Obama’s Indian Odyssey

‘Should the West be scared?’

This question was posed on a BBC panel discussion earlier this week, in the light of President Obama’s recently concluded visit to India and Prime Minister Cameron’s trip to China. While this particular discussion was limited, it has been interesting to observe the somewhat dismissive coverage in the British media about the visit. Interesting, given the takeaways from the Cameron visit to India in July this year (see earlier blog).

Having personally been involved with a number of head of state visits to India over the last two decades, including President Clinton’s visit to India in March 2000, here is my take on the messages for business – both overt and covert – from President Obama’s game-changing and mesmerising visit to India.

1. Recognition of a new world order. During his trip, President Obama has peppered each of his speeches with unequivocal assertion to the fact that relationships have changed and that ‘we need to change with them’. His comment that the US-India partnership will be the ‘defining partnership of the 21st century’, his description of India as ‘indispensable’ and a ‘cornerstone’ of US policy in Asia and his wish to see India take up a permanent seat on the UN Security Council, speak volumes of the paradigm shift that has taken place in the mindset of the world’s largest economy. To quote President Obama, 'India isn't emerging, it has emerged'.
2. It’s (also) the economy, stupid. A country’s chief executive is responsible not only for a country’s physical security but also its economic security. A point that President Obama has not been allowed to forget for a single day since he embarked on his journey to 1600 Pennsylvania Avenue. The result – consciously choosing to kick off his historic visit with India’s commercial capital – Mumbai – announcing business deals worth US$15 billion, supporting 70,000 jobs in the United States, by the close of the three days of his visit.
3. Knowledge is the new global currency, technology the game-changer, people the glue, youth the catalyst.
4. Protectionism doesn’t pay. Growth will come through trade with Asia. It is inevitable and not a zero-sum game. Global economic integration has promise and potential. We need to negotiate this changing relationship.

Or, as President Obama’s icon, Mahatma Gandhi, succinctly observed, ‘be the change you want to see in the world’.

Is India becoming the land of luxury?

Last week, I came across a news article that stopped me in my tracks.  Apparently, the world's fastest car – the Bugatti Veyron 16.4 Grand Sport, for the uninitiated – is all set to hit Indian roads on October 28th. While I appreciate the need for speed in the dynamic economy that is India, what really took me aback was the price tag – an eye-watering `120 million (i.e. approximately US$2.7 million). (That one can probably count on one hand the number of Indian roads where an owner will actually be able to test the car to its potential is a different matter and one that I will leave for another time.) 

The chosen date for the Bugatti India launch – October 28th – is an auspicious day.  No, I have not checked my crystal ball. Neither have I consulted an astrologer.  However, I am sure Mukesh Ambani and his family have.  It just so happens that October 28th is also the day that the elder Ambani and his family are having a house-warming party to celebrate their new, US$1 billion residence in Mumbai.  While the family is being as under-stated as you can be about a 27-floor house for a family of six, ‘Antilia’ (the mansion) is understandably attracting much attention.

So, are India’s rich simply getting richer and leaving their brethren behind?  Apparently not.

 

1. India has the fastest-growing population of millionaires in the world, according to Forbes.
2. India's wealth has tripled to US$3.5 trillion in the last decade, according to Credit Suisse. Their analysis highlights that by 2015, India's wealth could double to around $6.4 trillion. The report notes that, contrary to popular belief, India's wealth distribution is skewed towards the lower end of the wealth pyramid.
3. Wealth held by individuals in India is said to be growing at a 26 per cent compounded rate, more than four times the global average.

The implications for the luxury market are obvious in terms of potential, though not so obvious in terms of strategy.  In fact, study after study has shown that in order to succeed in India, luxury brands need to localise their marketing strategies. 

This begets the question, is Indian wealth becoming typified by the motto ‘if you’ve got it, flaunt it’?  Not necessarily. 

