Nearshore Americas

India Investors Sess LATAM as a ‘Land of Plenty’

Source: WallStreetJournal

Trade between China and Latin America has been a symbol of strengthening ties between developing economies, but India, too, is now looking to increase its footprint in the region.

More and more Indian companies are looking to do business in Latin America as they seek exposure to growing markets. The ties are also manifesting themselves on a policy level with trade agreements between India and South American countries picking up.

Like those of its Asian neighbor, Indian companies are seeing Latin America as a more secure investment destination, thanks to broadly stable government and economic policies. These markets are also increasingly becoming a potential lifeline as India deals with food shortages and droughts.

“In India, consumption is growing while the land is diminishing but here in Latin America we don’t have any such land-shortage problems,” said Rengaraj Viswanathan, India’s ambassador to Argentina, Uruguay and Paraguay, who has been pushing for Indian companies to set up shop in the region.

Indian companies have invested around $9 billion in Latin America during the last several years, according to Viswanathan, and “that number is just going to keep on growing.”

As markets stabilized in the last few months of 2009, a series of Indian companies affirmed their plans to increase their exposure to Latin America. Tata Consultancy Services Ltd. (532540.BY), which already has sizable operations throughout the region, said in September that it was eyeing several acquisition targets. And just recently at the World Economic Forum in Davos, Switzerland, Tech Mahindra Ltd. (532755.BY) Chief Executive Sanjay Kalra said his firm is “very interested” in mergers and acquisitions in Latin America.

Information-technology companies see plenty of opportunity in the region using service centers to tap local customers and also to serve clients in a slowly rebounding U.S. economy.

Interest, however, has been picking up more aggressively on the commodities front, said Ravi Bhagavan, partner at Galileo Global Advisors, a New York consultancy that has helped Indian companies to expand operations abroad.

The emphasis has been becoming a serious player in Brazil, but “our feeling is that Indian companies should be looking well beyond Brazil and look at places like Colombia and Chile,” which many companies have tended to overlook, Bhagavan said.

Indeed, the largest-ever investment by an Indian company in Latin America came in 2007 when Jindal Steel & Power Ltd. (532286.BY) spent $2.1 billion to develop an iron-ore mine in Bolivia.

The next step in this trend is the agribusiness side, market watchers say.

Shree Renuka Sugars Ltd. (532670.BY) late last year became the first agribusiness to enter South America with its takeover of Brazilian Vale Do Ivai SA Acucar E Alcool. The company is eyeing more acquisitions in Brazil, the world’s top sugar producer.

India’s recent transformation from an exporter into an importer of sugar, thanks to rapidly rising domestic consumption, has caused many companies to look outside the country in order to maintain supplies. Ethanol, too, is growing in importance as some Indian states have set mandatory guidelines on ethanol in the fuel supply.

It’s a similar case for edible oils, where demand is outstripping domestic production.

Ambassador Viswanathan said he has been approached by a number of Indian companies interested in land in Uruguay and Argentina to start growing key crops.

Encouraging growth prospects are luring many of these South Asian corporations into Latin America. Pharmaceutical companies such as Dr. Reddy’s Laboratories Ltd. (RDY, 500124.BY) and Ranbaxy Laboratories Ltd. (500359.BY) both see rapid growth for their generic-drug portfolios in the region.

Though the region makes up a tiny portion of its total sales, Dr. Reddy’s projects 50% year-over-year sales growth on its operations in Venezuela, according to a spokesman.

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“There’s no way any company could wish away these markets…for generic companies, especially, you can’t throw away that kind of growth,” said Venkatachalam Krishnan, regional director for the Americas at Ranbaxy.

He said he expects annual growth of 15% across Mexico, Venezuela and Brazil, adding that sales could reach $125 million to $150 million in the next three years, up from $90 million currently.

Facilitating this move by Indian companies is a bigger push toward developing trade agreements. Chilean and Indian authorities took a big step toward a free-trade agreement when they agreed last month to a preferential trade agreement, making Chile India’s first trade partner in Latin America.

Colombia also has signed a treaty for protection of investment with India to support development of a series of economic sectors.

Kirk Laughlin

Kirk Laughlin is an award-winning editor and subject expert in information technology and offshore BPO/ contact center strategies.

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