A globalised hitchhiker’s guide to a galaxy of acquisitions

India Inc. is on an incredible buying spree; there is news of a fresh acquisition abroad every other day. Some of these investments have been made into prestigious companies; others add synergy to the Indian parent. A few of these were debt ridden failing companies, but the Indian professionals have been able to turn some of them around. Is there any cause for worry then? Yes, there is. The acquisitions by themselves do not certify great acumen on our part; with aging owners and stagnating industries the world is full of buying opportunities today. Anyone cash rich enough can have his pick. But the test will start when the world economy fails to pick up. Would the Indian chutzpah hold then? Besides the purely managerial and demand driven concerns, there are local factors which could critically determine the destiny of these acquisitions. The best of acquisitions begin to hang like a noose in adverse political circumstance. Look, for instance, at some recent developments. 

The dark fear currently haunting the European financial elite is this: if the bankruptcy of a middle-sized Wall Street investment bank like Lehman Brothers with no retail customers could trigger the most severe economic crisis since the Great Depression, what would happen if the Greeks decide to renege on their debts? The likelihood that a Greek default would pose a threat to the future of the eurozone, as well as to the health of the world economy, means it has the potential to be worse than Lehmans.

That’s not the only worry for the currently rudderless IMF. It regards vacantly as the Arab Spring turns into an uncertain summer. West acquiesces silently as some Gulf regimes hire foreign mercenaries to suppress domestic dissent, but it is intolerant of violence by Gaddafi and Assad.

Look further and the picture gets messier. One year ago Ehmad Ezz was an extremely powerful businessman in Egypt. He controlled two-thirds of its steel production and was a bosom buddy of Hosni Mubarak’s son. Today he is under investigation; his assets have been seized. The foreign investors who had cultivated Ezz find that they had wasted their time and money.

Something similar, or worse, could happen to the foreign companies that had cornered contracts in Libya and Tunisia. But why stop at the obvious examples.

Look at China; Google was forced to re-route its servers when it refused to censor e-mails. In other recent cases, China imprisoned some Indian jewellers and four Rio Tinto employees in dubious circumstances. Russia too can be notoriously fickle as BP would testify. USA is no better, the Obama administration is enforcing the Foreign Corrupt Practices act with an evangelical zeal and employing techniques that were once reserved for fighting organised crime.

As countries face varying degrees of difficulty in managing their economies and peoples’ expectations, the treatment of the foreigner and his investment is going to vary. Thus the US denied diplomatic immunity to the former IMF Chief Strauss-Kahn; whereas it had successfully wangled immunity from Pakistan for its national Raymond Davis who had killed two people.

Differing and different standards are a way of the world.  The hope that globalisation would marginalise politics was short lived. Ultimately it is each to himself and, as with globalisation, the assumption that the world is flat is proving to be a facile view of a complicated reality.

How should companies tackle this? There are no simple rules to follow; Saudi Arabia is as different from Libya as China is from Russia. Local politics and customs may seem deceptively plain in the first instance. But only an expert can divine the subtle undercurrents. That capability often makes the crucial difference between success and failure. The ability to reach out and win confidence can best be done by experts. Western companies have traditionally deferred to specialists on international matters to understand such nuances. Almost three centuries back the East India Company had on its rolls philosophers and economists like James Mill, John Stuart Mill and Robert Malthus.

There were a couple of writers too; Charles Lamb and Thomas Love Peacock. All this may seem like a waste of money to today’s companies. But then they haven’t built empires as East India Company had succeeded in doing. Obviously, it had understood then that the spherical world can become flat only on apt advice.