India stands near or at the top of the agenda of almost every global corporation. This makes good business sense, since India possesses the combination of strong economic growth and depth of human resources. Taken together, these two represent short and long-term growth and profit opportunities that few corporations and investors can find in other markets.
India's twofold opportunities — serving the demands of a growing Indian market and using the country as a source of talent, services and products for global customers — can be viewed as a "Janus strategy," depicting the two-faced Roman god of beginnings, with one face looking inward while the other looks outward.
As Western economies continue to recover from the two-year financial crisis, the recession is virtually f or-gotten in India. After a six-month pause starting in September 2008, India's growth began to rapidly recover, fueled by strong domestic consumption. Industrial production is also rising, and most forecasters are expecting its gross domestic product to grow by 8 percent. Its political and business leaders would like to accelerate that growth to more than 10 percent.
In absolute terms, this means that India's growth in GDP could be the same as that of the United States this year. If one were to apply purchasing power parity, India's real growth would be about four times that of the U.S.
This growth translates into demand for products and services such as roads, buildings, power and communications infrastructure to create the new townships and cities that the country needs. The demand is also for education at all levels, for the defense and national security needs of a growing power and for the consumption needs of a rapidly growing middle class that could comprise half a billion people within the next 15 years.
Still, it was reported last July in financialexpress.com that total revenues from the India operations of many leading U.S. corporations rep-resent 2 percent or less of total global revenues, offering tremendous room for growth. Some chief executives have adjusted their India operations projections with a goal of growing revenues fivefold over five years, resulting in a 5- to 10-percent share of total global revenues. One Fortune 100 CEO apparently told his staff that India's opportunity is so big and urgent that they should adopt a "ready, shoot, aim" approach.
Many U.S. corporations recognized India's potential early and created their own initiatives and strategies, with the former General Electric Co. CEO Jack Welch among the first. Consequently, most of GE's global businesses are currently represented in India, with 12,000 employees generating revenues of $2.6 billion, or about 1 percent of GE's total global revenues. GE India's Web site notes that the company exports more than $1 billion in products and services. Renewing its commitment to India, GE's current CEO Jeff Immelt recently named John Flannery a senior vice president of the global company to head GE India.
With more than 70 percent of Cisco System Inc.'s customers within five hours of Bangalore, CEO John Chambers sees India as an alternate global headquarters for his company. Cisco is estimated to be generating $1 billion in revenues from the Indian market, of total global revenues of $36 billion, according to financialex press.com. As a result, Cisco's Bangalore-based global operations are headed by an executive who reports directly to the CEO.
The financial crisis led most corporations to a renewed focus on lowering costs. Non-core activities were separated and moved to lower-cost delivery sources. India was a natural choice for such activity due to its educational base, technical talent, English language skills and the maturity of its outsourcing industry.
Outsourcing and offshore captive centers in India have resulted in an estimated annual savings of $50 to $100 billion to global corporations. By de-creasing their costs and improving cash flow, these India-related strategies have enhanced shareholder value for these corporations and made them more globally competitive.
Service providers such as IBM Corp., Hewlett-Packard Co. and Accenture plc were particularly attracted to India as a source of talent for lowering the cost of delivery to their global customers. In addition, they now see opportunities to generate revenue within India due to the country's increased domestic growth.
IBM India's Web site notes that of its 400,000 employees worldwide, about 130,000 are in India. In terms of IBM's $35 billion in global revenues, more than one-quarter of the total is attributable to its India employees.
Of HP's 320,000 global employees, 60,000 of those are located in India. HP employs more people in Bangalore than at its home base of Silicon Valley.
Accenture employs 180,000 people worldwide, including 42,000 in India. Chairman and CEO William Green stated in an interview with CNBC India last November that the Indian workforce would reach 50,000 by the end of 2010. Accenture employs more people in India than it does in the U.S.
Global corporations have also enjoyed lower product costs as a result of their Indian operations. Since the market is very cost-sensitive, a successful product offering in India may help drive down the costs of the same product sold globally.
GE has adopted an innovation model it calls "reverse innovation," which involves developing inexpensive products for emerging economies and then bringing them to the U.S. In addition, India has staked out its leadership in low-cost automobiles with the Tata Nano. As a result, India is now the largest manufacturer of the world's smallest cars, a market known as the super-compacts or the sub-sub-compacts.
