Get the most out of global moves
Indian companies have expanded aggressively across the world and have established many global businesses over the past decade.
Indian companies have expanded aggressively across the world and have established many global businesses over the past decade. Between 2002 and 2009, the share of foreign revenues for the top 100 Indian companies (by market capitalisation) rose sharply from 17 to 29 per cent, and many smaller companies and entrepreneurial ventures have been "born global" as well.
With ready financing, high P-Es, and willing leadership teams, the question now is not so much as whether to be global, but how to maximise value from globalisation. Deliberate choices on design and execution will differentiate Indian firms in the coming decade, just as they did for winners and losers among Japanese firms who pursued similar expansions in the 1980s and 1990s. Here are some steps that Indian companies could consider.
Pick your purpose: Entering an international market should be backed by an explicit rationale and not merely by peer pressure or availability of deals. Businesses seeking global expansion need robust domestic business platforms that aid financial stability and expansion. Huawei, the Chinese telecommunications hardware manufacturer, rapidly expanded international market share by leveraging its research and development capabilities and efficient labour model to develop innovative but low-cost products.
Look for granular growth opportunities: Rather than high-level assessments (e.g., developed versus emerging markets), Indian companies should take a granular approach to figure out their specific customer segments, micro-markets, and channels. For example, Haier, the Chinese white goods manufacturer, entered the saturated US market and succeeded by focusing on college students, an under-served segment. Haier launched a compact refrigerator with an attached computer table. Similarly, Samsung and LG, the South Korean multinationals, have created specific brand and customer experiences to drive their growth even in mature markets such as the US and Europe.
Use M&A but drive performance: Mergers and acquisitions, or M&As, are likely to become inevitable for most companies looking to scale up their growth. The challenge is how to create value from the deal in the absence of traditional cost synergies. So it will not pay to take a "passive, friendly acquirer" approach, or to overwhelm the acquired company with new processes. Some executives think performance improvement drives out costs, but that is not true always.
Many Indian companies have created value through a disciplined approach to improving the target's performance via early and visible revenue wins (e.g., via sharing distribution networks, improving sales force effectiveness) combined with the ability to bring in two or three new managers, and a programme to boost morale among the top 100 executives.
Risk management capabilities: Most Indian companies are still in the early days of managing enterprise-wide risks, particularly for less familiar arenas like currency, regulatory, credit, and operational risks. Several companies have been caught by surprise by the range of these risks in markets where they lack the networks and insights they would naturally have in India. Indian companies aiming to build a sustainable global leadership position will have to do a lot to upgrade their ability to identify and manage these risks, and create the right risk culture in their overseas businesses.
Attract and retain global talent: Many Indian companies (similar to their Chinese counterparts) have found it difficult to attract and retain high quality international talent because of their limited global reach and brand presence, and a sense that few senior roles are available to them. Paying a compensation premium could work in the initial stages, but will not be enough, as many Indian, Latin American and Asian firms have learnt. Creating a dedicated cadre of Indian and international executives, increasing payfor-performance significantly and giving non-Indians visible roles in the senior ranks are some levers that have worked.
With ready financing, high P-Es, and willing leadership teams, the question now is not so much as whether to be global, but how to maximise value from globalisation. Deliberate choices on design and execution will differentiate Indian firms in the coming decade, just as they did for winners and losers among Japanese firms who pursued similar expansions in the 1980s and 1990s. Here are some steps that Indian companies could consider.
Pick your purpose: Entering an international market should be backed by an explicit rationale and not merely by peer pressure or availability of deals. Businesses seeking global expansion need robust domestic business platforms that aid financial stability and expansion. Huawei, the Chinese telecommunications hardware manufacturer, rapidly expanded international market share by leveraging its research and development capabilities and efficient labour model to develop innovative but low-cost products.
Look for granular growth opportunities: Rather than high-level assessments (e.g., developed versus emerging markets), Indian companies should take a granular approach to figure out their specific customer segments, micro-markets, and channels. For example, Haier, the Chinese white goods manufacturer, entered the saturated US market and succeeded by focusing on college students, an under-served segment. Haier launched a compact refrigerator with an attached computer table. Similarly, Samsung and LG, the South Korean multinationals, have created specific brand and customer experiences to drive their growth even in mature markets such as the US and Europe.
Use M&A but drive performance: Mergers and acquisitions, or M&As, are likely to become inevitable for most companies looking to scale up their growth. The challenge is how to create value from the deal in the absence of traditional cost synergies. So it will not pay to take a "passive, friendly acquirer" approach, or to overwhelm the acquired company with new processes. Some executives think performance improvement drives out costs, but that is not true always.
Many Indian companies have created value through a disciplined approach to improving the target's performance via early and visible revenue wins (e.g., via sharing distribution networks, improving sales force effectiveness) combined with the ability to bring in two or three new managers, and a programme to boost morale among the top 100 executives.
Risk management capabilities: Most Indian companies are still in the early days of managing enterprise-wide risks, particularly for less familiar arenas like currency, regulatory, credit, and operational risks. Several companies have been caught by surprise by the range of these risks in markets where they lack the networks and insights they would naturally have in India. Indian companies aiming to build a sustainable global leadership position will have to do a lot to upgrade their ability to identify and manage these risks, and create the right risk culture in their overseas businesses.
Attract and retain global talent: Many Indian companies (similar to their Chinese counterparts) have found it difficult to attract and retain high quality international talent because of their limited global reach and brand presence, and a sense that few senior roles are available to them. Paying a compensation premium could work in the initial stages, but will not be enough, as many Indian, Latin American and Asian firms have learnt. Creating a dedicated cadre of Indian and international executives, increasing payfor-performance significantly and giving non-Indians visible roles in the senior ranks are some levers that have worked.
