Acquisitions in India: the case of Michelin

India has positioned itself as a powerful tool for global ecomic growth, currently it is believed to be performing below its potential but there are triggers in the environment which indicate the prospective growth of the nation in the future these triggers include: (Singh, 2010)

• Competitive business environment.

• Privatization agenda.

• Potential and strong services sector.

• Cheaper labor hand.

• increasing Foreign Direct Investment.

The two last items named before (cheaper labor hand and Direct investment) are those that I am going to talk about, because the cheaper labor hand has attracted many FDI to India in the recent years, consequently that FDI has influenced positively in the economy of this country.


To understand better the impact in the economy of this phenomenon, firstable I want to define what exactly FDI is; According to the economy watch, Foreign Direct Investment (FDI) is that investment, which is made to serve the business interests of the investor in a company, which is in a different nation distinct from the investor's country of origin. A parent business enterprise and its foreign affiliate are the two sides of the FDI relationship. Together they comprise an MNC. The parent enterprise through its foreign direct investment effort seeks to exercise substantial control over the foreign affiliate company.




It means that many companies from all over the world, specially from United States are interested in investing in enterprises located in India due to its rapid and constant economic growth. In the case of Michelin, it entered to India by acquiring (that is a type of FDI) a Tyre´s local company, now they are planning to invest more money in this country acquiring more plants, because in the last year they have received great profits from this investment. It is very profitable for both countries, in this case for France and India, because Michellin created jobs in India and that makes the economy of that country to improve. In addition, the initial investment at the moment to acquire the plants or other enterprises, the money from that sell enters to the recepient country balance of payment. On the other hand, it is very profitable for France, because Michellin now is selling more and the margins are higher.


The role of Government is very important, because it is permissive with the entry of FDI to India in the tyre sector, it does not impose any restriction, but at the same time it gives subidies to the local producers of tyres, in order to avoid the big Multinational Corporations "swallow" the small ones.


There is an importan aspect that I want to mention: culture. Because acquisitions selection decisions are generally driven by financial and strategic considerations, yet many organisational alliances fail to meet expectations because of difficulties in the acculturation process which would compromise the knowledge transfer and learning. (Salama, Holland, Viten, 2003)


In this case we encounter two different countries: France and India, it means two different cultures, and the relation between workers and managers from both countries must be good, in order to achieve the goals and to be able to transfer technology and knowledge, do not forget that value creation is one of the most important objectives in successul acquisitions too, not just to maximize profits.

References:

"DAWN.COM Economic & Business Foreign investment plans for tyre manufacturing." DAWN.COM Home Latest News, Pakistan, World, Business, Cricket and Multimedia. N.p., n.d. Web. 24 Oct. 2010. http://72.249.57.55/wps/wcm/connect/dawn-content-library/dawn/in-paper-magazine/economic-and-business/foreign-investment-plans-for-tyre-manufacturing.

Foreign Direct Investment (FDI) Definition Economy Watch." World, US, China, India Economy, Investment, Finance, Credit Cards Economy Watch. N.p., n.d. Web. 24 Oct. 2010. http://www.economywatch.com/foreign-direct-investment/definition.html.

"Michelin to invest Rs 7,000 cr in India - The Economic Times." The Economic Times: Business News, Personal Finance, Financial News, India Stock Market Investing, Economy News, SENSEX, NIFTY, NSE, BSE Live, IPO News. N.p., n.d. Web. 24 Oct. 2010.

Salama, Alzira. Holland, Wayne. Vinten, Gerald. (2003). Challenges and opportunities in mergers and acquisitions: three international case studies- Deutch Bank - Bankers trust; British Petroleum- Amoco; Ford-Volvo. Journal of European Industrial Training. pag. 313

Singh, Kavita (2010). An Analysis of Relationship between the learning organization and the organization culture in Indian Business Oganizations. Organizations and Markets in emerging economies, Vol.1, No. 1(1). pag.144


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