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Indian Paths to Global GrowthDeveloping successful business strategies for international expansion
2
Contents
India
Foreword 3
A decade of Indian international expansion 4
Executive summary: A path to global success 7
Mapping Indian companies’ internationalisation journey 8
Roadblocks to international growth 14
What makes Advanced Globalisers different? 16
1. Defining a path for international expansion 16
2. Standing out in crowded markets 19
3. Building dynamic global operating models 22
4. Attracting and retaining global talent 25
5. Reaching across cultural barriers 26
6. Creating a globally minded leadership team 28
Conclusion 31
About our study 32
References 33
Authors of this study 35
3
Indian companies have come a long way in their quest to go global. At Accenture, I have seen businesses in industries ranging from automotive, consumer goods, energy and metals, to chemicals, telecommunications and technology all vigorously pushing ahead with their internationalisation strategies. Most of these companies have robust balance sheets, ready access to capital and strong positions in their domestic markets.
Why are these companies going global? In my experience, some see international expansion as a route to greater competitiveness. Others want to build global brands. Still others are looking for new growth markets as domestic demand slows.
Indian companies say they will continue their push for international growth. However, recent results vary; only a minority of Indian companies say they have reached their own financial targets in their international businesses. This raises the question of what distinguishes the most successful globalisers from their more ordinary peers, and how companies headquartered in India can chart a path to global growth.
Analysis shows that there is a category of advanced Indian globalisers that boast a well-established international footprint and mature global capabilities. Their international units contribute substantially to the top and bottom line. This report outlines the six strategies that set these leaders apart and that other aspiring global Indian companies can use to increase the likelihood of success on their internationalisation journeys.
My hope is that the analysis in this report and the findings from our research will provide valuable insights for decision makers as they craft and execute their expansion strategies.
Sanjay DawarManaging Director Accenture Strategy, India
Foreword
4
A decade of Indian international expansionIn 2003, Indian firms invested US$10 billion overseas. By 2012, this had more than tripled to US$37 billion. In cumulative terms, Indian companies have invested more than US$344 billion in international expansion over the period 2003-2012.
92%36%
Business results have not met expectations, but Indian companies remain strongly committed to international growth
Just 36% of Indian companies fully met international revenue and profit expectations over the last three years.
92% of Indian companies are committed to continuing their overseas expansion.
Disappointed but not deterred
US$5B US$9B
Asia
US$12BUS$3B
Middle East and Africa
Australasia
US$0.2B US$5B
US$1BUS$0.1B
Latin America
US$1B US$5B
North America
Eastern Europe and Russia
US$0.2BUS$0.5B
Western Europe
US$4B
M&A deals Greenfield deals
2012
In 2003, international merger and acquisition (M&A) deals made up 8% of all outbound Indian investment. By 2012, this had increased to 33%.
2003
US$0.7B
Note: Numbers may not add up to the total due to rounding.Accenture analysis based on data from Thomson Reuters and fDi Markets, a service from The Financial Times Limited 2013. All rights reserved.
Total Indian outbound investment
Rest of world Asia
US$10B
US$37B
2003 2012
US$28B
US$6B
8%
33%
2003 2012
Investment outside of Asia2003 2012
Investment within Asia
There is a group of Indian Advanced Globalisers that are more internationally established and show better performance than their peers.
92%
67%
5
Our research points to six factors that attribute to the success of Advanced globalisers
4. Attracting and retainingglobal talent
5. Reaching across cultural barriers 6. Creating a globally minded leadership team
Indian companies today have greater difficulty attracting talent in overseas markets than other Asian companies.
Putting together a management team with a global mindset while empowering local leaders is a foundation for success.
Indian executives say the greatest cultural barriers are language difficulties and differences in working style and work ethic.
2. Standing out in crowded markets
Indian globalisers are converging on the same space already occupied by established Western and Asian multinationals as well as strong domestic players.
Low-cost operations
Low-cost innovation
High-value innovation
Our intellectual property
Strength of brand equity
Skills of our people
Today, many Indian companies base their international competitive advantage on low costs. The number that do so will halve in the next three years.
Within three years, Indian companies want to focus on intellectual property, brand, skills and innovation as their differentiators.
3. Building dynamic global operating models
30%
36%
1
4
1
2
6
3
2
3
7
5
38%
Only 38% of Indian companies say they have the right operational capabilities to support international operations.
Just 36% of Indian companies say they have the right processes in place to ensure effective operations across multiple geographic locations.
Only 30% of Indian companies say they have appropriate IT infrastructure to support operations across multiple geographic locations.
1. Defining a clear path for international expansion
Prioritise geographies and markets
1
32
Build a road map for growthConfirm your purpose
6
Japan
7
Executive summary A path to global success
Indian companies are building strong momentum in international markets and now count among the most active players on the global stage. Recently, a number of them have established global and regional leadership positions in industries ranging from pharmaceuticals, automotive and consumer goods, to telecommunications, infrastructure and resources. Indian giants including Bharti Airtel, Fortis Healthcare, GMR Group, Mahindra and Tata Group are assembling sweeping portfolios boasting some of the world’s most iconic brands – such as Tata’s Jaguar Land Rover, Tetley Tea and Daewoo’s truck manufacturing unit in South Korea.1
Indian businesses’ traditional strength as low-cost producers has played a major role in their overseas growth. However, as global markets grow more crowded and complex, these enterprises will likely need to rely on more than just their low-cost advantage. They will have to build global brands and provide products and services developed from an in-depth understanding of diverse international consumers. Innovation will prove critical to these efforts, as will improvements in operational efficiency and the ability to harness the skills of leading international talent.
To help Indian executives plot successful courses to international growth, Accenture conducted a formal research programme examining the strategies of companies across Asia. We surveyed 249 senior executives, including 53 from India, 50 from Japan, 53 from mainland China, 31 from South Korea, 31 from the Association of Southeast Asian Nations (ASEAN), and 31 from Hong Kong and Taiwan. In addition, we conducted 18 in-depth interviews with executives and reviewed investment flows from Asian countries over the past 10 years.
A majority of the Indian executives we surveyed expressed disappointment in their companies’ recent international performance. Specifically, only 36 percent of our study respondents said that their revenues and profits from international markets had developed in line with expectations over the previous three years. Still, 92 percent of them remain strongly committed to international growth, with 47 percent planning to expand aggressively.
We also analysed participating companies’ international expansion performance in three consumer-facing sectors: pharmaceuticals, automotive and fast-moving consumer goods. We then developed an index to measure factors such as international revenues, growth over time and the extent of the companies’ global footprint. Using the findings from our analysis, we identified Advanced Globalisers from India, and the traits that set them apart from less successful Indian companies seeking to expand internationally.
We believe that for Indian companies to achieve their global ambitions, they need to establish clear goals for expansion and articulate what will differentiate them in each international market they target. They will also have to formulate plans for gaining the required insights into customer needs and wants, and then use those insights to develop successful offerings. In addition, many Indian companies will need to review their operating models to ensure that they are scalable and efficient. Perhaps most importantly, they will have to make certain that they have the people, culture and leaders in place to succeed in the international markets they have targeted.
This report examines these themes in detail, exploring the ways in which Indian companies can shape their internationalisation strategies and position themselves for sustainable global growth.
Korea
8
Mapping Indian companies’ internationalisation journey
Indian globalisers have made significant progress expanding their footprint in international markets over the past two decades, but market conditions have grown increasingly complex and competitive. To drive the next phase of growth in these conditions, companies will have to overcome significant external and internal challenges. They will have to prioritise their strategic objectives and develop the right channels and capabilities for achieving growth.
A growing global presenceIndian companies have come a long way in their quest to build an international presence. From 2003 to 2012, Indian annual outbound investment more than tripled, from US$10 billion to US$37 billion. In terms of compound annual growth rate (CAGR), India’s outbound investment (at 15.6 percent) has outpaced that of ASEAN, Greater China, Japan and Korea.2 (See Figure 1.) In cumulative terms, Indian companies have invested more than US$344 billion in international expansion over the period 2003-2012.
Moreover, the number of greenfield investments by Indian companies over the past decade constitutes the highest among the BRIC (Brazil, Russia, India and China) economies. Since 2003, Chinese companies have invested in more than 2,400 overseas greenfield projects – compared to Russian companies (1,500) and Brazilian enterprises (just over 600). Meanwhile, Indian firms have invested in more than 2,900 such projects. (See Figure 2.)
