Conquering the Chaos: Win in India, Win Everywhere (16 page)

Despite the rather grim picture I have painted, years of experience in running diverse
businesses in India make me an optimist when it comes to the ability of a company,
particularly a multinational company, to operate ethically. First, corruption in India
may have peaked and is plausibly on the decline. Second, corruption is a two-way street.
It is convenient to blame greedy politicians and public officials but succumbing to
corruption is a leadership choice. Companies that are determined to succeed the right
way can indeed do so and there are plenty of examples of such firms. They must of
course lay down clear policies, procedures with approval processes and stringent controls,
regular internal audits of high-risk areas, and so on. However, these steps are necessary
but insufficient. What really safeguards companies from corruption and fraud are soft
factors, namely strong local leadership and a culture of compliance.

Too many foreign companies don’t pay adequate attention to compliance, mainly because
India contributes so little to their revenues. Companies usually allocate budgets
for audits and compliance reviews in proportion to revenues, so India escapes the
scrutiny it deserves. Business insignificance, combined with cultural and geographic
distance, can lead to overdependence on local management, which is risky. The global
headquarters must recognize that India, like China and Russia, is a high-risk country,
and all the compliance functions must pay attention to the Indian organization. Companies
usually underinvest in staffing compliance functions like finance, internal audit,
and legal. That’s penny-wise and pound-foolish behavior, given the cost of head count
in India.

Having a strong finance and administration team in India is critical; the unit is
usually the primary contact with bureaucracy. Administration managers who understand
local laws and regulations, possess the skills to work with government officials,
and can get things done without paying bribes are a blessing. It is also critical
to ensure compliance with the law without taking shortcuts. Being lax or saving costs
by being too clever will create vulnerabilities that will inevitably be exposed and
exploited. Dodging taxes is a particularly sensitive area, as companies like Cadbury
India (a unit of Kraft) have discovered. As of this writing, Cadbury India is under
investigation after managers allegedly tried to use bribes to avoid paying excise
duties. The reputational damage and distraction to the business are many times higher
than the magnitude of the apparent evasion.
⁶

Few companies are prepared to handle fraud and corruption in India. Awareness levels
are low; 51 percent of respondents in a recent survey in India were unaware of the
US Foreign Corrupt Practices Act, and 65 percent didn’t know of the UK Bribery Act.
Only 35 percent of companies take legal action against employees, and a very small
number place emphasis on codes of conduct, antibribery, and ethics training, according
to Ernst & Young India’s 2012 Fraud Survey. That’s a major risk, with the regulatory
environment of corruption changing rapidly in India. In 2011, five bills—including
the Lokpal Bill, the Judicial Accountability Bill, the Public Procurement Bill, and
the Whistleblower Bill—were introduced in Parliament, and several laws such as the
Prevention of Corruption Act and the Companies Act are being amended.

Companies need to ensure that the basics are in place. Have they instituted a formal
code of conduct that every employee has to recertify annually? Is there mandatory
training on compliance, with appropriate laws and regulations for customer-facing
employees? Do managers insist on preapproval for discounts, gifts, travel, and entertainment
expenditures and for charitable contributions, or do they routinely approve expenses
after the fact? How is the company’s code of conduct communicated to customers, dealers,
and partners? Do customers know the entertainment and travel reimbursement policies
of the company? How does the company deal with a problem? Is investigation swift and
punishment decisive and fair, and made public?

The tone local leadership sets is critical. “One thing we must appreciate is that
in a hierarchical culture, bribery and corruption depend largely on the tone from
the top,” points out a leading fraud expert. Global companies must hold their country
CEOs accountable for compliance with their policies and codes of conduct as well as
Indian laws. A zero-tolerance policy is vital. Few companies discuss the character
of leaders during the appraisal process; hitting the numbers is paramount. However,
companies must pay attention to the small things, like segregation of personal phone
calls, appropriateness of business expenses, and the personal use of company assets.
I have found a sense of entitlement in small things to be a predictor of bigger problems.

Reference checks are critical when hiring. I have been burned badly; in retrospect,
I could have avoided so many mistakes by better and more personal due diligence. For
instance, after we terminated a senior executive for channel stuffing just one year
after hiring him, a distributor told us that the executive had a reputation in the
industry for indulging in that practice. When we had to let go another senior leader
for inappropriate conduct with female employees, it didn’t come as a surprise to many
in the industry.

