While the figurative “rising dragon” has been used to describe the stellar success of China over the last decade, India has not gained a similar level of prominence; and this has got nothing to do with the difficulty of connecting prestige or success with its national symbol, the elephant. In fact, there are four far-reaching challenges that Indian companies face in internationalisation that behooves our attention:
1. Lack of expertise to play a global game.
Historically, successful Indian companies have done well by developing good financial sense and operational efficiency in playing a domestic game. Ever since the shift in the domestic and international regulatory environment in the 2000s, Indian companies had to internationalise to thrive. Due to their lack of international expertise and domestic role models, Indian companies have compensated by retaining managers of acquired firms to continue with the operations. However, their inability to extract value out of global integration and achieve the much-needed cost synergies from the acquisition has cost them dearly. Tata Steel for example, is still unable to achieve proper integration following its acquisition of steel giant Corus. Its siblings Tata Communications and Tata Power face difficulties in execution and tend to be unnecessarily vulnerable to demand. In fact, judging from its global performance over the past two decades, the Tata Group has lost its dominant grip in the manufacturing sectors.
There are of course, examples of successes like Bharti Airtel in entering Africa, where today, it holds strong positions in four African markets and in mid-2012, became the largest 3G network in the continent. By the end of 2012, it became the world’s fourth largest mobile phone operator with nearly 300 million customers. This was because the top executive sent for the mission, Manoj Kohli, had trained under Larry Bossidy, the former Allied Signal’s CEO and also in Honeywell. Kohli had also been exposed to major players back home like Vodafone that helped him hone his sparring skills against international players in Africa. Such human resources are in extremely high demand.
2. Securing resources from within to support resource acquisition from without.
With other emerging giant market economies like China, Brazil, Russia, and Mexico scrambling for resources apart from labour, the race will go to the swift. Currently, the Indian private sector is driving the economy while the government has given it manoeuvring room. However, much more can be done from within to provide companies greater muscle to compete on the global arena. The challenge comes with striving for visibility to secure resources. In that sense, the public-private partnership has to be buttressed; which will remain an ongoing challenge given India’s infamous democratic encumbrance.
To overcome its domestic political limitations, Indian firms and in particular, MNCs and their subsidiaries, have been seen collaborating in captive shared services centres in order to capitalise on the economies of scale and scope experienced through a consolidation of functions, providing greater cost efficiencies and savings.
3. Evolving competitive advantage.
Evolution is the only enduring formula for success. The pace of the business environment is changing so rapidly that if firms do not build in a way to review and render their strategies obsolete on a consistent basis, the market eventually will. Infosys found itself in a good spot for many years as a globally-established IT service provider with a low-cost, inexpensive pool of IT specialists that it was able to flexibly assemble and deploy at ease. It was not until other consulting firms like Accenture and IBM replicated its deployment processes that its cost advantages accrued were eroded.
4. Upscaling value chains. Indian firms face the challenge of upscaling value chains on two major fronts.
i) Lack of brand recognition. Firstly, as with other firms from emerging economies, Indian firms face the issue of brand recognition among end-users whether it be a B2B or B2C setting. Quality of delivery of products/services also a question especially when lagging technology is still an issue in India. That is why acquisitions of Western firms by Indian ones have increased significantly. Just within the first 9 months of 2006 the number of acquisitions of US-based firms increased by a whopping sevenfold over 2000.
ii) Lack of aggression in expansion. Indian pharmaceutical companies have attempted to create their homemade successes, by increasing their R&D spend to try a hand in conjuring blockbuster drugs. This is seen in the clinical trial applications on more than 10 new drugs by major firms like Sun Pharma and Cadilla Healthcare in 2010. In fact, the year-on-year R&D expenditure is much higher than for other sectors. It is also noted by analysts that along with other giant emerging markets like China, Brazil, and Russia, India has increased its R&D investments faster than high-income countries. However, based on the 2013 Global Innovation Index, India is currently ranked 66th, behind Brazil (64th), Russia (62nd) and China (35th). Despite the impressive figures attainment, India still trails behind, and one challenge could be due to the lack of aggressive risk-taking in R&D.
Pharmaceutical giant Ranbaxy’s president Malvinder Singh remarked that its first joint venture in 1977 in Nigeria led to lessons that brought it to take bold steps into Malaysia followed by Thailand, and eventually the other countries which it now has its brand name inked upon. In the same manner, Indian firms will pick up lessons that can only be learnt when they sail their domestic vessels into international waters, and as they navigate themselves through the fogs of uncertainty and storms of volatility. As much as there are major challenges for Indian firms that lie ahead, they are known to adapt quickly to steep learning curves and over time, acquire a substantial wealth of tacit and institutional knowledge for ramping up momentum to seize the vast opportunities that lie ahead for greater growth.
J.CJ (MBA), Editor, BLM