Reimagining India: Unlocking the Potential of Asia’s Next Superpower (46 page)

In particular, there needs to be much greater emphasis on managing unfamiliar risks. Most Indian companies, especially those in the top one hundred, are very good at managing domestic risks on an intuitive and reactive basis. Their ability (with the help of one or two phone calls) to understand the underlying reason for regulatory changes, commodity price shifts, the lack of suppliers, and labor union troubles is extraordinary. When they go abroad, however, they encounter unfamiliar challenges. They do not know the regulator, the unions, the policy makers, or the nature of the local partners. A much more disciplined process to identify and manage these risks is required—not just to check a box for compliance or regulatory purposes but as a critical way to increase value and build resilience.

3. Be an active owner to create value from M&A.

Traditional M&A involves consolidation and back-office synergies, but when acquiring an asset overseas, it is essential to increase revenues. Indian acquirers often buy an asset that is already distressed, troubled,
or starved of investment. It is necessary to focus on revenue growth by bringing in new technology, attracting new customers, and finding new markets. These will make a big difference to the morale of the acquired organization.

Unfortunately, some senior Indian leaders have the view that Indian companies are preferred because they are relatively passive investors who are apt to leave the acquired company alone. This is not always the right view to take. Being passive can mean losing value. And being active does not necessarily mean slash and burn; it can be about bringing in three or four new managers to improve performance in a disciplined fashion and to work on mind-sets and capabilities.

4. Develop and recruit global talent.

Global business needs people with global perspectives—and these are in short supply. Most successful global companies have a cadre of one hundred (some even have five hundred) executives who are able to carry their culture, processes, and standards around the world. Indian companies are often remiss in this regard. When asked who will manage international expansion, they usually come up with the same set of five or ten trusted people who have been managing everything for them in the domestic market.

Indian executives can readily recite the challenges that foreign companies have faced in finding their feet in India. Among them: They were not committed to the long term; they didn’t have the right people; they changed their (expatriate) bosses every three years; they didn’t know how to manage a local joint venture; and they were not integrated into society. There is truth in this critique. There is also irony because Indian companies often make the exact same mistakes in their own overseas ventures.

Not only does India lack internationally experienced leaders, but many companies don’t consider giving outsiders a real shot either. It’s not hard to find firms that get more than three-quarters of their revenues from outside India—and have 95 percent Indian senior leadership. The CEO of Coke was born in Turkey, the CEO of Pepsi in India, the former CEO of Sony in Britain. At the moment, it is hard to imagine any Indian
company of similar stature selecting a non-Indian for the top spot. Sure, there might be an outsider with a leadership position in sales, but not in operations or finance. This glass ceiling, coupled with the fact that few Indian companies have great global brand names, prevents top talent from joining even the best Indian firms. They need to show executives that there are clear, performance-based career paths and no impediments to advancement.

At the same time, it’s important to develop India’s own best and brightest to global standards. Depending on the segment and business model, this needs to go beyond just the United States and Europe to also encompass important markets in Latin America, Asia, and Africa. It is typical in the Indian C-suite for executives never to have held an international assignment or even to have worked outside their companies or business units. These leaders may be brilliant at managing domestic businesses, but that does not mean they are well prepared to run global ones. One key priority for global Indian companies, then, is to start to build a cadre of fifty to one hundred internationally oriented middle to senior managers now so that their leadership capabilities can match their global ambitions.

why does it matter?

Even after twenty years of liberalization, some people question whether market-led international competition is the road that India should travel. Surely, they say, India should concentrate more on its domestic priorities. We argue that the two are intimately connected, that India’s health and prosperity cannot be sundered from the world. Consider how India’s IT services industry, perhaps the country’s most global, has created millions of high-skilled, high-paying jobs in India.

