Why cherry picking is no longer seasonal in India

Much of what I am reading in headlines these days – on India and, indeed, the global economy –  reminds me of the opening lines of ‘A Tale of Two Cities’ – “It was the best of times, it was the worst of times…”. Why do I say this?

1)  The Indian Stock Market – Often considered a bellwether of the economy, I came across two different articles (thankfully, in different publications) on the same day this week.  One referred to a leading fund manager’s prognosis that the benchmark Bombay Stock Exchange Sensex will cross the 30,000-point level (currently hovering around 18,000) in the next 3-5 years.  The other publication informed me that one out of every six Sensex stocks is at its lifetime high.   Furthermore, the Sensex is about 3,000 points, or close to 14%, shy of its historical peak.  It went on to predict that a correction in Indian stock markets is imminent.

2) Telecom – Gartner, the technology research agency, says that mobile connections in India will grow by 27.3 percent in 2010.  Yet, India’s largest private telecom companies – Bharti Airtel and Reliance Communications – have gone on record to aver that ‘virtual’ consolidation is underway in the country’s crowded telecoms market. According to them, new entrants are scaling down their rollout plans and shying away from reducing tariffs further. 

3)  Automotive – The Wall Street Journal tells me that the Indian automotive boom is getting ‘bubbly’ with approximately 33% of respondents in a recent KPMG survey of auto executives predicting that India would be struggling with overcapacity in the auto sector within the next five years.  At the same time, auto executives and analysts agree that if the prices and products are right, India will have no trouble boosting passenger car and commercial vehicle sales. The KPMG survey also revealed that 40% of respondents expect sales to climb to more than four million by 2014, compared to 2.5 million at the end of March 2010.

4)  Retail – For the 4th time in five years, India has been ranked as the most attractive nation for retail investment among 30 emerging markets by the US-based global management consulting firm, A T Kearney in its 8th annual Global Retail Development Index (GRDI) 2009.  India's retail market is expected to be worth about US$410 billion in 2010, with 5 per cent of sales through organised retail. Retail should continue to grow rapidly—up to US$ 535 billion in 2013, with 10 per cent coming from organised retail. Yet, according to another study earlier this year, over 6.57 million sq ft of mall space is lying vacant across eight major cities in India.

Is one analysis right and the other wrong?  Not necessarily. 

While headlines are clearly becoming heady, what is obvious is that growth is no longer ubiquitous in India.  According to the wisdom of the crowds embodied in IBM’s 2010 Global CEO study, corporate leaders believe that a rapid escalation of complexity is the biggest challenge confronting them.   They expect it to continue and, in fact, accelerate in the coming years.  As Goethe, the German thinker, eloquently expounded 200 years ago: ’Everything is simpler than you think and yet more complex  than you imagine’.

10 reasons why India is heading for a second ICT revolution

One of my recent blogposts generated a significant number of comments on an EIU discussion forum.  A few of the commentators alluded to some of the speed breakers littering India’s highway to growth.   These included issues of governance, public debt, the need for ensuring trickle-down growth and development, agricultural reforms, efficient allocation of resources and greater financial inclusion.  While there is no one magic wand that can address these issues satisfactorily, certain notable developments in the information and communication technology (ICT) and ICT-enabled space, taken together, have the potential to come close.   

1.   Recent auctions of wireless broadband licenses and 3G spectrum. Acknowledged as among the biggest such auctions globally in recent years, revenue from the two auctions totalled `1.06 trillion (approximately US$ 23 billion), about three times the Indian Government’s initial estimates. As per recent reports, over 250,000 villages would be connected to wireless broadband and 3G mobile services by 2012 enabling them to access the slew of value-added services including e-commerce, tele-medicine and social networking.

The auction was also a welcome windfall for the deficit-strapped government, with some analysts saying the spectrum bonanza could cut the country's deficit to 4.5 percent of its gross domestic product (GDP) from a projected 5.5 percent for the 2010/2011 fiscal year.

2.   The Unique Identification (UID) project.  Launched in June 2009, the UID is an ambitious project designed to link a resident Indian’s multiple IDs (passport, driving license, PAN card, bank accounts, address, voter ID etc) to a common database. It is believed that unique national IDs will help address the rigging in state elections, widespread embezzlement that affects subsidies, poverty alleviation programmes, etc.  Addressing illegal immigration into India and terrorist threats is another goal of the programme.

