Conquering the Chaos: Win in India, Win Everywhere (17 page)

Based on Microsoft’s experience, companies need to do a few key things in order to
develop resilience.

MAKE RESILIENCE AN EXPLICIT PRIORITY
. Not all companies hold the country manager in India responsible for cultivating
the company’s reputation, for developing relationships with influential stakeholders,
and for driving thought leadership on industry issues. They should. In mature markets,
that might seem less of a priority than delivering the numbers, but in India, it is
central to success, especially for businesses that sell to consumers. A strong brand
among employees and an image as a responsible industry leader create a favorable environment
in which the business can flourish.

This has to be an organizational commitment, not just one individual’s passion. What
mattered at Microsoft India was not just my commitment, but that of twenty-five or
more leaders across the company who represented Microsoft on industry committees,
developed and sustained key relationships, and projected thought leadership. Eventually,
nearly half our employees were involved, volunteering with NGOs, engaging with software
developer communities, blogging, and so on. Microsoft’s willingness to sustain significant
investments in public affairs capability and social programs year after year changed
the company’s character. Tenacity also made a difference. There were moments when
a particular battle seemed irretrievably lost, but we stayed engaged. A year, sometimes
two or three, later, our patience would be rewarded. A window of opportunity would
open, we would make progress, and the tide would turn.

DON’T BE EVIL
. The phrase, made famous by Google, isn’t obvious, because evil lies in the eye of
the beholder. A company may intentionally do bad things, such as dumping banned pesticides
or toxic waste in an emerging market like India, taking advantage of ignorance, corruption,
and weak enforcement. More often, managers merely replicate global practices or adopt
a profit-maximizing approach without understanding local concerns and sentiments.
That is perceived as evil, and the backlash often surprises executives.

It’s important to improve business practices proactively and wholeheartedly, not reluctantly,
grudgingly, and belatedly. For example, responding to criticism and protests, Coca-Cola
India has focused its efforts on water conservation. It claims to have reduced water
consumption by 25 percent between 2004 and 2009; that the water discharged from plants
is clean enough to support aquatic life; and that Coca-Cola is supporting rainwater
harvesting that replenishes 93 percent of the groundwater used. It’s been a while
since the company has been targeted in India.

Some pharmaceutical majors like GSK and Novartis have taken a multipronged approach
to align business practices in India. Novartis, for instance, runs a large, branded
generics business in its Sandoz division. Responding to criticism of the price of
its cancer drug, Glivec, it manages a program that supplies Glivec priced according
to patient incomes. In fact, Novartis and GSK are increasingly following a tiered
pricing approach, where affluent countries like the United States pay the highest
prices for a drug, and they sell them at large discounts in emerging markets like
India and China. These companies now find India to be less hostile.

DO GOOD.
Doing no evil is a low bar for a global company; it is imperative to do good and
to be seen as good for the country. In inequitable India, where millions live in abject
poverty, the expectation is that companies will give back to society. In fact, there
is a movement to mandate corporate social responsibility in the Indian Companies Act.
The bar is even higher for foreign companies, as I pointed out earlier.

Many multinational companies have implemented some corporate social responsibility
(CSR) initiatives. The best initiatives align with the core business so synergies
make the programs sustainable and scalable despite changes of leadership and fortunes.
For example, Nestlé has invested heavily to help Indian milk farmers. According to
the company, it has financed over 400 wells to help farmers irrigate their land for
growing fodder, installed 785 cooling tanks, and 546 milking machines, and set up
3,269 milk-collection centers at a cost of Rs. 550 million (over $10 million). Nestlé
also provides farmers with the services of 36 veterinary doctors and agronomists and
distributes sizable quantities of fodder seeds, cattle feed, and veterinary medicines
free. No wonder dairy farmers look up to Nestlé, and the company has created a capable
supply chain.

