How global companies can better ride India wave

-R Gopalakrishnan

There is a lot of interest in India among MNCs, but they face dilemmas. Many
have a global organisational structure, not country-oriented , and this inhibits
their ability to get the best out of India.

India is distinctive enough to be dealt with differently . For example, for over
a decade, the general expectation has been that the country’s retail trade will
modernise rapidly. But India has turned out different . During the mid-1970 s,
there were two million grocery and mom-and-pop shops for 550 million
people. Today, there are eight million shops, catering to 1.2 billion people.
Unique among countries , India has achieved a dispersion of retail trade.

Indian business leaders informally advise global companies about their

strategies. I reviewed the advise they give and this is what I heard, “Think
with a blank sheet of paper. Treat India as a multi-dimensional resource and
not merely as a consuming market for your available technologies and
products.”
I have listed five points to elaborate.

Come with the spirit of exploration:

An explorer company enters India to develop all possible business interests it

can within that economy: buy, sell, develop new products, etc. To be an
explorer, a global company will compel its local leaders to take total business
responsibility with the facility to tap expertise in global headquarters. In
contrast, a settler company treats India as one more opportunity to sell its
products and to deploy its competencies. The settler has a sharp sense of
his core business and appears narrow in the context of an emerging market.
With good intent, the global parent connects its local leaders to cross-border
support systems, inadvertently resulting in a diffusion of responsibilities. Here
are examples of successful explorer companies in India.

Unilever long ago adopted a policy of Indianising its management, capital,

R&D and manufacturing technology. The policy stood it in good stead for the
long period for which it practised the policy.

Texas Instruments (TI) entered India in 1985 when the licence-permit Raj
was still in existence. They placed a bet on Indian engineering talent in chip
design and digital signal processing. TI India has several breakthrough
innovative offerings for the Indian and global markets. The company did not
come as a farmer, but explored India as a resource.
IBM re-entered India after liberalisation. Within 20 years, IBM has 1,60,000
employees in the country , a tad less than the US. These employees are
delivering software wa GE arbitrage as well as high-level R&D work. GE has
research facilities here. Its Jack Welch Technology Centre employs 5,500
scientists, who have applied for 1,000 patents in the last 10 years. Earlier,
GE was organised by SBUs with an ambassadorial country manager. In a
dramatic move, GE has appointed a full-line country head who responds
directly to the global CEO.

Devolve more and clear local authority:

In the past, global companies gave their India-based CEOs considerable

autonomy and the space to disagree constructively . I see less of that in the
last 20 years as India has liberalised. Global companies matrixed their
organisation precisely when autonomy and entrepreneurship could have play
a positive role. From what I have seen and heard, many global companies in
India have restructured themselves into spaghetti of shared relationships and
responsibilities with regional and global headquarters. It is often not clear to
an observer who is responsible for what.

While interviewing managers of Indian subsidiaries of global companies, I

have found that many are frustrated with their narrow jobs because the
regional office does many things. In one case, a talented finance director
resigned because he was basically a glorified book-keeper . His only career
growth was to accept an overseas posting. In earlier days, a foreign posting
had a cache; indeed , a job in a global company was prestigious. Not any
longer.

The vigour of Indian companies acts as a lodestone for employees who feel
the pulsating energy of 8-10 % growth and the buzz of a ‘happening’ place
when they work in India, and Indian companies are hugely attractive
employers.

Further, global companies paint all their subsidiaries with the same policy
brush. For example, an Indian subsidiary had developed a very interesting
‘adjacent’ business as a growth initiative. After allowing the product to
develop for five years, an edict was given to dispose of the adjacent business
—not because it was losing money or not delivering, but because in an HQ
reappraisal, anything that did not fit in to a defined core business was to be
eliminated!

In another case, the Indian company had little freedom to make its extra cash
work harder.

Use India as a significant frugal innovator:

 Because of history and culture, Indians are natural innovators, even though
they are a bit undisciplined! As a visiting American Chinese entrepreneur
from Silicon Valley recently told me, you need four Cs to be an innovative
society: Chaos, Creativity, Communication and Channelisation. India has
plenty of the first three, but lacks the fourth. Global companies bring the
fourth skill. The combination can be terrific as the examples of Texas
Instruments, GE and IBM demonstrate.

Someone has made ‘frugal innovation’ famous. Jeff Immelt and Vijay
Govindarajan have coined the term ‘reverse innovation’ . Clearly, there is an
opportunity . In the environment of the global managers, it is not possible for
them to think of an automobile priced at $2,500 with emissions less than a two
wheeler ! Or to design a 130-teraflop supercomputer for $30 million as the
world’s first privately-funded supercomputer. These are as unlikely as an Indian
village scientist dreaming up a new racing car.

Emerging capital markets could become interesting in future:

The Credit Suisse Global Investment Returns Yearbook, 2010, suggests that
between over 25 years from 1985 to 2009, Indian equity markets yielded far
greater returns than the stock markets in developed economies. The Indian stock
market has a higher P/E ratio compared to many other markets, including Asian
markets. The Indian capital market is over $1 trillion, in excess of the GDP. It is
not sufficiently broad-based and deep, but it is efficient enough to do transaction
settlements as fast as the fastest stock market in the world — what they call T +
1.

In future, global companies can use this to advantage by listing their Indian
subsidiaries here .To be a bit adventurous, even the global company can be
listed here. This is no pipe dream or crazy idea. To get more visibility and show
commitment, Standard Chartered Bank became the first foreign company to list
the parent in India through an IDR issue. The bank was already listed in London
and Hong Kong.

But what do I see around me? I see global companies trying to delist their
companies from the stock market or buying back their shares. To be in one of the
world’s fastest-growing economies, which is attracting $60 billion of foreign
investment every year, for a global subsidiary to buy back shares, suggests a
lack of imagination. Surely, there a missed opportunity!

I also believe that a listed firm has a better chance of developing well-rounded
managers. They gain a broader exposure to be general managers. Early in their
career, they learn to deal with cash flows, balance-sheets, multiple stakeholders
and public concerns. That is one reason why Unilever in India is perceived as a
CEO factory. What is common among the following companies in India? Bosch,
Cadbury, Glaxo, Lafarge , Nokia, Hindalco, Star News, Tata Sky and Tata Rallis?
They all have Unilever alumni as CEOs!

Use independent directors on local boards more strategically :

I have knowledge and experience of how India-listed subsidiaries use their

independent directors . The local board and listing disclosure requirements are
treated as a ‘necessary chore’ .Independent directors are sought to be engaged
with sketchy board meetings and occasional dinners. Few global company CEOs
seriously engage their talented independent directors in a strategic debate about
how the Indian subsidiary can better benefit from a liberalising India and then
follow through with real action.

This denies the global leadership an opportunity to listen to embrace the diversity
of opinion. You cannot miss out on listening to such talented directors if India
really matters to your global company!

(The author is executive director of Tata Sons)

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