In July 2005, pharma giant Ranbaxy Laboratories [Get Quote] entered into a licensing agreement that allows it to market herbal cough and cold remedies under the Doktor Mom brand in Romania.

Six months later, Glenmark Pharmaceuticals [Get Quote] acquired South African sales and marketing company Bouwer Bartlett. Tata Motors [Get Quote] has two bus body building plants in Africa - in South Africa and Senegal.

Recently, Godrej Consumer Products [Get Quote] acquired the South African hair colour business of the British Rapidol Inecto, as well as Rapidol International, which markets the Inecto brand in other African nations. And in May 2006, Bangalore-based pharma company Strides Arcolab [Get Quote] acquired a manufacturing unit in Poland.

This is not a laundry list of Indian companies' acquisitions abroad - although it probably reads like one. Rather, it's about the locations to which they are heading - Romania, Poland and Africa. Less than a decade ago, Indian companies were headed either to western Europe and the US or to south east Asia.

It was almost as if the rest of the world didn't exist. And the numbers for that part of the world are noteworthy. The Tata Group's business in the US is worth $1.5 billion and it has 18 companies in the UK.

Ranbaxy's sales in France alone crossed $74 million (about Rs 342 crore) last year. Some months earlier, the Rs 657-crore (Rs 6.57 billion) Godrej Consumer Products acquired Britain's Keyline Brands in a Rs 130-crore (Rs 1.3 billion) deal. And Tata Steel [Get Quote] bought Singapore steel major NatSteel in 2005 for $305 million.

So why are Africa and East Europe showing up on India Inc's radar now?

Discovering new channels

Like it or not, what most Indians know about Africa is trivia gleaned through Animal Planet and Discovery Channel. But Indian companies are looking beyond the game parks and cricket - they are interested in Africa's vast mineral and natural wealth, including iron ore, natural gas and crude petroleum.

A report from the World Economic Forum on Africa 2006, underlines this fact: "Africa has the raw materials and commodities that China and India need to fuel their surging growth."

ONGC [Get Quote] Videsh is a good example. Last year, OVL bagged a deal in Nigeria to produce an average 650,000 barrels a day of oil and an equivalent capacity of gas over the next 25 years, from deepwater exploration blocks to be allocated by the Nigerian government.

But it's not just the resources. Africa is a huge market, with rising aspirations, increasing incomes and low penetration of services. That rings a bell among many Indian companies - it's just like home.

As the middle and low-end in these markets are also price sensitive (like India), Indian companies feed this demand. Mahindra & Mahindra launched the Scorpio in 2003 in South Africa, offering it for South African Rand 185,000. M&M executives claim this is about 15-20 per cent lower than the price tags of international-brand SUVs sold in South Africa.

Consultants point to another advantage in auto majors heading out to Africa. "Africa is a good testing ground for automobile appreciation in India," says Vikram Uttamsingh, executive director, KPMG.

M&M has launched pick-up variants of both the Scorpio and Bolero in Africa, both of which are not yet available in India. Then, the biggest competition in Africa is from used cars, which are cheaper and mostly sourced from Europe.

In India, too, car manufacturers are getting more active in the pre-owned cars business, so the learnings from the African experience will probably come in handy. "Africa is going to be the next big thing," declares Pravin Shah, executive vice-president, overseas operations, automotive, M&M.

Another similarity between India and the African nations is the availability of cheap, skilled labour, which makes it worth the while for many companies to set up manufacturing operations in the continent - the saving on shipping and inventory costs makes the equation even more attractive. Exporting to Africa is the old business model.

"Our current strategy is to be present in operations in countries with a cost advantage," says Alan Rosling, executive director, Tata Sons. Currently, Tata Coffee [Get Quote] has a processing plant in Uganda and group companies have contracts in South Africa to build telecom units, three hotels and a steel plant.

The business of charity

UNAIDS estimates that about $8.9 billion will be spent this year on combating AIDS and HIV across the world. Of the 40 million people globally infected with HIV, the United Nations estimates that 26 million (65 per cent) are in Africa. That is a huge market for anti retroviral drugs.

UNICEF, WHO, the Red Cross and UNAIDS are working across Africa, as are wealthy, non-governmental organisations and individuals (including Bill and Melinda Gates, and Angelina Jolie).

"These organisations pay well and provide a massive market potential. Indian companies are trying to access this market by acquiring those companies that have trade-relations with these charities," says KPMG's Utamsingh.

