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In di a

Special report India

52 Indian think Stuart Crainer and Des Dearlove chart and celebrate the new generation of Indian thought leaders.

57 Profile: Arun Sinha Arun Sinha, chief marketing officer of Pitney Bowes, talks to Georgina Peters about how his Indian upbringing informs his thoroughly modern marketing.

59 VCs curry favour with Indian entrepreneurs India’s rapid growth is creating a slew of investment opportunities but, warn Hugh MacArthur and Ashish Singh, investors need to be patient and follow some basic rules.

62 Instep with Infosys Manjari Singh and Sandeep K Krishnan report that Infosys has a unique approach towards its global internship programme.

65 A passage from India

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CK Prahalad wants the poor of the world to have real power in the marketplace. He tells Des Dearlove about his thoughtful journey from competing for the future to uncovering the fortune at the bottom of the pyramid.

Special report: India

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Indian

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The best thinking in business is increasingly Indian in origin and inspiration. Stuart Crainer and Des Dearlove chart the rise of a new generation of Indian thought leaders.

he rarified world of business thinking has been largely American terrain over the last hundred years. From Frederick Taylor with his stopwatch at the beginning of the twentieth century to the modern generation of gurus, Americans have monopolised business wisdom. Even the brief love affair with Japanese business practices in the early 1980s was intellectually colonised by American thinkers such as W. Edwards Deming and Richard Pascale. Now, change is in the air. A new generation of thinkers and ideas is emerging from India. Superstars in the business guru firmament include CK Prahalad, co-author of the bestselling Competing for the Future; itinerant executive coach, Ram Charan; Nobel laureate in economics, Amartya Sen; Vijay Govindarajan, professor of international business at Dartmouth College’s Tuck School of Business; and would also have included London Business School’s Sumantra Ghoshal who tragically died in 2004.

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“The thinkers are often first generation immigrants to the West. Almost all have had first hand experience working in typically chaotic Indian businesses,” says Dr. Gita Piramal, founder and managing editor of the Indian management magazine, The Smart Manager. “Some, like Sumantra, worked in the public sector. CK’s first job was in Union Carbide’s battery factory in Chennai, and he also worked in a company making pistons. Ram Charan was born and brought up as part of an extended family of 13 that ran a shoe shop. All pulled themselves out of India and many have a Harvard link.” Just below the established luminaries, too, is a group of up-andcoming stars. The faculty lists of the world’s most prestigious business schools contain an increasing number of academics with Indian roots. They include Rakesh Khurana, Nitin Nohria and Krishna Palepu at Harvard Business School; Jagdish Bhagawati at Columbia; Deepak Jain and Mohanbir Sawhney at Winter 2005

Northwestern’s Kellogg School; and Raj Reddy at Carnegie Mellon. More will undoubtedly follow. The world’s MBA programmes have a growing number of Indian students. This is not just an American phenomenon. For the first time this year, the biggest national contingent at France’s business school, INSEAD, is Indian. At the Swiss school IMD numbers of Indians on its MBA programme are up 133 per cent since 2001. “God does not discriminate across countries on intelligence. So, if you say that 20 per cent of people are smart that means 200 million smart Indians and that’s a lot of human capital,” notes Tuck’s Vijay Govindarajan. “At the same time, there is no doubt that Indians have had a disproportionate influence on management thinking and practice. As a percentage of the US population they are miniscule – less than a single per cent – but then look at their representation in business schools. I remember when I got my job at Tuck 20 years ago, Special report: India

I was the first Indian faculty member. Now, it’s not unusual to see 20 per cent of faculty with Indian roots and connections. This year alone we welcomed 40 Indians onto our MBA programme.” Indians also hold an array of senior executive positions at the

force behind Indus Entrepreneurs (TiE) a Silicon Valley organisation which promotes entrepreneurship among young people; and Romesh Wadhwani, serial entrepreneur and founder and managing partner of the Symphony Technology Group and president of the Wadhwani

op-ed editor for the Wall Street Journal. Parminder Bahra, now at The Times, is another rising Indian commentator, and was influential in creating the methodology for the Financial Times’ business school rankings. The fact is that among the people who influence business

A very different management philosophy is arising and will become dominant – the purpose, process, people philosophy. Foundation. And then there are people such as Rajat Gupta, former managing director of McKinsey & Company, and Raghuram Rajan, the IMF’s chief economist. And then there’s the business media. There are a growing number of business journalists and commentators with Indian backgrounds, including a number of reporters on CNN and the writers for the opinion-forming newspapers and journals such as Tunku Varadarajan,

thinking there is an increasingly Indian presence.

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Vijay Govindarajan: No safety net Special report: India

Rising to the top The reasons for the rise of Indian thinkers into positions of influence are explained by Vijay Govindarajan: “Like other first generation immigrants we had a tremendous hunger to succeed. For us, there was no safety net. But, there are other elements to this. Indians have a strong work ethic, speak English, and have been traditionally influenced by American education and educational institutions. Indians are good at conceptual thinking and analysis. Another very important quality is that we tend to be very patient – a great virtue in teaching.” Govindarajan originally trained as a chartered accountant in India, won a Ford Foundation scholarship to Harvard, and is now one of the highest charging executive coaches and a prolific author – his latest book is Ten Rules for Strategic Innovators (with Chris Trimble, Harvard Business School Press, 2005). Another perspective comes from Professor Nirmalya Kumar of London Business School. “Business is well respected in India, as it was the only way to make a decent living besides being a doctor until India reformed in 1990. Thus the talent pool that went into business PhDs in the United States from India was excellent. It became a preferred option to escape India after finishing at the country’s top technology schools. Some of these PhDs, of course, then became the gurus of today.” ¡

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world’s top corporations. Consider Arun Sarin at Vodafone; Pepsico president, Indra Nooyi; and the influence of Indian entrepreneurs in Silicon Valley – Vinod Khosla, founding CEO of Sun Microsystems and now a leading venture capitalist with Kleiner, Perkins, Caufield & Byers; Ram Sriram, vice president of sales for Netscape; Desh Deshpande, founder and chairman of Sycamore Networks; Kanwal Rekhi, entrepreneur and the main