Figure 1. Outbound investment by Asian companies
Indian companies’ outbound investment has seen a CAGR of 15.6 percent – higher than in other Asian countries.
Note: Numbers in columns may not add up to the total due to rounding.Source: Accenture analysis based on data from Thomson Reuters and fDi Markets, a service from The Financial Times Limited 2013. All rights reserved.
ASEANIndia JapanGreater ChinaSouth Korea
2003 2012
CAGR
US$158B
US$63B
US$36B
US$35B
US$15BUS$10B
US$411B
US$125B
US$86B
US$116B
US$47B
US$37B
7.9%
10.2%
13.5%
14.2%
15.6%
9
In recent years, a multitude of factors have accelerated overseas investment by Indian companies. The opening up of the Indian economy after 1991 and the resulting tighter integration with the global economy have powered Indian companies’ global ambitions. In addition, rapid domestic economic growth has provided a solid foundation for companies seeking to globalise, delivering strong balance sheets and easy access to capital. The need to secure access to raw materials has also been a major driver.
As an outgrowth of these efforts, a number of Indian companies have established global and regional leadership positions in industries such as pharmaceuticals, automotive, consumer goods, telecommunications, infrastructure and resources.
Not surprisingly, 92 percent of the Indian companies in our study say they’re strongly committed to international growth, with 47 percent planning to expand aggressively – the highest level of determination among all the national groups we surveyed. (See Figure 3.) Indian companies seem to be following their more mature peers from other Asian countries in continuing to push for overseas expansion. This makes sense, given that most other Asian companies remain committed to maintaining or accelerating their push into overseas markets despite having a significant head start over Indian companies.
Figure 3. Asian companies’ overseas expansion plans
Indian businesses are even more committed to accelerating their global growth than other Asian companies.
Figure 2. Outbound greenfield investment by emerging–economy businesses (number of projects, 2003-2012)
Indian companies have invested in more overseas greenfield projects than businesses in other emerging economies.
Which statement best describes your company’s overseas expansion strategy?
We plan to rapidly accelerate our overseas expansion
We plan to continue our overseas expansion at its current rate
We plan to reduce our overseas operations
We plan to slow down the rate of our overseas expansion
35%37%
28%39%
37%
47%
55%55%
62%48%
53%
45%
10%7%
6%3%
7%
8%
0%1%
4%10%
2%
0%
India South KoreaGreater ChinaASEAN All respondents
India
2,909
Chile
312
Mexico
347
South Africa
597
Brazil
618
Turkey
723
Malaysia
866
Russia
1,492
South Korea
2,249
China
2,457
Source: United Nations Conference on Trade and Development.
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But a strategy is only as strong as a company’s ability to execute it. Only 38 percent of the Indian businesses in our study believe that they have the right operational capabilities to expand overseas – though this exceeds the average of 30 percent we found in the other Asian companies featured in our research. (See Figure 4.) In addition, only a minority of Indian enterprises are confident in the ability of their business processes and IT structures to support international expansion.
Compounding the challenge, only 36 percent of Indian companies report achieving their financial goals from international expansion over the past three years. Most of the companies from the other Asian markets in our study have experienced similar difficulties. (See Figure 5.)
Why are so many Indian businesses struggling to expand overseas, and what distinguishes the most successful globalisers? To answer these questions, we examined the experiences of 26 companies in three consumer-facing industries: pharmaceuticals, automotive and fast-moving consumer goods (FMCG). (See page 12: Spotlight on three industries.)
Leading businesses across these industries have placed significant emphasis on globalisation and provide strong examples of how to realise growth through such expansion. However, our analysis shows that the level of internationalisation attained by companies in these industries varies considerably.
Figure 5. Achievement of financial goals from overseas expansion (2009-2012)
Asian companies have had difficulty achieving the financial targets defined in their globalisation strategies.
Have your company’s revenue and profits in international markets developed in line with expectations over the last three years? (Percentage who strongly agree.)
All respondents
28%
ASEAN
23%
Greater China
37%
India
36%
Japan
12%
South Korea
23%
Does your company have the capabilities it needs to translate its international strategy into action? (Percentage of respondents.)
My company has the operational capabilities it needs to translate its international strategy into action
38%
30%
My company has all the right processes in place to ensure effective operations across multiple geographic locations
36%
28%
My company has the right IT infrastructure in place to support effective operations across multiple geographic locations 28%
30%
Rest of AsiaIndia
Figure 4. Asian companies’ concerns about their ability to expand overseas
Indian companies have more confidence in their operational capabilities, processes and IT infrastructure than their counterparts elsewhere in Asia.
11
Figure 6. Degree of internationalisation among Indian businesses in key industries
Our analysis of Indian companies’ international performance and degree of internationalisation led us to define four categories of Indian globalisers.
PharmaceuticalsFast-moving consumer goodsAutomotive
International performance index
Degr
ee o
f int
erna
tiona
lisat
ion
International Explorers Advanced Globalisers
Maiden Voyagers International Operators
5
4
3
2
154321
Peer average: 2.85
Peer average: 2.82
Source: Accenture analysis based on data from company annual reports, Thomson Reuters and fDi Markets, a service from The Financial Times Limited 2013. All rights reserved.
Assessing industry performanceTo uncover how the 26 companies from the three industries we examined are delivering on their globalisation goals, we developed a framework for assessing their progress based on two measures:
• The international performance index measures factors such as the contribution of international revenues to a company’s total revenues, the CAGR of international revenues and profits, and the performance of the company’s international acquisitions over the past five years.
• The degree of internationalisation measures a company’s global footprint, including the number of geographic locations, the length of time the business has been operating internationally, the depth of its international presence (such as sales offices and manufacturing facilities), the ratio of overseas assets to total assets, the size of outbound investment over the last 10 years and the influence of international leadership.
After assessing the performance of each Indian company in our study against these measures, we classified the companies into four categories. (See Figure 6.) The categories are:
• Maiden Voyagers
• International Operators
• Global Explorers
• Advanced Globalisers.
Maiden Voyagers. These companies are currently focused on domestic markets but have ambitions to branch out overseas. They have learned from early movers’ mistakes and successes, and have gained ideas about how to leapfrog over their well-entrenched competitors.
International Operators. These enterprises have successfully expanded overseas – though with a narrow geographic footprint – and have favoured home-grown management and operating models. They have adopted a focused expansion strategy targeting a few select markets, and are yet to scale their efforts significantly. Their ambitions for going global have generally been narrow, often centred specifically on enriching their domestic product portfolio, as opposed to building a truly global business. Despite some successes in the past, these businesses may struggle in a changing and more competitive landscape as they increase their global footprint.
International Explorers. These enterprises have adopted an aggressive international expansion strategy and have built a relatively diverse international footprint using acquisitions or greenfield investments. They have invested heavily in building the assets and capabilities needed to support their global ambitions – including making acquisitions in some cases – but they have yet to reap the rewards. In many instances, these companies are still in investment mode and the operations have not yet become profitable.
Advanced Globalisers. These companies boast a well-established international footprint and presence in terms of assets and capabilities. They have developed into profitable businesses, with international units contributing substantially to the top and bottom line. They have built a global advantage by gaining access to new markets and customers, critical resources, innovation capabilities and talent. Moreover, they have a laser-sharp focus on superior execution. They have also learned how to efficiently integrate international acquisitions, building critical leadership and attracting talent in diverse overseas locations.
12
Spotlight on three industries
Over the past decade, three industries in India – pharmaceuticals, automotive and FMCG – have collectively committed more than US$31 billion in outbound investment. (See Figure 7.) Each industry is characterised by distinct growth drivers and opportunities.
Of the three, the Indian pharmaceuticals industry has the greatest global presence. Since companies in this industry began exporting their products in the 1980s, overseas-generated revenue has grown to account for around two-thirds of total revenue for companies in this sector. (See Figure 8.) These enterprises have used their reverse-engineering skills and knowledge of chemical compounds to capitalise on the demand for generic medications in developed countries. Today, they’re turning their attention to the lucrative Japanese market and emerging markets such as ASEAN, the Middle East, Russia and Africa.
