Executive Summary
The continued globalization of the American economy has evoked widely disparate viewpoints within the United States – from a threat to the American way of life to globalization as a panacea for anything and everything. Clearly, neither view presents an accurate account of reality.This study investigates one specific aspect of globalization of the American economy, namely, the United States-India business relationship. It provides, for the first time, a comprehensive analysis of America’s economic engagement with India for the period 2004 to 2009. The analysis covers India’s foreign direct investments into the United States and U.S. exports to India, as well as an assessment of their impacts on the American economy. Also included in the study are the economic impacts Indian Americans are having in the United
States.
It presents a case for even stronger business ties between the United States and India. Such a relationship will benefit the United States (and India) especially with regard to jobs, the #1 policy issue in Washington and the #1 livelihood issue on Main Street America
today.
The study is based on a variety of published information, information from world-class sources such as the Financial Times, Thompson SDC Database, the U.S. Department of Commerce, and Reserve Bank of India, among others. We also conducted our own research and interviews with several Indian companies in the United States to further explore areas of the study. A summary of the study’s key findings is presented
below.
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During 2004-2009, 90 Indian companies made 127 greenfield investments worth $5.5 billion, and created 16,576 jobs in the United States. The top three destination states for greenfield investments were Minnesota, Virginia, and Texas, in that order. However, the top three states in terms of jobs created were Ohio, Texas, and California |
India Inc. Goes Abroad
Indian companies have been investing abroad for decades, though the pace of foreign investments has accelerated significantly since 1991, and especially in the 2000s. This development is a result of several factors, including Indian companies’ ability to arbitrage their cost advantages, access to a large talent pool, success at home – in a huge domestic market with cut-throat competition, reasonably well-developed institutions (compared to many other emerging markets), business acumen arising from an entrepreneurial tradition, business sophistication, financial market sophistication, production efficiency, a long exposure to Western and Japanese multinationals and their management practices, and Government of India’s progressive relaxation of foreign investment
rules.
While in the 1960s/1970s/1980s, Indian multinationals were investing in other developing countries, the trend in the last decade has been to go “up market” and they now also invest in highly developed economies like the United States. This portends a reversal of roles whereby developing countries like India are now making investments in developed countries, not just the other way
around.
India’s Greenfield Investments in the United
States
1. During 2004-2009, 90 Indian companies made 127 greenfield investments worth $5.5 billion, and created 16,576 jobs in the United States. The top three destination states for greenfield investments were Minnesota, Virginia, and Texas, in that order. However, the top three states in terms of jobs created were Ohio, Texas, and
California.
2. The five U.S. industrial sectors that received the most greenfield investment were Metals; Software & IT Services; Leisure & Entertainment; industrial machinery, equipment & tools; and financial services, accounting for almost 80% of total greenfield investment in the United States. It is noteworthy that the software and IT services sector received less than 15% of total investment, and the bulk of investments went into mining, manufacturing, and other
industries.
3. Ten Indian companies made more than 70% of the total $5.5 billion dollars of greenfield investments in the United States:
- Essar Steel (Minnesota): $1,600 million
- JSW Steel (N/A): $1,000 million
- Tata Consultancy Services (California, Michigan, New York, Ohio): $273.4 million
- Welspun Group (Arkansas; Texas): $246 million
- Reliance Adlabs (Illinois): $161 million
- Indage Group (Virginia): $160.5 million
- HCL Group (New Jersey): $148.7 million
- Flag Telecom, Reliance (N/A): $124.1 million
- Tata Communications (Virginia): $102.7 million
- PSL (Mississippi): $100 million
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During 2004-2009, 239 Indian companies made 372 acquisitions in the United States. We were able to obtain the deal value for only 267 of these transactions. The total value of the 267 acquisitions was $21 billion, or $78.7 million per acquisition |
India’s Mergers and Acquisitions in the United
States
1. During 2004-2009, 239 Indian companies made 372 acquisitions in the United States. We were able to obtain the deal value for only 267 of these transactions. The total value of the 267 acquisitions was $21 billion, or $78.7 million per
acquisition.
2. Of these 267 acquisitions, we were able to obtain the numbers of jobs created/saved for only 85 transactions, which came to over 40,000 jobs. (The total number of jobs created or saved by all 372 transactions must be much
higher).
3. Five states that attracted the most M&A investments from Indian companies accounted for 75% of total deal value: Georgia, New Jersey, Michigan, California, and
Texas.
4. The five leading U.S. sectors receiving M&A investments from India were: Manufacturing ; IT & IT Enabled Services; Biotech, Chemicals & Pharmaceuticals; Automotive; and Telecom – for a total of 83% of total deal value. The bulk of M&A investments by India Inc. in the United States were in manufacturing and other industrial sectors, rather than in services for which India is well
known.
The value of U.S. acquisitions by Indian companies fell in 2008 and then again in 2009 even more steeply, a result of the worldwide recession. It is however interesting to note that greenfield investments rose through 2008, achieving their highest level that year, and then registered a decline in 2009, though the decline was not as steep as for acquisitions. This is possibly because making a greenfield investment is a longer-term decision, while acquisitions are often opportunistic and accomplished relatively more quickly.
-To be continued
—This article has been taken from a paper presented by Dr Vinod K. Jain and Kamlesh Jain of India-US World Affairs Institute. This study was prepared in association with: Robert H. Smith School of Business, University of Maryland Federation of Indian Chambers of Commerce & Industry
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