India has no shortage of world-class domestic companies. In this video interview, McKinsey directors Alok Kshirsagar and Gautam Kumra discuss how successful many have been at expanding internationally, laying out a four-point approach that Indian companies can adopt to improve their odds of winning on the global stage. What follows is an edited transcript of their remarks.
Alok Kshirsagar: How Indian companies are doing on globalization? I think the short answer is extraordinarily well if you just look at the numbers, right? In the last seven years, the proportion of revenues that the top 100 companies have had from overseas assets has doubled. More than 30 percent of the revenues of the top 100 companies are already from their overseas assets. That’s the numbers.
The question really is the health of those businesses, and I think that’s a much more mixed story. So I think the story is a very good start. Certainly we’ve made progress in terms of acquisitions and in terms of increasing our revenues from overseas. But there’s still a long way to go in terms of capturing value from the assets that we’ve bought.
Gautam Kumra: India, as you know, is a story of private entrepreneurship. I think we’ve had a very large number of very competitive world-class Indian companies that are, at least if not world-class, highly competitive and highly entrepreneurial because many of these are founded and still being run, in many cases, by founder entrepreneurs. And I think they have a level of energy, edge, and competitiveness that these entrepreneurs would not be satisfied to limit only to the Indian market.
I think Indian companies have a tremendous opportunity to replicate their success in India in other emerging markets. And it’s not quite the same, but at least you have some understanding or at least some degree of familiarity with competing in those emerging markets.
Learning what works
Alok Kshirsagar: I think companies from India that have done very well globally have done so in areas where they’ve been able to use technology to deliver superior services and take advantage of India’s talent pool to deliver those services at an extraordinarily competitive cost. Which is what we’ve seen in the combination of R&D and delivery with genetic pharma companies. As well as within the IT-services industry and increasingly in other parts, for example, in components; auto components are a good example of that. I think those are the places where we’ve done particularly well.
You know, just because we have a low-cost, innovative model in India doesn’t mean you replicate it overseas. It means you take the strengths of it. You understand what it takes to adapt it. But we’ve often fallen into the trap of thinking, “Because we are successful in India, we can be successful overseas,” as opposed to saying, “What of what I do in India can I take overseas and adapt it to work in the context of that market?”
Gautam Kumra: I have no doubt, for example, that India will probably produce the most valuable genetics pharmaceutical company. It will probably have several companies in the IT-services landscape globally, right? Many of them already are valued higher than some of the global players. I think that there’s no reason why we could not have a global truck manufacturer coming out of India, for example.
There’s no reason why we could not have some global banks coming out of this market, you know, international ambition. So my one aspiration would be to see some real globally recognized names from India in many, many sectors, much more than just IT and pharma.
Alok Kshirsagar: What will it take to happen? We think there are really four things that really need to change. First is much deeper insight into what will work in that local market. Don’t replicate India; adapt India to work in that market. Second, build robust processes. Don’t rely on intuition and relationships alone. Risk being a good example of that.
These are unfamiliar risks, new markets and new territories. It’s easy to get blindsided. But very easy, as well, to build the sort of robust processes that have really been at the heart of the success of the great global companies like GE, like Citi, and others like that.
The third point is to be an active owner. Too often we think, “Let me buy an asset and wait for it to come to fruition.” That doesn’t work. You actually need to create value. Many times, you’re buying distressed assets. This doesn’t mean slash and burn. This means bring in three or four people, charge up the revenues, and make the first six months count to create the value. And we’ve found there’s a massive difference between those who take that active approach versus those who sit back and wait.
And the fourth, and most important point in my mind, is that you need to build a cadre of at least 50 to 100 managers who are really going to be able to carry your culture and drive globalization at the same time. When you look back at the history of the great global companies, they’ve often had 200, 400, 500 people who are international officers, whose whole career was built on being successful in globalization.
In India, when you ask someone “Who’s responsible for globalization?” it’s often the same person who’s the most important person on domestic issues. It’s the same five or ten people who are responsible for everything. That’s not going to work.