Then, Indian drugs are relatively more affordable. Which explains the presence in Africa of Indian pharma majors such as Dr Reddy's, Ranbaxy and Wockhardt. Ranbaxy, which has been selling in Africa since the 1970s, claimed $68 million sales in the continent last year, $24 million from South Africa alone.

That's about 6 per cent of Ranbaxy's global $ 1 billion sales last year. "These new trends in the global pharma industry present a huge opportunity. They could well change the pecking order while determining those who will dominate the generics business in the next decade," says Malvinder Mohan Singh, CEO and MD, Ranbaxy.

The other Europe

If Africa is an opportunity waiting to be seized, so is Eastern Europe. But for different reasons. Eastern Europe can be a backdoor entry for Indian companies into the European Union.

"The biggest advantage in Eastern Europe is a relatively easier access to the EU, which is otherwise tough for countries like India to enter," says KPMG's Uttamsingh, adding, "most East European countries are existing EU members, will soon become EU members, or have trade relations with the EU."

Another advantage: Indian companies can use Eastern Europe as a learning curve before they access the more expensive and competitive markets of Western Europe.

"Eastern Europe is a good middle ground to target the developing markets of the erstwhile-USSR and southern European states like Yugoslavia, Croatia, Greece, Turkey, Serbia and Herzegovina," adds Randhir Kochhar, partner, transaction advisory services, Ernst & Young.

It's also important that Eastern Europe is growing almost twice as fast as the developed economies of Western Europe. "The risk-reward equation would be more favourable here," adds Kochhar.

Red carpet welcome

East Europe has all the makings of a really good party: enough nibbles and drink, good conversation and, importantly, a genial host. State support to foreign investment is a critical factor deciding Indian acquisitions abroad.

And Eastern Europe's developing economies aren't just rolling out the red carpet, some of them are actually helping Indian companies set up shop.

For instance, government officials in Romania shared a database of prospective candidates with Wipro [Get Quote] BPO, and even helped with the initial screening of employees when the Bangalore-based company set up operations in that country in March 2006.

Indian BPO companies are finding other pluses to being present in Eastern Europe. "Customers get apprehensive if the service provider is present in only one country. What if something happens there, what will they do," contends Manish Dugar, vice president, finance, Wipro BPO.

Also, the multilingual advantage of European countries (English + French, Spanish and German) helps BPOs meet some basic needs of customers. For instance, the Rs 379-crore (Rs 3.79 billion) Progeon, Infosys' [Get Quote] BPO wing, set up shop in Brno, a university hub and one of the most important cities after Prague in the Czech Republic, in 2004.

University students translate into skilled cheap labour, which is available in plenty. Also, the average employee speaks at least two languages, apart from English.

In some cases, the overseas operation helps the Indian company seize an opportunity that wouldn't otherwise exist. In August 2005, Sun Pharmaceuticals acquired ICN Hungary as part of a twin acquisition, the parent company being the US-based Valeant Pharmaceuticals.

Sun shelled out close to Rs 40 crore (Rs 400 million) for the deal, but the Hungarian manufacturing plant Alkaloida accounts for just 4-5 per cent of Sun's Rs 1,800-crore (Rs 18 billion) revenue. But Sun Pharma [Get Quote] still sees advantages in the deal.

"Initially we will lose money in this venture. But we're trying to combat that by getting approval for higher quantities. We can increase the capacity of the plant and simultaneously lower the cost," says a company executive.

There are other, perhaps more important, advantages. In Hungary, Sun Pharma easily procured the licence to manufacture a restricted product like morphine, which it could't get elsewhere.

The company will now transport the active pharmaceutical ingredients to its drug-manufacturing plants in the US and India where the APIs will be mixed with other components to make morphine-based formulations.

Seller, beware

As usual, it's a package deal. Despite their multiple strategic offerings, both Eastern Europe and Africa have histories of political turbulence, which spells economic risk. Even if that stabilises, there's another issue: tackling country of origin perceptions.

For instance, Tata and Mahindra & Mahindra are household names in India. But how many Africans and East Europeans can even pronounce them properly? And it's not just auto companies - even service providers like BPO companies have to battle their share of troubles.

"At home, the brand tag helps. But it's not the same story there. Plus, we've to battle international biggies," says Vijay Menon, vice president, marketing, Progeon.

M&M is now trying to build brand-recognition in Africa through the social service route. It's supplying books on Indo-African bonding to Afro-American schools.