Technology czar Shiv Nadar has committed to put aside well over 10% of his wealth for philanthropic ventures. Soap-to-software magnate Azim Premji has recently announced that he will personally be setting up a US$1 billion education endowment fund.  Ratan Tata has announced a US$ 50 million donation to Harvard Business School, while Anand Mahindra has announced US$10 million to the same alma mater.

Yes, wealth is coming out of the Indian closet.  Is this unique to India? No.  According to a recent study by the Asian Development Bank, by 2030, Asia’s consumers will spend US$32 trillion, accounting for 43% of global consumption.

Perhaps M/s Bugatti’s parent, Volkswagen, hopes to realise its literal translation - ‘the people’s car’ - in the world’s most populous continent.

If you would like to understand more about how to increase the growth for your organisation by deepening its engagement with India, do write in at ratika.jain@whiteowladvisory.com.

Business Lessons from India’s Commonwealth Games

The ongoing Commonwealth Games in India have been truly record-breaking – both within the sports arena and without.  As this is a business blog, let me focus on the latter.

Personally, I think the Commonwealth Games have been good for India. 

Good because Indian sport, at the end of the day, has benefited in a myriad of ways.

Good because India has shown what it can do, literally, against all odds. 

Good because the Games have served as a reality check - for India and for the rest of the (business) world - on the complexities of doing business with India. What are these lessons?

1. Execution, execution, execution.  While I have written about this in a previous blog, the reality is that attention to detail and contingency planning is mission critical.
2. Governance is key. Some commentators have remarked that the CWG is a case study in the difference between Indian public sector ineptitude and private sector prowess. The reality is that this generalisation is simplistic.  Fundamentally, governance and accountability processes need to be water-tight.
3. Media and its management matters.  At no time in the history of the Games have they received so much publicity and column-centimetre coverage, in the Commonwealth and beyond, than in 2010. Thanks to the internet and real-time reporting, a common garden snake is able to morph into a King Cobra in a matter of minutes, if not seconds. Understand the dynamics of new-age media.
4. When traditional solutions fail, improvise (jugaad).  The CWG 2010 is probably the first international sporting event that has involved the official deployment of trained animals (‘langurs’) to ward off other stray animals.  Keep an open mind and think of innovative, ‘fit-for-purpose’ solutions.
5. Some things can not be controlled, e.g. Mother Nature.  When it rains, it literally does pour.  Delhi recorded its most intense monsoon season compared to the last 30 years, bringing with it the multitude of accompanying health hazards.  Anticipate, be prepared.
6. A lot can be achieved in 24 hours.  See linked article. Need I say more? 
7. A great test bed.  In an earlier blog, I highlighted the global challenge of managing complexity.  To borrow a phrase from the popular song ‘Empire State of Mind’ – “since I made it here, I can make in anywhere” could well become India’s new business anthem.

If you would like to increase the growth for your organisation by deepening its engagement with India, do write in at ratika.jain@whiteowladvisory.com.

FDI in Indian Retail : One step forward . . .

                                 Image via Wikipedia

As Delhi put its proverbial foot to the accelerator to gear up for the Commonwealth Games over the past week, the Indian economy at large was not delinked from the spirit of sport. Indeed, the Olympic motto of ‘faster, higher, stronger’ is easily apt for the some of the economic indicators and signals that were revealed.

1. The Bombay Sensex reached a 33-month high.
2. India now home to as many as 69 dollar billionaires, compared to 52 last year (Forbes).
3. 127,000 High Net Worth Individuals[1], whose cumulative wealth stands at US$477 billion resident in India (2010 Asia-Pacific Wealth Report, compiled jointly by Cap Gemini and Merrill Lynch Global Wealth Management).
4. India’s growth is likely to outpace China’s (cover story of the latest Economist).

Ostensibly sensing the mood, the Government of India decided to give greater steer to the economy. It announced an easing of the norms for foreign direct investment (FDI) for a few sectors including wholesale cash-and-carry trading.