Global companies must hold country managers and senior leaders accountable for creating
the right culture in their Indian entities by walking the talk. Subroto Bagchi, an
Indian CEO, who has a reputation for creating the right culture, comments:

We ask our people to persist and prevail, not take shortcuts. Whenever they get stuck,
however small the matter, like a fire clearance for a building or an issue with the
electricity board, our top management walks shoulder to shoulder with operating people
to get things cleared, including attending meetings with government officials. The
message is simple: we will work alongside you. We will not hold it against you if
a project gets delayed or we lose money; do what is right, not what is convenient.
Over time, people will know what is acceptable here and what’s not. Social memory
is many times more effective than a bunch of policies.

By contrast, in a company that had to terminate a senior manager for a major fraud,
it turned out that many employees were aware of his practices. When asked why they
hadn’t reported their concerns despite a widely advertised whistleblower policy, they
said they didn’t feel safe coming forward or felt it would be futile. The company
learned a lesson on how an open and inclusive culture is critical.

Every company in India, local and foreign, has to learn to cope with volatility and
uncertainty. I mentioned some factors in
chapter 3
, such as floods, strikes, and
bandhs
(labor shutdowns). In recent years, the government has also amplified uncertainty.
Car manufacturers are on edge trying to predict the policy on fuel subsidies to decide
whether to build capacity for diesel or petrol engines. Telecom companies are still
unsure about the rules for 2G spectrum licenses. The software industry needs a decision
on whether software imports are going to be taxed as a good or a service. For tax
purposes, IT services companies are seeking clarity on the definition of software
exports. New tax laws, especially the draconian General Anti-Avoidance Regulations
(GAAR), have created a sense of insecurity. Martin Pieters, CEO of Vodafone India,
puts it succinctly: “In emerging markets like India, there are new hurdles every day.
They [policymakers] can change the rules of the market as you play in it. If you don’t
have the stomach for that, please don’t come to India.”
⁷

Multinational companies face added complications, as these headlines show:

“India throws eBay Chief into prison” (
The Telegraph
)

“Victory for Novartis could spell death for millions” (
The Hindu
)

“Indian State bans Coke and Pepsi” (BBC)

“Will burn any Wal-Mart store says Uma Bharti” (NDTV)

“India allows compulsory licensing of Bayer Nexavar” (
Economic Times
)

“Facebook, Google executives face jail time” (
Times of India
)

“Vodafone case: governments tax mugging comes with big risks” (
Firstpost
)

“2G blow to govt. as Supreme Court cancels 122 licenses” (
Hindu Businessline
)

“India says ‘wait’ to Wal-Mart” (
Forbes
)

If India wants to attract more foreign investment, the government has to make it a
less uncertain and more hospitable place. At the same time, it is important to put
this uncertainty and volatility in context. Almost all emerging markets are uncertain
and volatile. Brazil’s fuel policy is creating uncertainty, and Google’s Brazil CEO
was arrested in October 2012 over a freedom-of-speech controversy. In China, an increasingly
strict bureaucratic approval system and growing restrictions are hindering foreign
investment.
⁸
Recent favorite Vietnam has already lost its appeal due to corruption and bureaucracy.
⁹
And Indonesia’s land acquisition laws make India’s look streamlined by comparison.

Since India alone isn’t going through a period of heightened uncertainty, volatility,
and weak political leadership, companies will need to develop more skills to handle
ambiguities in policy and regulation. Smart multinational companies like Samsung,
JCB, and Suzuki take that in their stride, adopt a long-term perspective, and sustain
their commitment through all the vicissitudes. They have developed the ability to
ward off problems, to influence policy and regulation, and to roll with the punches—resilience,
in a word. Indian CEOs wryly call that managing the environment. The resilient have
performed better than those that, put off by instability, have adopted a cautious
approach.

