8  Companies

EXCLUSIVE Q&A

DOMINIC BARTON
CEO, MCKINSEY

THE ECONOMIC TIMES | NEW DELHI | WEDNESDAY | 26 NOVEMBER 2014

People had given up on India, saying it was too complicated. It had dropped from peoples priority list. But it has
gone right back up, (now) people are interested. The feeling is they will see action because this govt seems serious

India at the Centre of Global Trends

You meet CEOs across the world. Do you
see the perception about India as an
investment destination changing after PM
Narendra Modi took charge in New Delhi?
Yes, I definitely think so. I travel about 300
nights in a year and I see two CEOs every day.
There is optimism on India. People had given
up on India, saying it was too complicated,
could not get anything done. It had dropped
from peoples priority (list) in last five years. I
think it has gone right back up; (now) people
are interested. Obviously, people are going to
want to see action, but I think the feeling is
they will see action because this government
seems serious. I met the minister of finance
two nights ago. They (the government) know
what needs to be done and they do not need a
super-brain saying (what) we need to do. They
know, and I think they want to get it done. I
think the people around the world look at this
and we need it. It is also a bit of desperation
for the world 40% of the worlds growth just
last year came from China. We need more balance and India is the place that could do it. So,
if India unleashes (itself), it is going to help not
only India but the world. So, I think there is a
lot of optimism, people are putting India back
on the top of priority list to say, okay, let us
pay attention and see what happens. But that
it is not going to happen overnight. There are
things that have to change.
Do you get a sense from the American
business community, one of the largest

ON CEO QUALITIES

Being aware of what is going

on in industries outside your
own areas will be important.
Many leaders are spending
time trying to learn. The other
part is not being overconfident

investors in India, that it is time to bet on

India again?
Yes, I do. I mean, I was there actually when he
(Modi) spoke at Madison Square Gardens. I did
not go there but I was in Manhattan when he
did, saw the newspapers. I hear people say he
seems very determined, that is the kind of
sense that people get that this guy is determined. We know it is unbelievably complicated,
but he is going to get it done. I see it in pharmaceuticals, industrial companies and pension
funds. The pension funds are interested and
that is a big opportunity and so we are interested in getting more investment here, too,
because of infrastructure players, all those
things that can be done. So there is a lot of interest because people are searching for growth.
Are you still advising clients that India is
still the place to be vis--vis other BRIC
nations?
Yes, especially now. I was not two years ago
because it was complicated; it was very difficult and companies and clients were deeply
frustrated with the bureaucracy; no decisions
were getting made. Companies were like we
do not have time for that, let us go to Africa,
let us go to Nigeria, let us go to Indonesia, let
us just go to the US, but that has changed. I
think because if you look at the trends that
are going on in the world, India is right at the
centre; like ag-food is going to be one of the
biggest businesses in the world right here,
healthcare boom, education boom, advanced
analytics. McKinsey continues to bet big on
India. McKinsey has three-and-a-half thousand people in India; this is the biggest proportion of McKinsey people in the world.
What I am particularly excited about is what
we call MCKC, which was invented by our office here, which is a lot of advanced analytics.
So, a lot of global companies are getting some
absolutely critical capabilities, risk management, market assessments done here in Delhi,
Gurgaon and in Chennai. The talent pool here
is phenomenal and we are going to make this
more of a centre for advanced analytics.
McKinsey seems to be leveraging Indias
strengths to the core...
Yes, people ask me where the headquarters of
McKinsey is. First of all, there is no one headquarter because we are partnership, but if
you look at the concentration where our people are, again I would have to say it is India,
because that is where the core is and then
New York and then probably London and then
Frankfurt. So, I think that this is a talent pool
and leadership, even MLI. That is how we
want to leverage that in other parts of the
world. What these guys are doing in our

counts for a lot of performance. It is like you

are on the right trends. Then in the shortterm you need to be agile, because the world
does change quickly and you need to reallocate resources. So, I think that having a telescope, microscope versus a five-year view
is one dimension of change. The other one is I
do not think strategy is that hard or that is
where the premium is, that is not anywhere
near the bulk of our work. What is more important is how you implement your strategy
and the hardest thing there is reallocating resources to back your strategy.

