
  similar.
• Convergence and cooperation are needed in
  competition policy on issues relating to

• Cartelisation.
• Other horizontal restraints.
• Mergers and acquisitions.
• Price fixing.
• Voluntary export restraints and orderly marketing
  arrangements.
• National treatment for foreign direct investors
  and services.

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Need for Convergence and Cooperation in
Competition Policies

• Participation in such arrangements provides an
  opportunity for learning and exchange of
  information that may be critical for competition
  agencies in developing economies.
• The economies in transition may also want to
  participate in order to influence the directions
  which cooperation arrangements take.
• We are also of the view that more active steps
  need to be taken to enable developing countries
  in dealing with international cartels, and to
  ensure effective cooperation by the developed
  countries in this task.
• The developed countries need to recognize the
  pronouncements of competition authorities against
  international cartels based in their own
  jurisdiction, and help the prosecution of members
  of such cartels.
• Contd.

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Need for Convergence and Cooperation in
Competition Policies

• In addition there should be more focus on abuse
  of international dominance by transnational
  companies, whether in terms of market behavior or
  intellectual property.
• We may have to incorporate provisions preventing
  multinationals from refusing to deal with
  countries as a whole if the countrys competition
  authority has moved against the company.
• There is a need of special dispensation for the
  informal sector in these countries.
• Economies of developing countries have a large
  contribution from the informal sector, in
  contrast to the developed country economy.
• Any competition law would have to take into
  cognizance of special needs of such sector, and
  the need of Governments to support this sector.
• Contd.

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Need for Convergence and Cooperation in
Competition Policies

• Hence, special preferences and incentives
  provided for the informal sector for these
  economies, need to be recognized and accepted in
  the competition law.
• Need of advocacy and capacity building on
  competition issues is strong felt need in
  developing countries.
• However, the focus of capacity building need not
  be limited to the competition authorities, but
  should have a wider scope to include sub-national
  authorities, economists, universities, jurists,
  etc. so that a large pool of competition experts
  are available in the country.
• Similarly advocacy efforts should focus on making
  competition a way of life in these countries and
  not something to be imposed by the State.
• Contd..

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Need for Convergence and Cooperation in
Competition Policies

• Now we all know or feel that the World is flat
  and Knowledge is borderless. As such, the
  economic changes will be rapid. Complexity and
  disparity are likely to be major factors worrying
  the world leaders and global institutes. It is
  therefore very appropriate and timely that such
  issues are being debated in this Conference.
• I would like to wish the Conference to be a
  success, with the deliberations being made today
  guiding the competition law and policy
  internationally in a positive manner for the next
  many years.

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Success Factors
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Success Factors

• Conclusion
• For success in MA it is critical that there be a
  good strategic fit and personnel or HR is a key
  factor apart from planning. India Inc is not
  looking at MA to become conglomerate and core
  competence is a key driver for growth through MA

• Analysis
• The main factors for succeeding in MA are
  Strategic Fit, Personnel Proper Planning.

Most important factors that contribute to the
success of a MA Transaction.
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M As Future economic outlook for India
Indian Companies Set to go global Study
Foreign Direct Investment by Indian Companies is
all set to increase by 15 per cent per annum over
the next five years. India's share of global
outward investment (FDI, mergers and
acquisitions) has trebled over four years and
outbound activity in 2006 alone increased by 26
per cent, 'Global Outbound FDI Potential of
Indian Companies 2007' a new study from Oxford
Intelligence points out. The report forecasts
continued growth averaging 15 per cent over the
next five years adding that this year will see
growth of 19 per cent on activity on 2006. North
America, in particular, is expected to emerge as
a 'hot spot' for Indian outward investment, with
levels of activity trebling over the next five
years, it says.
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MAs Future economic outlook for India

• "Although discussion about India today tends to
  focus on the growing tide of foreign companies
  looking to establish operations in the country
  through direct investment, joint ventures or
  through outsourcing, today's Indian companies
  have a global vision and are becoming an
  increasingly important source of outbound
  investment," Michel Lemagnen, Director, Oxford
  Intelligence research.
• The removal in 2005 of key restrictions on Indian
  companies' ability to expand internationally
  triggered a sharp increase in overseas expansion.
  The country's top companies are now in an
  extremely healthy position in terms of cash,
  profitability and financing capacity and their
  potential for international investment, through
  both MAs and FDI, for the next few years is
  extremely favourable".

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MA in Future

• Analysis
• Over 70 expect to do a transaction in the next
  3-4 years with several of them planning to do
  multiple transactions.

• Conclusion
• We can expect greater activity in MA in the
  years to come.

Plans to acquire or merge in the next 3 to 4
years.
Out of the 73 of the respondents who have said
Yes

• 15 of the respondents say that their company
  plans to make at least 1 acquisition in the next
  3 to 4 years.
• 30 of them say more than 2 acquisitions
• About 28 of the respondents believe that their
  company plans to make numerous acquisitions in
  the next 3 to 4 years

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Cross Border MA in future

• Conclusion
• Proper India Inc is transforming itself into MNC
  and the chosen path is MA.

• Analysis
• A resounding 94 expect to do a cross border
  acquisition out of those who expect to do a deal
  in the next 3 years.

Plans for Cross Border Acquisitions in the next 3
to 4 years
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Conclusion

• Mergers Acquisitions are a significant form of
  business strategy today for Corporates.
• The two main objectives behind any MA
  Transaction, for corporates today is
• to improve Revenues and Profitability
• Faster growth in scale and quicker access to
  market
• Competition in Globalised Market
• The most important factors according to corporate
  India that contribute to the success of an MA
  Transaction are
• Timing
• Intrinsic Fit
• Personnel
• Advisors on legal, policy and financial
  strategies

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Thank you