Foreign companies have a particularly hard time in India because of a deficit of trust.
India has benefited handsomely from globalization; its IT industry, for instance,
would not exist but for globalization. However, most Indians remain ambivalent about
throwing open the gates to foreign companies. These fears cannot be dismissed as irrational
or paranoid; the behavior of multinational companies in emerging markets has been
less than exemplary. When foreign companies do their job well, they bring desperately
needed investment, technology, and managerial expertise, creating jobs and building
local skills and capabilities. Importantly, they create competition, drive efficiency,
and give customers more choice, lower prices, and better quality. What’s not to like
about them?

Plenty, argue critics. If they aren’t regulated and policed, multinationals are profit-seeking
missiles that destroy local competition and jobs. They minimize or evade taxes, practice
cultural imperialism, and change traditional food and health habits. Nearly thirty
years later, Indians haven’t forgotten or forgiven the environmental disaster at the
Union Carbide plant in Bhopal that affected over five hundred thousand people. Activists
accuse companies like Coca-Cola of depleting groundwater supplies across India. Even
responsible companies like Hindustan Unilever face accusations of poor environmental
practices, such as dumping mercury-contaminated glass. Pharmaceutical companies price
lifesaving drugs out of the reach of millions, while biotechnology companies like
Monsanto are perceived to be enslaving farmers. The list goes on. Foreign companies’
practices are regarded as a new form of economic and cultural imperialism, about which
Indians, who were colonized for three centuries, are sensitive. Although Indians would
like to work for multinational companies and have no reservations about buying phones
or TV sets from them, even educated Indians feel they are vulnerable to exploitation
by foreign companies.

The irresponsible practices of a handful of companies over time have created a trust
deficit, which anyone can exploit in the noisy democracy that is India. Competitors,
politicians, nongovernmental organizations (NGOs), activists, the media—they can all
hijack an issue for their own agenda under the guise of standing up for the common
man and in the national interest. There isn’t a quicker way to make the headlines
than by threatening to burn a Walmart store or to boycott McDonald’s.

The most critical task is for global companies to earn the trust of all their stakeholders:
customers, employees, business partners, government, NGOs, and society. One company
I know that overcame a chasm of suspicion and developed the resilience to thrive in
India is Microsoft.

“Microsoft
is
the digital divide,” said India’s IT minister, shortly after announcing the launch
of a new low-cost PC running Linux, not Windows. Definitely not a great start to my
tenure at Microsoft in India.

In early 2005, Microsoft was at the top of its game. Google and a resurgent Apple
were in the future, and the primary threat was from free, open source software, which
had captured the imagination of governments. Governments were concerned about Microsoft’s
large market shares in software and sought a free alternative to make computing accessible
to millions. As in many countries, admiration for Microsoft and Bill Gates was mixed
with distrust. That had much to do with the company’s legal battles with the US Department
of Justice and the European Union, but there were challenges in India, too. Microsoft
India had gained a reputation for aggressive business practices, unaffordable prices,
and the lack of relationships. That’s what we had to change.

EARNING TRUST THROUGH BETTER BUSINESS PRACTICES
. Microsoft had sharp elbows in India when it came to doing business. That was particularly
true about piracy. Many large Indian enterprises were underlicensed; they used more
software than they had paid for. Smaller firms ran almost entirely on pirated software.
Every now and then, CEOs would receive an aggressive communication or a threatening
visit from an arrogant Microsoft employee.

Microsoft wasn’t wrong to tackle piracy, but such engagements lacked finesse. Moreover,
people felt the cost of software was egregiously high relative to the plummeting cost
of hardware. That rankled in a poor country like India. The government worried about
the growing digital divide: those with access to IT would do much better than those
denied access to it, amplifying inequity. As the industry leader, people expected
Microsoft to develop solutions to bridge the digital divide, but the company didn’t
seem sensitive to the issue. It was easy for leaders in business and government to
see open source software as the panacea. That resulted in a wave of experimentation
with Linux and Open Office, with everyone trying to reduce their dependence on Microsoft
or using the threat to extract better prices from us.

Fortunately, there was greater sensitivity toward such sentiments in Microsoft’s headquarters
in Redmond. An increasingly philanthropic Bill Gates; Brad Smith, the thoughtful general
counsel; and Craig Mundie, the chief technology officer but also a sort of secretary
of state for the company, were all highly attuned and receptive to the need for change.