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Personal ambition is a powerful driver. But what it doesn’t explain is why Indian thinkers have become so influential with Western business audiences. It is one thing to become a Harvard professor, quite another to have the ear of Fortune 100 CEOs. Ram Charan, for example, was a confidant to Jack Welch when he was running GE, and co-author with

There appears to be no definitive Indian Way. However, the increasing influence of Indian thinkers coincides with a period of introspection into the nature and purpose of Western capitalism. Post-Enron, there is a disillusionment with the individualistic model, a sense that corporate America has been a

“Many Indians growing up in the US detect an inconsistency or incoherence about modern life, which for Indian-born people like my parents is very, very difficult,” says Harvard Business School’s Rakesh Khurana. “Somehow you are supposed to be moral and generous in your private life but that doesn’t apply when you go to

To conquer markets like India requires sophisticated thinking. Larry Bossidy of Execution: The Discipline of Getting Things Done. Sumantra Ghoshal, with co-author Chris Bartlett of Harvard, wrote Managing Across Borders: The Transnational Solution – named by the Financial Times as one of the 50 most influential business books of the century. Rakesh Khurana was recently listed among the world’s leading business gurus by the French magazine L’Expansion. The list goes on. So, what does this hill of ideas amount to?

An Indian school of management?

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One obvious conclusion is that it signifies the development of a distinctively Indian school of management. But this tends to be played down by Indian thinkers.

breeding ground for executives whose personal greed and egos eclipsed their sense of public duty. Indian thinking taps into this debate. India’s collectivist culture offers a foil to America’s rampant individualism. Among the Indian thinkers there is a keen sense of capitalism’s ethical and societal obligations – witness CK Prahalad’s most recent book, The Fortune at the Bottom of the Pyramid, which advocates a new approach to business to take account of micro markets among the world’s poor. The Future of Competition, the bestseller Prahalad co-authored in 2004, also examines how the balance of power is changing between the rich and the poor. Prahalad addresses deep-rooted issues previously neglected by Western business thinkers.

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work – you don’t have to be the same person. That kind of role fragmentation or inconsistency was really seen as profane. One must find a way that synthesises both who you are in private and who you are in public life and work. One has to find a role that creates integrity. In India they are also dealing with the issue of how do you reconcile traditionalism, where there’s a lot of meaning and symbolism imbued in everyday life and family and community, with making sure you get the benefits and individual spark of modern society.” Khurana points to the fusion seen in Indian Bhangra music – a synthesis of modern dance and traditional music – and the questions raised in literature by Indian authors such as Nobel laureate V.S. Naipaul and Arundhati Roy. “People are trying to find a synthesis between the benefits of modernity without losing the meaning associated with traditional structures such as family. A growing number of people are uncomfortable with the winner-take-all markets as they currently exist and that the indicator of one’s worth in the world is perfectly correlated to the size of their bank accounts. Another key question for them is how do we enjoy the advantages of modernity – but without a 50 per cent divorce rate?” Raising such questions lies at the heart of much of Indian business thinking and practice. It is not that Indian thinkers are negative about the American business world. Indeed, they tend to be wholesome in their praise of the opportunities Special report: India

on offer. But, they offer a unique viewpoint; the best of both worlds.

Two-way learning India itself is also going through a critical transformation. It is an emergent nation. Increasing Indian economic prosperity has posed new questions for accepted Western business best practices. The abundance of fresh material from India is challenging and reshaping existing thinking. Business thinkers with Indian experience and sensibilities are readily placed to make sense of this. It is clear that the flow of knowledge has changed. Indian business people traditionally learned from American business schools. The flow of knowledge is now two-way. The assumption in the past was that other emerging markets could learn from India. Now, it is recognised that Western companies and executives can also learn from India. “India is an extremely interesting laboratory right now,” says Gita Paramal. “Customers do not know how to be customers, and hence react in completely unexpected ways. The heavy use of SMS (short messaging services) by mobile users is one illustration. Putting automobile tires on typical Indian carts is a rural example. Managers in

Sumantra Ghoshal, for example, was the founding dean of the Indian School of Business in Hyderabad. C.K. Prahalad also remains acutely aware of his Indian roots. Prahalad has drawn attention to the world’s four billion poorest consumers who earn less than $1,500 a year, but who are aspiring to a better life and demanding more goods and services (260 million of them are Indian). “This situation represents a huge opportunity for companies to change their mind-sets and their business models (e.g., ‘the poor can’t afford or have no use for consumer products’, or ‘we can’t make money in this market’),” he says. In 1995, for example, Hindustan Lever (HLL) drastically altered the management of its value chain so it could sell a detergent, called Wheel, to the poor. HLL decentralised its production, marketing, and distribution and quickly established sales channels through thousands of small storefronts. HLL adjusted the cost structure of its detergent business so it could sell Wheel at a very low price point and still make money. It subsequently achieved gross margins and a return on capital as good as, or better than, HLL’s higher-end cleaning products. Unilever has used this business model to create a new detergent

markets like India requires sophisticated thinking,” says Vijay Govindarajan who takes a group of 50 American executives to India every year. He cites a meeting between a group of US executives and an Infosys executive. One of the Americans asked: “Aren’t you afraid that IBM or Accenture who you compete against might acquire your company?” The Indian looked thoughtful. “But, perhaps Infosys could acquire IBM or Accenture,” came the reply. “In the past, people stood up at the very name of IBM and you certainly wouldn’t have mentioned an Indian company in the same sentence,” says Professor Govindarajan, “Now anything is possible. The Infosys executive wasn’t being arrogant – after all when he spoke Infosys’ market capitalisation was some $21 billion against Accenture’s $22 billion and IBM’s $85 billion. Given that Infosys has a PE (price to earnings) multiple much greater than IBM’s it is not impossible that this could happen. Infosys has IBM on its radar screen. Is the opposite true?”

India calling Some US companies appear to have recognised the shifting intellectual tide. A number now regularly second

People are trying to find a synthesis between the benefits of modernity without losing the meaning associated with traditional structures.

