India – A vibrant and volatile business opportunity
We live in a VUCA world, a world characterized by volatility, uncertainty, complexity and ambiguity. The Internet is (finally) revolutionizing the retail and media industries. Green technologies are shaping our growth path. Biotechnology and material science are on the verge of ever more fundamental breakthroughs. Digitalization and robotization are putting industrial capabilities at risk. Germany is about to switch off nuclear power. Europe is faced with a violent geopolitical conflict on her doorsteps. The US has proclaimed the “Pacific Age”. Unethical behavior by bankers has not only led to the great financial crisis of 2008 but to a series of scandals relating to Libor and exchange rate fixing. Oil prices, exchange rates and stock markets have undergone fluctuations that leave even the hardiest investors breathless. The long list of facts that we would have at best considered as unlikely trends just a little while ago continues to grow longer at ever shorter time intervals.
Emerging markets, while often delivering higher growth rates than so called developed economies, tend to be more exposed to these critical uncertainties. Internal factors increase volatility and complexity beyond the levels seen in developed markets. Most emerging markets face key challenges, for instance, governance issues such as the recent corruption scandal in Brazil or the corruption scandals in India a couple of years ago. Rule of law is often either inadequate or not enforceable. Political uncertainty is high in both democratic and nondemocratic emerging markets, often leading to internal and external tensions as witnessed by the Ukraine crisis, the current war in Yemen and dangerous ongoing tensions in the South China Sea. Institutional voids prevent a simple application of global business models and sometimes imply that it is not the best contender who wins but the best connected. Operating in emerging markets does require a unique combination of stamina, commitment, flexibility and speed.
India is no exception. Just a couple of years ago, global coverage about India focused almost entirely on gaps in governance. Massive corruption scandals embroiled the government and the administration and have led to extensive policy paralysis. At the height of the crisis, more than INR 6.2 trillion of projects were held up at various stages of the investment process with a corresponding negative impact on the overall economy. During the second half of the Congress-led United Progressive Alliance (UPA) government, sudden bans on iron ore and coal mining disrupted access to raw material for energy and steel producers. GDP growth slowed down to an unsatisfactory level of 4-5% and growth oriented companies were forced to focus on operational efficiency and cost savings as they struggled for survival. The sweeping win of the opposition National Democratic Alliance (NDA) in 2014 and the focus of the new government on investment and pro-business policies has created cautious optimism within India and abroad. However, it remains to be seen how many of the election promises will be executed on the ground.
Yet, despite these challenges, India’s democracy has enabled remarkable economic and political development. India managed to keep a collection of independent nations together in a single state after shaking off the yoke of foreign occupation. The current discussion in Europe around Greece clearly serves as a reminder that this is no mean feat. India’s GDP is 4.3 times greater compared to 1991 and the country has pulled about 225 million citizens out of poverty. Telecommunications penetration has gone from 6 million in 1991 (1% penetration) to 915 million in 2013 (73% penetration). Between 1991 and 2013, 45,466 km of national highways were built, as compared to 13,839 km between 1951 and 1991. The addition since 1991 alone is four times the length of Germany’s total autobahn network.
Change and progress in India are palpable and visible everywhere. When I arrived in India for the first time in 1994, I was mesmerized by India’s colors and the diversity of her people. But I remember clearly the nagging thoughts and growing frustration that such a beautiful country did not seem to be able to offer exciting careers to her young people. Most of India’s best and brightest were determined to secure seats at US universities in the hope of settling there. Today, things have changed dramatically for the better. In most fields, careers in India are as exciting and fulfilling as in any other part of the world. With the challenges of operating in an emerging nation, probably even more exciting.
Today, India means opportunity. There are clearly significant business opportunities that can and should be leveraged. Successfully riding the Indian tiger requires a sound, flexible strategy, operational excellence and a dedication to customer- centric innovation.
Typical strategy frameworks that look at a ten-year planning horizon may not be applicable to emerging markets in general and India in particular. With doubts about the predictability of the future –new competitive dynamics driven by digitalization, frugal innovations and business models, fast-changing consumer needs and aspirations, etc. –strategic approaches in India require flexibility. While firmly centered around a common purpose, strategies and organizations need to be able to adapt quickly to changing market environments.
Besides strategy, operational excellence is of key importance to survive in the hyper-competitive Indian environment. Prices in India, such as those for passenger cars, are significantly lower than in developed and other emerging markets. While disposable income has increased significantly over the last few decades, large sections of the population remain very price sensitive. The key challenge in providing value at a consumer-defined price point can only be met by companies that relentlessly pursue cost reductions and process improvements across the value chain.
Indian consumers are value-for-money devotees. Satisfying their demands for performance at acceptable price points drives business model and process innovations. Price/performance equations of products need to be constantly improved via frugal engineering in order to both secure existing markets and open up whole new market segments for consumption. Real technological innovation breakthroughs have been less prominent in the Indian market and are generally more relevant to furthering the global aspirations of Indian MNCs.
The protagonists – Leveraging the resurgence of India
Successful players in India come from all backgrounds – large and well-connected family businesses, hardy MNCs, new entrants that have built their empires over the last ten to twenty years, as well as the latest wave of e-commerce companies. Each of these companies has leveraged different strengths and overcome different challenges in order to establish themselves firmly in the country.
India’s early economic history has been written by large families and conglomerates. Business families and groups – such as Tata, Birla, Godrej and others – have had a major impact on the country and some have become global household names. These companies boast formidable competitive advantages such as access to capital, legal and political support, brand reputation, distribution footprint, R&D capability and a solid talent pipeline. Backed by the specific advantages of these strong firms, these Indian leaders have entered new lines of businesses, leveraged their position for joint ventures with MNCs and, in a more recent phenomenon, driven innovation by acting as VC investors. Many have looked beyond India’s shores to drive global expansion of their firms and brands.
Newer additions to this group, such as Reliance, Adani, Bharti and others, have grown at extraordinary speed, fully leveraging the opportunities that a liberalized economy presented to them. Many have been innovation leaders in their fields, e.g., Bharti Airtel, a company that redefined the way the telecom business is run globally, and Adani, a company that built best-in-class port infrastructure in India and competes head on with the best ports globally.
MNCs typically leveraged their brand, processes and technologies to penetrate the mind and the wallet of the Indian consumer. Some, such as Siemens who built the Indo-European telegraph line from London to Calcutta in 1865-1870, have been active in the country for more than a century and have become local household names. Others such as Maruti-Suzuki are newer additions, but their product portfolio and approach to the Indian market has made them part and parcel of the Indian economy and cultural fabric.
A new set of companies born out of the startup environment in Bangalore, Gurgaon, Mumbai, Pune, and Chennai is also entering the scene. Here, local players either adopt global models to an Indian context or solve real-life issues for Indian customers. With eight unicorns (Flipkart, Snapdeal, Ola Cabs, and others) at the time of writing, the Indian startup scene is likely to remain interesting over the next few years.