The Indian retail sector is arguably the most watched and contentious sector on India’s economic horizon. With growth trends and forecasts being what they are (see earlier blog post), this is not surprising. The policy amendment removes the restriction for internal use by the foreign wholesale cash-and-carry segment. It, however, retains the ceiling, mandating that such companies could sell only up to 25 per cent of their turnover to group companies. The move has implications for several retailers such as Bharti-Walmart, Carrefour and Metro Cash and Carry.

This relaxation comes at a time when much debate is underway regarding opening up of the retail sector to foreign investment. Since 2006, FDI up to 51 per cent has been permitted in single-brand retailing in India. 100 per cent FDI has been allowed under the automatic route in the cash and carry wholesale business. A few months ago, the Indian Ministry of Commerce had released a discussion paper on the issue of multi-brand retail, soliciting opinions. While Commerce is in favour of easing norms with some restrictions, the Ministry of Finance is said to be in favour of a more cautious approach.

Some innovative players are not letting these current restrictions be a bottleneck. Instead, they are crafting innovative solutions within the defined goal posts while the patiently nudge the public policy eco-system.

Interestingly, the organised, domestic retail sector is keen to see opening up. Indeed, there are strong and vociferous proponents on both sides of the fence. At what pace the situation evolves and its implications for the economy only time will tell. Perhaps it will be a case of catching the tiger by its (re)tail.

If you would like to increase the growth of your organisation by deepening its engagement with India, do write in at ratika.jain@whiteowladvisory.com .

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[1] Has “investible assets of $1 million or more, excluding primary residence, collectibles, consumables and consumer durables”. 

Is Education India’s next gold rush?

    Image via Wikipedia

About twelve years ago, I was sitting in a seminar listening to the Israeli management guru, Dr Eli Goldratt, expound forth on his seminal Theory of Constraints (TOC).  Dr Goldratt shared something very basic but something we often forget - that a chain is as strong as its weakest link.  This thought has stayed with me and it brings me to the theme of this week’s blog – higher education in India. While statistics in the Indian context are astounding, the one’s relating to education are mind-boggling.

• 5: The multiplier by which the budget for education has increased in the 11th Five Year Plan (2007-12), compared to the 10th;
• 14%: Current enrolment rate in higher education; targeted to increase to 30% by 2020;
• 18,000+: Number of universities and colleges in India;
• 600,000: Shortage of doctors;
• 1,000,000: Shortage of nurses;
• 15 million: Annual increase in labour pool by 2015;
• 240-250 million: Estimated skilled workers required over the next 12 years to cater to the incremental skilled workforce demand in 20 high-growth sectors as well as the unorganised sector;  and
• 600 million:  Indians under 25 years of age.

The strain of inadequate educational infrastructure is beginning to take its toll.  A few weeks ago, the World Economic Forum released its Business Competitiveness Report 2010-11.  India had dropped two places to rank 59.  Poorer rankings on education were identified as one of the major speed-breakers.  

Sensing the opportunity, a number of players – new and old - have jumped on to the bandwagon.  Exponential growth in stock prices of educational companies over the past decade bears testimony to the demand-supply dynamics.

Leading international universities have not been impervious to India’s hunger for quality education. Last week, Duke University announced its intent to set up a campus for its business school in India. Like Yale, Brown and Massachusetts Institute of Technology (MIT), it is also in talks with India’s Ministry for Human Resource Development for partnering the upcoming 14 innovation universities. 

As institutions jostle for market share, the resulting frenzy has prompted the Advertising Standards Council of India (ASCI) to introduce a new set of guidelines prohibiting educational institutions and programmes from claiming recognition, authorisation, accreditation, or affiliations without proper evidence.   

To my mind, and borrowing from Dr Goldratt’s TOC, embedded in the education opportunity is one more nugget – that of standards and certification.  Indeed, attention to this could easily apply to India’s preparation for the Commonwealth Games.  After all, success in India is not only about what you do but how.