Special report: India

market in Brazil. Such imaginative business practice is where the real lessons from India appear to lie. Indian thinking challenges existing business practice and received wisdom. “Many American companies say they have globalised but they are really international rather than global. They are beginning to realise that the centre of gravity cannot simply be the United States. They have traditionally developed products for the US market and then try to export them to other markets. That is increasingly obsolete. To conquer Winter 2005

people to India, reversing the traditional flow of corporate knowledge. Infosys, for example, runs an intern programme in which Americans go to work in India. US companies are also becoming more attuned to Indian culture. Nowhere is the growing influence of Indian thinking and attitudes felt more keenly than Silicon Valley. With an estimated 400,000 Indian nationals working in the Valley – and roughly a third of the 65,000 new H-1B visa issued by the United States in 2004 going to Indians, America’s high-tech sector now ¡ Business Strategy Review

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India have to be able to deal with the unexpected and be flexible to a far greater degree than in developed countries. This may be why so many Indian managers from Hindustan Lever (Unilever’s subsidiary in India), have risen to senior levels in Unilever. For the Ram Charans of the world, this laboratory acts as a refresher. The Indian business thinkers who are making their mark in the West keep the pulse of India and what is happening here.” A number of the leading Indian thinkers remain in close contact with their home country. The late

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¡ relies on Indian intellectual capital. It has been said that the Valley would grind to a halt if the Indians pulled out. Such is the Indian influence that Intel now offers its employees an optional training course in Indian cultural nuances. Entitled “Working With India”, participants on the course, run by the training firm Charis

usually overlooked as a hapless economic pygmy, filed under emerging – slowly. Now, the Indian thinkers are helping executives see globalisation in its totality. “There’s a much greater sensitivity and sense that the centres of the economic future may be more than simply the traditional Western European and North American

purpose; beyond structure to process; and beyond systems to people. This will shift the basic doctrine of shareholder capitalism, and moderate it so that if people are adding the most value then people will increasingly have to be seen as investors not as employees. Shareholders invest money and expect a return on their money and

The US and Europe are congested and highly contested markets. In China and India there is still virgin territory. As markets and sources of ideas and innovation they need to be taken seriously. Intercultural, study the subtle dietary differences between Hinduism and Jainism, Indian political history and the cinematic delights of Bollywood movies. Intel is not alone. Other high-tech firms including Adaptec, AMD, Intuit, and Rockwell Automation also offer Indian cultural lessons to their employees. Unlike some diversity training, which is aimed at avoiding law suits, Indian cultural programmes are specifically aimed at boosting performance. Some companies, like chipmaker AMD, have gone further. For its Indian Global Immersion Programme, the firm flew teams of Indian workers – at $17,000 per person – to Sunnyvale, California, and Austin, Texas, for a month of cultural training with US managers.

Two eyes in India

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Such initiatives suggest Western eyes are being opened to India and its role in the global economy. The new generation of Indian thinkers offers a challenge to the conventional view of globalisation. Globalisation was previously seen as the triad of US-Europe-Asia (meaning mainly Japan). India was

nexus,” observes Rakesh Khurana. Adds Vijay Govindarajan: “The US and Europe are congested and highly contested markets. In China and India there is still virgin territory. As markets and sources of ideas and innovation they need to be taken seriously.” Thirty years ago he took his first plane journey from Madras to Boston. Now, it is Autumn in New Hampshire. “My market value is going up. India is on the radar screen,” he says. The fact that the radar screen now extends beyond America’s borders is itself an important development. Perhaps the true appeal of the Indian gurus is that they do not automatically regard the US as the center of the commercial universe. They offer a different lens through which to look at issues such as globalisation and shareholder value – and even the purpose of business itself. In doing so they pose questions that Americans are often blind to. As the late Sumantra Ghoshal observed: “A very different management philosophy is arising and will become dominant – the purpose, process, people philosophy. We are moving beyond strategy to

expect capital growth. People will be seen in the same way. So they will invest their human capital in the company, will expect a return on it, and expect growth of that capital.” Ghoshal’s legacy lives on. He mentored and then extensively coauthored with Nitin Nohria, and inspired his students toward a more holistic view of management and leadership and how it is linked to broader society. “Nitin and I have been co-authoring papers and cases on management as a profession”, says Khurana. “A profession, not simply in a technical sense, but in a normative sense which considers thinks like responsibility, mutual respect for the various constituents in a business enterprise, such as employees and customers, and accountability. Ideas which were catalysed through discussions with Sumantra. Indeed, my current research and forthcoming book project is on management as a profession as developed through a sociological analysis of elite, US business schools.” In the increasingly global world of business thinking, an American Spring could be followed by an Indian Summer. I

Stuart Crainer ([email protected]) is the editor of Business Strategy Review. Des Dearlove ([email protected]) is co-founder of Suntop Media and editor of The Financial Handbook of Management.

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Profile:

Arun Sinha A generation of Indian-born executives are making inroads into corporate America. Arun Sinha, chief marketing officer of Pitney Bowes, talks to Georgina Peters about how his Indian upbringing informs his thoroughly modern marketing.

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Since then, he has helped revitalise Colgate’s oral care brands and launched the Mercury Sable. He spent ten years at Philip Morris USA and then founded and led Agorux, a software solutions company. He joined Pitney Bowes in 2002, moving from business-to-consumer (B2C) to business-to-business (B2B) marketing. Pitney Bowes, a $5 billion company, best known for its franking machines, resides in classic B2B territory. This is, Sinha believes, a potentially fruitful area for marketers. “In entire business areas marketing is astonishingly neglected,” he laments pointing to the lack of interest in B2B marketing. According to Sinha, almost half of direct marketing sales (46 per cent of $2.34 trillion) comes from B2B companies. Yet, while huge amounts of dollars and attention are lavished on trying to reach consumers, very little marketing is devoted to B2B companies. Says Sinha: “There are very few marketers who devote any time or resources marketing to other Winter 2005

companies. This is not because business-to-business does not require marketing but because the companies think very narrowly that marketing can be taken care of through the sales force and distribution channels. They do not try to leverage other aspects of marketing.” At Pitney Bowes, Sinha has brought his B2C marketing skills to work in the B2B world. Sinha instigated the first branding exercise in the company’s history. His approach, he suggests, was quintessentially Indian. “Young managers come to me every day. They have a great idea and want to get on with it to grow the business and make millions. I ask where are the analytics. Usually there are none.” Rebranding Pitney Bowes, Sinha began by talking to 2000 customers in eight countries and then to employees, sales people, executives, and customers. “When we first embarked on transforming Pitney Bowes image, we created a strategic ¡ Business Strategy Review

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fter a day Powerpointing his way through his company’s marketing strategies, Arun Sinha, chief marketing officer of Pitney Bowes, should be at home celebrating his wife’s birthday. But he has excused himself for an hour. A former journalist, he wants the story to be clear and so sits in Stamford’s La Fontanella Ristorante talking marketing and how being Indian has shaped his leadership and management styles. Of course, the conversation also takes in cricket; all with characteristically infectious enthusiasm. “The thing you’ve got to understand is that the Indian education system emphasises learning the basics,” says Sinha. “It is the left brain rather than the right brain. You learn to be analytical. Western education brings specialisation. Then if you add the hunger of a first generation immigrant that’s a great recipe for success and is difficult to beat.” Sinha’s career began with the launch of an Indian newspaper.

