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India: Inside the Transformation

10/11/2012 --

CEOs, entrepreneurs, and public officials give an inside view of doing business in India at annual conference.

ANN ARBOR, Mich. — India's increasing role on the world's economic stage and growing middle class present a huge opportunity for business — but knowing the country's nuances is critical to doing business there.

A rich lineup of top executives and public officials helped paint a clearer picture of the country at the Ross School's India Business Conference on Oct. 5. CEOs, legal experts, entrepreneurs, a state minister, and trade officials shared their expertise and advice at the annual event.

India's population of 1.2 billion and its growing economy have companies excited, but while the U.S. and India have much in common, there are differences.

Not all products and business models that work in other countries work in India. Infrastructure lags growth; the legal system is different; changes at the federal level are slow; and the country's addition of between 400,000 to 600,000 people to the workforce every month is both a blessing and a curse.

"Make sure the country is ready for you, make sure your product or service is relevant, and don't think your business model that works elsewhere will work there," said Ravi Saligram, MBA '78, one of six keynote speakers at the event and president and CEO of OfficeMax Inc.

Trade between India and the U.S. is on the rise, and could increase faster if the governments sign a bilateral investment treaty, said Diane Farrell, executive vice president of the U.S.-India Business Council. Two-way trade between the countries stands at $100 billion, but Farrell said the council would like it to reach $500 billion by 2020.

India is building a lot of infrastructure and using more public-private partnerships. It's also buying military hardware, and its consumer spending continues to increase.

But its challenges include 400 million people still without electricity, some slow reforms, and a hard-to-navigate legal system — especially when it comes to land acquisition.

"Wear comfortable shoes, because it's a marathon, not a sprint," Farrell said.

Still, a corner is being turned. There's more cooperation between the U.S. and India, and state governments are enacting reforms and competing for business. In some ways, these actions make up for the lack of progress at the federal level.

"Focus on the states that have a business-friendly outlook," Farrell added. "There are so many areas of opportunity."

That idea was amplified by Chief Minister Shivraj Singh Chouhan, who leads the state of Madhya Pradesh. He shared his journey in turning Madhya Pradesh into one of the best financially managed states in the country and attracting investment while protecting the environment.

"The role of states as an engine for development has increased over time," he said. "Now, elections can't be fought and won just on emotional slogans. You have to show development and growth."

Chouhan took over a state with a GDP growth rate of 2 percent to 3 percent at best, negative at worst. It's now growing at more than 10 percent, while debt has dropped from 37 percent of GDP to 17 percent of GDP.

His government did that by building new roads and utilities, completing unfinished irrigation projects, and streamlining government services, especially in regard to agriculture. More than two-thirds of the state's population relies on agriculture, and they now have access to better soil testing and zero-interest loans.

He also worked on attracting development, and sees himself as not only chief minister, but CEO of the state. He has touted the state's natural resources, but insists mining operations don't harm the rivers essential for the region's agricultural base. He meets regularly with business leaders to address issues promptly.

"If there are any problems, we solve them on the spot," he said. He's also focused on small business, and has allowed the state to guarantee loans for small enterprises. A state statute also makes public officials personally responsible for not delivering services. If a delay on a promised service is verified, a fine is imposed on the official.

"I believe nothing is impossible," he said. "Where there is a will, there is a way."

One thing there's a will for across India is financial inclusion — connecting more people with the formal economy.

"The promise of these (emerging) economies will not materialize if large parts of these countries do not participate in the economy," said K. Ramkumar, executive director of ICICI Bank Ltd.

He said the credit flow has been "democratized" in India over the past 10 years and smaller companies can better access capital. But it's still not where it needs to be.

Vishal Mehta, co-founder and managing director of Lok Capital, said India also experiences social exclusion, which requires a careful look. India's economy opened up after it enacted universal suffrage.

"People have been allowed political expression for a long time, and now they're seeing economic growth all around," he said. "They're clear on what they want. At the same time, government is a bit dysfunctional, so it's looking to the private sector for delivery of solutions."

ICICI's Ramkumar said the successful companies have created innovative ways to optimize and conserve capital.

"Companies that have done well are the companies that don't spend a lot of time complaining or looking to the government to solve their problems," he said. "They've found a way to operate in the legal framework and come up with practical innovations."

One thing India's regulatory framework has is a greater focus on the spirit of the law rather than the letter, said keynote speaker Toos Daruvala, MBA '79, director at McKinsey & Co.

"In countries like India and Canada, if a regulator feels uncomfortable about a risk an institution is taking on, the regulator will call the CEO and say, 'I don't like this,'" he said. "In the U.S., the CEO will say, 'Show me the statute or go away.' It's a different dynamic . . . It has stood India in good stead through the financial crisis. There's a lot the U.S. could learn from that."

Innovation is another area where the countries can learn from each other, said Kapil Sharma, general manager of Tata Sons North America.

"In the U.S., we excel in product innovation. India excels at service innovation," he said. "How can we marry the two?"

Successful companies in India are ones that figure out how to make a high-quality product backed by a business model that allows it to sell at a lower price. They know how to find talent and navigate the legal and regulatory system.

"Value for money is still a big thing," said Bharat Patel, MBA '69, former chairman of Procter & Gamble India. "Give them performance as good as anywhere else, but cost it out in such a way that it's a price they can afford."

Getting more people in India involved with the economy means eliminating some of the pockets of poverty that persist there. Manoj Bhargava, founder and CEO of 5-hour Energy, has used part of his fortune to help charities in India.

"Our approach is simple. We look at human suffering," he said. "When you see it, you'll know it. So how can we significantly affect people's lives? Charity is like a business. It's not about you. It's about the customer. Go out in the field and find out what they need."

— Terry Kosdrosky



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