ON INDIA

40% of the worlds

growth last year
came from China.
We need more
balance and India
is the place that
could do it. If India
unleashes (itself),
it is going to
help not only
India but the
world
NITIN SONAWANE

Despite running a hectic schedule that involves travelling 300 days a year, McKinsey
CEO Dominic Barton tries to meet two CEOs a
day in whichever country he happens to be in.
And these meetings give Barton a unique insight into whats going on in the boardrooms
of globocorps. So, when Barton says that
Prime Minister Narendra Modi is creating a
positive buzz about India among global CEOs,
it has to be taken seriously. In a chat with ETs
Vinod Mahanta, the chief executive of the
worlds top consulting firm talks about the
Modi effect, the sweet spot India is in and the
changing roles of strategists. Edited excerpts:

ON GLOBAL RECOVERY

MCKC, they have developed a capability, say,

for example, a pen, so, you can break down
the cost of this pen. Normally, that would take
two weeks, you got to figure out how they can
do it in 60 seconds and there are some coders
and some experts who have done procurement, who have developed this capability and
as a software. So, I am excited by that and that
is why I am going to be spending more time
here because of what I am learning, to take to
other places what is going on here.

If you look at growth drivers

for global economy, we feel
good. The only thing I worry
most about is geo-politics,
which you cannot forecast

There are a lot of mixed signals on global

recovery. How do you read the signals?
You are right, it is sort of that signal versus
noise. I am actually bullish and I will tell you
why. If I look at some of the big engines in the
world, the US continues to power ahead almost
in spite of the government. You have got just
underlying stronger and stronger economies; it
has got the demographics. Actually it is a high
growth market, and the fastest growing office
in McKinsey right now is in the United States.
The US continues to power ahead, you have
got energy cost, which is decreasing, which allows more manufacturing, and you have got a
very large market and immigration, you got a
young demographic. You have got Mexico,

which is booming and coming along; you have

got China, everyone whacks China, but they
are going to keep powering ahead, I am very
confident about that. They are only 53% urbanised, they have got the wherewithal to deal
with the challenges. So, you got the US, you got
China, you have Indonesia, which is picking up.
Russia is one that is going to have difficulty,
but Russia is not significant it does not
change global economies. China accounted for
40% of the worlds GDP growth this year. So
(in) Africa, I am very bullish on Nigeria, Ethiopia; these are places that are moving. Brazil
cannot get any worse, so I hope it will improve,
but I am more worried about the government
there, so if you look at the kind of drivers, we

feel good, and the worry I have, the only thing I

worry most about is geo-politics, which you
cannot forecast. So, (you have) Ukraine and
Russia, China and Japan, in general, relations
in Asia-Pacific are not that strong. So it is
more geo-political catastrophe type stuff that
you worry about, which you certainly cannot
ignore because they are happening. We are
bullish and we see it with our clients, they are
investing more, that is why we are busy.

How is the role of the strategist changing

in a VUCA world?
I would say a couple of things about it. One is I
think the idea that you have a five-year strategy is old, it does not work anymore. I think you
need to have a telescope in one eye and a microscope in the other, you have to have both a
long view and a short view and you have to
keep updating both and that is tough because
most businesses were built for a five-year
window of how you drive it. So, you need to
have a long-term view, because there are big
trends that are out there and you need to
make sure you are on them or you know how
they come together to affect businesses or
identify new opportunities, so you need to
have that and we have done that but that is,
let us say, quite important because that ac-

In a situation where businesses are being

disrupted routinely, how do CEOs scan the
environment for possible gamechangers?
Technology is one of the biggest trends and
most CEOs would say it moves five times faster than management. It is hard to keep up
because it is changing so quickly. We have
found that high growth companies it is a
very basic thing the people leading those
companies are very aware of what is going
on and very connected and open. They spend
a lot of time outside their business exploring
what people are doing. Les Wexner from Victorias Secret gets his management team every year to travel for about a week. He does
not care where they go, but he tells them
come back and tell me what you have learnt. I
will give you an example. If you are a heart
surgeon in the US today, you better be worried about driverless cars. People would ask
why. Well because most of the heart transplants come from car accidents and car accidents are going to drop dramatically with
driverless cars. So in a strange way, you even
know that has nothing to do with being a
heart surgeon, you have to think about that.
So I think just being aware of what is going on
in industries outside your own areas is going
to be very important and I think a lot of leaders are spending time trying to learn. I think
the other part is not being overconfident. It is
amazing how people, when they are in their
prime of what they are doing, think they are
god-like or something.
The one company where I do not find that is
Samsung. A year before they hit their peak
earnings from cellphones, you had the chairman saying it is over. Publicly he said we
are done, we are toast, and I am not believing this, I said this guy is crazy. What he was
trying to do is get the paranoia up in the
organisation. He says things like be prepared to change everything except your
spouse and your children next year. That is
leadership to not be overconfident, if you
know what I mean, like some companies are.

