Global powerhouses made in India

An informative article by Nirmalya Kumar, co-director, Aditya Birla India Centre at London Business School.
The transformation of Indian companies from domestic to global players occurred in three phases. Pre-reform, prior 1991, Indian business was in shackles. The post-1991 economic reform necessitated decade-long corporate restructuring to make companies globally competitive. Now, in the third phase, Indian companies are increasingly going global. Pre-1991, large Indian business houses were prone to stay at home in the sheltered domestic market. The institutional environment of licensing and limited competition led to domestic success without developing the unique competencies, the resources, or the viable scale necessary for competitive advantage in international markets. Post-1991, Indian companies realised that the traditional Indian business model appropriate for ‘‘sheltered firms’’ had to be abandoned. The decade-long Indian corporate restructuring programme had four essential elements: cleaning the balance sheet, improving competitiveness, focusing on core businesses, and strengthening management. To a great extent, the promoter determined the degree to which the painful restructuring medicine was adopted. Some business groups and companies were rather aggressive in changing the old ways. Other business groups suffered from poor leadership and the family splitting of assets. As a result, some renowned family business houses witnessed unprecedented decline in the 1990s. In that decade, dominant domestic leaders increasingly looked to become global but they had to overcome the mindset barrier. ‘‘We asked ourselves: Why don’t we become one of India’s MNCs in manufacturing? By doing so we will have better access to the market, better access to knowledge, better access to new developments,’’ explained Baba Kalyani of Bharat Forge. Nevertheless, it took Bharat Forge seven years to find its first customer because coming from a so-called underdeveloped, low-cost country, the company had to battle all kinds of doubts regarding its capability. The Bharat Forge experience raised three issues about overcoming the mindset barrier that comes up repeatedly in Indian companies’ global quest: making a leap of faith, persistence in the face of initial setbacks and overcoming the liabilities of the ‘Made in India’ origin. For an Indian company to go global requires, at some level, a leap of faith into the unknown. In the face of scepticism, the entrepreneur or owner made the decision to go for it despite, what to unbiased observers, may have seemed like long odds. Anand Mahindra mentioned that while pursuing his MBA at Harvard Business School, he was disappointed that there were no case studies or examples of Indian global brands. It fired his ambition and led him to decide that when he took over the family business, Mahindra would be a global brand. Becoming global is a learning game. There are initial setbacks and in light of a growing and profitable domestic business, it would have been easy to retreat from global markets. Yet, they persevered and learned from their mistakes. The initial hotels acquired in the 1980s by the Taj Group in cities such as Chicago, New York, and London were B-level properties. But they were what the Taj Group could afford given the foreign exchange limitations the government placed. Taj realised that its competence was in the running of five-star hotels. Later, when it became serious about its international operations in developed markets, it shed all the initial acquisitions and acquired prestigious hotels such as the Ritz Carlton in Boston and Blue Sydney in Australia. What made Taj persevere? R K Krishna Kumar, vice-chairman of Taj Hotels, said: ‘‘The Tata Group has always recognised that the world marketplace is not divisible ... There’s a strategic compulsion to go outside India for many of our businesses because we believe the global market is one marketplace.’’ Until the late 1990s before the IT outsourcing boom, the image of India was detrimental to Indian business. At its worst, India was identified with abject poverty. It was extremely difficult to convince global customers that an Indian supplier could be a reliable source of good-quality products made by a technologically sophisticated company. Imagine an Indian executive a decade ago trying to persuade Procter & Gamble that Essel Propack should be its supplier in the United States. Indian entrepreneurs learned that in competitive global markets there was always another supplier willing to match the Indian firm’s low prices. To obtain the order required more than that: demonstrating they had the world-class capabilities (assets, processes and knowledge) to compete in international markets. Going global also requires a dominant lever. Companies such as Infosys and i-Flex Solutions were born global because they understood that India’s huge human capital advantage needed global fulfillment. The IT sectors were instrumental in sparking the imagination of Indian entrepreneurs to seek ‘born global’ business models that exploit India’s large pools of reasonably priced skilled workers. A transformational merger is a frequently employed strategy to become a global firm. Hindalco did exactly that with its 2007 acquisition of Novelis, a world leader in aluminum rolling and can recycling. Several other Indian firms, such as Arcelor Mittal, Tata Tea and United Breweries, have also used acquisitions as a path to globalisation. Other companies, such as Tata Motors, Godrej, and Marico, have utilised the specific product competencies developed for India to enter other emerging markets. Given India’s size, domestic leadership often confers global scale, as seen at both Mahindra & Mahindra and VIP. As Anand Mahindra observed, ‘‘India is the largest tractor market in the world, and if you are the largest tractor maker in India, it is a disservice to India if you are not a global force.’’