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31 July 2006 - News Updates India as a global power - Forbes magazine Emerging giant: India - Business Week magazine cover story Krrish sings, dances and fights evil too - Los Angeles Times
India as a Global Power
When India's commerce minister stormed out of the World Trade Organization's global trade talks in Doha, Qatar, last week, it was a reminder of the difficulties that the G-8 leaders must face when they assemble this weekend in St. Petersburg, Russia, for their annual summit. India, a booming democracy where socialist ideologies can still dictate government policy, wants to join the G-8, but the WTO Doha round comes first.
The ironies are plenty. In the very cities where companies like IBM, Microsoft, Motorola and Hewlett-Packard have set up offices, professionals and students have staged rallies and fasts to the death to protest the government's role in educational institutes. With the barriers to retail investment falling away, most of the big-name global brands can now be found in India. Yet the communist voices in favor of protectionism to help local industries are unlikely to be silenced soon.
Over the past few years, foreigners have invested in more than 1,000 Indian companies, and now more than 100 corporations in the country have a market value exceeding $1 billion. In the last decade, India has averaged a growth rate of more than 6% annually. Last year, that jumped to 7.5%.
Economist Raghuram Rajan--who served as adviser to the regulator of the country's capital markets, the Securities and Exchange Board of India--has followed India's growth trajectory over the last decade. Rajan, who grew up in India and is now economic counselor and director of Research at the International Monetary Fund, says India still has several hurdles to foreign investment. Rajan spoke about India's desire to join the G-8, what it will take to strengthen India's stock markets, where China continues to score over the country, and the boom industries of the future. When asked about the future boom industries in India, after software and services? Rajan replied “Finance is one potential boom industry, India's strengths lie in industries that are skill-intensive. Industries like pharmaceuticals, consulting, [and] down the line, medicine, education--these are places where the country can do very well. Also, I think there's enough entrepreneurial zeal in India that pretty much any industry can do well down the line. Who can predict what will take off?”
Emerging Giant -
India Like other rural residents of southern Mississippi, Jamie Lucenberg, 35, faced a huge cleanup job last fall in the wake of Hurricane Katrina. He needed a tractor fast to clear debris and trees from his 17-acre family farm, just 16 miles north of devastated Biloxi. "We literally had to cut our way up and down the blacktop roads," recalls Lucenberg. But rather than buy an American-made John Deere or New Holland, brands he grew up with, Lucenberg chose a shiny red Mahindra 5500 made by India's Mahindra & Mahindra Ltd. "I have been around equipment all my life," says Lucenberg, who also used the tractor to earn extra money clearing destroyed homes along the Gulf Coast. But for $27,000, complete with a front loader, the 54-hp Mahindra "is by far the best for the money. It has more power and heavier steel," Lucenberg says. "When you lock it into four-wheel drive, you can move 3,000 pounds like nothing. That thing's an animal." The local dealership in nearby Saucier, Miss. (population 1,300), figures it has sold 300 Mahindras in the past four months. Surprised that a company from India is penetrating a U.S. market long dominated by venerable names like Deere & Co.? Then it's time to take a look at how globalization has come full circle. A new breed of ambitious multinational is rising on the world scene, presenting both challenges and opportunities for established global players. These new contenders hail from seemingly unlikely places, developing nations such as Brazil, China, India, Russia, and even Egypt and South Africa. They are shaking up entire industries, from farm equipment and refrigerators to aircraft and telecom services, and changing the rules of global competition. Unlike Japanese and Korean conglomerates, which benefited from protection and big profits at home before they took on the world, these are mostly companies that have prevailed in brutally competitive domestic markets, where local companies have to duke it out with homegrown rivals and Western multinationals every day. As a result, these emerging champions must make profits at price levels unheard of in the U.S. or Europe. Indian generic drugmakers, for example, often charge customers in their home market as little as 1% to 2% of what people pay in the U.S. Cellular outfits in India offer phone service for pennies per minute. Yet these companies often thrive in such tough environments. Indian software outfits Infosys, Tata Consultancy Services, and Wipro have revolutionized the $650 billion technology services industry. Many more companies are using their bases in the developing world as springboards to build global empires, such as Indian drugmaker Ranbaxy. "What is surprising is the amount of progress emerging-market companies have made in the last few years," says Harold L. Sirkin, senior vice-president at Boston Consulting Group (BCG), which recently published a study based on data collected from 3,000 companies in 12 developing nations. BCG identified 100 emerging multinationals that appear positioned to "radically transform industries and markets around the world." The 100 had a combined $715 billion in revenue in 2005, $145 billion in operating profits, and a half-trillion dollars in assets. They have grown at a 24% annual clip in the past four years. "There is no doubt in my mind that Corporate America has started to take this threat seriously," Sirkin adds. What makes these upstarts global contenders? Their key advantages are access to some of the world's most dynamic growth markets and immense pools of low-cost resources, be they production workers, engineers, land, petroleum, or iron ore. But these aspiring giants are about much more than low cost. The best of the pack are proving as innovative and expertly run as any in the business, astutely absorbing global consumer trends and technologies and getting new products to market faster than their rivals. Globalization and the Internet are ushering in this "seismic change" to the competitive landscape, says management guru Ram Charan. Because they can tap the same managerial