Jun 22, 2005

Leaders from the developing world

Normally Indian organization have viewed MNCs as threats they needed to be be protected from (trade barriers, tariff barriers) or to be joined forces with (like mergers, buyouts, JVs). A recent McKinsey article however contends that the next phase of global leaders would emerge from the developing world.

emerging markets, far from being a handicap, actually provide an invaluable springboard. The combination of demanding yet price-sensitive customers and challenging distribution environments can help determined companies develop the distinctive capabilities they need to compete successfully elsewhere.

Ranbaxy became one of the world's most cost-effective drug manufacturers before moving beyond its national borders. The Spanish institution Banco Bilbao Vizcaya Argentaria (BBVA) learned to use its resources more effectively than most of the world's banks and only then pushed into Latin America. Before going abroad, the Indian company Asian Paints had already reduced its working-capital turns to levels below those of all but one of the world's leading paint companies, and India's ICICI Bank made more money on small transactions than did the world's best institutions.

Note that no mention of the so-called leaders of Indian IT like TCS, Infosys, Wipro, Satyam. And that is because they have mostly used cost arbitrage to succeed. Note that when competing against global leaders on their home soil these giants have not succeeded so much. Sanjay Anandaram of JumpStartUp, a VC firm wrote in a businessworld article on the Indian IT industry:

It is disheartening from an industry standpoint to see hundreds of millions of dollars simply lying on the balance sheet and not being invested in creating innovative competitive advantages for the future. It is disheartening to see companies lack the confidence to take big, bold steps, even after 20 successful years in the global arena. The ability to dream big on a global level and then take the required steps to realise the dreams is what will distinguish the true global players from the also-rans in the next 10 years.
Mindsets need to change dramatically, especially among leadership levels. From managing status quos to managing risks, from managing people to managing businesses and leveraging opportunities, from managing Indians to managing a diverse global workforce, from a 'span of control' to a 'span of competencies' - all these initiatives are essential for success. Career paths for R&D and industry experts, for example, need to be made as attractive as jobs that are oriented to people management. An entrepreneurial environment and mindset has to be put in place.