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Arun Sinha: At home with diversity

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¡ architecture starting with the objective by audience and then measurement system to assess if we were moving the needle. I had to get in front of the senior management, CEO and the board to convince them the value of marketing and how we will show the improvements. The strategic architecture outlined what we will expect in the year 2007 and the improvements that will be made year over year. Without a

good metrics and measurement system of the marketing effectiveness we would not be able to show the progress,” says Sinha, moving the pepper for emphasis. “It wasn’t about the conventional wisdom of how to re-brand a company but about analysis. And that’s how marketing has changed. It used to be more downstream – warm and fuzzy – now it is upstream analysis and relationships. Companies that succeed do these things well.” It is not simply analysis which Arun Sinha traces back to his Indian roots. He cites differentiation and diversity as key elements to the Indian experience. “Every state is very different with a different culture, language, food and government. You grow up speaking two or three languages. There is a diversity of people and of ideas. In the US diversity is about people, Indians add in comfort with the diversity of ideas,” says Sinha. “Then the sheer number of people in India means you have to learn to differentiate yourself. Me-too doesn’t work. You learn to survive. In India it really is the survival of the fittest. Then you come to America and you enter the corporate jungle.” Does all of this add up to a unique Indian take on business? Arun Sinha pauses for breath. “We believe in being competitive but also compassionate. Respect for people is central and that’s what I try and bring to my job and the people I work with.” Sinha’s view of marketing is also strikingly different. “Marketing is dead if it’s not building the business. The importance of marketing is huge in an organisation and the board as well as the CEO demands a good return on marketing investments. If the marketing programme is not helping the bottom-line, the very survival of the programme is in question,” he boldly states. “If you’re

still thinking like a marketing communications person, then you’re dead. After all, the average life expectancy of a CMO is 23 months according to Spencer Stuart. Why? Because most get sucked into marketing communications. The average tenure of a CEO is four years. So most CEOs will see two CMOs come and go.” For this cycle to be changed, Arun Sinha argues that marketing needs to be on the boardroom agenda and marketers must adopt more rigorous, analytical approaches to their activities. “Gone are the days when you create marketing materials for the sole purpose of winning awards! Marketing is no longer warm and fuzzy exercise for some intellectuals in an organisation. It is a demonstrable business approach that can be measured very effectively. I remember, when I first started in an advertising agency about 20 years ago, we were very concerned about building our creative portfolio and secondarily on the market results. Things have changed for the industry and now we are obsessed about how to get the return on investments from our marketing programmes.” For Sinha, marketing circa 2005 has become an intellectually and commercially stimulating combination of art and science where marketing effectiveness is measured by Return on Investment (ROI), Customer Lifetime Value (CLV), customer loyalty, brand awareness, campaign response rate, media effectiveness and a host of other measurements. He talks of a company’s “sweet spot”: “A place, time or experience where a company’s brands, products and services, finances, leaders and marketers are in tune and in time with consumer needs, aspirations and budgets. Repeatedly finding these sweet spots is the key to growth in increasingly competitive times”. I

Georgina Peters ([email protected]) is a business writer who contributes to publications worldwide.

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VCs curry favour

Indian entrepreneurs

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India has long enticed adventurous outsiders and the latest explorers are private equity funds. India’s rapid growth is creating a slew of investment opportunities but, warn Hugh MacArthur and Ashish Singh, investors need to be patient and follow some basic rules.

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India’s state-owned companies are spinning off non-core assets as they pare down to meet global competition, creating a large pool of potential acquisitions for deal-hungry offshore buyers. And South Asia offers private investors advantages China cannot match, including: the world’s second largest Englishspeaking population; a transparent system of commercial law; a bustling entrepreneurial culture; and, by comparison to other emerging economies, a robust equities market that now tops $450 billion in total capitalisation. Even more beguiling for privateequity portfolio managers are the eye-popping returns their pioneering

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peers have scored in recent months. In the first half of 2005 alone, a dozen high-profile sales netted private-equity players some $1.1 billion. Leading the charge was Warburg Pincus, which parlayed a $300 million investment it made in 1999 in Bharti, India’s leading mobile telecom provider, into a profit of some $560 million through the partial sale of its stake in the company. In so doing it reaped a bounteous internal rate of return in excess of 40 per cent. Riding on these winds of opportunity, a monsoon of cash is descending on India. Today, some 50 funds with some 250 billion Indian rupees to invest are scouring the ¡

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hough it accounts for just 12 per cent of the total Asian private equity market, India is the region’s fastest growing, with a 51 per cent annual growth rate compounded since 1998. During the first half of 2005, private-equity investors poured $733 million into 81 transactions, surpassing the total number of deals for all of 2004 and on track to reach a record $1.5 billion for the full year. There is little mystery about why US and European private-equity fund managers find India so appealing. With GDP growth averaging some 7 per cent annually for the past five years, the subcontinent rivals China as Asia’s most dynamic economy.

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¡ country for deals. Among the newcomers are some of the most prominent names in global privateequity finance. The Blackstone Group, for example, is earmarking up to $1 billion for Indian acquisitions, and the Carlyle Group has launched three new Asian funds totaling $1 billion, and dispatched a team to scout for promising prospects in the subcontinent.

bandwidth telecommunications, and technological savvy that have transformed India into the global economy’s back office present especially attractive opportunities for private-equity investors. PE funds can win twofold by targeting the business-process outsourcing and IT-enabled service centres that have sprung up in suburban office parks ringing every major Indian

value it had built in the company. For their part, the new private-equity owners hope to fuel Gecis’s continued expansion by marketing its services to companies wanting to offshore their own work to a state-ofthe-art service provider in India but reluctant to entrust critical business processes and proprietary data to a captive GE unit. Since acquiring Gecis, the new owners have locked

While India’s economic boom is helping to train a talented generation of engineers and mid-level managers, there is still a dearth of seasoned managers with track records building world-class companies.