Startups Hoard Funds Fearing a Cash Drought

As cos build up war chest,
fund-raising cycles have
shrunk to just 3 months
Madhav Chanchani & Snigdha Sengupta

Mumbai: Several new-economy ventures

are amassing capital as a frenzy of fundraising gains hold in Indias booming startup sector where there is a lurking fear that
the flood of money from deep-pocketed investors may become a trickle soon.
These startups, many of which are battling competitors in the fast-growing consumer Internet space, are building up
cash reserves that have resulted in a
shortening of fund-raising cycles from
an average of 10 months even a year ago to
a mere three months now.
The frenzy is being led by consumer Internet startups. But other emerging sectors are also tapping in.
Multiple factors are driving the funding surge. The market is getting more
competitive, companies are scaling up
faster and there is a lot of capital available, Freecharge CEO Alok Goel said,
while declining comment on the specifics
of his own companys fund-raising.
Bangalore-based Freecharge, a mobile
recharge and couponing platform, is in
talks with investors to raise money.

Sources with direct knowledge of the development said the round could be anywhere between $50 million and $100 million (.`300 crore and `. 600 crore). The
company raised $33 million in September
from Sequoia Capital, Belgian investment
firm Sofina and Russian Internet and
technology investor ru-Net.
In Mumbai, Pepperfry, an online marketplace for furniture and home products, is
also in the market to raise a $50-million
round, said sources with direct knowledge of the development. It last raised $15
million in May from Norwest Venture
Partners and Bertelsmann India Investments. Pepperfry founder and CEO Ambareesh Murty did not respond to emailed
queries from ET.
Freecharge and Pepperfry are part of
the posse of venture capital-backed startups racing to tank up on capital reserves
while the going is good. Taking their cues
from the US Silicon Valley, the worlds
largest venture capital market, there are
growing concerns, both within the investor and entrepreneur communities, of an
imminent investment slowdown.
US venture capitalists invested $9.9 billion across 1,023 deals in the third quarter
of 2014, down 27% from $13.5 billion
across 1,129 deals in the second quarter,
according to the National Venture Capital
Association. Investors have turned cautious with fresh capital commitments on
fears of an imminent bubble.
While no one knows when the fundrais-

Chasing Cash

Race to build
market leadership
and rising
competition with
entry of foreign
players is resulting
in these cos
building war chests

Others factors
driving
investments are
entry of large
foreign investors
and expectation of
a global slowdown
in capital flows

Capital is becoming a big differentiator

as these companies raise mega rounds
From e-tailers
Flipkart and
Snapdeal to cab
booking sites Ola
and TaxiForSure,
all have raised
funding multiple
times this year

Others such as
mobile recharge
firm Freecharge &
furniture e-tailers
UrbanLadder and
Pepperfry are
also tapping the
market again

ing cycle will become tougher, the perception is that at some time it will. We advise
our portfolio companies that if they are
getting interest from good investors then
raise capital, said Rahul Chowdhri, partner at Helion Venture Partners, an investor in companies such as MakeMyTrip,
Babyoye and TaxiForSure.

The frenzy underway in the Indian market is borne out by the numbers. Ecommerce startups alone raised $2.96 billion
in the first 10 months of 2014, a five-fold
jump from $602 million raised in all of
2013, according to data from consulting
firm Ernst & Young. Overall, the ecommerce and technology sectors raised $3.97
billion between January and October,
more than double of the $1.83 billion
raised in 2013.
Over three-fourths of the capital raised
in this sector has gone to only three companies online retailers Snapdeal and
Flipkart and taxi services aggregator Ola.
In digital platforms you get strong rewards if you grow fast and the bigger you
are. For those with a longer-term view, it is
better to invest in growth now in a fastgrowing market like India against waiting
for profitability, said Pranay Chulet, founder CEO of Mumbai-based online classifieds platform Quikr, which has raised
$150 million across two rounds of financing this year. Cab rental services providers
Ola and TaxiForSure, property search and
listings platforms CommonFloor and
Housing, and restaurant listings and
search site Zomato also raised funds in
multiple rounds in the last 12 months.
Global slowdown concern apart, another factor that is driving the frenzy is the
availability of more capital. The available capital pool has swelled and diversified. There is a lot of incoming interest
from global investors, both financial and

strategic, said Mukul Singhal, principal

at early-to-growth stage investor SAIF
Partners, which has backed companies
such as Justdial, Bookmyshow, Urban
Ladder and Zovi.
The pool of incoming global investors includes hedge funds and corporate entities
keen on a foothold in the worlds fastest
growing consumer Internet market. India
has 278 million Internet subscribers, including mobile Internet subscribers, and
the online shopper base has grown from 8
million in 2012 to 35 million in 2014. The
online product retail is estimated to grow
11 times from $2 billion (.`12,000 crore) in
2013 to $23 billion (.`1.39 lakh crore) by
2018, according to a Nomura report.
We are seeing large global investors
wanting to bet big on India. They are gravitating towards what they believe are large
spaces and a few great entrepreneurs who
can give them billion dollar outcomes,
said Suvir Sujan, founding partner at Nexus Venture Partners. The Mumbai based
early-stage investor has bets on startups
such as Snapdeal, Housing and Shopclues.
SAIF Partners, Helion and Nexus are
part of a breed of investors that bet early
on Indian startups here. These investors
are now keen to see their investees scale
faster as the market becomes intensely
competitive. Most Indian startups, especially those in the consumer Internet sector, mimic global business models and
many now find themselves competing
with global players on home turf.

