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Dissolving Boundaries

10/12/2011 --

Ross India Business Conference focuses on strengthening ties between the U.S. and India to foster growth and innovation.

ANN ARBOR, Mich. — Michigan Gov. Rick Snyder, BGS '77/MBA '79/JD '82, has seen the value of U.S.-India ties both as a venture capitalist and as a politician.

He's anxious to see those ties grow but is concerned about artificial, not national, boundaries getting in the way. There's too much for the two countries to gain from each other economically, culturally, and educationally to not build a deeper relationship.

That's why Snyder (right), along with other business, political, and academic leaders, convened at the Ross India Business Conference Oct. 7-8. Titled "Dissolving Boundaries," the event shed light on partnership opportunities between the world's two largest democracies.

"If you look at the future of not just human but business relationships across the globe, you're seeing those boundaries grow," Snyder said in a keynote address. "That's backward. The success of this world is about making those boundaries dissolve."

Snyder noted that a recent Ann Arbor business success, medical device firm HandyLab Inc., was started by two University of Michigan PhD students, Kaylan Handique and Sundu Brahmasandra. Snyder, through investment firm Ardesta, was chairman of HandyLab. A larger firm eventually acquired the company, creating a profitable exit for its investors and founders.

The fact that HandyLab's founders are Indian, but met and created their business at a U.S. university, is a testament to the educational ties between the two nations, Snyder said. And it demonstrates that good ideas come when boundaries between people and disciplines dissolve. It also shows that relationships won't be built only from a governor or another politician going on a trade mission. Alliances are created by real people learning from each other.

That idea was shared by Ambassador Nirupama Rao, the Indian envoy to the U.S. She talked about the common concerns shared by the U.S. and India, which include political issues such as security and terrorism, as well economic and social issues like jobs and human development.

"It's not about cutting red ribbons every time," she said. "This partnership is about making a difference in the lives of people. When we talk about partnership and cooperation, it's about energy, health, education, science, technology, and business."

Indian companies have "made America a very favored destination" and not just in information technology, Rao said. Indian firms have invested in U.S. manufacturing and have created jobs and she wants both countries to increase traffic on that two-way street.

Rao encouraged business students to "look East," reminding them that India's GDP has grown steadily at about 8-10 percent per year. Opportunities for business development abound as the country looks to grow infrastructure and spark innovation in clean energy, agriculture, communication, and health.

"I think we need a rediscovery of India," she said.

Fritz Henderson, BBA '80, CEO of SunCoke Energy Inc., is rediscovering India, describing the nation as his company's best growth opportunity. As former CEO and CFO of General Motors Corp., Henderson held global leadership positions, including chief of the automaker's Asia operations. SunCoke produces metallurgical coke, a key raw material in steel production, and uses the waste gases to produce electricity.

Doing business in India requires learning, listening, and adapting. SunCoke, like many companies, has chosen to work with a local partner. Greenfield development is expensive in India, land acquisition can be difficult and the market dynamics are different, Henderson said.

"You negotiate a document, but when the joint venture starts you put it aside and work together," he said. "There's no substitute for going there and spending time. Just be prepared to be flexible."

The Procter & Gamble Co. learned the hard way about designing products for the local market instead of watering down its Western brands, said Shekhar Mitra, senior VP of research and development for the company's global beauty, grooming, fragrances, and flavors businesses.

P&G found innovation in India had to be a two-way street, with product ideas and design coming from customers.

"Delight, don't dilute," Mitra said. "We'd take an American product and cut it back. Here's the problem: It was a disaster. Instead, we needed to find out exactly what the customer needed for hand-washing or laundry detergent. Don't strip down the mother brand."

For example, P&G reformulated laundry detergents to deliver the right mix of cleaning power and affordability. It recently launched the Gillette Guard razor to compete with the dual-blade disposables popular in the country. It's a single-blade razor with the blade at a precise angle and grooves in front to help raise the hair and help the blade glide. Its goal is to deliver a closer, more comfortable shave for a lower price than multi-blade razors.

"We're not curing cancer, but we're improving the quality of life for the masses," Mitra said.

Both Mitra and Domino's Pizza Inc. President and CEO J. Patrick Doyle, AB '85, said companies need products that can overcome a "fear of failure" among rural and lower-income Indian consumers. If a household has only 20 rupees to spend on laundry detergent for a month, it's less likely to try something new since it would mean a month's worth of bad washes.

That's why Domino's created a small pizza for 39 rupees, about $1, to "get consumers to try an affordable product to reduce that risk," Doyle said. Domino's works with one master franchise partner in India, which helped with the product innovation and advertising. Domino's is now India's largest pizza chain and the country is Domino's fastest-growing market. Its partner there recently completed an IPO.

Though Domino's initially had problems finding local suppliers, it solved its issues and has found India's economy and demographics appealing. The country is young, with about 65 percent of the population under the age of 25, and pizza is relatively easy to adapt to local tastes.

"We've had an extraordinary experience in India over the past 15 years," Doyle said.

But a big question is how long India's GDP growth will last. Many are bullish on the macroeconomic picture in India, though noting that the country badly needs to build infrastructure. But Meru Capital Group LLC Founding Partner Guru Ramakrishnan, AB '85/MA '86, sees some warning signs that make him wary of investing in India.

There's been too much political pressure on the Reserve Bank of India, the county's central bank, and a negative real interest rate is fueling growth, he said. Public debt in India is on the rise, both among federal and state governments, though external debt is reasonable. Current spending on infrastructure isn't enough to keep up with depreciation, let alone meet future needs.

He thinks it'll be hard for India to maintain its 8-10 percent GDP growth rate, especially if the central bank is pressured each time it seeks to raise interest rates.

"I think you need to leave some of these institutions alone, away from policymakers, away from politics," he said. "Let them do what they need to do."

But Raghuveer Mendu, MBA '81, general partner of Ventureast Capital, has a different take. He agrees with some of the warning signs but takes a more microeconomic view.

His firm's investment philosophy is driven by what India needs, the skills it has, and how those can serve the rest of the world. There are plenty of innovation sources that will make good returns for investors regardless of the overall GDP picture, he said.

"I think companies have to look to see where growth is coming from," he said. "You have to make investments, you have to plan for growth, and hope the measures governments and policymakers take will be the right ones. And you can help influence that. But not making the investment doesn't help."

Terry Kosdrosky



For more information, contact:
Terry Kosdrosky, (734) 936-2502, terrykos@umich.edu