 "Jagdish Sheth")
How should business leaders deal with uncertain times?
The key is not looking at daily changes in weather but looking at the change of season. If you look at the trends, there’s predictability. One, India will never go back to the licence raj which means competitive markets are here to stay. Two, competition will not just be domestic but it will be global. Global multinationals are here to stay. Sixty years back, Japan was the first to go into emerging markets. It was displaced by Korea which is now being displaced by China.
Indian multinationals (the few we have) have not been able to get this part of their game correct…
We have Indian multinationals in the IT services. They are truly global, some of them are in 70 countries. But there are two key issues. Their culture is still ethno-centric. They have never made the transition to be truly multinational. What does ethno-centricity mean? You have leadership not just from India but from wherever they come from. None of them have done it. American and British corporations are beginning to think on these lines — so you have Satya Nadella at Microsoft. Two, they have not been able to understand how to raise capital from capital markets. You may have the ADR but it’s a minor detail; it is not true institutional capital. Are you listed on major stock exchanges — New York, Frankfurt and London and have a presence in these capitals? How do you propagate your story here, which is the CFO’s role? So, HR and finance are two aspects which have not transformed from ethno-centric to truly transnational.
There’s a now concerted effort from traditional manufacturing industry from India to go global. Ratan Tata did it. Aditya Birla has been systematic; they bought the aluminum business (Novelis) that is located in Atlanta; they are quiet about it but it is a massive piece of business. They have done a similar thing in carbon black — they are now a truly global player with a global footprint in India, China and the US, the biggest markets.
These two acquisitions were initially a drain on these groups. How do you justify it internally?
They did this at that time because they felt that the domestic markets had saturated, and they had to show growth. I don’t think they paid a very high price (for Novelis); it was a major strategic asset. Eventually, they came out very well from it, prices have gone up. Carbon black is doing well from the beginning. America has learnt through market process, not policy, to exit low-margin industries. They are absolute great sellers. They got out of television, watches and PCs. IBM sold the PC business to Lenovo.
What other interesting trends you see in India?
The discontinuity: Generation gap is only eight years. The younger sister cannot relate to the older sister in styling, which is creating a new generation and new buyer in the market place. None of them want to live with their families if they can afford it. They are starting new households; look out for the growth in households.
Two, the rural-urban divide is getting lesser. If you are retailer in small town, bigger FMCG firms would not care. But for Flipkart and Amazon, the biggest growth has come from these small towns.
Three, we need to start looking at discretionary incomes, and not just incomes. Today, a fresh software engineer in Bangalore will get about Rs 60,000; at the end of the month, he has no cash flow. Contrast him with the crane operator in the port of Mundra. He makes about Rs 80,000 a month now, married, only 10+2 with a certification training. Vocational technical people are making more money than degree people. So, we need to watch discretionary income, and not incomes. He has more buying power. He buys a motorcycle, then he says where can I put in my money — buys life insurance, gets advisory to invest. I strongly advocate that India as a nation invests more in vocational technical training, making certification mandatory like Germans.
You have always said don’t target the buyer, target the user. Can you explain this in the Indian context?
In services, we have always targeted the user. In the digital world, it is not so much the buyer but how the product is used, which is more important because people post their experiences with the use of the product than the way I bought the product. The market will continue to shift from focus on buyer to focus on user.
In some sense, both are the same. If a cellphone buyer, I am a user too…
Yes, but that’s a smaller percentage of the universe. In a family, the user could be a child. The buyer in America is the husband, and the budget controller is the wife. R&D always focuses on the user.
Many consumers are buying online. How are companies adopting to the change in buying behavior. Do you find Asian companies to be more nimble than companies in the West?
The Asian companies are more nimble. They leapfrogged the PC evolution by going for the cellphones. This gave them the volume and the scale. The US and the Western worlds are stuck in the legacy technologies. The software designed for the cellphone is much more nimble; other one is talking to the legacy system.
How are companies adopting to people buying online?
Most companies are not able to adopt. They have created two parallel divisions. M&M created an online website for parts, and then they said, why not sell the whole car online. They sold 600 cars online. Because people who can afford these cars have no time. Every one of the retailer (in the US) has created an online platform but has not integrated yet.