India’s automotive industry started expanding overseas in the 1990s. However, not until the early 2000s did industry players step up their internationalisation efforts. Their drive to enter new global markets has been underpinned by the need to access high-end technologies and new markets, while diversifying into new product segments and boosting scale.
Indian car makers have deployed organic growth and M&A strategies to go global. They typically focus these efforts on lower- to middle-income segments in emerging countries, where successful Indian-developed products have the greatest sales potential. Some have acquired iconic global brands to gain a foothold in higher-end segments in developed markets. Such moves include Tata’s acquisition of Jaguar Land Rover in 2008 and Mahindra’s purchase of SsangYong in 2010.
Meanwhile, India’s FMCG industry is at a relatively early stage in its globalisation journey. Most companies in this industry started going global in the 1990s by selling to the large Indian diaspora in Africa and the Middle East. In recent years, these businesses have focused on adapting their products to cater to local tastes in emerging markets.
This growth strategy has proved sound, as emerging markets tend to be less crowded, with higher economic growth rates and lower barriers to entry. For example, among Indian FMCG companies, international revenues now account for 37 percent of total revenues, up from 27 percent in 2008.3 Furthermore, a number of Indian FMCG companies have pursued international expansion to grow their product portfolio, harness cross-selling opportunities and strengthen their technical expertise.
13
Accenture analysis based on data from Thomson Reuters and fDi Markets, a service from The Financial Times Limited 2013. All rights reserved.
Note: Numbers may not add up to the total due to rounding.
US$2.3B
US$0.6B
US$0.5B
US$0.4B
US$1.1B
US$1.1B
US$2.1B
US$3.2B
US$1.5B
US$3.6B
US$1.4B
US$1.2B
US$1.5B
US$0.2B
US$0.7BUS$5.9B
US$1.7B
US$2.2B
US$0.04B
US$0.02B
–
Asia
Middle East and Africa
Latin AmericaAustralasia
North America
Eastern Europe and Russia
Western Europe
Automotive Fast-moving consumer goods PharmaceuticalsGreenfield M&A
Total outbound investment
US$14.4B US$8B US$6.4B
*Average value for the companies included in the peer set for the quantitative analysis.
67% 33%Pharmaceuticals
43% 57%Automotive
31% 69%Fast-moving consumer goods
DomesticInternational
Source: Accenture anlaysis based on data from company annual reports and Thomson Reuters.
Figure 7. Outbound investment by Indian pharmaceuticals, automotive and FMCG industries (2003–2012)
Indian pharmaceuticals, automotive and FMCG companies have collectively committed more than US$31 billion in outbound investment since 2003.
Figure 8. Contribution of international revenues to total revenues for Indian companies (2012)*
Indian pharmaceuticals companies lead automotive and FMCG players in terms of the percentage of revenues generated by their overseas operations.
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Roadblocks to international growth
Indian companies today face a more intense competitive landscape than ever before, in part due to a proliferation of multinationals from developed and emerging markets alike. Worldwide, the number of transnational corporations has almost tripled since 1990, jumping from 35,000 to 104,000 in 2010.4 International companies are also now more widely distributed across international markets. These developments have posed multiple external and internal challenges for Indian companies seeking to expand internationally.
Challenges from outsideExternal challenges facing Indian globalisers include a lack of understanding of overseas markets, an inability to navigate regulatory complexities, and a weak brand or reputation in overseas markets. (See Figure 9.) Below, we examine each of these in more detail.
Lack of understanding of overseas marketsIndian companies are rapidly losing their advantage as low-cost producers, as consumers demand higher-quality and more innovative, customised products. As these changes reshape the market landscape, companies must work harder to understand what customers want and then satisfy those demands profitably.
But making bets on the future, whether short term or long term, is particularly difficult in unfamiliar markets where the stakes are high, consumers differ markedly from those in the companies’ home markets, and customers have more choice and information than ever before.
Inability to navigate regulatory complexitiesTo expand internationally, Indian companies need to understand and manage multiple regulatory regimes and a diverse range of business practices. The pharmaceuticals industry is a case in point. In that industry, successful expansion hinges on the ability to fulfil different regulatory requirements for registering the same product in different geographies.
Figure 9. External challenges facing Asian companies operating in international markets
The most daunting external challenge facing globalising Indian companies is a lack of understanding of overseas markets and customer segments.
What do you see are the two biggest external challenges that your organisation currently faces in successfully executing its global expansion? (Percentage of respondents.)
Weak brand or reputation in overseas markets 36%34%
Lack of understanding of overseas markets and customer segments, and their preferences 61%
62%
Inability to navigate the complexities associated with operating in overseas markets, including government regulations, and local policies and procedures 55%
45%
Inability to build trust with local stakeholders 30%19%
Rest of AsiaIndia
15
Weak brand or reputation in overseas marketsDespite making big strides on the global front, Indian businesses still have a long way to go to build a respected and well-recognised global brand. Many focus more on operational execution than building brand equity. According to a recent research report by Edelman, the Tata Group of companies, perhaps the most global of Indian multinationals, has a brand recall of just 25 percent in the United States.5 Executives need to understand that a strong brand image not only enables their companies to attract customers, it also plays a critical role in recruiting and retaining top talent.
Challenges from withinIn addition to external challenges, Indian companies face a number of challenges within their operations – primarily centred on retaining talent, bridging cultural barriers and building global leaders. (See Figure 10.) In the sections below, we examine these more closely.
Inability to attract and retain talentOur research shows that Indian businesses find it more difficult than other Asian companies to attract, develop and retain overseas talent. Lack of talent with ample international experience worsens the problem. Many Indian companies send their own people to manage overseas operations, but that strategy presents challenges as well, as these representatives lack sufficient understanding of the local market. Moreover, attracting skilled local managers and employees for overseas operations is often difficult because companies lack a well-recognised brand name and a strong employer value proposition that appeals to locals.
Cross-border cultural issuesIndian companies cite bridging cross-cultural barriers as a key expansion challenge. This isn’t surprising, given that many enterprises underestimate the cultural changes involved in growing from one country into another. As Indian businesses expand into new territory,
they find themselves in environments characterised by unfamiliar systems, attitudes, languages and behavioural norms. Lack of knowledge limits their ability to demonstrate respect for other cultures and win the trust of managers and employees they encounter in their overseas operations. This often becomes a major roadblock in integrating global teams and capitalising on valuable business opportunities.
Lack of a global mindsetIndian business leaders recognise that to expand overseas, they need to overcome cultural barriers as well as nurture a global mindset across their international operations. Lack of a global mindset in a company’s leadership team can cause leaders to underestimate the risks and rewards of overseas expansion. As a result, leaders may mismanage risks and miss out on business opportunities.
Figure 10. Internal challenges facing Asian companies operating in international markets
Indian globalisers identify the inability to attract and retain talent in overseas markets as their most daunting internal challenge.
38%30%
49%58%
47%40%
36%37%
Lack of a global mindset in top leadership teams
Inability to attract and retain talent in overseas markets
Inability to manage foreign workforces
Cross-border cultural barriers
19%24%
Uneven or unclear governance structures
What are the two biggest internal challenges that your organisation currently faces in successfully executing its global expansion? (Percentage of respondents.)
Rest of AsiaIndia
16
What makes Advanced Globalisers different?
Our research reveals that Indian Advanced Globalisers differ from less experienced and successful peers in distinctive ways. Specifically, they excel at:
• Defining a path for international expansion
• Standing out in crowded markets
• Building dynamic global operating models
• Attracting and retaining global talent
• Reaching across cultural barriers
• Creating a globally minded leadership team.
By understanding how Advanced Globalisers master these key practices, other companies can sweeten the odds of effectively executing their globalisation strategies and achieving similar success.
1 Defining a path for international expansionIndian Advanced Globalisers are clear about their strategic intentions in going global. They know exactly what they want to achieve by expanding overseas, and they maintain this focus when laying out their internationalisation path. In addition, their leaders – from senior executives through to front-line managers – are committed to the plan.
Accordingly, those firms with global aspirations should start by clarifying why they want to expand internationally. This will help them formulate a targeted growth strategy and align the right resources behind it. While all reasons for expanding internationally can be valid, companies must articulate theirs clearly rather than targeting multiple objectives at the same time. Aiming to achieve many unprioritised goals simultaneously may confuse people throughout an organisation and spread limited resources too thin.