3.   Mobile banking. According to a recent report by TowerGroup Research, mobile banking in India will grow from 10 million active users in 2009 to over 53 million active users by 2013.  Signalling the potential of this channel, the Reserve Bank of India (RBI) has relaxed mobile banking policies and increased the mobile payment limit to `50,000/- from `5,000/-.  At a recent conference on m-Governance organised by the Internet and Mobile Association of India (IAMAI), one of the speakers highlighted that, due to digital payments, cash circulation had gone up by 7%, against the usual 2%, quoting an RBI report.

4.   Agrarian transformation through models such as e-Choupal.  e-Choupal, an initiative of ITC Limited, involves the installation of computers with Internet access in rural areas of India to offer farmers up-to-date marketing and agricultural information for procurement of agricultural and aquaculture products. It was conceived to tackle the challenges posed by fragmented farms, weak infrastructure and the involvement of numerous intermediaries.

5.   The Spoken Web – Developed by IBM’s India Research Lab, this is a voice-enabled web-browser.  It is currently undergoing a second pilot in Gujarat, after one in Andhra Pradesh.  The opportunities for connecting the disenfranchised 35% of India’s population which is illiterate are mind-boggling.

6.   E-Governance. While deployment has been slow, some significant initiatives have been made, especially in states such as Andhra Pradesh. At national level, customs and excise and passport services have seen considerable use. For a status report, click here.

7.   E-learning. With more than 500 million people required to be educated/skilled over the next 12 years, the Government  of India is putting significant thrust to this mode of delivery.

8.   E-healthcare :  With a shortage of 600,000 doctors and 1,000,000 nurses, e-healthcare solutions are gradually being seen as significant drops in a very large ocean.

9.   Smart Grids – In May this year, India’s Ministry of Power launched the India Smart Grid Task Force and the India Smart Grid Forum with a view to turbo-charge the strategic deployment of smart grids in the country.

10. Adoption of smartphones.  According to Frost and Sullivan, smartphones will account for 54% of the Asia-Pacific mobile market in five years, up sharply from five percent in 2009.  In a market where the mobile handset is often considered a reflection of social standing, the smartphone is driving ARPU (average revenue per user) in India.  Introduction of low-cost, sub-US$110 smartphones is fuelling this growth.

The catapult that the mobile revolution created for the Indian economy in the late 1990s is well documented and widely acknowledged.  All of this makes me wonder whether ICT will now stand for India’s Cohesive Transformation?

Is your company growing as fast as it can?

. . . or only as fast as it needs to?

In a world where ‘double-dip’ is the chasm to avoid, growth has seemingly become the Holy Grail - for continents, countries and corporations.   I say seemingly because, while common sense would dictate that this is a no-brainer, I also know that the problem with common sense is that it isn’t always common.

At a corporate level, how much growth is ‘sufficient’ to satisfy your corporate appetite?  That some companies are doing better than others is apparent.   Why is it that some companies have been able to achieve high growth rates while others haven’t?

Fundamentally, I attribute this to the level of aspiration – something which differentiates the leaders from the pack. Much of this difference is not about what they are doing but how.

When talking to companies around the world on prospects in India, this gets further highlighted.  For those companies who are still contemplating whether they should engage with India or not, hearing of consistent double-digit growth rates seems to sound like a mirage which will disappear if they attempt to grasp it. 

For those who are already in India, many are of the view that they are doing exceptionally well. Compared to their home markets, undoubtedly.  Compared to the local industry, a dipstick survey by White Owl Advisory reveals that international small-and medium-sized companies invariably under-perform the industry average on a host of performance indicators.  

I am currently reading ‘Employees First, Customers Second’ by Vineet Nayar,  CEO of HCL Technologies – one of India’s leading information technology services companies.   Early in the book, Mr Nayar puts in perspective the crossroads the company was at earlier this decade.  He refers to the fact that the company had started slowing down between 2000 and 2005.   This slow pace was 30 percent annual growth.  The journey is what the book details.  For those of you who are thinking this could have been owing to a low base, consolidated revenues at HCL Technologies were US$ 2.6 billion in March 2010. The underlying tenet of Mr Nayar’s book is that if you look after your employees, they will look after your customers who in turn look after the business.

In contrast, the Financial Times ran an article last week on the ever-elusive ‘work-life’ balance dilemma.  They asked some very eminent ‘experts’ whether the Blackberry should be switched off while on vacation.  All but one said yes. The contradicter in the pack was, incidentally, Sir Martin Sorrell, CEO of WPP, the world's largest marketing and communications group, who quipped that ‘clients’ businesses do not stop for holidays’.

