Globalise early to reap rewards
Apr 16 2012
All global enterprises started on a small scale. Iconic US companies — Wal-Mart, General Electric (GE), IBM, Microsoft, Coca-Cola, or German legends — BASF, Bayer, Siemens, SAP and Bosch had modest one-man beginnings, which later turned into family businesses. Within three to four generations, these firms are gigantic entities with global reach and spread.
Siemens was founded in 1847, and, today, has operations in almost 200 countries. As early as in 1855, Siemens implemented the first major project in the history of telecommunications: a telegraph line between Finland and the Crimea, a distance of several thousand kilometres. In 1874, Siemens linked Europe to North America via a transatlantic cable. (How many Indian companies can do this today, I wonder?).
Merck (a German pharmaceuticals company), one of world’s largest pharmaceutical companies, diversified into liquid crystals business way back in 1904. Today, it is in a leadership position in almost 90 countries. GE was established around 1890 in the US, and, today, has subsidiaries and manufacturing operations in more than 130 countries. Wal-Mart, founded by Sam Walton in 1962, is today the world’s largest company, and has stores in 26 nations (often under different, local brand names).
The success of these enterprises were based on their ability to continuously innovate, sustained sagacity (for example going global early through collaborations and corporatisation through issue of public stock), global visions, and values, such as care for the society, and, utmost concern for competitiveness.
Contrast this picture: Out of the eight largest Indian companies in the Fortune 500 list, six companies namely, Reliance, SBI, HPCL, ONGC, IOC, BPCL, are national champions with the only toeholds outside India. The two other companies, Tata Steel and Tata Motors, are there because of their global acquisition strategy. Compare this to tiny Taiwan. The country too has eight companies in the Fortune 500 list, but five of these: Hon Hai Precision (trade name Foxconn), Acer and Wistron (hived off from Acer), Quanta Computer and Compal Electronics (two of world’s largest original design manufacturers) — and one can also now count Asus — are truly global companies with manufacturing, assembly, and supply chain operations across the world. They have contractual relationships with global technology giants such as Intel, IBM, Google-Android, Microsoft and Apple, to name a few.
Many countries globalised early. By end of the 19th century, American locomotives were being shipped to Europe, and the US construction companies were competing successfully with British firms as far away as in Myanmar (then Burma). Scientific American mentions in its 1900 edition that “our industrial methods enable us to build so cheaply, so expeditiously, and so well, that we can lay down a manufactured article in Great Britain or her possessions in less time, at less cost, and of equally serviceable quality as the British firms themselves”. A similar message was given by the Japanese in the 1950s and 1960s for their machinery, cars and precision tools exports to the US. The big question is: When will Indian firms be able to speak this kind of language to their customers located in advanced countries? There is no dearth of resources, talent, and opportunities.
In India’s case (as in other colonies), one can argue that the colonisers single-minded aim was to keep local entrepreneurship subdued and exploit local resources for their own gains. Yet, we are now 60 years since independence.
The lessons are clear: Globalisation provides unprecedented opportunities and challenges. To survive and thrive under conditions of global competition, firms must produce high-quality, cost-effective and customised products quickly, while respecting local laws and customs. Some Indian firms have learnt this lesson the hard way — Suzlon, Core Parenterals and Arvind Mills. But, many others have built successful business models around these themes and examples include the house of Tatas (Motors, Steel, Hotels and TCS), Vedanta, Infosys, Wipro and Aditya Birla Group. These companies have reaped a rich harvest.
In order to go global, beyond entrepreneurial ‘can-do’ competencies, a company needs to put formal processes in place. These include systems for cost management, efficiency and growth, leadership pipeline, talent harnessing, supply chain management, R&D, production and marketing. It requires firms to leverage all the resources available to them, including public and government policy, access to global financial houses and technology collaboration opportunities.
Finally, there is a global opportunity in replacement or retrofitting of almost 50,000 locomotives around the world that are more than 25 years old. Is there any Indian company that is in a position to benefit from this $15 billion opportunity in the next two-three years? The time is ripe for some bold, decisive and determined actions for Indian companies.
(The writer is a professor of strategy and corporate governance, IIM-Lucknow)