Companies may have many different reasons to expand overseas, but we can group these motivations broadly into two categories: accessing new market opportunities, and building competitiveness at home and abroad.
Accessing new market opportunitiesNearly 60 percent of the Indian companies in our survey said that identifying new markets is their primary reason for going global. It’s easy to see why: overseas markets offer potential new sources of revenue and profits.
To gain an entrée into new markets, Indian companies can draw on their home-market experience to target fast-growing overseas markets where consumers have similar tastes and preferences. Typically, these markets have been located in the Middle East and Africa, and they collectively account for the largest increase in outbound investment from Indian companies between 2003 and 2012.6
Godrej Consumer, part of the Godrej Group, is a case in point. The company defined a ‘3x3’ internationalisation strategy, whereby it prioritised three product categories (personal wash, hair care and home care) to expand on three continents: Africa, Asia and Latin America. The strategy focused on markets characterised by large populations and consumption patterns similar to those of Indian consumers in the three categories. (See sidebar on the following page: Godrej Consumer.)
17
Godrej Consumer is one of India’s largest FMCG companies. Its path to international expansion has been fueled by a desire to strengthen its core business and build new growth platforms. The company’s ‘3x3’ internationalisation strategy is already paying dividends: in 2012, around 43 percent of Godrej Consumer’s revenue came from international markets, up from 21 percent in 2008.11
Godrej is using its global presence to successfully expand further overseas, particularly through its distribution platforms in Africa, Indonesia and South America. These actions have positioned the company to take its existing products to other locations. For instance, the company brought air-freshener technology from Indonesia and hair-cream technology from Argentina into India. It also launched products developed in India – such as insecticide and hair colour – in African markets.
To set itself apart, Godrej is consolidating its position in existing markets rather than chasing new ones. To do so, it is more effectively integrating acquisitions, undertaking organic and inorganic growth in familiar markets, and entering related product categories.
While Godrej has used M&A to accelerate its international expansion, it also works closely with its acquired businesses to ensure that they have appropriate decision-making structures in place. Headquarters empowers local teams to make decisions but also provides extensive support, including access to experts in audit, finance, human resources, marketing, research and development, and supply chains.
Godrej Consumer’s international approach has played a key role in the success of the company’s overseas operations and integration of acquisitions. The company has implemented a cohesive structure that works closely with the international businesses to ensure global integration and dissemination of ideas and process improvements.
Godrej also invests heavily in talent and staff development to create opportunities for top talent. In 2012–2013, the company added 24 new positions in its international senior teams, and 10 people moved away from India to work in foreign markets. This approach has helped the company retain 90 percent of its top management personnel worldwide.12
Godrej Consumer Driving global growth from emerging markets
Building competitiveness by accessing new technologies and brandsGoing global isn’t only about finding new markets. It’s also about building the capacity and capabilities needed to establish a sustainable competitive advantage. To this end, many Indian companies are expanding internationally to build their competitiveness by accessing new technologies, enlarging their product portfolio or building economies of scale.
Take Indian car maker Mahindra. In 2010, Mahindra acquired South Korean sports utility vehicle (SUV) specialist SsangYong to supercharge its research and development capabilities and strengthen its multinational dealer network. The acquisition also supported Mahindra’s strategy to cut operating costs and increase product quality.7 The move paid big dividends, including positioning the new entity to develop and launch six new small engines.
A number of Indian pharmaceuticals companies are also expanding to gain scale and secure competitive advantages in niche segments. For instance, to grow its US operations, India’s Dr. Reddy’s Laboratories bought a US oral penicillin manufacturing facility from GlaxoSmithKline in 2011, along with the US marketing rights for the Augmentin and Amoxil brands. The acquisition enabled Dr. Reddy’s to enter the penicillin-containing antibacterial market segment by purchasing manufacturing capabilities it did not possess in-house.8
Numerous Asian FMCG companies are also expanding by acquiring respected brands. For instance, China’s Bright Foods has acquired some of the world’s best known food brands such as Weetabix, Manassen Foods and Synlait Milk9, seeking to raise its profile as a global foodmaker and to cater to its rapidly growing home market for breakfast cereals. Similarly, Indian FMCG company Dabur acquired Namaste Laboratories, a move that enabled Dabur’s entry into the US$1.5 billion ethnic hair-care products market in the US, Europe and Africa.10
LatinAmerica
18
19
India
With regards to the products or services you provide in international markets, what do you see as the primary drivers of your competitive advantage versus your competitors today, and what do you envisage them being in three years time? Please choose the top three. (Percentage of all respondents.)
Rest of Asia
Low-cost operations
Low-cost innovation
Our intellectual property (including patents and trademarks)
Strength of brand equity
Skills of our people
High-value innovation
High-quality products/services
21%50% 68%
17%
25%45% 42%
43%
37%18% 19%
36%
43%32% 34%
47%
48%41% 30%
43%
50%40% 42%
38%
57%58% 45%
47%
In three years timeToday
2Standing out in crowded marketsIn today’s global marketplace, Asian globalisers are racing to sell higher-value, higher-quality, branded and more innovative products and services. Indian executives also recognise this trend. While 68 percent of the Indian companies in our study believe that their low-cost operations give them a competitive advantage today, only 17 percent expect this to remain so in three years. (See Figure 11.) To differentiate themselves, these companies will have to look beyond their low-cost advantage and move up the value chain. Indeed, Indian executives anticipate that in the near future, their competitiveness will come from higher-value factors such as strong intellectual property (IP), brand equity and employees who have the right skills.
In particular, India’s pharmaceuticals companies have been at the forefront of developing differentiated positions. Sun Pharma and Lupin Pharmaceuticals are two examples of Indian companies that have carved out successful positions in the attractive US market. (See sidebar on page 21: Indian Pharmacueticals.)
Some Indian companies are looking to move up the value curve but differentiate themselves from their Asian peers through frugal innovation. According to Pawan Goenka, President of Automotive and Farm Equipment at Mahindra, “The frugal approach we talk about is not about cutting corners on quality or the final output quality. Frugal engineering is more to do with maximising the value of the money we spend. Frugal would mean that we sometimes question an unnecessary expense of a few cents, but [we do] not question spends of $1,000 [when it] gives us value worth $2,000. As we look at our product development plan, [including] how many engineers report on the project, how many vehicles we need
to build for testing, where we get certain components [and] which equipment we buy, we look at what we can do without. These elements have to do the most important job at hand, albeit without compromising on quality, because the consumer should never feel any difference between frugal and otherwise regular engineering.”13
Figure 11. Drivers of competitive advantage in international markets
Few Indian companies expect their low-cost operations to give them a competitive advantage three years from now.
20
Companies that know how to differentiate themselves in crowded markets excel on three fronts: developing a globally recognised brand, advancing from insight to innovation, and harnessing the power of social media.
Developing a globally recognised brandAdvanced Globalisers differentiate themselves in the marketplace by focusing on their strengths to establish a recognised global brand. According to our research, Indian companies are more aware of this fact than other Asian businesses, with 77 percent identifying development of a global brand as a primary motivation for expanding overseas, compared to 53 percent of businesses from elsewhere in Asia.
For example, the Indian conglomerate Mahindra has sought to acquire a range of global car brands to build its product portfolio. As Mahindra chairman Anand Mahindra told The Financial Times: “What do you need now to grow globally? A good base in your domestic market, like the Japanese and Koreans, we have that here. But we need brands, because the one thing you cannot build, if you want to grow globally at least –something that can take a lifetime, and we are in a hurry – is brands.”14
However, while many Indian companies consider brand building as a key determinant of success overseas, they are not necessarily making the sustained investments required to build a globally recognised brand. These enterprises could take lessons from some Asian companies on how to gradually transition from being low-cost producers to becoming high-quality, innovative manufacturers. Korean car maker Hyundai is one example. Hyundai now counts among the world’s fastest growing automotive brands. To achieve this success, management set out to shift consumer perceptions away from the company’s low-cost image of the 1990s, and toward a high-quality, innovation-focused brand. For instance, the company incorporated leading design elements and cutting-edge features from luxury cars into its more affordable models.15 Hyundai also backed its higher-quality products with consumer-focused, brand-building marketing campaigns. To illustrate, it introduced a 10-year, 100,000-mile warranty (the most generous in the market at that time) and allowed American customers who lost their jobs
during the 2009 economic downturn to return their vehicles without penalty.16
Advancing from insight to innovationTo carve out differentiated positions, India’s Advanced Globalisers invest heavily in developing customer insights; innovating; tailoring their offerings to specific customer segments; and creating localised marketing and social media initiatives.
