“India will record 60-70% growth over the next 5 to 7 years,”
according to Indian School of Business Dean Rajendra Srivastava. The first webinar of the India Inside Thought Leadership Series offered many crisp nuggets of wisdom on doing business in emerging markets.
Welcome to the India Inside Thought Leadership Series. Why, in your opinion, is India becoming increasingly important?
Rajendra Srivastava: There are of course multiple answers to this question. First, we are one of the fastest growing economies. We are also the largest economy. The excitement about India is because it is a growth market. To place it in context, last year the growth rate in India’s airline industry was 23.4%. By contrast, China was 10.7% and US was 3.1%. Despite 2017 being a relatively slow year, the Indian automotive market grew at 13.7%. So, the size of the market provides the opportunity. If one waits by the side lines thinking that India is too risky to venture into, then by the time one enters into this market, there will be incumbents. It is better for companies to enter India at the inception rather than at the time when the incumbents are already present and they have to chase them out.
A lot of people, particularly in the West, perceive India as a difficult place for investment. Is that notion changing?
Rajendra Srivastava: It is changing quite rapidly. Somebody from outside looking at the ease of doing business in India may find it greatly difficult. However, if we look at Telangana or Andhra Pradesh or some other states, the ease of doing business in these states can be actually much better than the national average. If somebody is looking for investment and market growth opportunities, it is really important for them to analyse what they want to do and where they want to do it. For example, if it is automotive production, then one should look at Chennai and Pune. If it is IT, then they should consider Hyderabad and Bangalore. It is important to understand India. Companies should be cautious and avoid going to the slowest and least productive area while making their investments.
You talked about the need for Western companies to come in with a more collaborative mindset. How can they develop this approach?
Rajendra Srivastava: India has huge market opportunities. So, if we look at the growth rate in airlines at 23.4%, the question is what led to this growth. There are multiple reasons. In the West, the airlines have been in place for a long time. But here, the industry is just beginning to take off. A lot of market is yet to be tapped. So, in the US an average person takes about 3.7 flights in a year whereas the average in India is still less than 0.1. There is plenty of potential for market penetration.
The Indian economy is growing, but not all that growth is spreading equally. The middle class, for example, is economically growing faster than some of the other classes. While the country’s rate of growth is 7.4%, the middle class growth rate is about 13%. Therefore, the products sought by the middle class will see a greater growth rate.
One company recently in the news for doing business in India is Walmart. Can you share your thoughts on Walmart’s acquisition of Flipkart?
Rajendra Srivastava: I think people are marvelling at the amount that Walmart was willing to pay for the acquisition. Obviously, Walmart felt it was worth paying that amount for 77% of the company’s share. The larger part of the Asian market is in India and Indonesia. And if Walmart had lost out in India, like they lost out to Alibaba and the likes in China, then they would have faced a situation where they lost that large market potential. Secondly, Walmart is a company very much focused on procurement. I perceive it as an upstream company. Flipkart’s expertise is more downstream and very few people in the market have been talking about the fact that it will benefit Walmart in sourcing its products.
On a positive note, one of the things that Walmart has to gain in India is a better knowledge of what is available here and how to source products out of India. It will impart greater efficiency into the supply chain. While everyone is looking at the Flipkart plus Walmart versus Amazon, I think this is going to be a very healthy competition. This is not meant to be a duopoly and others will join in. The penetration in e-commerce within India is only a tiny fraction of what it will be in the next 5 to 10 years. If we look at places like Mumbai, the e-commerce penetration is already about 20 plus percent. Right now, 67% of the population is in rural India. Half of this population is going to move to the urban areas over the next 30 years. So, the opportunities for Flipkart, Amazon and other companies in e-commerce are tremendous.
We have an audience question from the live webinar telecast. Is Research and Development (R&D) growing in India, or is it being overlooked?
Rajendra Srivastava: Is R&D growing in India? If we look at the Indian telecommunication (telecom) industry, did companies develop any of their own technology? They were initially buying from Ericsson and then from Nokia Siemens and now from Nokia Networks. Then came along Norway, who had a lower priced product. We initially used the Nokia and Ericsson equipment and now we are using the Norway equipment but we never bothered to develop the technology ourselves. So, there was no room for R&D and no margin in design relative to manufacturing and assembly. I don’t mean to just pull up telecom. I think if we go across industries, we will find that we are not doing enough R&D.
Just like we have Make in India why can’t we have Design in India as a campaign? Actually, a lot of design is being done in India. If you take Cummins, their design centre is in India and their manufacturing is done in China. So, to some extent work is being done for the multinational corporations (MNCs), but it is being patented in the West. We need to find ways to do better value capture and need to improve our intellectual property structures.
Can you summarise India as a market place both today and in the future?
Rajendra Srivastava: If I look at the growth opportunities for India, whether it is in automotive or in non-consumable packaged goods like shampoo, our market penetration of finished goods is relatively low. The market penetration at the moment is only a fraction of what it will be in future. If we consider that the market is growing at 7% at a compound rate, India will record 60-70% growth over the next 5 to 7 years. The prospects are great. We still have to build our reputation in product quality, but the opportunities are great nonetheless. When I look at the younger generation, they are much more willing to take risks, to partner with people globally. I see a very bright future for them.
There is not just one India. You have to explore the centre, the state, the local, and at times even within the local. ISB has an executive education programme called India Inside. It explores the contextual difference between the East and West, and helps with understanding how to negotiate, how to deal with the government, and how to make sense of the ‘Wild, Wild East.’
The next India Inside Thought Leadership webinar titled “Innovation & Start-up Ecosystem” will be held on July 27, 2018, 6:00-6:45 PM IST
About the Interviewers:
Sphurti Sudhir Joglekar and Alexander Hogeveen Rutter are students in the 2019 cohort of the Postgraduate Programme in Management (PGP) at ISB.