Globalization is also crucial to the health of the corporate sector. With more and more global companies treating India as an important market, Indian companies that do not learn how to be globally competitive will lose at home, too. Failure is certainly an option; staying on the sidelines is not. This is not a rising tide for all boats—those Indian companies that have developed the right capabilities and business models have already been much more successful than their peers.

Finally, there is an element of national interest. Business success on a global scale is an expression of soft power. Successful companies exert influence in a way that may not be possible for those confined to the Indian market alone. Consider how important, say, Coke or Apple is to the perception of the United States. Or think of it this way: Has South Korea ever had more effective ambassadors than Samsung and LG? Already, India’s success in industries like IT and pharma has changed the country’s image in a profoundly positive way.

We can imagine the world fifteen years hence and envision the skylines of major cities lit with names of leading Indian brands. And we can imagine dozens of Indian companies that will be not only leaders in their sectors but also pioneers in creating new businesses.

Kishore Mahbubani

Kishore Mahbubani is dean of the Lee Kuan Yew School of Public Policy at the National University of Singapore.

The United States is the greatest human laboratory in the world. America welcomes immigrants from all over the globe, offers them a level playing field, and encourages them to test themselves against world-class competition. Mexican bodega owners fight for customers against Korean grocers. Israeli coders challenge Russian hackers. Chinese microbiologists compete for funding against Swiss geneticists.

And who has come out ahead in this unparalleled global free-for-all? Indians. Their per capita income now ranks as the highest of any ethnic group in the States: In 2010, Indians earned $37,931 annually, compared to a national average of $26,708. If India’s population of 1.2 billion could achieve only half of the per capita income of Indian immigrants in America, the country’s GDP today would be $24.65 trillion instead of a relatively trifling $1.85 trillion, less than Italy’s. The gap between India’s potential and its actual performance is huge, perhaps the biggest of any country in the world.

Yet remarkably, even though Indians themselves have often noted how much better their countrymen perform overseas, that fact has not spurred a more intense debate at home. More than three decades ago, China’s Deng Xiaoping looked around the region, saw how much richer the Chinese in Taiwan, Hong Kong, and Singapore were than those on the mainland, and asked the obvious question: Why? The equally obvious answer was that China’s economic system was flawed. That led him
to the bold decision to smash the iron rice bowl that Mao Zedong had provided and to open up the Chinese economy. For the next thirty years, mainland China delivered the fastest-growing economy in the world. Before his death, Deng could claim to have lifted more people out of poverty than any other leader in human history.

The Indian business leader Ratan Tata commented at a public symposium in Singapore that he’d similarly urged Indians to learn from the success of their counterparts in the Southeast Asian city-state. According to him, most of them scoffed at the idea that huge India could learn anything from tiny Singapore.

That reaction helps explain India’s performance gap. One of India’s leading intellectuals, Pratap Bhanu Mehta, has framed the problem this way: Although China has a closed society, it has an open mind. The country’s leaders are pragmatic rather than ideological, focused intently on which policies work rather than which ones reaffirm their preconceived worldviews.

By contrast, India has a wonderfully open society—but as a nation, a very closed mind. In contrast to China, which has studied the world intensively and realizes it has to adjust, India is still clinging to outdated and misguided concepts. The country has become one of the most ideologically hidebound societies in the world. It continues to be nearly impossible to challenge conventional wisdom and sacred cows, particularly economic ones.

Where Deng happily cast aside decades of Communist dogma, Indian politicians are still repeating shibboleths like “multinational corporations with deep pockets will hurt the interests of the poor,” as Sanjay Singh, an MP from Uttar Pradesh, claimed in 2011 during the parliamentary debate on whether to allow foreign direct investment (FDI) in India’s retail sector. This is, as has been pointed out often, arrant nonsense. FDI in retail will actually help poor farmers and lower food costs for consumers.