Take Marico, one of India’s leading FMCG companies. When expanding into the Middle East and North Africa, Marico customised its flagship Parachute hair-care product line to have a lower coconut-oil content to suit local consumers’ needs. It also created a new product, Hamam Zait, a post-shampoo hair-care treatment using herb and garlic extracts. Hamam Zait appealed to West Asian consumers because they view garlic as a reliable solution for thinning hair.
Marico also adapted its communication strategies to take into account local customs. At the time, most hair-cream advertising was aimed at men – but Marico directly targeted women in its ads. In keeping with West Asian societal norms, the ads did not show men appreciating a woman’s beautiful, shiny hair, but instead showed a child admiring the woman and emphasised the concept of nourishing hair. In addition, Marico aggressively played the celebrity connection, crafting taglines that promised consumers hair like the brand ambassador’s if they used the Parachute product, and used endorsements on packages and promotional materials such as hair-care booklets advocated by the actor. Hair cream became Marico’s biggest revenue generator in the region.17 Today, international sales account for approximately 24 percent of Marico’s total sales – having grown at a CAGR of 27 percent over the past 6 years.18
This recasting of products to meet the needs of low-income and/or local consumers has also enabled India’s Bajaj Auto to turn a discontinued product line – the entry-level Boxer motorcycle – into the company’s biggest selling product in Africa.19
These examples illustrate how forward-looking Indian companies are incorporating local preferences into existing products to deliver more valuable
offerings. They are working to reach their target consumers by building products that meet people’s unique needs and aspirations – particularly those of low-income consumers.
Unilever, the UK-based consumer products giant, offers another illustration of the power of localisation – along with lessons valuable for Indian globalisers. When Unilever was looking to launch a low-cost water purifier, it faced a large number of competing brands in the market. Executives discovered that some consumers in developing countries did not drink purified tap water because water purifiers required electricity – an extra cost for individuals. To address this challenge, Unilever developed Pureit, which filters water without the need for electricity. In India, Pureit was priced at less than half the cost of comparable purifiers, further encouraging sales. Today, more than 45 million Pureit purifiers have been sold worldwide, including in Bangladesh, Brazil, India, Indonesia, Mexico, Nigeria and Sri Lanka.20
21
Sun PharmaIt took 27 years for Sun Pharma to record its first US$1 billion in revenue. But it took just three additional years to add the next billion.23 Sun Pharma has established itself as a leading Indian player in the US generic-drug market by focusing on chronic-disease therapies in areas including cardiology, diabetology, gastroenterology, neurology and psychiatry. And it has differentiated itself by delivering technically complex products rapidly to market.
The company has focused on niche, limited-competition products such as the Sumatriptan auto-injector, Diltiazem CD and Azelastine nasal spray. Its robust product pipeline and strong position in niche segments mean that it can withstand competition and protect its margins.
Sun Pharma’s recent acquisitions of DUSA Pharmaceuticals (a producer of branded dermatology products) and URL Pharma (a generic-drug manufacturer) are expected to further strengthen its position in the US market.24
Lupin PharmaceuticalsLupin Pharmaceuticals was a relatively late entrant into the US market in 2004. As a result, its executives knew they could not rely on price and generic positioning alone to succeed. Instead, Lupin crafted a targeted strategy focusing largely on areas where the company had a cost advantage and differentiated products, including the branded antibiotic Suprax.25
Lupin also made strategic acquisitions to expand globally and position itself as a brand based on differentiation as well as a strong presence in generics. This was an uncharted path, as most Indian pharmaceuticals companies had traditionally focused on generics and steered clear of promoting branded products.
Over the years, Lupin has bolstered its brand portfolio and concentrated on niche segments like contraceptives. The strategy has paid off, making Lupin the third-largest Indian pharmaceutical company and the fifth-largest and fastest growing generics player in the US (by number of prescriptions).26 In addition, Lupin has created an advanced biotechnology programme comprising more than 100 scientists, with the aim of boosting research and development efforts and creating a long-term pipeline of new drugs to develop a sustainable competitive advantage.27
Indian pharmaceuticals Standing out from the competition
Harnessing the power of social mediaAdvanced Globalisers capitalise on the opportunities provided by the growth of social media channels to strengthen awareness of their brands and deepen their understanding of consumers. Some Indian companies have been slow to embrace social media, and could learn from the experience of multinationals operating in Asian markets.
For instance, to increase sales in Indonesia, Japanese sports-drink maker Pocari Sweat launched ‘Ionopolis’, an integrated social media game that operated via Twitter, Facebook and Foursquare. The game educated consumers about the brand and offered prizes in return for Pocari Sweat purchases. Only a week after its launch, Ionopolis had attracted more than 13,000 participants.21
In another innovative use of social media, Volkswagen used crowdsourcing to better understand the local market in China. In 2011, the company created the People’s Car Project to gather ideas about automobile innovation. The project’s website attracted 33 million visitors, and Volkswagen received 119,000 ideas, three of which were highlighted at the 2012 Beijing Auto Show.22
22
3Building dynamic global operating models Defining an internationalisation path and finding ways to stand out in crowded markets aren’t enough to catapult Indian companies into Advanced Globaliser status. These companies also need to build dynamic global operating models to execute their internationalisation strategy. If a company’s operating model doesn’t support its strategy, different parts of the organisation may end up heading in different directions. The end result will be subpar returns.
In our survey, only 38 percent of Indian businesses believe that their organisation has the right capabilities to expand overseas — although this is still above the average for Asian companies, at 30 percent. Furthermore, just 36 percent of Indian companies believe that they have all the right processes in place to ensure effective global expansion. And only 30 percent believe that they have the necessary IT infrastructure. (See Figure 4.)
Our research suggests that Advanced Globalisers follow three key principles when designing a dynamic global operating model: organise around your competitive strength, recalibrate your operating model as priorities change and partner up.
Organise around your competitive strengthsIn determining the most appropriate operating model, Advanced Globalisers focus on their competitive strengths. (See sidebar on the following page: Dabur thinks local.) Executives ask themselves questions such as:
• What capabilities and assets are critical to delivering our customer value proposition and differentiating ourselves in our target markets?
• How can we use our existing or shared capabilities to serve new markets?
• Where do we need to improve our capabilities to become a market leader?
Recalibrate your operating model as priorities changeAs Indian companies expand and acquire new businesses, the best among them regularly review the effectiveness of their operating model. And they revise it to reflect new priorities — such as decisions to target new regions or partnerships, or to centralise components of their operations.
The success of this recalibration depends on a company’s culture, leadership and people. Our research suggests that Advanced Globalisers have established mechanisms to identify, gather and share ideas for improvement from across the organisation, which helps them continuously improve and stay ahead of the competition. (See sidebar on the following page: Fast Retailing.)
Japanese beverage maker Suntory is an apt example of how one Asian company successfully recalibrated its operating model. The company recently reorganised its operations to better execute its global strategy. For instance, it created a dedicated team focused on evaluating and promoting M&A opportunities. To speed up the development of its drinks and food business in the Middle East, Africa and Latin America, Suntory placed its special M&A team under the control of its international division.28
23
Dabur is a leading Indian FMCG company, offering products in categories including foods, hair oil, home care, oral care, shampoo and skin care. Its international business contributes more than 30 percent of the company’s consolidated sales.
Dabur backs its international growth strategy with an operating model that enables localised manufacturing and innovation. The company has established local manufacturing facilities in key foreign markets so it can rapidly respond to changing customer needs. For example, Dabur built a manufacturing facility in Dubai in 1990, which helped it establish a strong presence among Arab consumers. The company now also has manufacturing facilities in Bangladesh, Egypt, Nepal, Nigeria and Turkey, and is building a new facility in Sri Lanka.
Furthermore, Dabur has developed a suite of products tailored to its foreign customers’ needs and preferences. In the Middle East, its hair products are enriched with snake oil, which helps combat the extreme dryness of the region’s climate. The company supports this localisation strategy with communication campaigns featuring prominent local female celebrities.
