It would be hard to find a more passionate advocate for doing business in India than Ravi Venkatesan, the former chairman of Microsoft India. When Mr. Venkatesan moved to India in 1996 from the United States, he was so sure he wouldn’t be here long that he put his belongings in storage.
Instead, he spent an eight year stint as the head of Cummins India, growing the company’s engine and generator set business here, and helping Cummins open the country’s first engineering college for women in Pune. Then he took the top job at Microsoft in India in 2004, despite knowing so little about information technology that he used to have someone print out his e-mails for him. He left in 2011, after helping expand the company’s business in India seven-fold to nearly $1 billion.
Mr. Venkatesan has written a book about how essential India is for multinational companies, and why some do “pathetically” here, as he puts it.
“Conquering the Chaos: Win in India, Win Everywhere”will be published in mid-June in the United States by Harvard Business Review Press.
He recently spoke to India Ink about why multinational companies have no choice but to come to India, and what some are getting wrong.
Several multinational companies have tried, and by some measures, failed in India in recent years: Vodafone is bleeding money, Reebok had to pull out after a massive fraud, the big Wall Street banks that ramped up here have quietly ramped down. If I’m a big company that doesn’t have a presence in India, why come now?
India is important not just because it is a big market. India is important because it is a litmus test for your company’s success in emerging markets.
Most emerging markets look like India – they have uncertainty, corruption, poor infrastructure and chaos.It could be Brazil, Indonesia or Nigeria. But few have the same potential, so India is in many ways a lead case for emerging markets.
Right now, multinational corporations have two choices. They can either not grow, or they can embrace the chaos of emerging markets.Europe is not going to sort itself out anytime soon – they need to learn to deal with these situations. If you think you can escape chaos, you’re sadly mistaken.
But to get that emerging markets experience, why not start somewhere small, instead of one of the biggest and messiest markets in the world?
For each recent decade in India, there have been three or four good years, sandwiched in between bad years. Companies that have come and stayed through the good and the bad have prospered.
Look at JCB, which makes construction machines. They have 55 or 60 percent of the market in India, while Caterpillar, the global leader, is tiny. Apple is nowhere in India, because they’ve said they’ll come when distribution improves. But Samsung isn’t waiting. Samsung is thriving and has run away with the smartphone market.
If you stick with India, there are four important things you can learn:
A lean cost structure: I.B.M. has more employees in India than anywhere else. Honeywell has 20,000 people here. John Deere a third of its engineers in Pune. That’s adding several hundred basis points to the bottom line for them.
Second, Indian products are good for other markets: While I was with Cummins, we made a small generator here for India. Now I can go to Home Depot and buy their generator set, made in Pune. As southern Europe gets poorer, consumer products tailored for India are selling there – smaller size sachets of shampoo, for example. The Spanish and Greeks can no longer afford to buy what they could buy before.
Number three, you’ll find excellent talent: a lot of Unilever or Procter & Gamble’s African business executives are from India, for example.
And fourth: Having operations in India will fundamentally change most overseas companies. For instance, in 1996, I came here to a troubled joint venture that Cummins had with the Tatas. Instead, we turned it around and now, Cummins has 55 joint ventures worldwide, and almost all of them are making money. In many ways, Cummins learned how to manage difficult joint ventures in India.
In all these wonderful ways, India will teach you to be successful in emerging markets. Experimenting in a smaller market won’t allow you to achieve the same scale.
Okay, I’m a chief executive based in the U.S., and I’m looking at that chart of a few good years in India, sandwiched between several bad years, and thinking ‘Wall Street is going to crucify me.’ What publicly traded company head wants to take that kind of risk?
The chief executives of 98 percent of the Fortune 500 companies are from developed markets. They have a short time to orient themselves: six years is the average chief executive term. Sure — why do the heavy lifting in emerging markets, so that the next guy can get the rewards?
Well, there are some great examples of success if you look past the chaos, including Cummins, Volvo and Samsung.
It takes a chief executive of great open-mindedness and courage. It’s a definite choice and not many go there.
Look at Reebok. They had the courage to come here, and it’s been a disaster. What happens when you have courage and it still goes wrong?
The big boss might get fired. Being a chief executive, showing real leadership, is a risky decision. Don’t be a chief executive if you don’t like risk.