HCL Technologies is not unique. A slew of corporates – Indian and multinational - have recorded trail-blazing growth rates in India over the last 15 years.  Given the title of Mr Nayar’s book, I can only assume they managed to give their employees a life as well.

Seven trends defining India’s growth story

In the last one week, I’ve come across some very interesting research – some slightly dated, the majority quite recent.  Yet, each of these individual threads, coincidentally, supports the other.  What does the emerging tapestry reveal?

1. The undisputable re-emergence of Asia, specifically China and India (see Angus Maddison, Hans Rosling, McKinsey, International Monetary Fund).  China’s recent eclipsing of Japan to gain recognition as the world’s second largest economy is par for the course as is increased intra-regional trade.

2. Increasing domestic prosperity 

• For the first time ever, the number of high-income households in India has exceeded the number of low-income ones (reference NCAER);
• Sales of trucks and buses — an indicator of economic activity — rose 37 per cent to 51,481 units in July 2010;
• Overall automobile sales grew at 31.50 per cent to 1,237,461 units in July 2010; and
• Mobile penetration is projected to reach 55.9 percent in 2010, increasing to 72.5 percent in 2012. 

3.  India’s growing engagement with the world

• Expanding share of world trade - 2.8% in 2009 compared to 0.6% in 1998
• Foreign direct investment (FDI) flows increasing steadily

4.  Heightened business focus; less emotional baggage

• India Inc's merger and acquisitions have touched nearly US$ 50 billion level over January-July 2010, over three times the total in 2009. 
• Strategic rationale driving corporate expansion (Fortis, Piramal Healthcare)
• Robust succession planning process (Tata Sons, Larsen and Toubro, Infosys)

5.  An aspirational, entrepreneurial, young talent pool

• 72 % of India's population is below the age of 40, 47% of Indians are under the age of 20 and 10% of the world population is an Indian under 25
• According to Goldman Sachs, India will add 110 mn people to global workforce by 2020.
• The Indian Government plans to increase the gross enrolment ratio from the current 12.4% to 30% by 2020 and further up to 40% by 2025. 

6.  Increasingly pervasive influence of technology and media

• Reverse / low-cost innovation – Tata, GE, Nokia leading the way
• The media and entertainment sector is estimated to be growing at a compounded annual growth rate of 13 per cent over the next few years; rollout of 3G by the private sector over the next few months is expected to be a game-changer for business and society.

7.  Growing economic maturity and self-confidence

• India has become the fifth country to have a unique symbol (`) for its currency
• Foreign exchange reserves total US$ 284 billion
• Is forging its own set of strategic partnerships – USA, Singapore, Myanmar, Africa, Afghanistan - to name a few.

In sum, the tapestry presents much potential.  Yet, as anyone remotely familiar with India knows, it is far from being an easy market to do business with.  Any truthful case study of an international company doing business with India is peppered with anecdotes about how they have had to revise their India strategy.  Poor governance and infrastructure remain areas of concern.  

But then again, if India were an economist’s ‘perfect’ market, it wouldn’t be witnessing the extraordinary growth rates it has.

On your marks, get set, go . . .

With the European Athletic Championships underway, I can not help but correlate last week’s State visit by David Cameron and his team, to India, to the sports arena.   The delegation, representing the ‘best of Britain’ – from government, industry, academia, sports, media and culture – spent an intense 48 hours in an endeavour to lay the foundation for a new, stronger, wider, deeper partnership with India. 

With a visit designed to generate a high impact across key sectors of engagement for the UK, Cameron and his band of merry men (and a few women) returned to the UK with a number of important messages.  These messages, while not revelationary, are in many ways, eye-opening for an economy whose constituents have, traditionally, been largely content in domestic (and at best, regional) economic bliss.

What are these messages?

1. British business needs to globalise its outlook if it wants to grow.  
2. The foreseeable future belongs to Asia. 
3. There is intent to put India at the centre of the UK’s foreign and economic policies.
4. The new India is a different India requiring a new mindset and a new approach.
5. There are tremendous long-term opportunities for British businesses – an ability to tap them will be key.
6. The world is wooing India and India knows it. 
7. The past is important but the future is relevant.

Whether British business will heed the writing on the wall only time will tell.  In the meantime, both Presidents Obama and Sarkozy are gearing up for their respective high-level visits to India later this year.  The race is on. And, as Darwin so wisely predicted, it will be a case of survival of the fittest.