Since Goldman Sachs invented the concept of "BRICs", the rapid development of the four new emerging economies, Brazil, Russia, India and China, drew attention of the world all of a sudden. Among the four countries, China and India received special attention for reasons of geo-politics, economic development pattern and national conditions. Furthermore, the article titled "Will India Outpace China" published by Professor Yasheng Huang from MIT in 2003 started a more profound discussion about the "dragon and elephant".

In recent years, the economies of both China and India have kept growing at fast rates: since 1990s, China's GDP has kept growing at an annual average rate of more than 10%, and in India this figure is approximately 6%. With rapid development of the two economies and relying on their innately endowed advantages in resources and population, many industries of the two countries have registered rapid growth, which results in ever increasing demands of the two countries for mineral resources such as energy. Ever increasing foreign exchange reserves, continuous revaluation of their own currencies, internationally long-term low interest rates and the appeal of the industries to participate in competition in a wider international spectrum have combined to highlight the role of China and India in the global M&A market. In particular, enterprises from the two countries have been advancing triumphantly in the cross-border acquisition market with the M&A amount hitting new highs constantly in recent years. For instance, the amount of cross-border mergers and acquisitions initiated by the Chinese enterprises reached more than US$20B in 2007. According to the Federation of Indian Chamber of Commerce and Industry, the Indian enterprises have acquired more than 300 foreign enterprises during the past eight years and the amount of cross-border mergers and acquisitions initiated by the Indian enterprises reached more than US$40B in 2006 and 2007 only. Behind the enormous figures, we can see some similarities and differences between the two countries in the cross-border M&A market.

Aiming at Enterprises of the Developed Countries

First, the two countries are in the process of transformation of economic growth mode and industry upgrade. On the one hand, the two countries need to acquire more advanced technologies to climb to the high end of the industry chain; on the other hand, they need to expand their market shares rather than confine themselves to the domestic market. What is more important is certain industries of China and India have acquired the capability to challenge the enterprises in Europe and USA through development over the years. Enterprises of the two countries make themselves stronger through more frequent cross-border M&As, enhance their own voice in the industries and reduce their dependence on the Europe and USA in technologies, resources, brands and marketing systems. Moreover, the large foreign exchange surpluses accumulated by the two countries over the years require appropriate investment channels. All of these factors cause the enterprises of the two countries to aim at the European and American enterprises with certain technologies, resources and advanced marketing systems for M&A, for instance, Lenovo acquired the PC department of IBM and Tata Group acquired Rover and Jaguar under Ford. Acquisition of the European and American enterprises, on one hand is a shortcut for rapid development of the enterprises of China and India; on the other hand, is an inevitable choice for many industries of the two countries to transform themselves and participate in a wider international competition.

Differences in the Industries and Scale of M&A

However, the dominance of manufacturing in the current industrial structure of China and the relatively weakness of service industry plus a crude economic development mode have led to an increasing demand for resource materials like minerals. As a consequence, M&As initiated by Chinese enterprises have been focused on such fields as manufacture and mineral resources, as is true of large M&As. Recently, taking chance of the sub-prime loan crisis, Chinese financial enterprises initiate frequent international M&As. However, there were hardly any highlights in such M&As in fields like biopharmaceuticals (it's not until the beginning of this year when WuXi PharmaTech acquired AppTec Laboratory Services, Inc. that the zero record was broken in the international acquisitions of the biopharmaceutical field). In contrast, M&As initiated by Indian enterprises are more diversified. They not only have initiated frequent acquisitions in both information service and biopharmaceutical fields relying on their advantages in the tertiary industry; but also have acquired European and American companies in such fields as iron and steel, automobile, and consumer goods. For example, in recent years several famous IT service companies of India, including Infosys, Wipro and Satyam, have acquired small/medium-size IT service companies in Europe and Latin America constantly; and UB acquired Whyte & Mackay, a whisky manufacturer in Scotland for US$1.20B. The frequent acquisitions of Indian enterprises in many industries are possible with the cluster effect in such fields as IT and biopharmaceuticals. In contrast, Chinese enterprises often fight alone in many fields of cross-border M&As rather than fight together, thus failing to give play to the cluster effect.

As far as the scale of M&A is concerned, the Indian enterprises move far ahead of its Chinese counterparts. So far, the amount of the largest cross-border M&A initiated by the Chinese enterprises is US$5.46B. In contrast, take Tata Group, a leading large Indian enterprises, for example, it has spent US$18.7B on M&A since 2006, including US$18.5B on cross-border M&A; for instance, Tata Group acquired Corus, a Britain-Dutch steel maker, for US$12.1B. Moreover, India¡¯s Mittal Group acquired Ancelor, the largest iron and steel plant in Europe, for approximately US$35B in 2006. Such large scale M&As enabled successful integration. To a certain extent, the Indian entrepreneurs are more skillful in large cross-border M&As and more familiar with the international rules. They not only make careful arrangement for the framework of M&A, but also carry out proper publicity activities in the target enterprises and respective countries, which lay a solid foundation for successful large cross-border M&As. This is possible not only due to the close cultural contact between the Indian and the Europe and USA, but also the presence of a group of Indian entrepreneurs with global vision.