In Nigeria, a hair gel–dominated market, the company launched Dabur Herbal Green Gel. It created a ‘Change to Green’ campaign, using the popularity of rap music to target the youth market. The brand became the fastest growing in the segment.32
Its dynamic global operating model, backed by a comprehensive production and marketing strategy, has transformed Dabur from a small operation focused on the Indian diaspora to a multinational business earning substantial revenues from foreign markets.33
Dabur thinks localTailoring the operating model to local markets
By 2020, Japan’s Fast Retailing intends to be the number-one apparel retailer in the world, aiming for annual sales of ¥5 trillion (around US$10.2 billion). In its efforts to achieve this goal, the company has been expanding through acquisitions. To extract maximum value from its rapid expansion, Fast Retailing needed a common global operating structure that would enable it to easily scale and integrate new territories. With this requirement in mind, the company created an international business management infrastructure known as the Global One project.
With Global One, Fast Retailing has standardised its business processes and applied them across the company’s brand portfolio in all the markets where it operates. The platform has also enhanced the organisational change and information systems that the company uses across its global operations, including supply chain management, store operations, finance, merchandising and human resources functions.
By implementing a common set of globally accepted management standards, Fast retailing can better integrate its operations and swiftly expand across different cultures, languages and geographies.34
Fast Retailing Creating an operating platform to enable global growth
Partner up Companies seeking to expand internationally need to forge partnerships to succeed in challenging, unfamiliar markets. Our research suggests that Advanced Globalisers based in India actively collaborate with stakeholders across the value chain in ways that help these companies innovate, engage more effectively with customers and local communities, and ultimately achieve more profitable growth. Potential partners include suppliers, customers, employees, government agencies, not-for-profit organisations and even competitors.
By creating a network of partnerships, Indian businesses can respond to new opportunities they may not have uncovered on their own, and can rapidly identify and deal with emerging threats and opportunities. Bajaj Auto’s partnership with Kawasaki is a case in point. What started 30 years ago as a technical collaboration to make motorcycles has evolved into a strategic alliance aimed at penetrating new markets. The partnership proved successful, delivering a 45 percent market share for Bajaj–Kawasaki in the Philippines. Bajaj intends to replicate the model to tap into new markets in Indonesia and Brazil.29 Both sides benefit from the relationship. For example, Bajaj gains access to Kawasaki’s strong marketing and distribution30, and Kawasaki augments its portfolio of 650cc-plus bikes with the smaller ones developed by Bajaj.31
MiddleEast
24
25
4Attracting and retaining global talentIn addition to developing a dynamic global operating model, successful globalisers staff their organisations with people who have the right skill sets to execute the company’s internationalisation strategy. They also nurture specialised leadership skills, and effectively manage people from different backgrounds and cultures across a variety of time zones, political regimes and markets. For many companies, talent acquisition and people management become more complex in an international environment.
Indian companies aspiring to Advanced Globaliser status could do more to attract and retain talent in their overseas markets. Many of them lag behind the rest of Asia in providing professional growth and advancement opportunities to global staff and promoting overseas hires. (See Figure 12.) To improve how they manage talent and develop leaders, companies headquartered in India can formulate talent-management strategies that balance globally consistent arrangements with practices tailored to local realities.
Figure 12. Actions taken by Asian companies to attract local talent in overseas locations
Indian companies can do more to secure and retain talent in the international markets where they operate.
What are the actions your organisation is prioritising to ensure it can attract and retain the best local talent throughout its overseas operations? Choose the top three. (Percentage of respondents.)
51%55%Providing competitive training and
development programmes
46%53%Offering higher salaries than overseas competitors
51%42%Improving our brand reputation
34%48%
Creating clear and compelling paths for professional growth and advancement
32%25%
Promoting overseas hires to senior positions at headquarters
Partnering with local education providers to develop the talent pipeline
30%30%
Promoting overseas hires to top positions within or among overseas operations
19%31%
Increasing autonomy for overseas operations and allowing local decision making
15%20%
None of the above 4%3%
Rest of AsiaIndia
Tata Global Beverages (TGB) is a global business with subsidiaries including Tata Tea and Tetley Tea. To source talent in highly competitive markets, TGB focused on:
• Giving talented employees the opportunity to take on bigger or more challenging roles with international reach
• Sharing talent across regions to disseminate best practices and develop globally minded leaders
• More effectively measuring and rewarding performance.
To identify the roles it needed to fill, TGB created a global talent and succession planning tool. This tool helped the company identify 120 critical roles across its global operations and then build an internal talent pipeline for the majority of these roles.35
Tata Global BeveragesTaking talent strategies global
26
In going global, companies also need a talent-management strategy that aligns with their growth strategy. The key components of a global talent strategy include:
• Attracting and retaining skilled workers
• Creating a stable labour force in foreign markets
• Increasing productivity
• Identifying high-potential leaders for overseas assignments.
Our research suggests that Asian companies already see clear benefits in building a pool of overseas talent. For example, a Korean executive we interviewed said that his company aims to nurture local talent in its overseas locations to better understand local markets, culture and language. Another executive at a leading Japanese company told us that his organisation hires local senior talent to build relationships with stakeholders overseas.36
For these companies, overseas talent is a key driver of global business growth. For instance, Samsung has moved from appointing managers from an internal pipeline to actively bringing in new international talent at numerous levels. These international hires spend two years in South Korea before managing overseas operations, often in their home countries. The company has also hired outsiders to fill key senior management roles in South Korea.37
In boosting the effectiveness of global talent management, Advanced Globalisers in India are also crafting innovative strategies to attract and retain top talent, including creating compelling career paths and implementing formal training and development programmes. Tata Global Beverages is a case in point. (See sidebar on page 25: Tata Global Beverages.)
5Reaching across cultural barriersOur research suggests that many Advanced Globalisers create a corporate culture that enforces global corporate values while also remaining locally relevant. Though reaching across cultural barriers like this can be daunting, Indian companies may have an advantage over their counterparts in the region, given their English-language proficiency and the presence of a huge Indian diaspora. What’s more, Indian employees tend to be highly collaborative, comfortable with diversity and able to work harmoniously with people from other cultures.
The Indian companies in our study are more successful than their Asian counterparts in embedding respect for different cultures and establishing common corporate values. However, they still face significant cultural barriers when they are expanding overseas. (See Figure 13.)
Figure 13. Cultural obstacles facing Asian companies in international markets
For Indian companies, overseas staff members’ inability to speak the language spoken at headquarters constitutes a major obstacle to doing business internationally.
40%49%Language barriers due to overseas staff not speaking
the language spoken at headquarters
45%47%Inability of foreign staff to speak the local language
45%45%Differences in working style and work ethic between
local and expatriate staff
34%41%
Difficulty embedding respect for different cultures and backgrounds
32%43%
Difficulty establishing shared corporate and community values
General lack of respect for foreign managers 25%16%
Inadequate company training for expatriates 25%24%
Resentment of salary differentials between expatriate and local staff
17%18%
What are the biggest cultural obstacles that your company faces in overseas markets? Select all that apply. (Percentage of respondents.)
Rest of AsiaIndia
27
Our research shows that Advanced Globalisers in Asia bridge cultural gaps by focusing on areas such as communication across global operations and developing shared cultural values in the workforce.
While cultural gaps are difficult to conquer, the experiences of successful globalisers in India and elsewhere offer valuable lessons.
Fortis Healthcare, based in India, operates across nine countries in the Asia-Pacific region and is seeking to create a common ‘language’ that reflects its corporate culture. The company’s Group Executive Director, Balinder Singh Dhillon, said that Fortis is developing a unique and unified way of working across locations. “Language plays a part,” he said. “Not the spoken language, but the commonality of terms and understanding and values. This includes the softer side of things, such as how you address a patient. That will become part of our entity as a whole.”38
Wipro Consumer Care has made significant international acquisitions to quickly achieve scale in overseas markets, including buying Singapore-based Unza in 2007 and the United Kingdom’s Yardley in 2009. To manage the substantial number of new staff members, this Indian company developed localised human resources policies and let people stay with their business units. In addition, it gave leadership teams from the acquired companies a five-day trip to India to see the Wipro offices and sights in Agra, Bangalore and Mysore.39 Thanks to these measures, Wipro has retained the majority of valued talent from its acquisitions, including close to 90 percent of Unza’s top staff, which has helped boost revenues from its global operations.40
Takeda Pharmaceutical Company Ltd is one of Japan’s oldest and largest pharmaceuticals companies, but its approach is thoroughly modern and global. Its top leadership includes an American, a German and a South African. English is the management language. Takeda has operations in about 70 countries and territories. It is run largely by non–home country executives. And it is making a push into Russia and Brazil to increase international revenues beyond 65 percent of sales.
