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Like Lenovo, Bramco Group, the Bahrain-based stone mining
giant, faced cultural differences when it acquired assets from German company Hansgrohe,
known for its Grohe faucets, says Kanika Dewan, W’98, president of
the Bramco’s Natural Stone Depot,
a Metuchen-N.J.-based decorative
stone division. Bramco did the deal
because it wanted Grohe’s existing
design expertise, which is crucial in
the increasingly competitive high-end
architectural and building sector. The
developed world has lots of companies
with valuable brands that make
good acquisitions for emerging market
companies that want to expand
beyond their own borders, she says.
Dewan, who was born in India,
raised in Bahrain, and educated in
London and the U.S., says the cultural
complexities of the deal surfaced
immediately. “The developing
world works in a less structured environment.
While that brings flexibility
to systems across all levels, the
approach in Germany is very different,
because employees are used
to a less free-wheeling workplace.
Employees and clients in Germany
can’t work in that environment,” she
says. The new division, known as
Bramco Grohe, has used rotational
training to bridge cultural differences,
with German employees training
in Bahrain and vice versa.
Bramco’s acquisition strategy
also reflects the developing world’s need for resources and raw materials.
Dewan says the company noticed
that recent samples of Uba Tuba, a
popular green granite from Brazil,
were lined with cracks. So Bramco acquired
a mine in India that produced
a similar stone of higher quality.
AN EVOLVING FINANCIAL INFRASTRUCTURE
Despite its breakneck growth, the
developing world still accounts for
just a tiny fraction of the world’s
overall M&A market. And while that
percentage is bound to grow, it will
be many years before the outbound
deal volume from Latin America or
China or India begins to rival that
of the developed world, experts say.
“There’s no question that China and
Russia need to do more to regulate
corporate activities,” says Goldman
of Ernst & Young.
A multi-polar M&A market
also requires deeper capital markets
to support it. As the recent
crisis in the U.S. and British capital
markets shows, it can be risky
to rely on the developed world to
finance deals. More markets need
to follow the lead of Hong Kong and Shanghai, and develop their own stock exchanges and
credit markets.
There’s some evidence that such a financial infrastructure
is evolving. In Mexico, for instance, companies such as
Telmex can now issue 30-year debt denominated in pesos.
“That was unheard of 10 years ago,” says de Quesada.
Political opposition is another reality that impedes foreign
investment in developed markets. In 2006, for example, The
Committee on Foreign Investment, an interagency group in
the U.S., opposed plans by Dubai Ports to buy P&O, a British
company that managed ports in the U.S. Dubai Ports was
eventually pressed by Congress to sell the British company’s U.S. operations to U.S.-based AIG.
“There is a certain protectionist reaction in the United
States, and this isn’t new,” says Stephen J. Kobrin, William H. Wurster Professor of Multinational Management. “There
always has been a lot of xenophobia about foreign companies
buying American firms,” he said, adding that anti-Chinese
and anti-Middle Eastern sentiment in M&A deals involving
U.S. targets may not be entirely irrational and can effect
whether such deals can close.
But outside of deals that tread into defense, telecommunications,
or other industries that can be closely linked to national
security, most deals are allowed to proceed without much fuss.
In fact, some M&A buyers from the developed world say it’s
actually easier to invest in the U.S. than it is to invest in emerging
markets. “Overall, there’s less regulation in the U.S. than
there is in many developing markets, which have stricter controls
over importing and exporting goods and foreign ownership
of companies,” says Dewan of Natural Stone Depot.
A few years ago, emerging markets accounted for just a
handful of companies in the Fortune Global 500. Now 10%
of the world’s biggest corporations come from developing
markets, if South Korea and Mexico are included in the tally,
according to Dailey of Accenture. This number would
be even higher if it included Western companies that have
roots in the developing world. Mittal Steel, which is based in
London but has its roots in India, acquired rival Arcelor of
Luxembourg in 2006. The $22.7 billion deal was launched
by Aditya Mittal, WG’96, son of Mittal founder Lakshmi
Mittal, who is now president of the combined companies.
The rise of emerging market M&A captures the state
of the global economy at a crucial point. Western economies
face slowing growth, if not outright recession, thanks to
their bursting credit bubbles. Their assets are cheap, especially
in the U.S. where a weak dollar has put the economy on
sale. The West needs capital, especially in its troubled financial
sector. Cash-rich investors from Asia and other emerging
markets are happy to oblige them, making investments in
banks and private equity firms and acquiring a range of corporate
assets. This has brought a new relationship between
the developed and the developing world, one of slowly but
steadily closing gaps in wealth, power, and influence. It’s a dynamic
that is here to stay.
Steve Rosenbush is a freelance writer based in New York. He has
covered finance and technology for BusinessWeek, USA Today, and other publications.
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