Govt Seeks List of Potential Bidders

ahead of CIL, ONGC Stake Sale
Arun.Kumar17@timesgroup.com

New Delhi: In an unusual move, the

government has asked investment
bankers managing stake sales in Coal
India and ONGC to provide the names
of potential buyers and indicate how
much theyre likely to bidknown in
the trade as the shadow bookbefore
kicking off its asset-sale programme.
The government is looking to raise
`. 38,000 crore or 87% of the amount
budgeted from disinvestment in the
period between early to mid-December, before the year-end holiday season, and the first week of January, according
to
people
aware
of
developments. Coal India is the countrys largest coal miner and ONGC is
the largest hydrocarbons explorer.
The department of disinvestment
has made this unusual demand to
have more clarity on the demand side
from institutional investors as they
are planning to complete these two
transactions in December itself, said
a top banker.
The government hasnt raised any
money from share sales this fiscal
year and doesnt want to leave it until

the very end of the year.

Bankers are confident to complete
one transaction, most probably Coal
India, in Decemberthat will bolster
the mood, said another banker with
knowledge of developments. The second transaction of ONGC may happen
in December or spill over to January.
Investment bankers have met likely
buyers during road
shows to gauge their appetite.
Overseas investors
are extremely positive
toward India and have
expressed their willingThe govts
directive has ness to participate in
the forthcoming bigconfused
ticket government divinvestment
estment programme, a
bankers as
third
banker
said.
bids are a
However, none of them
function of
the market
have put their demand
price on the
in writing as it is not the
previous day convention.
The governments directive has confused the investment
bankers as bids are a function of the
market price on the previous day. Typically, investors never confirm their orders in advance. Besides, local inves-

tors usually submit their applications

just before the issue closes.
Bankers are worried that if bids are
vastly different from the shadow book,
they could be blamed for giving misleading information.
Conventionally, bankers give the
feedback from the road show in terms
of expected demand at a certain price
range, which is subject to the market
price and on top of discounts offered
by the government, said a third banker. As of now, no one knows the market price just before the day of divestment and the discount.
The government has appointed seven investment bankers to sell its 10%
stake in Coal India. The foreign ones
are Bank of America-Merrill Lynch,
Goldman Sachs, Credit Suisse and
Deutsche Bank. The local banks are
SBI Capital Markets, Kotak Mahindra
Capital and JM Financial.
At the `. 347.80 Tuesday close level, the
government can raise `. 21,968 crore by
selling a 10% stake in Coal India and
`. 16,500 crore by selling 5% of ONGC,
which ended at `. 385.80. However, 10%
of the issue size will be reserved for retail investors, who could be offered a
small discount.

Govt Feels CIL

Undervalued,
May Sell Stake
in two Tranches
Our Bureau

New Delhi: The government may

split the proposed 10% stake sale
in Coal India (CIL) into two equal
tranches, said a senior finance
ministry official, after a meeting
was held on Tuesday with finance
minister Arun Jaitley on the disinvestment road map.
The government is of the view
that the share price of Coal India is
undervalued. The stock should
sell at a further mark-up of `. 100
per share, said the above quoted
official, adding that investors during the road show have sought clarity on the allocation of coal blocks.
Coal India closed at `. 347.80 on
the Bombay Stock Exchange
(BSE) on Tuesday. The stock hit a
52-week high of `. 423.85 in June.
The government
holds an 89.65%
stake in the firm.
The govt is
We have reclosely
ceived a lot of feedwatching the
back on the ONGC
OPEC meet
issue as well. Howslated to be
ever, no decision
held at the
has been taken on
end of this
the issue date of
month before
both Coal India
it decides to
and ONGC, the
go ahead
official said, addwith ONGC
ing that the govstake sale
ernment is closely
watching the market scenario.
The government also intends to
divest a 5% stake in ONGC. At current market prices, the proposed disinvestment in Coal India and ONGC
may fetch the government around
`. 38,500 crore. The government has
also lined up other firms, including
SAIL and NHPC for disinvestment.
The finance minister had in his
maiden budget in July proposed a
record target of `. 58,425 crore
from the sale of the governments
stakes in companies. Of the total,
`. 43,425 crore was expected from
stake sales in government-controlled companies and `. 15,000
crore from firms in which the
government has a minority stake.
The finance ministry official
said that the government is closely watching the OPEC meet slated
to be held at the end of this month
before it decides to go ahead with
the stake sale in the oil firm.