Reimagining India: Unlocking the Potential of Asia’s Next Superpower (45 page)

One thing I’ve learned throughout this process of international expansion is that if Indian companies want to reinvent themselves as world-beaters, they should be prepared for some humbling experiences. Birla is a sixth-generation industrial concern; we sponsor hundreds of schools and temples around the country. Virtually every Indian recognizes our name. But when we decided to acquire a Canadian pulp mill in 1998, none of the twelve hundred residents of Atholville, New Brunswick, had any idea who we were. We had to present ourselves, our credentials, our philosophy to everyone from the local shopkeepers to the unions and provincial government. The team I’d sent to Canada to sign the deal was initially quite upset; they felt demeaned, as if they were being treated like fly-by-night operators.

The process of building trust does not end once the deal goes through. With any foreign acquisition, the new employees watch for signals to see if you are walking the talk, if your decisions match your promises. You have to be very careful that people don’t read into things more than they should—how many people have been sent out from India, how often they report back to headquarters, whether they’re treated any differently from non-Indian employees. All these things can make the difference
between a company that integrates well into the larger group and one that resents being taken over.

Globalization is not just about putting up a plant. It’s not about making an acquisition. It’s much, much more. One has to tread cautiously, patiently. It has to be an evolutionary process. Before we made our biggest purchase to date—the $6 billion buyout of aluminum giant Novelis in 2007—I asked the due diligence team I sent out to give me substantive feedback about the attitudes of the company’s American employees. I told them to engage the Novelis people in deep conversations, to find out how they felt about working for an Indian conglomerate, what questions they had about our culture. The deal would be the second-largest Indian acquisition ever in North America, and would make us the biggest producer of rolled aluminum in the world. But these “soft” concerns were as important to me as statistics about plant machinery, profitability, productivity. I don’t know if I’ll ever write a check that big again; I certainly didn’t want it to buy me a hostile, disgruntled workforce.

Integrating all these global operations is obviously a challenge in itself. Some Indian companies prefer to leave their foreign acquisitions to operate on their own, almost as independent outposts. But if you want all your employees to share the same values and to feel a sense of kinship with one another, as we do, you’ve got to work at creating an emotional bond—the kind of thing that an Indian growing up hearing the name Birla, or attending a Birla school, would take for granted. By the same token, you have to be prepared to treat all your employees and managers—Indian and non-Indian—equally. The views of those outside India have to count as much as those here at home. It might take them longer to bond with the parent company, to think about the larger good rather than maximizing their silo operations. But the effort is worth it.

What’s even more difficult for a tradition-bound company like ours—but just as valuable—is learning and importing values from the new acquisitions. This goes well beyond the food in the cafeteria. Before we started expanding overseas, the corporate presentations in our commodities businesses never discussed safety and the environment. Then we saw how our new employees operated. Their first slides always dealt
with safety. They talked about near misses, fatal accidents. It was a huge deal—it came before any discussion of the competitive environment or profitability. Now we do the same. We have a deeper appreciation for the value of environmental sustainability.

Some lessons surprised me even more. Ironically, before we became more international, I used to be much more impressed by someone who could speak the Queen’s English than, say, a chartered accountant from Jodhpur whose spoken English required some effort to understand. Now when I look across all our operations in places like Brazil or Egypt or Thailand, I see a whole host of people who aren’t comfortable in English, who need interpreters, but who are very, very good at what they do. Sadly, it took that experience for me to respect an accountant from Rajasthan—my home state—as much as a graduate of St. Stephen’s in Delhi. At one time we even wanted to run English classes for some of our employees! Now it’s not an issue in my mind. If you can get your point across, if you are adding value, if you are competent, then bloody hell to your English.

More concretely, as we’ve grown we’ve also had to learn new ways of structuring our organization. We’ve created positions for sector heads who control billions of dollars’ worth of business, rather than hundreds of millions—just as some of our foreign acquisitions did.

The good news is that globalization gets easier over time: There is a snowball effect. The next time we bought a pulp mill in Canada, we were known. The New Brunswick government was comfortable with us; the mill workers knew who we were. Interestingly, as we become more global, people have real feedback to fall back on. When we acquired Columbian Chemicals in 2011, executives at Columbian headquarters in Atlanta were able to go across town to Novelis headquarters and ask about us—what we were all about, how we’re run, what sort of autonomy we encouraged. They were talking to people to whom they could relate easily and who could give them honest and accurate information. Maybe not all of it was positive, of course, but at least it was real.

Now, when we want to recruit expat talent to move to India, it’s much easier as well because they know about our global operations. They know
that opportunities across the group are getting bigger and more interesting. It’s made us a more attractive employer to non-Indians. As we are “going global,” we’re also finding that global executives are becoming more willing to “go Indian.”

As I’ve said, this has taken years of painstaking work. It’s not an overnight process, and it’s not as easy as writing a check. There are opportunities out there for ambitious and well-run Indian companies—as long as they remember that the world will change them as much as they hope to change the world.

Alok Kshirsagar and Gautam Kumra

Alok Kshirsagar is a senior partner in McKinsey’s Mumbai office. Gautam Kumra is a senior partner in McKinsey’s Delhi office.

What comes to mind when you hear the name or see the image of Coke, Disney, Siemens, Toyota, or Samsung? You know where they are from and what they do. They have transformed the lives of customers and employees and served as powerful ambassadors for their home countries. For the United States, it was the 1950s and 1960s that saw the first generation of these global companies, in Japan it was the 1970s and 1980s. In the 1990s and 2000s, it was South Korea and increasingly China (think Lenovo and Huawei).

Now it’s India’s turn.

