In 1820, China was the biggest economy in the world and accounted for 30% of the worlds GDP. India was second with 16%. Interestingly USA accounted for only 2% of global GDP. The predicted economic scenario for 2050 is uncannily similar to what it was almost 200 years ago. This was just the beginning of an hour of mind boggling insights into the past present and future of India Inc delivered with utmost flair by Mr. Abheek Singhi, Partner & Director, Boston Consulting Group at Horizons 2007, the annual management conclave of IIM Kozhikode. He set the context for the talk by talking about the general trends in the Indian economy. India presently is seeing the 3rd wave of growth. The first occurred during the De-licensing of the 90s, the second during the dotcom boom. The present wave of growth is unique in that, the unpredictability of the Indian economy seems to have given way to rapid acceleration of economic progress year on year, something that is unprecedented in recent history. The world now sees India as a strong, confident and dependable young nation which knows its strengths and isn’t afraid to claim its place. This recent surge of seemingly unstoppable growth has unleashed India Inc.
Foreign investments are not neo-colonialism
Mr. Singhi said that the performance of Indian stock markets, which is used as a yardstick to measure the growth of the economy, isn’t totally accurate. The rise in the SENSEX from 12000 to almost 18000 is mostly due to a few companies like Reliance, Bharti Telecom, ICICI etc… However we can’t take away the great achievement of such companies because of which the total shareholder returns in Indian Stock Market is at a 15 year high of 40% which is way above the global average of 2%. There are countries like Serbia where the returns are staggeringly high at over 100% but have very low market capitalization. It is the high market capitalization of the Indian Stock Markets coupled with 40% returns which make India a favourite destination of investors across the globe. Many people have the notion that this wave of foreign investments in India is sort of a neo-colonialism as the profits go abroad. Mr. Singhi mentioned how Indian private companies are growing at 42%, the Public Sector Units at 37% and the MNCs in India at 18%, showing that the growth is not entirely driven by MNCs but mostly by Indian private and public sector companies.
Increasing Confidence
One thing commonly noticed about Indian MBAs is that they undersell themselves, Mr. Singhi said. Compared to their counterparts from B-Schools like Harvard and Stanford, Indians have always been way better at analytical skills but were lower on confidence. Mr. Singhi illustrated this with his encounter with a foreign investor who invested in India and China. Discussions with Indians centred on the possible problems which could prevent them from meeting their targets and discussions with the Chinese always centred on how things are going to get only better. This in spite of the fact that the Indians always delivered results and met their targets whereas the Chinese gentlemen this person was investing in had been making losses! This is now changing rapidly, Mr. Singhi said quoting the recent marketing pitch by the CII in New York “India Unleashed”. Even magazines like The Economist which used to see India on the lighter side of the balance with China now see us as equals in terms of growth even while quoting the same figures as before.
Growth driven by M&As
Talking about the recent trend of M&As, Mr. Singhi explored the various reasons why this trend has suddenly emerged and has become so pervasive that something like Tata’s acquisition of Corus doesn’t seem incredible anymore. Indian companies acquiring foreign companies much larger than they have almost become commonplace, giving examples of companies which have had multiple M&A successes he quoted examples like Vedanta, Wipro and Bharat Forge. Global consolidation is one of the factors which have influenced Indian M&As. More specific to India are reasons like better government regulations which facilitate M&As and liquidity due to the booming Indian economy with profits at a 15 year high. The demonstrated ability of Indian managers in creating value for the acquired company is also an important factor for the increased willingness of the acquired foreign companies to work with us. He explained how making one acquisition can improve the chances of the company to make several others. When an Indian company bids to acquire a foreign company with a very good reputation and healthy cash flows, its credit worthiness automatically increases manifold. Once the acquisition is made, the Indian company can leverage the equity of the foreign acquisition to get more credit from banks to finance another acquisition. This can continue as long as the company makes smart decisions about which company to acquire.
Comparing M&A to courting, Mr. Singhi pointed out how both companies are very optimistic before an M&A and tend to rush things. He stressed that similar backgrounds are very important for the companies to be able to work together after the Merger or Acquisition. Indian companies are at an advantage when it comes to this because we adapt easily and aren’t averse to allowing a foreign management to run a company. He extended the analogy of courting by saying that consultants are like marriage counsellors who help with the execution and details of an M&A.
Future of Indian Consulting
Answering the question as to how Indian consulting is going to evolve, Mr. Singhi compared it to that of the USA and said that it was more evolved in the USA where specific consulting firms dealt with specific segments like management, functional consulting etc… Another notable difference is the presence of in-house consulting arms. Indian consulting is going to take a similar path as it evolves, he said. Another difference between Indian and American consulting is that companies in India perceive consultants as advisors unlike in the USA where they are seen as vendors of solutions. Indians would like to see demonstrated value of a consulting assignment and are more oriented towards solution implementation. The session ended with Mr. Singhi mentioning how he drew inspiration from IIM K’s motto ‘Dream Innovate Achieve’ and saw that as the mantra which would take us to newer heights in the future.