CSR programs have several shortcomings. Many are anemic; companies do the bare minimum
to claim the program’s existence. Others have no strategy. They spread a little money
across many claims, so waste it or give it to organizations that are inefficient or
unaccountable. Sometimes, good intentions are tinged with arrogance. Company volunteers
will show up to build toilets or schools in a village without consulting the local
population, rendering such efforts a waste.

The future lies in going beyond CSR to corporate social purpose and creating shared
value, as Michael Porter termed it.
¹²
Emily Harrison, founder of Innovaid Advisory Services, a Mumbai-based company that
advises businesses on CSR, adds: “CSR is changing, moving away from corporate philanthropy
and writing checks to businesses systematically managing how they affect the environment,
customers, suppliers, and employees.”

To improve its rural reach and be seen as a socially responsible company, Novartis
India runs an innovative for-profit initiative called
Arogya Parivar
(Healthy Family, in Hindi) that delivers medicines to 40 million people at the bottom
of the pyramid in ten states. The product portfolio has grown to cover eleven therapeutic
areas and offers nearly eighty pharmaceutical, generic, and over-the-counter products
as well as vaccines. Around 10 percent of Novartis’s revenues in India come from this
channel. Meanwhile, the Novartis Foundation provides free leprosy medicines in India,
which has the largest leprosy population in the world. The Novartis Institute for
Tropical Diseases in Singapore is working on vaccines for malaria, TB, and dengue,
which the company will supply at zero profit. These measures are helping Novartis
improve trust, earn goodwill, and grow in India.

Most companies check the boxes: they comply with the laws of the land, set up a foundation
that runs CSR programs and funds NGOs, support educational institutions, and so on.
Yet they fail to gain trust and goodwill; people remain cynical about their intentions.
“There is a real risk in India that CSR just creates a new kind of patronage network,
where one politician runs an educational trust, or another politician wants something
done in their constituency. The risks could equally flow the other way, with companies
using charitable arms to buy off opposition in local communities,” says Pratap Bhanu
Mehta, president of the Centre for Policy Research, a think tank in Delhi. Social
activist Arundhati Roy goes further in a
Financial Times
article: “Corporations have their own sly strategy to deal with dissent. With a minuscule
percentage of their profits, they run hospitals, educational institutes and trusts,
which in turn fund NGOs, academics, journalists, artists, filmmakers, literary festivals
and even protest movements. It is a way of using charity to lure opinion-makers into
their sphere of influence. From here, it’s a quick, easy step to ‘there is no alternative.’”
¹³

She may sound cynical, but Roy voices the views of many Indians who feel that businesses,
especially multinational companies, remain self-serving. “How does one silence the
skepticism?” I asked Ashok Ganguly, former chairperson of Hindustan Unilever and a
respected elder statesman. Ganguly talked about the unwritten philosophy that has
guided Unilever in India: What’s good for India will be good for Unilever. That has
been the credo of every chairperson since India’s independence, and as he recounted
sixty-five years of history, the extraordinary lengths to which Hindustan Unilever
went to support national interests became clear.

Until quite recently, the company was called Hindustan Lever, not Unilever India,
in recognition of the national pride of a newly independent nation. In the 1970s,
when foreign exchange was scarce, HUL established an R&D center to drive the import
substitution of oils and other raw materials, and started exporting rice, leather,
and carpets—businesses that Unilever had never entered, but started up to earn foreign
exchange for India. When the government wanted companies to create high-technology
businesses, HUL invested in fine chemicals and catalysts. Similarly, when jobs were
needed in economically backward regions, the company invested in factories in those
areas despite the challenges. Since the government is now concerned about inclusive
economic development, HUL has spun a pilot program under which its Shakti rural distribution
network will help banks distribute financial products in rural areas.

The essential difference at companies like HUL and Tata Group is that their commitment
to India is not at the margin of what these companies do, but at the core. It’s not
fleeting, but is sustained over decades. Moreover, these actions aren’t driven by
a superficial desire to look good, but by the conviction and character of its leaders.
That’s what gives these multinational companies the status of trusted insiders in
India.