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The sector certainly has head room to grow. Using the benchmark of private equity deal value as a per cent of GDP, Bain & Company estimates that India has the potential to expand deal value fourfold. Yet, for all of its undeniable appeal, India is anything but a sure bet. For one thing, the sheer size of those capital inflows risks driving up bid prices and quickly exhausting the supply of attractive acquisition targets. To avoid disappointment, international private-equity investors will have to exercise rigorous deal discipline. They will need to select target companies with an eye to capitalising on global growth trends that complement the other holdings in their portfolios. They will ally themselves with innovative managers and partners, who understand the local rules for navigating this fastchanging market. And they will develop flexible exit strategies that help cushion them from the volatility of India’s still-immature capital markets. So, where should private equity firms place their bets? Some of the best opportunities lie with India’s already established and fast-growing sectors. Based on our knowledge of the market, our recommendations are:

Buy a private stake in the global economy’s back office. The educated labour force, high60

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city. For one thing, the sector is sure to grow, as leading multinationals continue to relocate their call centres, data processing, accounting, and IT-customer support functions in low-cost offshore service centres. For another, PE funds can use such holdings to streamline business operations of other companies in their portfolios. That’s the bet that US privateequity firms General Atlantic and Oak Hill Capital Partners made when they teamed up last year to pay $500 million for a 60 per cent stake in General Electric Capital International Services (Gecis). GE established Gecis in 1997 as a captive offshore business and technology centre to support its own back-office processes. From an initial site outside Delhi that employed 350 people, Gecis blossomed into a 17,000-employee globe-spanning enterprise, serving more than 1,000 GE operations worldwide. GE benefited from the efficiencies and cost savings Gecis helped it achieve. But the unit’s value to GE as an asset was reaching its limits, with the burden of managing the non-core holding. By selling a controlling stake in Gecis to General Atlantic and Oak Hill Capital, GE could continue to outsource business and IT processes under contract and harvest the appreciated Winter 2005

in long-term contracts with a wide range of banking, insurance, healthcare, and manufacturing companies that are expected to boost the company’s revenues by some 25 per cent this year. Meanwhile, General Atlantic can use its stake in an Indian outsourcer to boost the performance of the 50 other companies in its portfolio. By enabling all of the companies it owns to tap into the services available through its offshore business process and IT facilities, the private-equity owner is growing economies of scale and squeezing overhead costs out its other holdings. With the profit lift from such savings General Atlantic is in a better position to bid more aggressively than its competitors when attractive new investment opportunities come along.

Look for depth in the local management pool. Creating the right management team has always been a key to success for private-equity funds. But while India’s economic boom is helping to train a talented generation of engineers and mid-level managers, there is still a dearth of seasoned managers with track records building world-class companies. Finding and motivating senior managers who can move easily within the informal local networks that bind India’s business culture Special report: India

and are equally at home in the fastpaced global deal-making environment is a major challenge. But it can be met. Warburg Pincus found both a world class opportunity and managers with the skill and will to seize it at Radhakrishna Group, a

wholesale and retail distribution system. The private-equity partners are also collaborating with Sheté and his team to combine their indepth local knowledge and global connections to open doors that will enable Radhakrishna Group to

recently discovered the importance of patience when it was forced to postpone a plan to sell off a 36 per cent stake in Mphasis, a business process outsourcing firm it purchased in 1999. A dip in Mphasis’ performance in 2004 had

For all of its undeniable appeal, India is anything but a sure bet. privately held food distribution and logistics services company. The company was established in 1966 and is headquartered near Mumbai. CEO Raju Sheté, who took command at age 17 after the death of his father, the company’s founder, grew Radhakrishna from a start-up that provisioned ships into India’s largest food conglomerate with interests in wholesaling, distribution, supermarkets, catering, and, as the operator of a chain of McDonald’s restaurants, fast-food franchising. With its investment of $50 million for a 25 per cent stake in Radhakrishna in mid 2003, Warburg Pincus teamed up with Sheté, now just 40 years old, for what the Indian media dubbed the “business opportunity of the new millennium”. Providing technical and financial advice as minority shareholders, Warburg Pincus will work with Sheté to implement a farm-to-plate reorganisation of the food supply chain. Their aim is to overcome the fragmentation and public health barriers that have stood in the way of India’s development of a modern food harvesting, processing, and

expand its commercial food service and distribution network into southern Africa and the Middle East.

Plot a flexible path to the exits. US-based private-equity firms usually think in terms of a three-tofive year holding period for the companies in their portfolios. But as anyone who has experienced the Asian currency crisis in 1997, the popping of the tech bubble in 2000, and any number of local financial rumbles in between, can attest the still-immature Indian markets do not lend themselves to even that coarsegrained calibration. A crude “buy, bleed, and bail” approach that relies on lots of leverage and the luck of market timing is not a sustainable route to profits in this environment. Private equity investors who target their acquisitions in India’s most promising sectors and work from a blueprint that allows them to identify and unlock value, by contrast, are likely to be rewarded with both buoyant business growth and superb market returns. Barings Private Equity Partners, the London-based buyout firm,

forced the company to lower its earnings forecast for 2005, weakening interest among a group of other private investment firms that Barings was looking to as prospective buyers. Having to pull the sale was a setback for Barings general goal of unwinding its positions in companies it owns within a four-to-seven year time frame. But Barings’ investment approach in India rests in equal measure on finding companies that have strong and sustainable growth prospects. And with both Barings and Mphasis’ management sticking to their forecast that the company’s revenues and earnings will increase 25 per cent and 30 per cent, respectively, in the 2005-2006 fiscal year, the investment firm’s overarching strategy looks to be intact. Barings Private Equity’s portfolio managers might take heart from the experience of their peers at Warburg Pincus. Less than a year before Warburg cashed in on its $700 million investment in Bharti, the cellular telecommunications firm in had been underwater. I

Hugh MacArthur ([email protected]), a Boston-based partner with Bain & Company, directs the firm’s North American Private Equity Practice.

