In the book, The India Way: How India’s Top Business Leaders are Revolutionizing Management, Wharton management professors Peter Cappelli, Harbir Singh, Jitendra Singh and Michael Useem note that the West has “much to learn from modern Indian business practices.” At an event held in Mumbai recently, Singh, who is also co-director of Wharton’s Mack Center for Technological Innovation, discussed what Indian firms need to do to compete in the global business landscape. In a discussion with India Knowledge@Wharton, Singh said that while many Indian companies have the potential to be world-class, complacency and a lack of diversity within organizations are areas of concern.
An edited version of the interview follows.
India Knowledge@Wharton: Are there Indian companies who meet the criteria for being world-class, or global?
Harbir Singh: I think there are some who are there already. To be fair, liberalization took place in 1991; it’s only been two decades and it’s not as if in asset-heavy industries you can transform that fast. But I would certainly put Infosys in a world-class category, [although] it may not meet the senior management worldwide pool standard. I would also put [Tata Consultancy Services] in that [category]. So certainly the information services companies [belong to the world-class category]. I would put Tata Motors as very much a contender [and] I would actually put Airtel in the world-class category [as well]. There are some examples…. But I [do] think it’s very hard to be world-class. And it’s hard to stay world-class.
India Knowledge@Wharton: Is there a difference between being world-class and being global? Or do the two go together?
Singh: What I mean by being global is: Do you choose your activities in a way that takes advantage of global opportunities? As we see with the [business process outsourcing] business … if companies don’t take advantage of the digital highway, they will not be world-class. The other way to think about it is what are the forces of standardization globally that you need to take advantage of, and what are the forces of local customization you want to take advantage of? Just a quick example: KFC did not do well in India, [but] McDonald’s did. That was because McDonald’s understood where to standardize and where to customize. KFC got some of that wrong and it hurt them….
India Knowledge@Wharton: I have often heard the statement that Indian companies are global geographically, but are not truly global in their thinking. How true is this of the Indian companies you have seen?
Singh: Indian companies are organized in business groups [e.g. conglomerates]. That provides certain competitive advantages because they are able to handle [the demands of] diverse businesses well. On the other hand, I think one of the challenges many Indian businesses face — [and] the Tatas have made a lot of strides to address this — is that perhaps we are too dominated by ethnic Indians. You need the diversity of mindset, upbringing, language and culture to have the right kind of debate. By the same token, many American multinationals have too many Americans, so it’s not a criticism. For that matter, many Korean firms have too many Koreans at the top and that does, in a sense, limit the range of ideas that might be brought in.
India Knowledge@Wharton: One observation about Indian businesses has been that, in the case of family-owned firms, all of the key executive positions are held by the founding family. That means that there is even limited diversity among Indian employees. Do you think those firms can actually be global?
Singh: That’s an excellent point…. [One needs] to draw from a wide talent pool because that brings a diversity of ideas into the organization. I’ve followed strategy for over 25 years and I’ve looked at a variety of companies…. [Diversity] does matter because otherwise people have shared assumptions. They all assume the world works in a certain way. That can come back to limit you in many, many, ways.
India Knowledge Wharton: If a company wants to expand globally and has a choice between acquisitions and trying to grow organically, which is the easier option? Is there a common answer for all types of industries or does it vary according to sector?
Singh: There is no blanket statement that you must grow through alliances or acquisitions. However, one can make the argument that … when companies don’t have a lot of experience with globalization of their operations … an alliance is a stepping stone to wholly-owned operations. There’s plenty of evidence on that. The first moves typically should be alliances.
The second point is — there’s an article I did recently with a colleague of mine, Prashant Kale, and what we found was that [when] Indian companies like Tata Chemicals, Tata Tea, Aditya Birla Group, [and] many others have made international acquisitions, they have actually managed them like partnerships. This is the strength of the business group, to know how to do that. Their integrations have been much more successful than average. The Indian business groups have great skills to acquire businesses and know how to manage them.
India Knowledge@Wharton: Indian businesses operate in an arena that often comes with significant government hurdles. How does this aid Indian firms operating in a global environment?
Singh: That’s exactly what some of my interviewees said. We were interviewing people in the midst of the financial crisis and [an executive from a multinational] said that he found that his Indian managers were coping with the crisis much more calmly than others. His hypothesis was [that] because when they were kids, they didn’t know whether the bus [would] arrive and if there [would be reliable] electricity … a financial crisis is [something they could more easily cope] with. There’s some truth to that.
India Knowledge@Wharton: Is there a set of dos and don’ts that you have for Indian businesses that want to think and act global?
Singh: There are two major problems [that] I see. One is regardless of whether you’re going global or not, there’s a major issue of complacency in Indian business…. I am reminded of a remark by Andy Grove, former CEO of Intel, who said: “Only the paranoid survive.” … He was saying [that] you can’t rest on your laurels too much. I see a bit of the self-congratulatory mode [in India] on the real economy front…. The thing one has to worry about is competitive leadership. Coming to globalization, I do worry a little bit about [Indian companies] not being diverse enough on their senior management teams and thereby not recognizing the range of values and behaviors that people need to embrace.
India Knowledge@Wharton: What are your views on mergers and acquisitions and the challenges of integrating businesses with different cultures?
Singh: Here’s an interesting way of thinking about competitive advantage: [When] you master any activity that’s difficult, you have competitive advantage. I believe that firms that build the competence to actually integrate acquisitions overseas enjoy a competitive advantage. What that means is you have to invest in a capability to assess and effectively integrate these different cultures. There are some companies that are doing it very well…. The base line is low and what you don’t want to do is assume that because you’ve got a good price, you’ve got a good acquisition, because then chances are something’s going to go wrong.
In 2012, Singh will be among the Wharton faculty teaching in the School’s Accelerated Development Program in India.