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Lord Desai, London School of Economics
"We will see more Indian transnational corporations"
 real 28k

Monday, 28 February, 2000, 14:49 GMT
India toasts tea takeover
Tata bus
Tata vehicles are a familiar sight in South Asia
The purchase of the Tetley Group by Tata Tea is likely to herald a series of acquisitions by Indian companies.

While not a well-known name globally, Tata is a huge player in the domestic market.

Established 123 years ago, the family-owned conglomerate has interests including steel, soap, hotels, finance and information technology.

Taj Mahal Hotel, New Delhi
Tata runs a worldwide hotels group
In many countries, every truck and bus seems to carry the Tata name. The Tata Aviation Service, founded in 1932, developed into Air India.

Tata's 82 companies have an annual turnover of nearly $9bn and employ 260,000 people. The group makes up about 10% of the overall market capitalisation.

"It is an extremely well-respected business. It has one of the best management teams and is very conscious of shareholder value," said Sam Mahtani of Foreign & Colonial's Indian fund.

"They are people who are known for looking after their staff very well and they fund a number of projects helping the community."

Tata Tea is the world's largest integrated tea company, with interests in coffee and spices.

The 271m ($433m) purchase of Tetley will give it the technology and global marketing expertise to add to its own production - the companies were already involved in a joint venture.

Companies restricted

The deal is the biggest acquisition by an Indian company, and marks a change in the country's business culture.

Insular by tradition, Indian companies have been restricted by exchange controls and barriers on foreign investment.

But a number of government initiatives to open up markets means all that is changing, as the Tata Tea deal illustrates.

"Once the Indian market is fully opened up, tea imports will follow and the Tatas need expertise in buying tea globally, from countries such as Sri Lanka and Kenya," said analyst Mohan Swamy of ABN AMRO Equities Asia.

"It also gives Tata Tea a window to the global market through the Tetley brand. The Tata Tea brand and its Indian origins would not get them far, but they can now make a huge presence in developing markets."

Chairman Ratan Tata
Chairman Ratan Tata
Rajan Tata, chairman of the Tata Group, believes India's current economic climate offers great opportunities.

"As the country is opening up, it is significant that Indian companies are going international to acquire companies with reputed brands," he said.

"We hope many other Indian companies will follow us."

Last year, software firm Infosys became the first Indian company to be listed on New York's Nasdaq exchange, followed by Satyam Infoway. Later, long-term lender ICICI listed on the New York Stock Exchange.

Cash resources

With its strong cash resources, Tata is ideally placed for international expansion.

"They are trying to expand out to become a global player but the challenge for Tata and all Indian companies is whether they can do that from a domestic base," said Sam Mahtani.

And opening up markets creates opportunities for two-way traffic.

"Foreign companies have been coming in, but most takeovers in India have tended to be agreed rather than hostile," he said. "That could change."

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See also:

27 Feb 00 |  Business
Tetley bagged by India's Tata
10 May 99 |  The Economy
Beefing up India's tea industry
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