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Ashish Singh ([email protected]) is a Bain partner and head of the firm’s New Delhi office. Research support was provided by Shailendra Singh ([email protected]), a consultant in Bain’s New York office.

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Instep Infosys with

A growing number of Western students are going to India as interns at top information technology services firms and to participate in tours that allow them to network with the country’s corporate elite. One of the star attractions is Infosys which, as Manjari Singh and Sandeep K Krishnan report, has a unique approach towards its global internship programme, InStep.

tarted in 1981 with capital of $250, Infosys crossed the billion-dollar mark in revenue in the 2004 financial year. The company now has 31 global development centres around the world of which only 18 are in India. In addition, it has twelve proximity development centres and more than 32,000 employees worldwide.

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In 1999, Infosys launched InStep to give undergraduates, graduates and doctoral students from the best institutes across the globe the opportunity to work and spend time with Infosys. Narayana Murthy, the company’s chairman and chief mentor, calls it “a new experiment that changes the image of India, creates a positive image of India, Winter 2005

and enhances goodwill for the people of India”. The company’s aim was to make India one of the favourite destinations for interns all over the world. It wanted serious and sincere professionals to appreciate the project work done in India rather than treating the internship programme as an opportunity to tour India. Special report: India

The interns spend a period of eight to 24 weeks on the projects allocated to them. In 1999 there were 14 projects on offer and around 300 applications for internships. For 2004-2005, there were 70 selected projects on offer, and 8,500 applications from across the globe and associations with 42 academic institutes worldwide.

The interning point The major objectives of the internship programme are: Brand building: The programme aims to establish a direct link with the best academic institutions where Infosys has business interests. The presentations of the organisation in these institutions and the publicity achieved through regular visits for recruitment makes Infosys a wellknown organisation. As the organisation is planning to expand its operations in different countries, it is important that it gets a sizeable number of employees from these countries. The programme generates publicity and creates ambassadors for the company. Future talent pool: The programme helps build the brands of the organisations in the associated academic institutions. This helps in

relevant internship projects and is able to utilise their expertise. The interns are selected on their relevant experience and educational background.

The power of attraction In return, the main attractions of InStep for the interns are: Global experience: In today’s context, global experience has become a key element in career prospects. InStep provides an opportunity to work in a multicultural setting and for participants to experience the diverse cultural climate of India. Professional learning: The Indian IT industry is a high growth knowledgedriven industry with great future potential. InStep provides an opportunity to work with a major player in IT services in India. Live projects are given to interns where they have a great deal of scope to develop their expertise. Interaction with business leaders: This internship also provides an opportunity to interact with wellknown senior business leaders in India. Special effort is made by Infosys to provide such opportunities.

project mentors and the programme manager are kept informed on progress. There is also a buddy system. Buddies have a more informal relationship with the intern and guide them throughout their stay in India. Interns are given access to all the facilities on the Infosys campus with organised lunches and dinners to increase interaction between Infosys employees and interns. On finishing the project, feedback is collected from interns. Infosys keeps in constant touch with the alumni by arranging talks at various institutes and updating them on the latest developments at the company.

People and strategy Around one-third of Infosys employees directly deal with clients. The company’s HR department requires employees to be comfortable with clients of different nationalities. This can be done by recruiting in the clients’ countries or by sensitising employees to different cultures. According to Hema Ravichander, head of the company’s HR department, InStep has a major role to play in creating a “globally diverse Infoscion base”. Internally, however, InStep is run under the corporate planning department. It is regarded as a

InStep provides an opportunity to work in a multi-cultural setting and for participants to experience the diverse cultural climate of India.

Multi-cultural learning: As the majority of clients of Infosys are from foreign cultural settings, it is important that the company has enough multi-cultural expertise. The interns help the company’s employees learn about working in multi-cultural settings first hand. Expertise for projects: Infosys provides interns with organisationally Special report: India

The process Within Infosys, projects that are suitable for the interns are collated from different business units. They are screened for their relevance and suitability. Interns work on a wide range of projects that are expected to have an impact on the company’s core processes. During the selection of interns their academic achievements and relevant experience are matched with the projects available. There are project mentors to guide interns in their project work. The Winter 2005

strategic tool, initiated at the very top of the organisation, and this has considerably enhanced its internal importance. Its strategic implications are twofold. First, it offers access to the global talent pool. Infosys’ strategy is based on a global delivery model which intends to leverage global capacity, global resources and global strengths. According to the company’s head of corporate planning, Sanjay Purohit, the global strategy is to “look for product markets which have a demand for services and look for labour ¡ Business Strategy Review

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recruitment from their campuses. The interns who successfully complete the programme may also be recruited by Infosys in the future.

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The global few

¡ markets which have the talent pool for the services demanded”. Accordingly, intern selection is driven by business trends. For example, in view of organisational plans for European expansion, special thrust was given in 2003-04 to including more German institutions. Second, InStep is designed to make a major contribution in building the corporate brand image outside India. In the long-term the interns’ understanding of Infosys could be very helpful in future business dealings. InStep tries to ensure that they form a positive image and have a better understanding of the country and the organisation. Global delivery is all about managing global competencies, global processes and global aspirations and the organisation that can build its image

of a global player obtains a definite competitive edge.

Innovation step-by-step InStep is the only systemised global internship programme in India. One of the toughest challenges is to convey to aspiring students that there is a global internship programme in an Indian organisation that they may find interesting. Information sessions are given in top academic institutes across the world to establish direct contact with the students. The presentations focus on providing information regarding the organisation and its uniqueness in terms of brand and processes. The career aspirations of foreign students also have to be considered. American interns tend to have much more work experience and have

worked at much higher levels of hierarchy than their European counterparts. There is also a wide variation in the age of students. There are students as young as 17-years old while some are 35. Expectations must also be managed. The expectation of interns about he learning and facilities on offer differs. InStep clearly shows how an internship programme can be structured for marketing an organisation at a global level and showcasing its uniqueness for clients and future employees. Its success can be attributed to indepth planning, and substantial effort and resources. InStep enjoys critical top management support and substantial resources. It now has a feeling of permanence. I

Manjari Singh ([email protected]) is an assistant professor at the Indian Institute of Management, Ahmedabad, India. She teaches and consults in human resource management. Her areas of research interest include strategic human resource management, human resource information systems and performance management systems.

