In spite of the chaos

Chaotic India is an archetype for most other emerging markets, and multinationals that wait for the country to fit their business models will find themselves losing out in the next big wave of globalisation, argues Ravi Venkatesan in this essay ahead of the launch of his forthcoming book, Conquering the Chaos: Win in India, Win Everywhere.

CEOs of multinational companies are generally souring on India and moving their attention and investments to other emerging markets like Indonesia, Africa and even Myanmar. They cannot be blamed. India was never an easy place to do business but in recent years, it has become a lot harder. Corruption is getting worse, not better and it is not limited to the government alone; even company employees are increasingly on the take. Bureaucracy is stultifying with routine approvals and decisions taking months if not years. With economic growth at its lowest in a decade, lack of clarity on many policy matters, harassment by the tax authorities and media headlines reporting violence against women, fraud by large companies and sexual harassment by CEOs, it's not hard to see why lots of companies might choose to take a pass on India or at least be very cautious about investing further at this moment.

There is no question that fixing these issues must be a top priority of the government if it wants the economy to recover. India is in the enviable position that it doesn't have to do a lot to attract investment; it needs to merely stop frightening investors away. But even as the current finance minister and the next government work to make India a less hostile place, it is interesting to note that in the same challenging environment there are a handful of multinationals who are thriving amidst the chaos. For companies like Cummins, JCB, Volvo, Unilever, Samsung, Hyundai, Schneider Electric, Nokia, Ericsson, and Standard Chartered, India is not just an outsourcing destination but a market that contributes importantly to global profits and growth.

These companies have realised that despite short-term problems, there are few markets with the same potential and headroom for growth. Even more importantly, they have understood that chaotic India is an archetype for most other emerging markets and that succeeding in India helps them succeed in other markets. The products, business models, capabilities and talent that they develop in India for India can be replicated elsewhere. India becomes a lab for their emerging market model.

They may be on to something very fundamental. Crony capitalism, corruption, weak government and institutions, bad politics, gut-wrenching uncertainty and volatility are not unique to India. Such chaos may well be a defining feature of many emerging markets. Moreover, economic development in India is a bottom-up process driven by demographics and aspirations. Progress often happens despite the government rather than because of it; development is, therefore, lurching rather than steady - two steps forward and a step backwards. Foreign companies that have succeeded spectacularly in India are those that have taken a contrarian approach. They have learned to embrace the chaos rather than wishing it away. They make a long-term commitment to succeeding in India, hang in tenaciously during the tough spells and sprint to the front in the boom times. They choose passionate, entrepreneurial and resilient leaders to build their business in India rather than mid-level sales managers. Like McDonalds, they have adapted their products and their approaches to suit the market rather than wait for the market to resemble what is familiar.

In contrast to these firms, most multinationals approach the Indian market opportunistically and with an "export" mindset wherein they simply replicate their global approach, products and pricing. India is simply one more market and they confidently believe their one-size-fits-all approach will succeed here as it has elsewhere. These companies invariably end up in a "Midway-Trap" where growth stalls. A classic example of this is GE, which, incredibly, hardly grew at all during the boom of the last decade. When this happens, euphoria gives way to disappointment and many CEOs simply move their attention to another set of markets vowing to be back when India resembles a more developed market and is, therefore, a better fit with the company's business model.

"We'll be back - when India respects intellectual property rights," say pharmaceutical companies. Or when more Indians start eating meat, says the CEO of a global food company. "When India has more efficient distribution," says Apple's CEO, Tim Cook. The company loses leadership to a more determined and committed competitor and becomes part of a "1 percent Club" where India perennially contributes 1 percent to global profits. This happens not just to mediocre firms but even to extremely well managed companies like Caterpillar, Toyota and Daimler. Once the industry has consolidated, clawing back market share is an extremely difficult and expensive battle as P&G, VW, Sony, Renault-Nissan and Apple are all discovering.

The next wave of globalisation is anchored in emerging markets and winning in these markets takes a very different mindset and set of capabilities. Companies that constantly seek an easier market to conquer with their rigid business models and approaches, or who wait on the sidelines for these countries to resemble a developed market with a familiar regulatory environment, protection for intellectual property, with modern infrastructure and well developed retail and distribution are likely to find themselves sidelined. "Fortune favours the brave", says an old proverb and this applies very much to globalisation. India, with its huge potential and its extraordinary challenges, is the perfect laboratory to develop the success formula for emerging markets. Despite its current chaotic state, it cannot be ignored without consequences.

CONQUERING THE CHAOS
WIN IN INDIA, WIN EVERYWHERE
Author: Ravi Venkatesan
Publisher: Harvard Business Review Press
Pages: 209
Price: $30