• Despite corruption in India being extraordinarily high and pervasive, it is still
  largely possible to operate without being corrupt and having to bribe. It takes conviction
  and serious focus from the top. Effective policies and controls are of course essential,
  but it takes more. It takes investments to prevent fraud and corruption rather than
  detection, investigation, and correction. Companies must also pay much more attention
  to soft issues: the behavior of senior leaders, a culture of high employee engagement,
  and the character of new hires and promoted employees.
  
• Another challenge is dealing with chaos and uncertainty. This is a big challenge for
  foreign companies because there is a trust deficit for multinationals. Multinationals
  also lack the capabilities to deal with the turbulent environment.
  
• To develop the resilience to operate in India and similar markets, the first step
  is to make the country manager and senior leaders explicitly accountable for the image,
  reputation, and influence of the company in India. The second is to change practices
  that cause mistrust or anger. The third step is to embrace a philosophy of doing well
  by doing good so that over time, the company is seen as benevolent, trustworthy, and
  good for India.
  

You can’t find new land with an old map.”

—PROFESSOR C. K. PRAHALAD

While researching this book, I kept asking: Why is it so hard for CEOs to change the
way multinational companies operate so they can succeed in emerging markets? Smart,
accomplished, and driven executives who travel all over the world lead these companies.
They regularly read publications like the
Wall Street Journal
,
The Economist
, and
Harvard Business Review
, and are well informed about what’s happening in the world of business. They have
access to sharp management consultants and know smart people worldwide. Why then do
they struggle to comprehend that there is so much at stake for their companies’ futures
in India as well as in other emerging markets?

The answer finally dawned on me. What is going on is no ordinary change. This isn’t
just about winning in India; India is a huge market in its own right, but more importantly,
it is a lead case for emerging markets. Thus, winning in India and China is actually
shorthand for succeeding in the world’s emerging markets. That requires not incremental
evolution, but a paradigm shift.

Globalization has been happening for centuries. In the first phase, from 1492 to 1900,
while companies stayed at home, countries—like Great Britain, Spain, and France—colonized
the world. In the second stage, which began around the turn of the last century and
accelerated after World War II, Western and Japanese companies ventured overseas.
They started in other developed countries but gradually established a presence in
some developing countries, too. The model they used was an export-oriented model,
or, as C. K. Prahalad said more bluntly, an imperialist mind-set.
¹
Emerging markets provided incremental sales for existing products, usually older
or obsolescent ones, and international companies focused only on the affluent because
they were the only consumers who could afford them. Decision making was centralized
at headquarters, which was seen as the locus of innovation for products, business
models, and management practices, and was the hub of the smartest people in the organization.
This is still the dominant model and as a result, says one CEO, “multimillion-dollar
thinking routinely obscures a multibillion-dollar opportunity in these markets.”

The next wave of globalization will be qualitatively different. With markets in the
developed countries saturated and competitive, and with many of those economies slowing
down, growth tomorrow will have to come from emerging markets. The center is rapidly
shifting from the West; growth will come mainly from the rapidly growing middle class
in the developing countries. However, most companies’ current business models do not
address them effectively. To do well in emerging markets, global companies will have
to learn to do things differently. For instance, most multinational companies’ models
allocate resources and investments based on their current revenues in each market.
That has to be tempered by a judgment about the size of the potential opportunity,
and companies have to make differentiated bets on specific countries such as India,
China, and Brazil.

Current business models assume homogeneity of markets and customer needs, but that’s
no longer true. One size no longer fits everyone, and local innovation is critical.
Success requires different, and more affordable, value propositions, which companies
can only develop in local markets. The current model assumes the world is familiar
and predictable; therefore, headquarters can decide and subsidiaries execute. Emerging
markets are different terrain; they’re unfamiliar, uncertain, and culturally dissimilar.
You cannot succeed in these places unless you have a local team you can trust to make
the right decisions. Many developing countries are traumatized by their colonial pasts,
distrustful of foreign companies, and worried about a new kind of economic imperialism.
Corporations have to operate more sensitively and inclusively, and deploy sustainable
business practices to earn trust and avoid a backlash.