New Global Corporations
India dramatically represents how the geography of the global corporation is changing. Robert Zoellick, president of the World Bank, describes India as a crucial pillar in an interconnected world.
More than half of U.S. Fortune 100 corporations currently use back-office services that have been off shored to India, which represents a large part of the $50 billion of India-related out-sourced services, notes the India Abroad Web site. Seeing the depth of technical and scientific talent, many leading research-oriented companies have created India development centers that are crafting technologies in areas ranging from software to pharmaceuticals to metallurgy.
In addition, India is also becoming a major source of management talent. Corporations such as Citicorp Inc. and Unilever Inc. have long seen India as a source of skilled managers who could be successfully deployed all over the world. As U.S. corporations become more active in India, more of them are recognizing this opportunity. Similarly, for managers who want to get an immersion experience in a different culture, India presents a learning experience.
Many U.S. companies have had a presence in India for years, with some dating back a century. Some of the older ones have historically been stand-alone operations, inadequately integrated with the parent company. Some U.S. companies have multiple Indian subsidiaries, reporting to separate business units at headquarters. There is currently a trend in India to seek synergies with the various operations.
Thus, corporations have appointed and empowered India CEOs to exploit such synergies and enhance the impact of the corporation above and beyond those of its various business units or product lines. These synergies can be enhanced by the scale effect derived from shared services and standardized and consolidated processes.
Dealing with the Indian Psyche
As India's employee strength grows and India-origin managers proliferate in global corporations, cultural issues will present challenges and opportunities.
To Western business people, India presents an experience like very few other countries. The English language and the common legal system and terminology are easily under-stood. Indian business leaders — many middle managers and technical personnel — understand the West very well. Many of them were educated in the U.S. and many of their children attend American universities (more than 100,000 Indian students are currently enrolled in U.S. colleges and universities).
On the other hand, there are aspects of the Indian psyche that take time for an outsider to understand. India has a rich philosophical tradition that informs the way its people and institutions behave. Business interactions should take into account the Indian psyche and belief system, and outsiders need to be empathetic to how Indians think.
For example, Indians take pride in working for their organizations. They are strongly loyal to employers who express care and concern for their employees. This creates unique competitive advantages for Indian corporations that have fostered strong cultures. A sense of belonging to a respected organization may be as important as money and rapid advancement for many Indian professionals.
Indians succeed when they are in a partnership of equality and empathy. Devdutt Pattanaik, the chief mythology officer of the country's leading retailer, The Future Group, notes that "Indians do not like taking instructions. The moment you tell an Indian what to do, you are touching a very raw nerve." Indians works best when they are a partner in developing the direction of a business. In business discussions they are sensitive to being talked down to or patronized. They are, in fact, shrewd negotiators.
Opportunity and Confusing Regulatory Environment
Despite the significant opening up of the Indian economy over the last 18 years, the regulatory environment can be confusing. The general direction is clear: Sectors of the economy are increasingly opening to foreign investment and foreign corporations. However, progress is uneven and can be frustrating.
A joint venture partner is often an asset to a company trying to reduce the overall risk of an unknown geography and to more efficiently assimilate the market's nuances. The need for such a partner depends on many factors, ranging from regulatory constraints affecting the sector being ad-dressed to the ability to assemble a competent management team. In sectors such as retail and insurance, a joint venture partner is virtually a necessity in order to enter the market.
Management and legal advisers can provide significant value in helping companies understand the terrain and identify potential joint venture partners or country management.
It has been said of India that what-ever one says about it that is true, the opposite is also true. That sums up the challenges.
Great opportunities come with equally great challenges. Its motivated and hard-working people are assets, but the infrastructure and some regulatory constraints can be frustrating. The business atmosphere is stimulating and electric. Yet nothing is as easy as it seems.
© Reprinted with permission from FINANCIAL EXECUTIVE, (April, 2010), published by Financial Executives International; 1750 Headquarters Plaza, West Tower, 7th Floor, Morristown, NJ 07960; 973.765.1000; www.financialexecutives.org.
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