R Ravimohan: Roads to global market

Operating within throttling constraints is something that Indian companies have learnt well.

Globalisation is a catch-all term used to describe many things, including setting up a representative office in a foreign country to create a conglomerate like Mittal-Arcelor Steel Company. Indeed, one could argue that anything that accesses technology and capital, labour or material resources, from the best globally available source to serve markets around the world could be termed global initiative. What counts is that this adds a competitive edge in a global context. The advantage of taking a holistic view will be to instil the right values in a broader system that is needed to serve global needs and demands and also allow us to get the most synergistic recognition as a serious global frontier.

Undoubtedly, the classic model perpetrated by Western MNCs is the colonial model of expanding through as many territories as possible with a view to dominating both the resources and the markets. This model depended on scales of economy and the global dominance. The Asian MNCs have done pretty much the same, but have introduced value as an additional proposition and have taken the fight for market dominance to a new level. Mittal-Arcelor is perhaps the first MNC that is centrally using specialised skills for productivity improvement in knitting together a global firm. Of course, it will derive competitive advantage from its global dominance and its access to perhaps the most diverse resource base of minerals in the world now. But its ability to turn around sick steel plants has been the key drivers of its success. Could other Indian companies use this strategy as a route to globalisation?

Operating within throttling constraints is something Indian companies have learnt well. We have also special skills in operating in the commodities space. With their recent successes, Indian firms have acquired a sense of what is required to win globally. Around the world, there are so many relics of global competition that failed to withstand competition, perhaps because they lacked both the skills and the spirit of survival in tough circumstances. Given the innate ability of Indian entrepreneurs and managers to run enterprises frugally and effectively combat global adversity, there might be a good possibility for Indian enterprises operating in other commodity areas such as petrochemicals, paper, textile, cement and other metals also to replicate what Mittal-Arcelor has systematically built over the past 30 years. The fact that India is also one of the largest markets could also be effectively used to derive special advantages for firms that have already built a scale of operation here.

The other major trend is the transportation of Indian-grown "technology" to the rest of the world, and using that as an edge to win. The Indian model is constructed to address the peculiar conundrum of the Indian diversity, and to overcome the inexhaustible infrastructural bottlenecks, and is designed to flexibly straddle various regulatory and tax regimes and doing all this at costs that appear to be the lowest in the world at this point. These characteristics will allow replication and scalability with relative ease, and could challenge the existing high cost and often older-generation technology that prevails in many advanced and developing regimes around the world. Be it telecom, banking or retailing, the Indian model is different and setting a new benchmark for low-cost, high-quality service.

At the other end of the spectrum, there is the outsourcing trend which is now clearly poised to metamorphose India as a major global player. Having established ourselves as the leading hub for global resources in IT, back-office, call centres and data operations across most verticals, our ability to do high-end knowledge processing and knowledge work outsourcing is being widely recognised. This can be seen in the contract research boom in pharmaceuticals, technical drawings for engineering majors and high-end analytical work in the financial research space. In doing so we are acquiring insights into how the world thinks and works. While all care is being taken to ensure IPR protection for the clients, it is clear that a considerable knowledge pool already now exists in India that has the intelligence and the familiarity on what makes the world tick and this would be tapped to derive global competitive advantage, because this Indian pool is also value-driven in every sense of the word. This Indian resource will be centrally leveraged by all global players. How much of this pool will be "owned and controlled" by Indians depends on their entrepreneurial ability.

There are many variants to these themes, including alliances and partnerships, which will also be pursued by Indian enterprises to gain a foothold in the global markets. This route will be taken by those younger-generation globalisers, who may not have generated sufficient size, credibility or confidence to venture into the big bad world unchaperoned. They would do so step by step, giving up part of the gains as they share the risks of these major moves for them.

Whichever model one chooses, there are some common prerequisites that need to be met before success is won on the path of globalisation. Competitive pressures, exalted quality requirements, the level of dependability, the ability to unflinchingly make investments and high-quality hygiene factors such as good governance, clean reputation, good employee treatment, good facilities, complete compliance with all applicable regulations, easy connectivity to global destinations and decent social and infrastructure environment are factors that will make or mar an enterprise's ability to make successful global forays. There are also several softer challenges that one should be prepared for. Cultural issues are huge and need to be addressed sensitively, yet with foresight and leadership. Local regulations differ enormously and are often are much more restrictive than in India. Compliance with rules needs to be greater than when operating in India. Lastly, it will be useful to have a bulge bracket budget (from an Indian perspective) to incorporating multinational talent in the scheme of things both as a way of diversifying the talent base but also to getting the multi-culture operations the required "buy-in" both internally and in the international world.

ravimohan@crisil.com