To more effectively lead its vast global operations and to bridge cultural barriers, Takeda is building a diverse workforce and a leadership team that reflects its top markets. The company aggressively recruits non-Japanese staff members overseas and encourages them to spend time working in Japan. It also promotes cultural exchange; for example, by assigning Japanese staff members to emerging markets through the company’s Global Challengers programme. As a result, the company has become a frontrunner among its Asian peers in terms of reaching across cultural barriers.41
Overcoming cultural gapsStories from the front line
28
6 Creating a globally minded leadership team The Advanced Globalisers in our study are more likely than the other companies to invest in ensuring that their leadership teams reflect a diversity of perspectives and experience.42 In particular, Indian globalisers need strong leaders with a global mindset, who can empower local leaders and manage cultural differences. Equally important, companies must draw their leaders not only from where they have historically done business, but also from areas offering significant market potential. And they need to put more decision-making power into the hands of managers in those new markets.
Our research suggests that Indian companies could do more to consistently develop their leaders. Less than half of the Indian globalisers in our study use mentoring and coaching to develop their leaders, and less than 10 percent use international assignments to build a global mindset among their leaders. (See Figure 14.) Another recent Accenture study looked at the international mindsets of about 200 company leaders from Brazil, China, Germany, India, Russia, South Africa, the UK and the US. Only 45 percent of the Indian executives we surveyed believe that their company’s leadership group has a strong global mindset.
However, Indian executives recognise the problem and have started making efforts to fix it. Specifically, they are trying to nurture a global mindset in their next generation of leadership. In our study, 62 percent of Indian executives believe that their company’s high-potential managers will have a strong global mindset.43
Tata Group is an excellent example of an Advanced Globaliser that has developed extensive leadership programmes and that has woven mentoring and coaching into formal job expectations. For example, Tata’s Captains to Coaches programme trains senior executives to be coaches and next-generation global leaders through self-reflection exercises and experiential learning, including demonstrations, role plays, visualisations and team exercises.44
42%40%
48%45%
35%43%
32%39%
34%48%
Mentoring and coaching programmes focused on global leadership
Regular global videoconferencing or other advanced communications
Cultural sensitivity training
Personality and leadership assessment for global leaders
Connecting talent across the global company into teams or workgroups
360-degree feedback for global leadership team members
Offering international assignments or global rotation programmes with regular international moves
30%19%
9%21%
Please indicate the actions your company is taking to develop a global mindset in your leadership team. Choose all that apply. (Percentage of respondents.)
Rest of AsiaIndia
Figure 14. Asian companies’ actions to develop a global mindset in their top leadership
Indian companies can do more to develop their leaders.
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To instil a global mindset in their leadership teams, Indian companies can:
• Institutionalise leadership development across global operations
• Build mentoring, evaluation and coaching into formal job descriptions
• Cultivate leaders across the organisation’s geographic operations
• Establish global rotation programmes that support international career paths
• Promote collaboration and real-time information exchange using technology.
To expand globally, companies also need the right governance arrangements to guide their leaders. Our research shows that many Indian globalisers do not have clear structures and processes in place. Furthermore, there is an overconcentration of authority in global headquarters, and overseas offices lack respect for directives delivered from headquarters. (See Figure 15.)
In our experience, Indian companies’ senior leaders generally have little familiarity with overseas markets. As a result, they tend to concentrate decision-making authority at headquarters or leave decision making completely to local management teams. Each of these extremes has its advantages and disadvantages. For example, tightly centralised decision making can rob local business units of the ability to rapidly respond to local market conditions. And completely decentralising decision making can hinder companies’ ability to develop globally consistent strategies and value propositions.
This suggests that to build a globally minded leadership team, Indian companies need to design governance structures that strike a balance between the two approaches. For instance, they can separate larger strategic issues (which require consistency in decision making) from more pressing tactical ones (for which local flexibility is paramount). To achieve this balance, global management teams will have to clearly outline the framework within which the local teams
should operate. If local teams want to deviate from this structure, each decision can be considered in the context of its impact on international operations.
Furthermore, when it comes to encouraging innovation, companies looking to go global would benefit by letting local teams make more decisions. This is particularly true in industries that need a sophisticated understanding of consumer tastes and preferences.
The first step in striking the right balance is to instil trust in leaders in foreign markets. According to Vineet Chhabra, Chief Operating Officer for Emerging Markets at United Spirits, trust is critical when working with new partners in geographies that have different cultural norms and ways of doing business. He believes that while it’s difficult to start with trust, it can be earned over time. “As a leader, you have to keep sensing who you can trust – where and when,” he said.45
Figure 15. Challenges to global governance structures
For Indian companies, unclear structure in top leadership roles and processes is posing the toughest challenge for their governance structure.
43%45%
35%47%
37%45%
26%32%
30%33%
There is a lack of clear structure in top leadership roles and processes
Overseas offices lack respect for the authority of headquarters
Decision-making processes and authority are overly concentrated in global headquarters
There is a lack of leadership alignment across functions and geographies regarding the common goals of the global organisation
Governance structures are not clearly understood by staff outside the home country
There is a lack of ability to hold overseas offices accountable for complying with policies and procedures
There is weak cross-border collaboration
21%22%
6%13%
What are the key challenges with your company’s governance structure? Choose all that apply. (Percentage of respondents.)
Rest of AsiaIndia
30
Africa
31
Conclusion
Indian companies are demonstrating greater maturity in their international expansion efforts. They are now operating in developing and developed markets. And they are elevating their status from low-cost producers to innovative businesses boasting distinctive offerings for their targeted overseas markets.
However, for many of these companies, globalisation moves haven’t paid off as well as executives had hoped – in terms of criteria such as increased revenues and profits. The reason? Indian companies face multiple roadblocks – external and internal – to expanding their operations overseas.
To meet their international expansion objectives, Indian companies need to break down those roadblocks. Their first step is to understand what sets Advanced Globalisers apart from more ordinary companies. Only then can they strive to excel on those same fronts.
Our study suggests that the most successful internationalisers are masters at:
• Defining a path for international expansion
• Standing out in crowded markets
• Building dynamic global operating models
• Attracting and retaining global talent
• Reaching across cultural barriers
• Creating a globally minded leadership team.
By strengthening their prowess in these areas, Indian companies can build on their considerable momentum and improve their chances of claiming the value promised by lucrative foreign markets.
32
About our study
This study is part of Accenture’s long-term and ongoing research programme into the globalisation of Asian and Western multinationals. It draws on the four major data sources outlined below.
1. Analysis of foreign investmentWe analysed M&A and greenfield investment data from Thomson Reuters and fDi Markets to understand trends in Asian investment flows, with a focus on:
• Global distribution of Asian outbound investment
• Regional views of investment, by country and industry
• Source-country views of investment, by major Asian investor nations.
The outbound investment data focused on investment activities originating from Brunei, mainland China, Hong Kong, India, Indonesia, Japan, Malaysia, the Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam. While all greenfield transactions were included, we considered only M&A transactions valued at more than US$10 million.
2. Quantitative survey of senior executives in Asian companies Accenture commissioned the Economist Intelligence Unit (EIU) to comprehensively survey the views of executives responsible for taking Asian businesses global. Our goal was to understand the objectives of Asian companies in expanding outside their home markets and the challenges they face in doing so.
In July 2012, the EIU surveyed 249 senior executives of Asia-based companies from ASEAN; mainland China, Hong Kong and Taiwan; India; Japan; and South Korea. All companies had revenues in excess of US$250 million. Among the respondents, 168 were from home-country headquarters offices, and 81 were based in their company’s local-market operations. (See Figure 16.)