If you would like to increase the growth for your organisation by deepening its engagement with India, do write in at ratika.jain@whiteowladvisory.com .

Of Land, Marx and Landmark judgements

Till the 1980s, private enterprise was somewhat of a social pariah in India.  Economic liberalisation in the 1990s reconfigured the equation.  As the Indian corporate sector became the ‘poster boy’ for the India growth story, a number of policies were drawn up to support corporate growth.   Recent announcements are signalling an interesting directional shift in Indian policymaking towards industry, investment and its interaction with society at large. 

1)   Environment matters. In a landmark decision to safeguard the environment while implementing industrial projects, India’s Environment and Forests Minister, Jairam Ramesh, announced that the bauxite mining clearance given to Vedanta Resources and the Orissa Mining Corporation in Orissa had been withdrawn. He also said an initial approval for a six-fold expansion to Vedanta’s aluminium refinery in the state was being suspended.  According to a source, the Saxena Report on the matter had said that allowing mining operations would mean a loss of 121,000 trees, affect the region’s water supply and will shake the “faith of tribal people in the laws of the land”. The Ministry has also barred the Vedanta refinery from buying bauxite — the main raw material needed to make aluminium — from 11 other mines in the state of Jharkhand, pointing out that these were illegal.

2)   Property rights. Anyone who has heard of Singur or Nandigram will know just how sensitive the issue of land, and its acquisition, can be in India.  As the race for economic growth is intensifying across states in India, so are the pulls and pressures on land.   

The Indian Government’s ambitious road-building programme aimed at laying 18,637 km of expressways by 2022 has hit a road-block as well on this count. According to some estimates, delays in land acquisition are hampering 70% of the projects under this programme.  Towards addressing this issue, the Congress President, Sonia Gandhi has intervened and sought annuity benefits for displaced farmers.  These are likely to be woven into in the Land Acquisition (Amendment) Bill, 2010 and the Resettlement and Rehabilitation Bill, 2010.  Individual states, such are Haryana and Uttar Pradesh, are experimenting with compensation formulae blending cash, annuities and equity.

Towards addressing concerns regarding fair compensation in the mining sector, the Indian Government is likely to make it mandatory for mining companies to hand over a part of their revenues and make annual payments to those displaced.  The revenue sharing model combined with annual payments is likely to find its way into a proposed legislation - the Mines and Mineral (Development and Regulation) Bill - setting the rules for investment in minerals.

3)   CSR = compulsory social responsibility.  According to news reports, the new Companies Bill will make it mandatory for large companies to earmark at least 2 per cent of their net profit for corporate social responsibility (CSR) activities in the new Companies Bill. The new provisions are expected to apply to companies having a net worth of `500 crores (approximately US$109 million) or more, or a turnover of `1,000 crores (US$ 218 million) or more, or a net profit of `5 crores (US$ 1.1 million) or more, during a year.  The revised Bill is expected to be presented in Parliament for passage in the Winter Session. 

That the intention exists to foster social contribution is commendable.  Whether this is the appropriate intervention is moot.

These shifting sands reflect India’s desire for inclusive growth.  How these, and similar policy shifts, will play out in a company’s calculus remains to be seen. 

If you would like deeper insights to India and what it means for your company, do write in at ratika.jain@whiteowladvisory.com.

India’s Tier II and Tier III cities – are you missing the bus?

In March 1994, the Indian domestic aviation sector was opened up, allowing for scheduled services by the private sector.   One major caveat was introduced.   Private airlines would only be able to ply between India’s lucrative major cities provided a certain number of flights in their portfolio covered the, less lucrative, smaller cities as well.  Grudgingly, operators complied.