In Reebok’s case, though, it was a failure of leadership choice and a failure of culture. Reebok bet on the wrong guy, and the whole industry knew it. And then, they chose to ignore it, as long as the results were good.
The performance of most multinational companies in emerging markets is poor, except for those led by a few great chief executives, like I.B.M.,JCB or Schneider Electric, whose C.E.O. moved to Hong Kong because he realized that Asia was where the action was going to be for the next few years.
So, if I’m a multinational company looking at India, what are some of the things I should do to avoid the problems others have fallen into?
If you’re working for an American company, and you are a mid-level sales manager, typically headquarters makes all the decisions. The model you need if you want to play the big game is you need someone with a track record in the company, who is trusted, in emerging markets.
For example, Nestlé, which recognizes that all food is local — Indians like to eat Indian food, and you need to do food R.& D. in India. They sent a global R.& D. guy to run India. He comes here, and quickly realizes they need Indian flavors, and you’ve got Maggi Masala and a shiny new R.& D. Center in Delhi.
They need to be an entrepreneur, to build the business, not a bureaucrat. For example, McDonald’s: How did a beef hamburger company come to India, a vegetarian country where the cow is sacred, and make a profit selling Happy Meals for 25 rupees [about 50 U.S. cents] ?
About 10 years ago, McDonald’s decided “we’re not a hamburger company, we’re a global brand, a supply chain expert and we know how to run a chain of family restaurants.” They hired two entrepreneurs as joint venture partners; these two guys leveraged the brand and the capabilities of McDonald’s but developed a completely Indian menu and a completely local business model.
You need a person with a passion for India. The country manager job in India is one of the toughest in the world. You get crushed between the bureaucracy of India and the bureaucracy in your headquarters. You need passion, and you need to stay for five to seven years. If you stay for two or three years, you’re part of a revolving door, and you won’t get anywhere.
You need someone with courage, who is willing to ask forgiveness, not permission, and the tenacity to deal with situations never dealt with before. You need people who embrace chaos and uncertainty.
Basically, there are two types of expats in India, those who dive into the chaos and those who put the biggest wall they can create between themselves and the environment. You want the first type.
If I’m a top manager in, say, New York, what you’re suggesting is going to make me extremely queasy. You’re suggesting I basically let my country manager go feral –
If you’re too nervous, you won’t act on it. And therefore, your company will lose out on emerging markets. And your competition will win.
I was interviewing the chief executive of a pharmaceutical company and within 30 seconds he had told me, “India is the worst country for a company like ours with no protection for intellectual property, compulsory licensing, price controls and so on.” He had made investments here, and they hadn’t gone well. I asked him later in the call when he would visit India next, and how much time he had spent in India. It turns out he had made his entire assessment of the Indian pharmaceutical industry on one visit, of less than a day. Like most of his peers, he had no visceral understanding of these complex markets.
On the other hand,Sir Andrew Witty, the chief executive of GlaxoSmithKline, loves emerging markets having worked in Africa, India, Pakistan.He has said publicly that the Western pharmaceutical model of spending a billion dollars to bring a drug to market and then charging high prices is unacceptable. Well, GSK is doing brilliantly in emerging markets including India.
If the chief executive is not one who is open-minded, culturally curious and willing to embrace these markets, and learn about them, you are basically not going to win in markets like India.
Look what happened with Microsoft. Bill Gates loves crazy places. His family vacations in Nigeria, and when he comes to India he spends time in Bihar. No wonder Microsoft did well entering these markets on his watch. But for most C.E.O.’s, their entire experience is in the developed world.Take a great guy like Tim Cook of Apple, who has no experience in emerging markets, and has allowed Samsung to run away with the market.
But these companies — Apple, Microsoft — are still making plenty of money. So why do they need to be in emerging markets now at all?
Apple and Microsoft are making huge amounts of money, but they’ve lost the leadership position. India is one of the largest markets for smartphones in the world, and Apple is nowhere.Mercedes and VW have a miniscule share of the world’s third-largest truck market.
These markets won’t evolve in the predictable way that developed markets have. Look at Kenya — they’re way ahead of the United States when it comes to using mobile phones for payments, for example.
Will there be problems? Yes. Will India ever respect intellectual property, for example? Maybe, but it is a few generations away.