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Sandeep K. Krishnan ([email protected]) is a doctoral student in the personnel and industrial relations area at the Indian Institute of Management, Ahmedabad, India. His primary area of research is related to human resources in the Indian IT industry. He has published widely in the field of human resource management.

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passage from

India

CK Prahalad’s intellectual focus has returned homeward. He tells Des Dearlove about his thoughtful journey from competing for the future to uncovering the fortune at the bottom of the pyramid.

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globalisation. There is an inability to realise that not only have the rules of the game changed but the role of the players has been transformed too. The “customer” is a more powerful and pro-active figure. Customers are no longer abstractions that have to be satisfied. Thanks to the internet, they are agents creating and participating in transactions. The concept of value has also changed. It is not inherent in products or services. It can’t be instilled by producers or providers. It has to be co-created with consumers. They build this by experiencing it. The only way companies can compete successfully is through building new strategic capital. Alongside this work, Prahalad has been wrestling with the perplexingly complex and political issue of poverty. This led him to write The Fortune at the Bottom of the Pyramid (2004) in which he identifies the world’s poor (the “bottom of the pyramid”) as a potential untapped market for companies, worth anything up to Winter 2005

$13 trillion a year. “The real source of market promise is not the wealthy few in the developing world, or even the emerging middle-income consumers. It is the billions of aspiring poor who are joining the market economy for the first time,” he explains. A market at the bottom of the pyramid could be co-created by multi-national and domestic industry, non-governmental organisations and, most importantly, the poor themselves. They would then have choice over their lives and the products they use. He points to Hindustan Lever’s success in marketing soap-powder and detergents in smaller, cheaper units. This created prosperity downstream through new distribution mechanisms. Too often poor people are patronised, Prahalad wants them to have real power in the marketplace.

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oimbatore Krishnao – CK – Prahalad was born in the town of Coimbatore in Tamil Nadu. He studied physics at the University of Madras (now Chennai), followed by work as a manager in a branch of the Union Carbide battery company. He continued his education in the United States, earning a PhD from Harvard. He taught both in India and America, eventually joining the faculty of the University of Michigan’s Business School, where he holds the Harvey C. Fruehauf Chair of Business Administration. At Ann Arbor, Prahalad met Gary Hamel, then a young international business student. Their collaboration ultimately resulted in the bestselling, Competing for the Future (1994). The book provided a launch pad for the second phase of his intellectual career. In his recent book (written with Venkat Ramaswamy), The Future of Competition (2004), Prahalad argues that companies have not made enough use of the opportunities provided by

Is India still an emerging nation? Where would you say it is on that journey? There is an old saying, I think ¡ Business Strategy Review

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¡ originally in India and now everywhere around the world, it’s like five blind men touching an elephant, and having different perspectives. India is very similar. If you ask me whether it is world class and an emerged country already, I would say, yes if you go to Infosys, if you go to Wipro, if you go to PTS. Their technology, their governance principles, their global reach, their ability to attract talent, their capacity for innovation, make them as good as any in the world. At the other extreme, there is so much deprivation and poverty for at least 150 million people that it looks like the worst part of the world. So, if you take all of India and put one label on it, irrespective of what the label is, it is likely to be wrong. But what I would say is that in the last ten years, India has done three things very well. One, it has built some global capabilities, first locally and then leveraging it globally, and that is where you find the IT industry, the pharmaceutical industry, the automobile components industry, the diamond cutting industry, and so on. Second, it has created an extremely high level of aspiration for all of its people, both the poor and the rich. The rich and the educated can aspire to be world class, and the poor can aspire to have an education for their children to allow them to escape poverty. So there is a deep focus on education, not because of

government fundamentally accepts, even though it’s very hard to implement, that India has to become an integral part of global trade. It cannot be isolationist like it is today. So those three, I think, are going to put India on the right trajectory. In a very complex coalition, with the government at the centre, India will take one step forward, half a step backward, a quarter step sideways. It is never going to be a smooth transition and we should not expect it. But directionally, I am extremely positive on where India is going. Obviously people think of India and associate it with the offshoring boom. Is that still being driven by lower costs or is it now driven by competence, as it were? Will India become and remain the offshoring centre, the call centre haven for the rest of the world, or is this just a transitional phase? I think, first, cost arbitrage will be an integral part of it for a long time. It may be that costs will go up a little bit, but it’s not going to reach American and European costs for a long time because it’s a huge supplier. So cost arbitrage is at the base of the capability, but India has built extremely high levels of quality. They’ve adopted TQM as an integral part of software development. They’ve developed new methodologies and tools. There is innovation in work processes and in the tools themselves, so there are

companies are moving very, very rapidly into engineering, to design, to the development of whole components and sub-systems. This trend will continue significantly. I also do not rule out India emerging as a major manufacturing centre. People assume that in India it is all going to be just software, and knowledge-based, and it’s not going to be manufacturing-based. I believe that India will invent a different kind of manufacturing which is very high quality, design-centred and software embedded. This will be very different to the traditional shoot and ship approach of saying you give me the spec and I will do it. Now, it’s more you design, you develop, you manufacture, you ship. I think this is emerging. It’s still in its infancy, but I expect it to grow as rapidly as the software side. In the 1980s we witnessed the Japanese economic miracle and the rise of companies like Toyota. More recently, we’ve seen the emergence of Samsung from being a domestic champion to becoming a serious global company. Are we going to see Indian companies of that kind of calibre? Without any doubt. Even in IT and IT services, you have at least three or four companies which are already known around the world – Infosys obviously, Wipro, Tata Consulting Services, Sapient. The top three companies are at a US$2 billion

The real source of market promise is not the wealthy few in the developing world, or even the emerging middle-income consumers. It is the billions of aspiring poor who are joining the market economy for the first time.