Fast forward to 2010.  Much mention is being given to urbanisation in India. How there are currently 42 cities with populations of more than 1 million, compared to Europe’s 35.  How the annual income of households in cities is expected to rise from about US$700 billion today and double every five years and reach almost US$4 trillion in 20 years. The late Prof C K Prahalad, one of India’s most eminent management gurus, was renowned for his clarion call on the need for India to create 500 more cities by 2022 to absorb the shift in migratory patterns and developmental needs in terms of jobs, access to markets and infrastructure.  

Which are the sectors which have been, or currently are, making big bets and driving growth in the Tier II and Tier III cities? Below is a snapshot analysis.

1.  Infrastructure: It is estimated that India needs to invest US$1.2 trillion in urban infrastructure capital over the next 20 years.  According to the McKinsey Global Institute (MGI), India’s tier II cities will need $200 per capita per annum expenditure on urban infrastructure over the next 20 years, compared to the national average requirement of $134 per capita per annum. In terms of connectivity, the Government of India has embarked on an ambitious National Highway Development Programme.  It aims to develop more than 50,000 km of national highways in seven phases.  The map of projects completed under the NHDP in the last 10 years can be seen here.

2. Travel and Tourism: In many ways, a bellwether of economic development, this sector has traditionally been a significant growth engine for India’s smaller cities. Be it for business or leisure, the travel and tourism industry has served to provide critical basic infrastructure, creating a demand-pull for greater connectivity.  With prohibitively high costs of real-estate in the Tier I cities, more and more high-end hotel chains, such as the Marriott, are extending their attention and presence to the needs of the Tier II and Tier III cities.  Interestingly, reverse flows are also being explored.  The Singapore Tourism Board has recognised the untapped potential of these markets and launched a campaign to woo tourists from these Tier II cities to the city-state.

3.  Real estate: The availability of land at affordable prices in these cities, backed by the demand for organised realty, is proving to be pivotal to the success of real estate in Tier II and Tier III cities. According to Ernst and Young (E&Y), several Indian cities with a population of 0.5-1-million will emerge as the most promising market for residential and retail developments, within the next 3-5 years.

4.  Retail:  Of the 80 million households that constitute the Indian middle class, only 25 million are in Tier I cities. Close to 55 million belong to the smaller towns.  According to a study of 100 cities’ consumption spending by Indicus Analytics, only 30% is accounted for by Tier I cities.  With the growth of organised retail, franchising is also booming in untapped Tier II and Tier III cities, showing a phenomenal 40-45% growth in the $16 billion Indian franchising industry. Some of the world’s multinationals have cottoned on to this potential. Earlier last month, Canon India said that it would be aggressively looking at Tier II and Tier III cities, which are expected to generate 70 per cent of its business (currently US$267 mn) by 2015. According to Mercedes-Benz, there is a possibility of 15-20 per cent sales coming from tier-II and III towns. Mercedes already sells more cars in Ludhiana than in Mumbai. Bose Corporation, Adidas, Bacardi, Daikin, Panasonic are some other well-known names placing big bets on these smaller cities.

5.  Education: Anyone familiar with India’s engineering powerhouses, the Indian Institutes of Technology (IITs), should probably be familiar with the city of Kota, the national hub for student coaching.  Today, coaching is the lifeblood of the Kota economy and contributes more than $100 million, from insignificant sums two decades ago.  This is just one example. The reality is that 600 million Indians are under 25 years of age. By 2015, more than 550 million will be teenagers. The total labour pool that will require advanced training in vocational, managerial, IT and other skilled and semi-skilled professions is expected to exceed 30 million individuals per year through 2020.   

6.  IT and Business Process Outsourcing: According to a recent study, India's business process outsourcing industry has the potential to rise nearly five times to US$50 billion in revenues by 2012, provided it successfully taps talent in smaller cities and town, a global consulting firm said.

As per the MGI study, India will have 68 cities with a population of more than 1 million, 13 cities with more than 4 million people, and 6 mega-cities with populations of 10 million or more, by 2030.  

Are you positioned to garner a slice of the pie?

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.