'Global Competitiveness of Indian Companies is Dramatically Increasing'
  Josef Rick, senior vice-president, The Boston Consulting Group
 
 Businessworld, 4 September 2006
 
The world’s rapidly developing economies (RDEs) are giving birth to a new set of multinational companies, which are gaining global market share, making major acquisitions and emerging as important customers, business partners and competitors for the world’s largest companies. The Boston Consulting Group recently identified and profiled 100 such companies with large businesses, significant global activity, a clear commitment to globalisation, and solid prospects for future success. These companies earned combined revenues of $715 billion in 2004 and are growing at an average of 24 per cent per year.

Asia is home to 70 out of the RDE 100 companies, followed by Latin America with 18 and Central and Eastern Europe with 12. Most of the companies belong to the BRIC countries (Brazil, Russia, India and China). China leads the pack with 44 companies, followed by India with 21, Brazil and Russia. In 2004, these Indian companies earned a total of $61 billion and were growing at around 30 per cent per year. They represent a new breed of Indian companies actively seeking to expand in international markets and willing to compete with established names in their home markets.

Josef Rick, senior vice-president, The Boston Consulting Group, discussed this phenomenon in an interview with Businessworld’s Rohit Viswanath. Excerpts:

What, according to you, is facilitating the growth of globally competitive companies in RDEs?

First of all, these companies are doing a tremendous job in their home country. They are growing fast, performing well, learning a lot about the industry and recognising their strategic advantages vis-à-vis the others. Very often, they have a very strong position in their home markets as they formally or informally get a good cover, support or protection from their respective governments (perhaps not in India) and have a good platform to export their strengths. They are already equipped with a good portion of resources like capital and people. Based on that, they are, sometimes, overlooked in the global markets or underestimated by the incumbents. That is also an advantage. They also have cost advantages because of their local sourcing possibilities. This combination makes them very successful.

In our study of the top 100 companies from RDEs, we found that companies in the BRIC countries come from different industries and are building different competencies. For example, in China, a large number of the companies were from the telecom and consumer goods industries and have used a largely brand-driven approach to the developed markets. In India, the companies are largely from the automotive, pharma and IT sectors. They have used engineering skills to reduce capital and operating costs. Russian companies are largely related to natural resources, whereas those from Brazil are a combination of natural resources and agricultural products. As of now, there isn’t much conflict among them. But later, they might compete with each other, which is natural as both India and China have manufacturing ambitions.

What kind of challenges do these companies face?

Overall, it is very stressful for organisations to penetrate a fast growing market in their home countries, taking care to not lose market share and crack a new market at the same time. It is important to know if they have the capability to do both things at the same time.

Further, globalising companies have to continuously identify international opportunities and threats, and understand and incorporate them into their plans. For that, the top management has to be from diverse cultures. Then, some companies are expanding regionally but not globalising. In a sense, they are transferring their culture to all other countries of the world. This has charm, but the disadvantages outweigh that. This is one of the biggest threats.

How important is innovation in this global clash?

Innovation is closely related to the size of the talent pool in a company, or the number of people with technical aspirations. The markets do not care for the causes of better performance in manufacturing. Cost position is what is important, innovation per se is useless. Companies are better if they are successful and more cost competitive. And India is cost competitive.

If you can bring together the best practices from around the world, or if you are just copying and transferring what others have done, but have combined all of them for the first time, you are no less than an innovator. For instance, Henry Ford did not innovate in the automobile, but he innovated in the assembly plant to make production smarter and cheaper. That was a process innovation, and it has changed the world.

If you put together the best practices to a world-class benchmark, you will be successful, irrespective of whether you call it innovation or not!

How would you rate Indian companies vis-à-vis the companies from other rapidly developing economies?

Global competitiveness of Indian companies is dramatically increasing these days. It may not be very visible, but it is there. However, in terms of visibility and mobility, we must rate China first. That is because Western companies have taken over most of the manufacturing activities there. Russia is a difficult country by size, and is focused on its home market. There are plenty of infrastructure issues that will take time to be resolved. South America does not know where it is going. But India is the hidden real champion — low noise and lower visibility compared to China, but better than the others because of language, governmental situation, etc.

Although China is a little ahead in terms of the level of activity and in the global market’s mindset, I expect India to catch up with, or even surpass China. It depends on what India’s companies and its politicians will do.

What are the challenges before globalising Indian companies?

Given its educated manpower, especially engineers, and English skills, India is better than China, Russia or South America. It is a great combination.

But there are important challenges such as leadership mindset, availability of an ‘international ready’ talent pool, customer acceptance, and market understanding and branding.

One of the greatest challenges before Indian companies is not having enough people with knowledge and experience of international markets, customers and suppliers. As a result of this, the management bandwidth itself becomes limited. Even if one makes an acquisition, making it work is something that Indian companies are still learning.

Most companies do not understand sales and distribution in the international context. Further, the company’s brand itself is not known and if it has a ‘Made in India’ tag, is not readily accepted in the Western world (at this point of time). The situation is the same with other countries. Was the US market really accepting the ‘Made in Korea’ car 20 years ago? Not really. But they are among the most popular cars in the US. It is the same with the ‘Made in China’ tag. So, it is just part of the process.

Are there any domestic issues that Indian companies need to tackle before looking at the international market?

The more immediate and relevant issue is what we are already seeing in the Indian IT services sector. Earlier it was dominated by large home players such as Infosys, Wipro, TCS and others. Now IBM, Accenture and EDS are here in a big way. They are also adding a significant number of people. So, the immediate threat is not from the next wave of BRICs, but from companies that belong to the developed markets and are coming into India and using the advantages that it offers. Whether their corporate structures and cost structures also have the same advantage, is a separate issue.

Today, the scenario is quite simple.

If I have a cost advantage in comparison to an outside player, I can compete on the basis of that. But once that player sets up base in my country and the cost advantage becomes neutralised, the competition will have to be based on something more.

Therefore, over a period of time, if Indian companies are to get ahead, something beyond cost advantage will have to be found. It could either be in terms of innovations in product offerings, or in customer service or supply. That, to me, is the big challenge.