Most multinational companies can be characterized as centralized hub-and-spoke systems,
with headquarters in the center. They need a new architecture, with multiple hubs
in India, China, and other countries. These hubs will have global missions, not just
national ones, and evenly distributed decision-making power. For instance, the Indian
hub’s mission will be to develop innovative products and solutions for the middle
of the pyramid, nurture leaders who can operate in chaotic emerging markets, and become
the back office for IT, engineering, and business processes.

Leading such a hub is very different from heading a sales subsidiary. The process
cannot be delegated to enthusiastic middle-level managers who approach everything
from the India perspective. It requires an entrepreneurial general manager with a
global perspective, one who can make judgment calls about balancing global objectives
with local needs. While the hubs will have more authority, they still cannot make
unilateral decisions, which will require a new operating framework. That isn’t likely
to be a tweaking of the current approach, but a profound shift in mind-set, architecture,
operating model, capabilities, and, most of all, power. It will feel unfamiliar, threatening,
and disruptive. That’s why it represents a paradigm shift.

Because it is a paradigm shift, the globalization of corporations will run into resistance
internally. For instance, in an interview with the
Economic Times
in 2009, GE’s Jeff Immelt candidly admitted that the reaction of his executives in
India to the One GE model had been less than positive. “The only person who believes
that it’s a good idea is me,” he joked.
²
To have a chance of success, the CEO, supported by the company’s board, has to champion
change. Driving the changes in the globalization model shouldn’t be delegated to the
international president or the global sales head, no matter how capable the individual.
Globalization requires the whole company to change, not just one of its parts. Product
divisions, functions like finance and HR, and most of the core processes of the company
have to be part of the transformation. Only the CEO can drive that kind of change.

That poses a problem because few CEOs understand, let alone focus on, emerging markets.
When IBM conducted a survey of fifteen hundred CEOs in 2010, it found that most CEOs
don’t fully comprehend the implications and certainly aren’t preparing their companies
for them.
³
While 76 percent of CEOs see a major shift of economic power from the West to developing
markets, only 23 percent believe that globalization will have a big impact on their
organizations in the next five years. While many Western CEOs claim that 50 percent
to 60 percent of their future growth will come from emerging economies like India
and China, they admit that only 2 percent of senior leadership has work experience
in those regions. Thus, ninety-eight of a hundred senior executives in
Fortune
500 firms are likely defending business models created in the United States and Europe
that may not have much relevance in emerging markets.

During my conversations with CEOs and senior corporate leaders in the West, it became
apparent that many lack a visceral understanding of emerging markets like India. Their
understanding is academic, gleaned from presentations, spreadsheets, books, quick
visits, and vacations. Many have no real liking for places like India or Indonesia,
which they see as alien, chaotic, and difficult to manage. They find it hard to imagine
that India could have the same GDP as Germany does in their lifetimes.

These CEOs are also more focused on the short term. With a Western CEO’s average tenure
at around six years, few have the patience to build a presence in places like India,
which may take ten years. Only a rare CEO is willing to take on the risks and challenges
of building market leadership in emerging markets, knowing that history will credit
success, if it comes, to a successor. It is simpler to drive revenues and margin growth
from existing businesses and geographies.

Besides, the complexity of the environment is rising sharply. Markets are more challenging,
competition is tougher, and governments are intervening more, so a large number of
issues clamor for the CEO’s attention. Only a few will prioritize their agenda in
emerging markets, especially when countries like Russia and India aren’t presenting
themselves as great places for multinational companies to do business. Few CEOs have
globalization as one of their top-three priorities.

There are always exceptions. A small number of CEOs, convinced that globalization
is a disruptive opportunity, are making the shift hands-on. Sam Palmisano moved IBM’s
center of gravity to India for services and to China for manufacturing; IBM has more
employees in India than in the United States. Tim Solso drove the transformation of
Cummins India and China into hubs that generate nearly half the company’s profits.
Leif Johansson has grown Volvo’s Asia operations from 5 percent to 35 percent of global
revenues. Schneider Electric’s Jean-Pascal Tricoire has relocated himself and a third
of his executive team to Hong Kong to be close to China and India. Others, such as
Honeywell’s Dave Cote, Deere’s Sam Allen, and GE’s Jeff Immelt, are relentlessly remaking
their companies so they become more competitive in emerging markets.

