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Indian companies on the globalisation path have significantly expanded their footprint over the past two decades. But these markets have grown increasingly complex and competitive. To drive the next phase of growth, companies will have to overcome daunting external and internal challenges. They will have to prioritise their strategic objectives and develop the right channels and capabilities.
In this article - the first in a series of three - we take stock of Indian enterprises' internationalisation efforts over the last decade to identify four decidedly different categories of globalisers.
A growing global presence
Indian companies have come a long way in their quest to build an international presence. During 2003-12, the outbound investment grew faster in India than in Japan, China and the Asian Tigers (Hong Kong, Singapore, South Korea and Taiwan) - more than tripling from $10 billion to $37 billion. In cumulative terms, Indian companies have invested more than $344 billion in international expansion over the period 2003-12. Moreover, the number of greenfield investments by Indian companies over the past decade constitutes the highest among the BRIC (Brazil, Russia, India and China) economies. More than 50 per cent of outbound investments from India during 2003-12 were targeted at Asia, West Asia and Africa. Resources, metals and chemicals remain the most favoured sectors for outward investments for Indian companies.
In recent years, a multitude of forces have accelerated overseas investment by Indian companies. The opening up of the Indian economy after 1991 and the resulting tighter integration with the global economy have powered Indian companies' global ambitions. In addition, rapid domestic economic growth has provided a solid foundation for companies seeking to globalise, delivering strong balance sheets and easy access to capital. The need to secure access to raw materials has also been a major driver for overseas investment.
As an result, a number of Indian companies have established global and regional leadership positions in various industries such as pharmaceuticals, automotive, consumer goods, telecommunications, infrastructure and resources.
In a recent Accenture study, 93 per cent of the participating Indian companies said they were strongly committed to international growth, with 47 per cent planning to expand aggressively - the highest level of determination among all the national groups surveyed. Indian companies seem to be following their more mature counterparts in Asia in continuing to push for overseas expansion. However, only 36 per cent of Indian companies were able to fully met their international revenue and profit expectations over the last three years.
Why are so many Indian businesses struggling to expand overseas, and what distinguishes the most successful globalisers? Our research suggests leading businesses have placed significant emphasis on globalisation and provide strong examples of how to realise growth through such expansion.
To uncover how the companies are delivering on their globalisation goals, we developed a framework for assessing their progress based on two measures: international performance index and degree of internationalisation. The international performance index measures factors such as the contribution of international revenues to a company's total revenues, growth over time, and the performance of the company's international acquisitions over the past five years. The degree of internationalisation measures the extent of the companies' global footprint and the size of outbound investments over the last decade. After assessing the performance of each Indian company in our study on these measures, we classified the companies into four categories. Each category shows distinctive characteristics:
Advanced globalisers boast a well-established international footprint and presence in terms of assets and capabilities. They have developed into profitable businesses, with international units contributing substantially to the top and bottom line. They have built a global advantage by gaining access to new markets and customers, critical resources, innovation capabilities and talent. Moreover, they have a laser-sharp focus on execution excellence. They have also learned how to efficiently integrate international acquisitions and they have built critical leadership and attracted talent in diverse overseas locations.
International explorers have adopted an aggressive international expansion strategy and have built a relatively diverse international footprint using acquisitions or greenfield investments. They have invested heavily in building the assets and capabilities needed to support their global ambitions - including making acquisitions in some cases - but they have yet to reap the rewards. In many instances, these companies are still in the investment mode and the operations have not yet become profitable.
International operators have successfully expanded overseas - though with a narrow geographic footprint - and have favoured home-grown management and operating models.
They have adopted a focused expansion strategy targeting a few select markets and have yet to scale their efforts significantly. Their ambitions for going global have generally been narrow, often centred on enriching their domestic product portfolio as opposed to building a truly global business. Despite some successes, these businesses may struggle in a changing and more competitive landscape as they increase their global footprint.
Maiden voyagers are currently focused on domestic markets but have ambitions to branch out overseas. They have learned from the mistakes of the early movers and their successes, gaining clues to how to leapfrog their well-entrenched competitors.
Indian companies seeking to become advanced globalisers face a more intense competitive landscape than ever before as global markets grow more crowded and complex. Such developments pose many challenges for Indian companies seeking to expand internationally, including regulatory complexities, flawed understanding of foreign markets and weak brands or reputations in overseas markets.
To overcome these challenges, Indian businesses will need to take swift and strategic action. Accenture research reveals that India's Advanced Globalisers differ from less experienced and successful peers in distinct ways. Specifically, they excel at defining a path for international expansion, standing out in crowded markets, setting up dynamic global operating models and building talent, leadership and culture for growth.
The second part of the series will discuss how advanced globalisers master key practices that could offer lessons for other companies to effectively execute their globalisation strategies and achieving similar success
SANJAY DAWAR
Managing Director & Lead, Accenture Strategy, India
ANURAG GUPTA
Managing director, consumer durables & retail, Accenture India
Managing Director & Lead, Accenture Strategy, India
ANURAG GUPTA
Managing director, consumer durables & retail, Accenture India
