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February 2, 2000

BUDGET 1999-2000

The Rediff Business Interview/Prof Krishna Palepu

'It's only a matter of time before Indian brands emerge in the global market'

Prof Krishna Palepu of Harvard Business School Krishna Palepu is Ross Graham Walker Professor of Business Administration at the Harvard Business School, arguably the most famous management institute in the world. He was in India, only for a day, to attend the Confederation of Indian Industry's Partnership Summit 2000, where he addressed his audience on the challenges companies face in an era of globalisation.

Professor Palepu joined the Harvard Business School faculty in 1983 after receiving a Masters degree in physics from the Andhra University, an MBA from the Indian Institute of Management and a Ph.D from the Massachusetts Institute of Technology. Between his MBA and doctoral studies, Professor Palepu worked as a management consultant in India. At Harvard, Professor Palepu has taught courses on finance, control and competitive strategy in the MBA and Executive programmes. He is currently doing research on business groups in emerging markets.

In an interview to Amberish K Diwanji, he spoke about the changes Indian companies are making and must make to be globally competitive. Excerpts:

Do you see Indian companies responding to globalisation?

I work with a few Indian companies and I do see changes taking place in them. But these changes have to be deeper and faster. What is happening now is that the some changes are taking place, but they are not sufficient. And I say this not because the Indian companies are slow in undertaking change, but because the world is changing faster than the Indian companies.

Email this interview to a friend What do you see as the problem?

Fundamentally, change is a learning process. Indian companies have lived a sheltered life, and now suddenly they are being asked to compete in an open economy in a globalising world. But naturally, there is some resistance to this, even after the Indian companies accept the need to change. The company management will, quite like the Indian politicians, give out excuses and say they can't change until they learn to accept it.

One must also realise that Indian companies never focussed on the global economy, hence they never learnt how to compete in the world market. But with the changes taking place, the companies are learning on how to cope and to change.

You spoke about excuses. Is it because of some of our laws and democracy?

India's problem about not changing fast enough is not democracy but the lack of leadership. It is a bigger challenge to the Indian leaders to bring about change while also facing elections. Similarly, it is true that Indian companies do face many difficulties, for instance the lack of an employee exit policy. But rather than see it as a problem, company managements should see it as a challenge and find a way around it.

You visit India regularly. Notice any change over your recent trips?

In the last six months, there has been a definite increase in optimism. I find that post-Kargil, there seems to be a sense of purpose, a greater commitment to getting things done. Then there were the elections that have further boosted this sense of purpose. In fact, compared to this time last year (January 1999), I find much greater optimism this time.

What, as a business management professor, would you say is the primary requisite for Indian companies to thrive in the world market?

The most important, perhaps the only way to survive, is to create value. Creating fundamental value for the customer and for the shareholder is the only way to survive in the long run. Earlier, companies could get away without worrying about their customers and their shareholders, now both of them are demanding their due share, and companies will have to satisfy both. And the competition to provide such value is rising because of deregulation and technological changes taking place in the world. One must, however, remember that what is happening is not unique to India but is occurring the world over.

India has not seen the spate of mergers taking place in the West. Is it because Indians are unwilling to give up control of their companies?

I agree! I think that in India, companies are seen as being owned by someone. There is a strong proprietary view of companies among Indian people. If someone starts a company, then he also wants to manage it and pass it on to the next generation. In this manner, companies are identified with a particular family, and actually seen as part of the family.

In the West, the view of companies is different. A company is seen as a stock and hence people are not attached to it as they are in India. Success in the West is measured by the value created, not by the number of years that a particular person or family runs the company. This view also helps in mergers and acquisitions

In India, business also tends to remain within families. CII even had a seminar once on family-run businesses and I hear the hall was packed!

Well, I have nothing against family-run businesses. In fact, around the world, families are the repositories of entrepreneurships. It is families that will take risks and nurture new companies, it is from such families that more entrepreneurs are found. The problem in India is that the number of such families is very small, but over time, more and more people will become entrepreneurs and set up business.

Is this why there are fewer A&Ms in India?

There is also another fundamental reason. To sell a company, one has to create the market for such sales to occur. There is a need for investment banks, for complex financial systems, for good accounting systems that can correctly appraise a company, etc. Basically, India needs the proper financial infrastructure. Hence, it is not just a question of the mindset but also the lack of infrastructure in India.

Any reason why India does not have a global brand?

A global brand in terms of a name that consumers can recall, like Coca-Cola, is no doubt missing, but it is because of the earlier economic policies followed by India. Unless you produce goods that satisfy the customers' demand, you will not exist in their consciousness, and Indian goods have gone global only in recent times.

On the other hand, some Indian companies have acquired global brands, but most of these are in the business-to-business companies, especially in the IT sector.

Finally, it is only a matter of time before an Indian brand emerges. After all, a brand is created through delivery and service, and through superior quality.

One complaint that Indian businessmen have against foreign companies is that they enter India through joint ventures and then either seek to buy out the Indian side or set up 100 per cent subsidiaries in the same business. For instance, Honda has a partnership with Hero and is also now setting up its own unit. Is this fair?

I don't see this as an ethical issue, even if some Indian companies are trying to paint it in that light. In a joint venture, both parties create value and gain. Moreover, most partnerships are short-lived, not just in India but around the world. Partnerships are based on value and create assets that are unique for both the partners. There are no moral obligations.

The second aspect is that even if Honda sets up a 100 per cent subsidiary, they will only employ Indians, hence it only benefits India.

And last, just because a multinational company has set up a subsidiary is no guarantee of its success. Indian companies have their own strengths with which to fight competition from global firms.

Profile of Prof Krishna Palepu



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