I call these CEOs
globalizers
. They represent a distinct kind of business leader, different from other archetypes,
such as the cost cutters; the generals who obsess about execution; the salespersons,
who love being with customers; and the engineers who are passionate about shaping
products. Globalizers have an overarching desire to create a global enterprise and
to be leaders in growth markets. These CEOs don’t underestimate the magnitude of the
challenge in getting their companies to be more attuned to emerging markets. Globalizers
are masters of change management. Rather than trying to change the whole company,
they use India and China as laboratories to cook new models for other emerging markets.
Given the relatively tiny revenues that most companies get from India, it’s a low-risk,
high-reward experiment.

Globalizers use several strategies to drive their agenda. They invite the country
heads of China and India to key leadership meetings so that these strategic hubs have
a seat at the executive table. They create alignment and accountability by giving
business unit heads explicit targets for key geographic areas. Performance in China
and India isn’t just the responsibility of the president of sales or international
markets, and division presidents won’t be rewarded for hitting their financial numbers
if they miss their goals for key countries. Honeywell’s Cote holds himself personally
accountable by breaking out the numbers for China and India and talking about them
in every earnings call. He has also encouraged senior leaders to operate out of China
and India. Thus, Krishna Mikkileni, Honeywell’s global leader for manufacturing and
engineering, operates from Bangalore, while Shane Tedjarati, president for high-growth
markets, operates out of China. Wearing dual hats—a global role and a country responsibility—is
an effective way of advancing globalization.

Smart CEOs manage strategic geographies like China and India the same way they manage
product divisions. Like SBUs, these countries are profit centers managed with multiyear
plans, not just annual budgets. The CEOs review, debate, and refresh the strategies
for these countries every year as part of the planning process. That allows the CEOs
to surface and resolve contentious issues right away.

Like JCB’s Anthony Bamford, globalizers actively shape the company culture to facilitate
globalization. They recognize that an inward-looking or ethnocentric culture, a large
headquarters staff, hierarchy, and silos are all enemies of globalization. They actively
encourage learning and collaboration and discourage talking down to the geographic
subsidiaries.

Globalizers are adept at using forcing functions to overcome resistance. IBM’s transformational
outsourcing deal with telecom operator Bharti got many parts of the company engaged
with it, and it has become a fast-growing line for the company. Cummins’s Solso and
Volvo’s Johansson have used joint ventures in China and India to change the way their
companies think. Cisco’s John Chambers created Cisco East, an R&D center in Bangalore
to decentralize both innovation and the location of 20 percent of Cisco’s senior leaders.
Giving the India team the responsibility for a product line can be effective. Deere’s
decision to use India as an export base has made it more competitive in the small-tractor
segment worldwide.

Globalizers are deeply involved with developing the leadership bench in countries
like India and China. Ensuring that talent flows across the system, they personally
tap rising stars to take on roles in markets like India. They get involved in recruiting
the right country head and remain accessible to mentor him or her. At Renault, Carlos
Ghosn has given his India president, Marc Nassif, permission to put knotty issues
on the agenda of the executive committee. That power ensures that most issues get
resolved without having to be escalated. Nokia’s D. Shivakumar has a standing invitation
to meet with CEO Stephen Elop informally during every visit to Finland. Nestlé’s Helio
Waszyk doesn’t wait for an invitation; he simply drops into CEO Paul Bulcke’s office
whenever the latter is in town, for an informal chat about the India business. Such
informal access is crucial for mentoring and for the CEO to tear down internal barriers
quickly.