Microsoft decided to implement a differential pricing framework globally and particularly
in India. A new public-sector pricing framework transparently linked software prices
to per capita GDP. A program called Partners in Learning enabled schools to get Microsoft
Office for about $2.50 a year. A version of Windows called Starter Edition for India,
which sold for around $20 to OEMs, made an operating system more affordable for first-time
PC users. It also made local-language versions of Office available at attractive prices,
to which India’s state governments warmed.

To correct the perception that Microsoft Office in India cost $300, the company launched
cheaper products for consumers and small businesses—products like Office Home and
Student for around $70, and Windows Small Business Server—and made them available
everywhere. Start-ups, student developers, and qualifying NGOs enjoyed access to the
full suite of Microsoft software free through an imaginative program called Dreamspark.
These efforts dramatically reduced the level of dissonance in the ecosystem. While
the pricing issue never went away, perceptions of Microsoft as being unresponsive
steadily changed.

Concurrently, as part of a global mission called Unlimited Potential, Microsoft launched
another set of initiatives to bridge the digital divide by increasing the use of computers
in India by the less affluent. Microsoft invested over $20 million to provide computer
literacy to nearly 700,000 schoolteachers, who have trained almost 32 million schoolchildren
and large numbers of retiring soldiers and policemen and their children. With another
initiative called Saksham, Microsoft entered into a partnership with the government,
NGOs, and private-sector partners to create computer kiosks in 100,000 Indian villages.
These programs enabled productive partnerships with key state governments in an increasingly
federal country.
¹⁰

WINNING FRIENDS AND POLICY INFLUENCE
. One memorable conversation I had when I was Microsoft India’s CEO was with Deepak
Pathak, a professor of computer sciences at IIT Bombay, my alma mater. An ardent supporter
of open source software, Pathak was forthright in his criticism of Microsoft, but
since I was a former student, tempered it with advice. Most of his advice had to do
with building bridges. Microsoft stood alone (“I, me, and myself,” was how Pathak
characterized us), and came across as arrogant and made no friends. I vowed to change
that.

It’s tough to engage key stakeholders in ways that don’t come across as pure self-interest.
The intersection between self-interest and the national interest turned out to be
policies that would increase the usage of information and communications technologies,
and bridge the digital divide. Embedded in this were knotty issues such as the protection
of IP rights, technology neutrality in place of a bias toward open source software,
the government’s use of IT, and e-governance.

The traditional approach to tackling policy issues in India is lobbying. However,
those who are in charge of policy and those who influence it are cynical. They are
more appreciative of companies that have developed broad national and industry viewpoints
rather than narrow company-specific agendas. They expected thought leadership and
the ability to bring global expertise and experience from companies like Microsoft.
Microsoft India therefore invested in building the capability for thought leadership
on issues important to us. We created senior roles—a national technology officer,
a chief security adviser, an expert on standards, a cell comprising experts on intellectual
property, and a corporate affairs team—to develop the capability to engage with industry
bodies and the government. We framed issues around what is good for India and Indian
industry, providing global evidence for our point of view, bringing in subject-matter
experts from around the world, and creating coalitions for viewpoint. The approach
proved to be effective.

Microsoft invested in creating an ecosystem of people and organizations that had a
stake in developing a healthy policy environment. It ramped up engagement with India’s
industry associations, like NASSCOM, FICCI, and CII, in which we chaired influential
committees on issues like intellectual property rights, technology and education,
and software taxation. Realizing that Indian companies like Tata, Infosys, and Wipro
had more credibility and influence than did foreign companies, we forged alignment
with those firms on policy issues.

India’s civil society, consisting of over 3 million NGOs, is an important voice. Most
NGOs tend to be skeptical about the motivations of big business, especially multinationals
like Microsoft. Through a program called Jyoti, Microsoft collaborated with NGOs to
support initiatives to empower unemployed youth, marginalized women, farmers, fisherwomen,
victims of human trafficking, and rural self-help groups by providing computer literacy
and free access to computers through community centers. Between 2004 and 2011, Microsoft
invested about $10 million in this program, training 430,000 people in 1,425 community
technology learning centers across 27 states.
¹¹