Different Background of the Enterprises

Due to different national conditions and industry policies of China and India, most of the Chinese enterprises engaged in large cross-border M&As are large SOEs. Although the POEs in China have been increasingly active in the stage of cross-border M&A in recent years, the number of large cross-border M&As initiated by them is small and they can not play a leading role in such M&As in terms of scale and influence. In the meanwhile, we can see that the background of the Chinese SOEs is a barrier to the successful large cross-border M&As initiated by the Chinese enterprises to a certain extent. In contrast, Indian enterprises active in the international acquisition market are mostly POEs, which makes it easy for them to enter the western market economy countries naturally. In addition, a high level of internationalization plus experience of cross-border M&A accumulated over the years have combined to make many Indian POEs such as Tata Group and Ancelor-Mittal Group leaders on the stage of cross-border M&A. What is worth mentioning is that powerful support of the Indian government for POEs and relatively loose industry policies have created critical environment for the rapid development of private owned economy.

From the perspective of sustainable and sound development of the economy of a country, possession of a large number of POEs with global competitiveness is an important indicator of the firmness of the economic mechanism of a country. We not only need a large group of SOEs that move in the forefront of cross-border M&A, but also need to use greater efforts to support and cultivate a large group of POEs of strong competition capabilities. It can be said that the "wolves effect" created by POEs will play an important role in future industry development and cross-border investment.

Differences in the M&A Strategy

A study of the M&A arrangement of Mittal and Tata, etc. shows that these Indian enterprises have a clear understanding of their position in the entire industry chain and have developed a complete set of M&A strategies based on such understanding. M&A has become part of the long-term development plan of the enterprise(s) and there are special departments within the enterprise(s) in charge of M&A-related business that are looking for target enterprises.

Through a comprehensive review of the M&A path of large Indian enterprises such as Tata Group and Mittal Group, we can see that each acquisition is a link of their global arrangement and they have grown into world-class enterprises through M&As one by one over the years, therefore gaining control of the commanding elevation of the entire industry. What goes through the entire M&A process is the initiative to respond to and participate in international competition actively. Moreover, when developing the M&A strategies, the Indian enterprises not only take into consideration the present competition status of the industries, but also make active efforts to gain control of the upstream and downstream of the global industry chain from a long-term perspective. For instance, Mittal Group not only acquired many iron and steel plants around the world, but also acquired plenty of resources such as iron ores so that half of its iron ore resources can be self-supplied. Seizing of these opportunities naturally enhances the say of the enterprises and their ability to resist external risks. In contrast, large Chinese enterprises, especially those restricted by raw materials, are inferior to their Indian counterparts in seizing the opportunities actively by means of M&A. With increasingly intensified global competition, it is impossible for an enterprise to separate itself from others and failure to participate in global competition actively will only reduce the living space of the enterprise itself.

In the meantime, we can see that while acquiring numerous European and American enterprises, the Indian enterprises do not focus themselves on the amount and scale of M&A, but on the real value of the target enterprises. Except a few M&As valued more than US$1.00B, the amount of other M&As is maintained at about US$200.00M. In contrast, the Chinese enterprises and entrepreneurs need to improve themselves in strategic arrangement and risk control of M&As.
Reserve of Human Resources

Any enterprise engaged in cross-border M&A is inevitably faced with economic, cultural, legal challenges of the country in which the target enterprise is located. To meet these challenges, a group of talents familiar with the language, culture and laws of the country of the target enterprise(s) are required so as to effectively control and manage the enterprise(s) acquired. Presently, the Chinese enterprises lack their own talent team during and after the M&As and the ability to manage the acquired enterprise(s), which leads to friction and even conflicts with the target enterprise(s) in overseas M&As and investment. The Indian enterprises entered the global M&A stage many years ago and have accumulated abundant experience in the cultivation of globalized talents and how to control the senior management of the acquired enterprise and make best use of them, which gap is difficult to fill in within a short period of time.

In comparison with the Indian enterprises, the Chinese enterprises remain in the stage of exploration and study in cross-border M&A and investment. However, we are pleased to see that the Chinese enterprises and entrepreneurs that have gone through radical domestic competition over the years demonstrate strong learning and adaptation capabilities when faced with global competition among the countries and industries under new situations. On the one hand, they have got lessons from the failure of previous cross-border M&A and investment; on the other hand, they are learning to make use of favorable resources such as laws and intermediary agencies and becoming more skillful in dealing with the interest relationship with the target enterprise(s), local supervisory authorities and related investment institutions. For instance, early this year, Aluminum Corporation of China acquired 9% shares of RioTinto within a short period of time through cooperation with Aluminum America. In July, Sinosteel beat down Murchison Metals Ltd., won support of the Australian regulation authority, prevented interference of Harbinger Capital Partners to the M&A and acquired the share controlling right of Midwest Corp. These successful cases that were completed within a short period of time indicate that the Chinese enterprises and entrepreneurs are growing up rapidly through actual M&A operations. Since the inception of opening-up and reform 30 years ago, a large group of excellent domestic enterprises and entrepreneurs have emerged in China. We hope that a large group of Chinese enterprises and entrepreneurs will emerge in the global M&A and investment stage with excellent performance.

In the future, with ever increasing economic strength of China and India, the voice of the two countries over international political and economic affairs will be expanded. We have seen that the two countries are learning from and drawing on each other in competition and cooperation in recent years. As geographically adjacent neighbors, the two economies are supplementary to each other, which makes the steady, sustainable and sound development of the two countries the focus of the whole world. Presently, the Chinese enterprises and entrepreneurs can draw on a lot from their Indian counterparts in global M&A and investment. In the future, both the "dragon" and the "elephant" can give full play to their remarkable capabilities on the large global M&A stage.