We can readily imagine India brands’ journey toward global prominence because it has already begun. In the last decade, Indian companies have expanded their international footprints. Birla, a conglomerate that is a top ten global cement manufacturer as well as Asia’s biggest aluminum producer, gets 60 percent of its revenues from outside India. Airtel, an integrated telecom-services provider founded in 1995, already operates in nineteen countries and has the world’s fourth-biggest subscriber base. Mahindra, the world’s largest tractor company, operates in one hundred countries.
And India has made inroads in ways that few readily appreciate. Generic drugs by companies such as Dr. Reddy’s, Sun Pharma, and Zydus are sold all over the world.

Today, more than 30 percent of the revenues of India’s top fifty listed nonbanking companies come from international sources—more than double the percent in 2006. Outward investment has been above $9 billion in each of the past six years.

That said, India still punches well below its weight. There are only eight Indian companies in the
Fortune
Global 500 and only three of these are private (Reliance Industries, Tata Steel, and Tata Motors). That is fewer than Australia (nine) and many fewer than South Korea (thirteen) and China (seventy-three). To be fair, the
Fortune
500 is a measure more of “bigness” than of “globalness,” but India’s low representation is still striking.

india inc. in 2028

If there were to be a fifteenth anniversary edition of
Reimagining India
, however, we think the position will have changed substantially. We believe that over the next fifteen years, India can develop at least fifty world-class multinationals. These companies will have progressed from increasing their exports and overseas investments to establishing global platforms and brands.

Why is this idea more than an act of imagination? Because India already has a critical mass of firms with the aspirations, strong capabilities, and balance-sheet strength from which to build truly global companies.

For a start, most of today’s managers grew up in a multicultural country with a complex, dynamic, and competitive environment. The price sensitivity of the Indian consumer has forced companies to innovate and challenge established global models. For example, in the 1990s,
Airtel was among the first mobile-phone companies to outsource IT and network management. This allowed it to develop a “minute factory” that drove volume up while driving costs down.

Moreover, in many ways India does not operate as a single market. The complexity of competing across state borders with different tax systems, consumer habits, and local government policies is akin to competing across national borders. Indian executives have learned to be resilient and know how to adapt in a volatile business environment. These capabilities can now prove very valuable as they venture out, particularly to other emerging markets that share some of the same conditions. There is not much that any country can throw at Indian managers that they cannot cope with.

It’s also worth noting that unlike in China, it is entrepreneurs and private firms, not state-owned enterprises, that are driving the globalization of Indian business. TCS, HCL, Infosys, Wipro, and similar firms like to say they were “born global,” and they were. The younger scions of the family dynasties have also proved important to the broad-based spread of Indian business. Almost all top Indian managers are fluent English speakers (and there is an increasing number who are Spanish and Mandarin speakers, too).

Finally, Indian companies will continue to pursue international expansion as a way to diversify their risk away from the domestic economy and the challenges of doing business in an uncertain political and policy environment.

getting globalization right

McKinsey research that studied companies across Asia has proved that those that globalized with a clear purpose, business model, and capabilities have been much more successful than those that expanded just because they could.

The ambition to acquire must be matched with the ability to create value; aspirations need to mesh with capabilities. A study of cross-border deals from Japan between 1980 and 2000 found that most of them failed due either to weak strategy or poor governance. There have been many fundamental changes in how the Japanese manage their outbound forays.
In India, for example, they are spending more time thinking about how to manage global partners and in general going for stronger local talent than they did in the 1980s.

Korean companies have followed the same path. Many had a very difficult time when they first sought to go global in the 1980s and 1990s. Like the Japanese, the Koreans often bought weak companies and then were unable to turn them around. But they shifted focus and learned how to invest organically, how to build global brands, and how to get high returns on their investments.

Hyundai, for example, initially struggled when it entered the United States (as did Toyota), and its cars suffered from a reputation for poor quality. So Hyundai improved its products, backed that up with generous warranties, and has now become a competitor to be reckoned with.

There is good reason to be optimistic that India can learn from the experiences of its Asian neighbors and step up its own game. Although there have been some well-known missteps, most Indian companies know what they want to achieve. In an analysis of more than three hundred deals in which Indian companies bought foreign players, McKinsey found that 43 percent of them were to access new markets (the figure for China was 20 percent) and 24 percent were to access new technologies.

But it will take more than imagination and a few case examples for success. It will require many acts of will, calculated daring, and new capabilities. Drawn from McKinsey’s experiences working with Indian companies, here are four imperatives for the successful globalization of India Inc.

1. Deepen market insights: think local, while going global.

Many Indian companies have grown internationally via a combination of opportunistic export-led growth and product-driven sales. Some in the pharma and IT industries have developed tailored services for different customer segments, but most companies have faltered when it comes to developing deep local insights. Increasing international market share requires much greater levels of investments in segment and market insight. Indian companies have to tailor their offerings, not just replicate their business model. For some, this requires a big mind-set shift.

The approach Tata Motors took with Jaguar Land Rover in China is a good example of the rewards of doing this right. Since the acquisition of JLR in 2008, Tata has made substantial investments in China and built a new factory, which it operates with a local joint venture partner. In the financial year ending March 2012, sales for JLR China surged nearly 50 percent. China is now JLR’s largest market and a big factor in its turnaround.

2. Create and institutionalize global processes.

Founders and entrepreneurs have led India’s globalization. These kinds of leaders made their mark via intuition, inspiration, and navigation of personal networks. But what works in India does not necessarily work overseas. The need is for a more process-driven form of management that can be rolled out in different countries. To create order and consistency across their global operations, Indian companies need to create systems for everything from how to get supplies to their factories to how they operate their plants.