talent, information, and capital as Western companies, "anyone from anywhere who sets his mind to it can really restructure an industry," Charan says. "Make no mistake, this now is a global game." U.S. corporations, of course, have weathered waves of new rivals before. The 1960s and '70s saw the rise of Western European industrial groups such as Unilever, Philips, Siemens, and Volkswagen. Then came Japanese giants such as Sony and Toyota, followed by South Korean powerhouses such as Hyundai and Samsung and Taiwanese electronics conglomerates in the '90s. Each time, chief executives found themselves caught off guard. The best U.S. corporations adapted and emerged stronger than before. Yet this new group of game-changing companies is different on many levels. For starters, the new players are coming from many nations at once and deploying an array of strategies. They're also arriving from lands that, while growing fast, remain relatively poor. Germany and Japan were industrial powers before World War II and built on those strengths to reemerge as global heavyweights. By contrast, China and India have begun to emerge from extreme poverty only in recent decades. Per capita income in China is still just $1,300 a year. In India it's $620. That sounds like a huge handicap for companies from those nations: It implies low-income customers, meager capital, and hand-me-down technologies. It also means struggling with arcane regulations, corruption, and poor infrastructure. Hardscrabble origins, though, can be a vital source of strength. These companies have learned to make money by developing reliable, easy-to-use goods and services at very low prices. And those skills have equipped them well for operating elsewhere in the Third World. Telcos such as India's Bharti Telecom, for example, earn high margins while selling cellular service in some nations for 2 cents or 3 cents a minute. India has some of the lowest pharmaceutical prices in the world. The country has 101 brands of generic ciprofloxacin, used to treat bacterial infections such as pneumonia and anthrax, costing an average of 63 cents for 10 tablets of 500mg each. That compares with $51 for generic ciprofloxacin in the U.S., according to Ranbaxy Laboratories. "By learning to compete in this environment, we have gained strength in development and marketing that helps us around the world," says Ranbaxy CEO Malvinder Mohan Singh. That leaves the new multinationals in a strong position. Over the next decade, the World Bank projects, developing nations' share of world gross domestic product is expected to grow from one-fifth to one-third. During the next two decades, predicts Goldman, Sachs & Co., China, India, Brazil, and Russia alone will add to their populations some 225 million consumers who earn at least $15,000 a year. That's more than the combined population of Germany and Japan. Of 1.2 billion new cellular-phone subscribers worldwide by 2010, estimates Pyramid Research in Cambridge, Mass., 86% will be in developing nations. Chicago economic consultant Keystone India figures emerging markets will make up 69% of all new car sales by 2030, compared with 26% now. Where they choose to fight, of course, the established multinationals still hold big advantages over the upstarts. Citibank, General Electric, Honda, HSBC, Motorola, Nokia, and Philips are masters at using low-cost manufacturing, engineering, and managerial talent from Bangalore to São Paulo. Few developing-nation companies have such management agility. A raft of Indian companies also have gotten in position for a U.S. assault after building heft at the margins of the global economy. Ranbaxy may rank just No. 14 in the $28 billion U.S. market for prescription generic drugs. But it is a leader in nations like Nigeria and Brazil. It has earned goodwill by being one of the biggest suppliers of $1-a-day generic AIDS treatments to Africa at cost, and hopes to have its own new malaria drug on the market by 2008. It has also snapped up smaller generic drugmakers in Belgium, Italy, and Romania. When Ranbaxy first began to market its drugs in Europe, recalls CEO Singh, its sales staff was often kept waiting hours before skeptical purchasing managers would hear their pitch. Now, Ranbaxy is a top supplier in much of Europe, and 80% of its $1.2 billion in revenues comes from overseas. It has staff in 49 nations, plants in seven, and an R&D team of 1,100 at its 17-acre campus outside New Delhi. Ranbaxy hopes this R&D base will enable it to vault into the top five in the U.S. by 2012 and to No. 1 globally, passing Israel's Teva Pharmaceutical Industries Ltd. It has 58 generic medicines pending U.S. Food & Drug Administration approval, including a version of the anti-cholesterol drug Lipitor. Ranbaxy's pipeline is the second-biggest in the generic industry. How can Western multinationals respond? The first step is to begin respecting the new competition. That is the attitude David C. Everitt, president of Deere's $10.5 billion agricultural division, is adopting toward Mahindra. Everitt concedes the Indian rival could someday pass Deere in global unit sales. Mahindra dominates the Indian market, which is bigger even than America's, and is especially strong in the small tractors that account for two-thirds of U.S. sales. But Deere also is picking up its game by, among other things, boosting R&D in higher-end tractors for mega-farms in the U.S., Europe, and Brazil, and expanding its own production in India and elsewhere. "We are not afraid of competition," Everitt says. "It gets the juices going and helps us find ways to be better." Then there's always the strategy of joining the new challengers. Navistar International Corp. in Warrenville, Ill., has a joint venture with Mahindra to build trucks and buses for export. "These companies can be opportunities," says BCG's Sirkin, "if you can work with them." No matter how the big U.S. companies respond, gone is the era when they could afford to wait for an emerging market to ripen, then count on their ability to roll over the unsophisticated local players. "If you don't participate in these markets, you not only miss opportunities but also are cut out of all the innovation that comes from competing there," says University of Michigan management strategist C.K. Prahalad. "Then you won't be able to withstand the pressure when these companies come and hit you here." Whether one chooses to confront or collaborate, the new multinationals are set to change the rules in industry after industry.
Krrish Sings, He Dances — And Fights Evil Too
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