3. Qualitative, in-depth interviews with senior executivesAccenture’s subject-matter experts conducted in-depth interviews with 18 senior executives of Asian companies in all markets covered by the study. We selected the participating organisations to gain insights into the experiences of companies that have only recently begun their internationalisation journeys; those that have been expanding globally for around 10 years; and those that have been operating global businesses for 20 years or more.
4. Additional case studiesTo illustrate strategies, we have included case studies of companies based on third-party business and academic publications.
US$10B or more18%
US$1B to US$5B24%
US$250M to US$500M19%
US$500M to US$1B23%
US$5B to US$10B16%
Mainland China,53, 21%
ASEAN,31, 12%
South Korea,31, 13%
Hong Kong and Taiwan,
31, 13%
Japan,50, 20%
India,53, 21%
By revenue By country
Figure 16. Profile of survey respondents
Our survey respondents varied in terms of revenue and country of origin.
33
References
1 Sharma, K. E., “Companies are expanding overseas to cut the risk of doing business locally”, Business Today, 26 October 2013, businesstoday.intoday.in/storyprint/189144#.
2 Accenture analysis based on fDi Markets and Thomson Reuters data.
3 Accenture analysis based on data from company annual reports and Thomson Reuters.
4 UNCTAD World Investment Reports 1992 and 2011.
5 “Why Indian MNCs find it difficult to gain developed world’s approval”, The Economic Times, 10 November 2013.
6 Accenture analysis based on fDi Markets and Thomson Reuters data.
7 “With SsangYong acquisition, Mahindra & Mahindra to get access to higher-end SUVs and derive savings”, The Economic Times, 25 September 2012.
8 “Dr Reddy’s acquires GSK’s US penicillin facility”, The Economic Times, 30 March 2011, articles.economictimes.indiatimes.com/2011-03-30/news/29361702_1_facility-amoxil-bse.
9 “China’s Bright Food buys Weetabix”, Reuters, 4 May 2012.
10 “Dabur India makes second overseas acquisition”, Mint, 16 November 2010.
11 Company annual reports.
12 Godrej Consumer Products, “Investor and Analyst Meet FY 2013 transcript”, www.godrej.com/godrej/Godrej-ConsumerProducts/pdf/GCPL_FY2013_Analyst_Investor_Meet_Transcript.pdf.
13 knowledge.wharton.upenn.edu/article/mms-pawan-goenka-why-indias-auto-industry-should-take-global-center-stage/.
14 Crabtree, J., “Emerging markets: Into the fast lane”, The Financial Times, 21 March 2013, www.ft.com/cms/s/0/f34003d6-85ba-11e2-bed4-00144feabdc0.html#axzz2b4x2XgIW.
15 Reed, J. Simon, B. and Oliver, C. “Hyundai set to shift up a gear for expansion”, The Financial Times, 15 December 2010, www.ft.com/intl/cms/s/0/1d09e442-0878-11e0-80d9-00144feabdc0.html#axzz2dyd1xvA0.
16 Ibid.
17 “Getting under the skin: The Middle East market has been a learning process for Marico”, Knowledge@Wharton, 20 April 2010.
18 Company annual reports.
19 Saxena, R., “Bajaj Auto targets up to 20% exports increase in fiscal 2013”, NDTV, www.profit.ndtv.com/news/corporates/article-bajaj-auto-targets-up-to-20-exports-increase-in-fiscal-2013-305449.
20 Shashidhar, A., “HUL: A clear solution—Hindustan Unilever’s Pureit water filters are touching millions of lives worldwide”, Business Today, businesstoday.intoday.in/story/innovation-hul-pureit-water-filters/1/195888.html.
21 Pocari Sweat, “Pocari Sweat launches Ionopolis: The first social media integrated game in Indonesia”, November 2010, www.aio.co.id/en/pressrelease/detail/3.
22 Patton, P. (in China), “Volkswagen outsources product plan to the people”, The New York Times, 9 May 2012, wheels.blogs.nytimes.com/2012/05/09/in-china-volkswagen-outsources-product-plan-to-the-people.
23 “Sun Pharma crosses $2 billion in sales”, BioSpectrum, 28 May 2013, www.biospectrumindia.com/biospecindia/news/189254/sun-pharma-crosses-usd2-billion-sales/page/1.
24 Sun Pharma Annual Report 2012–13, www.sunpharma.com/sites/all/themes/sunpharma/images/annual/2012-13_Annual_Report-SPIL.pdf.
25 Sangani, P., “Lupin transforms into a global pharma company”, The Economic Times, 30 April 2010, articles.economictimes.indiatimes.com/2010-04-30/news/27578338_1_kamal-k-sharma-lupin-generic-players.
26 Lupin Limited Annual Report 2013, www.lupinworld.com/pdf/2013/new/The%20Lupin%20Annual%20Report,%20FY2012-13.pdf.
27 Ibid.
28 Suntory, “Suntory Group notification regarding reorganization and executive appointments”, 18 December 2012.
29 “Bajaj Auto plans to expand Kawasaki tie-up to other ASEAN nations”, The Economic Times, 19 September 2012.
30 “Bajaj and Kawasaki to jointly market motorbikes globally”, Business Standard, 19 September 2012.
31 “Bajaj, Kawasaki draft the ideal partnership script”, The Hindu Business Line, 24 October 2012.
32 “How India Inc is cracking the African market”, The Economic Times, 20 August 2010.
33 Dabur, “Company overview”, daburinternational.com/index.php/en/front/aboutus.
34 Accenture, “Accenture supports accelerating business transformation and globalization for Fast Retailing”, 2012.
35 Agrawal, S., “Individually excellent, collectively brilliant”, Tata Global Beverages, April 2013, www.tata.com/media/interviews/inside.aspx?artid=TyirojC185E=.
36 Interview with Accenture.
37 Khanna, T. et al., “The paradox of Samsung’s rise”, Harvard Business Review, April 2011.
38 Interview with Accenture.
39 Agrawal, S., “How Wipro learnt the virtues of patience”, Forbes India, 19 March 2012, forbesindia.com/article/my-learnings/how-wipro-learnt-the-virtues-of-patience/32462/1.
40 Dhamija, A. and Singh, N., “Premji builds global FMCG play”, Times of India, 19 January 2013, timesofindia.indiatimes.com/business/india-business/Premji-builds-global-FMCG-play/articleshow/18082816.cms.
41 Takeda Pharmaceutical Company Ltd, www.takeda.com.
42 Accenture, “Fast forward to growth: Seizing opportunities in high-growth markets”, 25 January 2012, www.accenture.com/us-en/Pages/insight-fast-forward-growth-seizing-opportunities-high-growth-markets.aspx.
43 Accenture, “Growing Global Leaders Survey”, 2012.
44 Accenture, “Global leadership ensembles: New ways of thinking about leadership in globalizing companies”, 2011.
45 Interview with Accenture.
34
35
Mamta KapurManager, Accenture Institute of High Performance
Arika Allen Senior Manager, Strategy Accenture Innovation Center, Asia Pacific
Anurag GuptaManaging Director, Accenture Strategy, Products Industry, New Delhi, India
For further information, please contact:
Sanjay DawarManaging Director [email protected]
Anurag GuptaManaging Director [email protected]
AcknowledgementsThanks to Alexander Broeking, Laarni Ladan-Cloefe and Editor Group.
About the Accenture Innovation CenterThe Accenture Innovation Center in Singapore serves as a research hub where industry advisors debate, develop and publish insights with specific relevance to the Asia-Pacific region to help organisations innovate and outperform their competition. The Center also brings Accenture’s thought leadership and ideas to life through highly interactive and facilitated workshop experiences. These experiences help organisations explore solutions and develop a course of action for their most important business issues that will help accelerate their path to higher performance.
About the Accenture Institute for High PerformanceThe Accenture Institute for High Performance creates strategic insights into key management issues and macroeconomic and political trends through original research and analysis. Its management researchers combine world-class reputations with Accenture’s extensive consulting, technology and outsourcing experience to conduct innovative research and analysis into how organisations become and remain high-performance businesses. Please visit us at www.accenture.com/institute.
About AccentureAccenture is a global management consulting, technology services and outsourcing company, with approximately 281,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$28.6 billion for the fiscal year ended Aug. 31, 2013. Its home page is www.accenture.com.
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