In 1991, when Narasimha Rao and Manmohan Singh opened up the
Indian economy, their hand was forced by an acute balance of payments crisis. Two decades later, obvious reforms remain stalled, and every new measure proposed runs into a storm of political protest. Politicians fearfully block measures like allowing in foreign retailers, as though Indian shopkeepers could not possibly compete against them. (Thankfully, a reform package allowing some FDI in retail passed in the parliament in late 2012 with a slim majority.) I come from a Sindhi family that emigrated from Karachi in 1947. Our community has thrived in the retail sector around the world—surely we can do so at home, too.

India could, in fact, learn quite a bit from its diaspora. My mother had a close shave fleeing Karachi, so I fully appreciate the traumas of partition. But go to the trading floors of any of the world’s major banks today, and you will see Indians and Pakistanis happily working together, oblivious of the supposedly insurmountable divide between their nations. When I sit down to write in Singapore, I always put on a recording by Mohammed Rafi—an Indian Muslim singer brought up in Lahore in what is now Pakistan. Such cultural connections come naturally to South Asians abroad.

Indian strategists will cry that I’m being simplistic, that India lives in a dangerous neighborhood and must remain vigilant against outside threats. Fair enough. But China has had an equally complex, if not tougher, problem with Taiwan. In some ways its challenge has been greater: While all mainland Chinese believe Taiwan is an integral part of China, the island has for decades been protected by a rock-solid defense treaty with the United States and its incomparable military. Pakistan has no such treaty, and in fact, tensions with Washington have grown in recent years.

Yet China has almost entirely neutralized the Taiwan problem. Lately, Beijing has pursued a brilliant strategy of isolating the Taiwanese government and engaging with the Taiwanese people. China has laid out the red carpet for Taiwanese investors and tourists. By now, with the
Chinese and Taiwanese economies inextricably linked, the Taiwan Strait is no longer considered a major geopolitical flash point.

India could be pursuing a similar policy of economic and people-to-people engagement with Pakistan, replicating what the Indian and Pakistani diasporas do overseas, often spontaneously and effortlessly. Today, none of its neighbors, not even Pakistan, can seriously threaten India. China has wisely made its neighbors stakeholders in its own economic growth and prosperity, and even traditional American allies like Japan, South Korea, and Australia now trade more with the mainland than with the United States. India should similarly be fostering greater trade and economic interdependence with all its South Asian neighbors. In some cases, unilateral concessions may be in order, as India’s economy dwarfs those of its neighbors. Various vested interests will naturally oppose such giveaways. But the long-term geopolitical gains will far surpass the short-term economic losses.

In fact, by rights India should be one of the world’s leading champions of globalization rather than an insecure and fearful opponent of it. For several decades after World War II, both the United States and Europe provided the impetus for liberalizing trade around the world, believing correctly that as free markets and demand expanded globally, most of the new jobs created would go to Americans and Europeans. Now they’ve begun to retreat from globalization because of fears—also correct—that the new jobs are going to go to Chinese and Indians. As the new “winners” of globalization, China and India should join forces to promote the process and keep up its momentum. Instead hoary ideological suspicions have thus far prevented India from playing such a leadership role.

One could blame India’s underperformance on a host of factors: overpopulation, corruption, illiteracy, political incompetence, stubbornly persistent poverty. But the real failure is, to a large extent, one of imagination. Many Indian leaders still seem unable to conceive of their country as a confident, open-minded, rising power—one that can
afford to take risks and can be generous with its supposed adversaries. At one time the legacy of two hundred years of British colonialism had undoubtedly damaged Indians’ cultural self-confidence. In recent years Indians abroad have proved that they’ve shed that burden. It’s time for their leaders to follow them.

Suketu Mehta

Suketu Mehta is the author of
Maximum City: Bombay Lost and Found.

I am a city dweller, like my father and my grandfather. My great-grandfather lived and worked, like his forefathers, in the villages of rural Gujarat—as did the forefathers of Mahatma Gandhi, who declared, “The future of India lies in its villages.” This is no longer true for my family or my motherland or, for that matter, most of the planet.