Microsoft Research India (MSR), set up in Bangalore in 2005, became a platform for
collaboration with top academic institutions and leading computer scientists to advance
the state of computer science in India. MSR earned trust and goodwill in two ways.
It focused on the burning challenge of fostering more doctoral candidates in computer
science, who had numbered only a paltry thirty-five a year at that time. MSR offered
internships and fellowships, provided travel grants, and ran summer schools to encourage
more computer scientists to complete their degrees and pursue careers in teaching
and research. By creating a new discipline called Technology for Emerging Markets,
MSR India became the hub of a global community of researchers exploring challenges
such as machine translation, natural interfaces, and the application of cheap mobile
phones and low-cost computing to social problems. Over time, academics and researchers
in India, traditionally supporters of open source software, became more balanced in
their opinions about Microsoft.

Another vital decision that Microsoft India made was to engage with state governments,
and not just the central government. As the central government in India weakens in
authority, the action is rapidly shifting to the states. That’s a positive development.
As in China, leaders of many states realize that development is good politics and
are vying with each other to attract investment. Their ministers and bureaucrats were
keen to work with Microsoft for computer literacy, skills development, and e-governance.
When decision making slowed in Delhi, Microsoft was able to make significant progress
in fifteen of thirty states. Even in Kerala, where a Marxist government wasn’t too
keen about Microsoft, tenacious engagement paid off. Mission critical e-government
applications, such as an HR management system, a road transport application, and the
flagship Information Kerala Mission, were built on Microsoft technology.

One of the most sensible decisions we made was to create an advisory board for the
company comprised of ten thoughtful and influential leaders drawn from diverse fields.
Between 2006 and 2010, this board met three times a year with senior executives from
Microsoft headquarters in Redmond. It advised the company on many specific issues,
but was more helpful in educating Microsoft’s senior leaders on how to do business
in India. Its views were instrumental in softening the approach to India. In turn,
the members developed an insider’s perspective about Microsoft that they carried with
them into India Inc.’s sanctum sanctorum, to which no multinational company usually
has access.

MANAGING REPUTATION
. The third plank of Microsoft’s turnaround involved a shift away from the traditional
PR approach, which was tactical and reactive. A new senior executive drove an integrated
communications strategy. No longer did we define success in terms of the number of
media stories about Microsoft or its share of voice. We focused on a few key messages—“Innovation
in India,” “Good for India,” and India’s need to move from renting IQ to creating
IP, for instance—and told our stories around these themes.

We leveraged all of Microsoft’s assets in India—Microsoft Research, the India Development
Center, thousands of Microsoft partners, and the 1.2 million strong developer ecosystem—to
tell these stories. Around each key theme, we ran a 360-degree campaign. We would
commission research; have credible academics or analysts write white papers; engage
trade associations and organize industry roundtables on the issue; send out newsletters
and mailers; and write bylined articles in newspapers and magazines. To amplify the
effect, we synchronized the marketing campaigns with the communications campaigns.
Wherever possible, we tried to make our messages more credible through the endorsement
of academics, analysts, and industry leaders. We sustained each campaign for two years,
which resulted in messages becoming sticky.

The results were impressive. The Indian government’s favorability toward Microsoft,
measured through the International Government Elites Survey, went through the roof,
with net favorability surging from the fifties to the nineties on a scale of one hundred,
well ahead of Google and IBM. Microsoft was consistently recognized as one of the
best Indian employers and one of the most respected multinationals in India. The aura
turned the company’s reputation from a headwind to a tailwind for sales teams. Indeed,
greater trust, more goodwill, and a web of relationships enabled Microsoft to navigate
several challenges, such as a bruising disagreement with the Indian tax authorities,
a confrontation with IBM on the issue of document standards, and many attempts by
the open source community to get educational institutions and local governments to
ban the use of Microsoft software.

The government of India, recognizing the importance of intellectual property rights
for the IT industry, increased enforcement, and the piracy rate dipped from 75 percent
to 64 percent in seven years. The debate on open source versus commercial software
evolved into a pragmatic acceptance of mixed source, with a focus on interoperability.
The central government maintained its policy of technology neutrality, while many
state governments embraced Microsoft. In fact, Microsoft’s government business grew
at double-digit rates over the period. Earning trust and respect turned out to be
good business.