Globalizers understand the importance of reverse innovation. They get personally involved
with ideas and experiments in developing countries, looking for promising ideas and
for lessons from failed experiments. When promising innovations fail to scale, the
CEO’s involvement ensures that they aren’t forgotten. GE, for instance, has done an
impressive job with low-cost X-ray and ultrasound machines from China and India, but
they haven’t been game changers. However, CEO Immelt has publicly made a big deal
of these innovations, including coauthoring a widely read article in
Harvard Business Review
.
⁴
That makes it hard for GE Healthcare to give up. Learning from the initially disappointing
results, GE executives have realized that they need more marketing investments to
create a strong brand, a different sales strategy, and global distribution.

Globalizers ask what new business the company could be in if it were headquartered
in India or China. In emerging markets, many companies may find themselves confronted
by new opportunities that they are well positioned to address. For instance, when
I headed Cummins India in 1999, we felt we should be in the software business. We
designed a creative deal with a small IT company, and as a result, Cummins is a major
shareholder in one of India’s fastest-growing IT companies, KPIT Cummins Infosystems,
a leader in embedded software, among other things. Globalizers continuously question
people on the front lines as well as folks at the center to understand if new segments
have opened up because of innovations. That’s how Solso learned about Cummins India’s
small generator sets business and ensured that it became a global business for its
parent.

At a personal level, globalizers tend to be open, curious, and adventurous. For instance,
they enjoy eating ethnic food in nondescript restaurants in the countries they visit
rather than bringing familiar food on their company jets or staying in the safe confines
of fancy hotels. They have friends in China, India, and Turkey, not just business
associates. They enjoy taking vacations in different countries and are likely to be
excited by the traffic rather than getting frustrated, worried, or wishing they were
back home.

Globalizers enjoy wallowing in overseas markets to develop a visceral understanding
of the opportunities and challenges. Nokia’s Elop insists on spending day one of a
country visit in the market, with no internal meetings. Tricoire has ridden a motorcycle
across the Indian countryside to understand how people live and how retail stores
and distribution networks work. Deere’s Allen spent a week doing community service
in a small village in Rajasthan with a number of senior executives. This contrasts
sharply with the CEO fly-by—the annual daylong stop of the company jet in Delhi.

Such CEOs are invariably inclusive leaders with a passion for diversity. To them,
diversity is a lot more than the percentages of women or people of color working for
them. They are passionate about creating a culture that is blind to color, passports,
gender, ethnicity, or language. They are open to ideas from everywhere, engaging with
shop-floor workers and eating with employees in company canteens. Like magnets, they
are drawn to the energy and ideas of employees, especially young stars.

Globalizers use intuition and judgment to make decisions, not just analysis and data.
As the saying goes, they rely on their heads, hearts, and guts. Three CEOs expressed
the same idea while explaining why they invested early in India. Said Volvo’s Johansson:
“If you wait till a trend is obvious, it’s too late. I saw in India a country with
a billion people and many smart managers, and asked how we could be global if we were
not leaders in this market.” JCB’s Bamford stated: “The engineering talent and the
people I met impressed me. I saw a country with no infrastructure and knew it would
simply be a matter of time.” Echoed Solso: “I felt the country stirring and sensed
that things could take off.” Their intuition comes from engaging personally with the
market, not by sitting in a boardroom looking at presentations and asking for more
analysis and data. Harvard professor Clay Christensen explains why it is so hard for
senior managers to spot and respond quickly to a threat or opportunity: “A fundamental
problem about the world is that data is only available about the past. If you wait
until the data is clear, you’re going to be taking action when the game is over.”
⁵
Neither data nor analysis could have predicted the success of Facebook or Apple;
you had to feel their potential emotionally and viscerally. Similarly, no amount of
data will serve as an indicator of a market’s rise. That is a judgment call.

Many of these CEOs also have a passion for creating social value, not just shareholder
value. Like Solso, they are passionate about creating workplaces that unleash the
potential of people or, like Johansson, want to see more people have access to clean
and safe trucks and buses. These leaders have an almost evangelical belief that extending
their business to more markets will quietly make the world a better place.