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government policies, but because of the aspirations of individual families, and that, I think, is going to do well for India. The government sector does not function very well, but there is a huge private sector with private tutoring, private schools and private colleges blossoming all across the country. And the third thing is that the 66

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four or five layers of advantage, including speed, worldwide project management, common platforms around the world, and expatriate management. To continue to believe that cost is the only building block misses the point. The second thing that has happened is from low level testing and maintenance, increasingly Winter 2005

sales level, and anywhere between US$15 and US$20 billion in market cap. That’s larger than EDS. And there’s a market here. Infosys grew from $1 to $2 billion in about two years. And so, if they get to be $4 or $5 billion, they are a global sized company, not only a global brand name, and with a global reach because they operate in 50 Special report: India

countries. So, will that happen? The answer is, yes. I see the emergence of ICICI as a bank with the same characteristics. I expect to see acquisitions by companies in manufacturing. Tata’s first big

with world scale domestic markets and world class global companies. There was a big difference between the United States, Germany and Japan at that time and Finland, Switzerland, and the Netherlands,

States? The answer is yes. That is the essential game of globalisation. And to some extent, we are seeing that with the backlash against offshoring particularly in America. Sure, and I think protectionism is

You are going to find Indian companies sharpening their competitive skills, getting world class quality, becoming very profitable, building market cap, and using it as currency to make acquisitions, and expand rapidly overseas.

Does this mark a new phase in globalisation? Absolutely! In fact, as early as 1989 I raised the question in India of which countries could be like the United States, Germany and Japan

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which had world class companies but not world scale domestic markets. Now, the domestic markets in China and India are reaching world scale. Look at the two wheeler industry in India and there are three companies which are world scale domestically. They make a million plus two wheelers. You can very, very rapidly achieve scale in India and, if you get the right quality of management, you can also become global. So I expect to see China and India in that club soon. Already both China’s and India’s finance ministers are invited for lunch or dinner at G8 meetings. That’s a good sign. I believe that China and India will be the second and the third largest economies next to the United States within my lifetime, certainly by 2015. Is there a sense, too, that until very recently globalisation was widely viewed as an American or Western game and now there’s a risk that globalisation could bite back as far as the West is concerned because, as these companies rise, presumably they have to take somebody’s place and somebody’s customers? First we are creating more customers because a significant portion of the five billion poor who have been below the radar screen will be new customers. So, we are increasing the size of the pie. Will there be asymmetric benefits to large companies, established players? The answer is yes. Will the pain be totally felt by poor countries? The answer is no. Will some of the pain be felt by Europe, Japan and the United Winter 2005

not the answer. Re-thinking where do we get our competitive advantage compared to these new players? That is the game. So we have to re-frame the question. It’s not exporting good jobs, but it is importing competitiveness, and the companies which know how to leverage global talent and import competitiveness are the innovators and they are going to be ahead of the curve. There was one case which gained a lot of media attention where financial information was sold or leaked from an Indian call centre. Is that going to undermine some of this? I think the thing that I find so interesting is if one person out of 300,000 or 400,000 call centre operators can be bribed to give some information, it makes the headlines. I can do the same thing in the UK, I can do the same thing in the United States. Now I cannot believe if you have 300,000 people working in an industry, one person cannot be bribed! So I think we have to put this in perspective. Can this happen? Yes. Can this take place in the UK and the United States? The answer is, it takes place all the time. So, I think, I look at it and say, could security be better? Should it be better? The answer to this is yes, and in fact, I am going to the other extreme. Because the Indian BPO business depends on security and privacy, Indian companies are going to develop methodologies ahead of the West on how to secure information and how to create privacy, how to make sure that people protect the ¡ Business Strategy Review

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acquisition was Tetley and now Tata Tetley is a global player. Taj Hotels is making acquisitions abroad. Tisco is making acquisitions and Tata Motors is making acquisitions. So I think you are going to find Indian companies sharpening their competitive skills, getting world class quality, becoming very profitable, building market cap, and using it as currency to make acquisitions, and expand rapidly overseas. I expect to see 20 to 25 companies in the next two to three years spreading their wings and getting out of India.

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¡ interests of their customers. And the reason is very simple, if you can’t do it, you don’t have a business. And therefore, the good news is stories like this are going to push Indian operators to greater innovativeness rather than less. Stepping back to some of your other work, in terms of value creation, is there a new place that we should be looking for wealth creation? Is there a new way of understanding it? With 1.5 billion people now connected through wireless or through PCs or some combination of the above for the first time in our history, the power that used to exist between consumers and corporations is getting re-balanced. Individuals want to decide for themselves how they want to be served. Therefore cocreation is going to take place,

the manager? How do you go beyond customisation in the traditional sense? How do you get back the bespoke world? What are the implications for the people at the top of the pyramid? I’m thinking of CEOs, business leaders, what does that mean for them? Does that mean a different way of leading? Is it a culture change? It is a huge culture change. It is mostly mental models that you have to change. Competing for the Future was a pre-internet book. We saw some of that happening, but not really. It’s still very firm centric. The Future of Competition is based on a big reflection on what the internet means for companies, customers, how they work with each other. The big change for companies is to ask

think that’s attainable? Are you as optimistic as that quote perhaps suggests? Yes. People ask me how come that I’m a preacher for competition and in the same year you get The Bottom of the Pyramid ? It’s because I think that the future of competition can be read as if it’s only talking about the developed markets. That’s why I had to write a companion

How do you get back the bespoke world? whether it’s making your own pizza, or managing your own musical archive, or designing your own clothes. It’s going to take place. So the question is: How do we as companies and managers prepare? The thing that I find so interesting is when we put on the hat of a consumer, we like all the choices. Then we come into the factory and the company, and put on the hat of a manager, and we don’t like it very much. So the real question is: How do I seamlessly understand the convergence of the consumer and

yourself, how do you influence without ownership? What happens to the boundaries of the firm? How do you establish dialogue with the consumers? How do you create a level of transparency and access that allows people to work with each other? An interesting strand to this is this notion of the democratisation of business, creating an economy that’s of the people, by the people, for the people. That’s a very optimistic view of the future of capitalism. Do you

piece which says a similar thing is happening at the bottom of the pyramid. In fact there is no difference. The next book I’m writing is to look at the fragmentation of the value chain worldwide, and how people will search for talent and the developed countries may depend on developing countries for innovation. I

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Des Dearlove ([email protected]) is co-founder of the training and consulting company, Suntop Media.

London Business School Regent’s Park London NW1 4SA United Kingdom Tel +44 (0)20 7262 5050 Fax +44 (0)20 7724 7875 www.london.edu A Graduate School of the University of London

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