Article Dated: 1 February, 2007
In their rush to globalize, multinational companies often zero in on China—the world’s fastest-growing large economy and an arguably bottomless source of buyers (markets) and sellers (supply sources). But for many organizations, India is equally or perhaps even more attractive. In fact, India leads China in many of the areas most valued by international market makers, including more democratic institutions, a free press, an independent judiciary, more opportunities to raise capital, and a somewhat more sophisticated and transparent business-development environment. And like China, rising income levels, increasing urbanization, and favorable demographics are making India a particularly desirable consumer economy.
To learn more about the opportunities and obstacles facing companies in India, Accenture recently surveyed more than 100 CEOs. Roughly half of the CEOs surveyed are heads of multinationals based in India, and the other half are heads of India-origin companies. Pharmaceuticals, chemicals, and consumer durables were the research effort’s most preponderant industries.
The respondents were extremely optimistic about growth prospects in India: Almost 70 percent expect their India operations to grow 15 percent to 30 percent within three years. This confidence isn’t surprising given that ROI on India-focused investments historically averages less than four years. Other findings focused on:
Main motivators: Like China, India is increasingly attractive to multinational companies for three main reasons: market, manpower, and materials. Ranked as the third-largest economy in Asia, behind Japan and China, the country also boasts a median age of just over 20 years—one of the lowest among developed and emerging economies. Furthermore, by 2016, more than one-third of India’s population will reside in urban areas.
India also possesses a huge pool of skilled, English-speaking labor. Every year, it adds 2.3 million college graduates (including 400,000 engineering graduates) to its workforce. With respect to materials, India, China, Latin America, and Eastern Europe are the cornerstones of a global quadrangle for low-cost-country sourcing.
Critical capabilities: Among the responses from surveyed CEOs, two India success factors emerged. Many agreed that managerial and technical talent is crucial. They noted that while global best practices, systems, and processes are seldom lacking, human capital is what’s needed to replicate these capabilities for success in global operations—and plenty of talent is available within India.Business challenges in India
CEOs also believe that building a flexible, responsive, and integrated supply chain as a prerequisite to achieving successful India operations. Several specifically stated that “identifying and integrating the supplier base with company operations” is the most essential upstream capability, while “developing a reliable distribution and service network” is the most important downstream activity. Accenture’s view is that these two skills must be complemented by a third: the ability to ramp up operations as demand rises—without compromising product or service quality.
Key challenges: By a large margin, CEOs consider infrastructure to be the biggest barrier to a successful presence in India. A good example is perishables: Up to 40 percent of domestic fruits and vegetables currently rot in transit or at the harvesting site—the result of transport delays and/or inadequate cold storage. As shown in the graphic, other top challenges to doing business in India include bureaucratic delays, restrictive labor laws, and corruption. However, some of the less-frequently cited challenges interrelate and are likely to be more prevalent than they seem. For example, R&D-intensive businesses usually require more skilled labor and are therefore inordinately affected by restrictive labor laws and worker attrition. Similarly, issues pertaining to technical infrastructure and intellectual property protection are also acute in R&D.
Making high performance happen: When it comes to India operations, CEOs’ satisfaction levels are high in most areas, but particularly so when it comes to product quality, customer service, and overall cost. However, CEOs were significantly less likely to express high levels of satisfaction with innovation and lead times. Fostering innovation often relates to dollars spent: India’s investments in R&D currently average $5.50 per capita, compared to $11.70 in China and $705 in the United States. This culture extends to Indian businesses, which would rather invest dollars and re-engineering efforts in their factories and areas like marketing and distribution.
Dissatisfaction with lead times speaks of a more strategic need: a better-integrated, end-to-end approach to supply chain management. To shorten lead times—and overcome the infrastructure challenges cited above—India-focused companies must commit themselves to the tenets that define high performance in global operations. Principal among these are understanding and meeting customers’ requirements, designing information flows to maximize supply-chain-wide visibility, and understanding true “total cost of ownership” when making global sourcing or manufacturing decisions.
We plan to take a more comprehensive look at global operations excellence in future issues of this column. India, having both the aspiration and capabilities to establish a global footprint, is becoming more critical than ever as competition intensifies in the race to high performance.
Author: Author Information
Patrick M. Byrne is managing partner of the Accenture Supply Chain Management practice, which provides consulting and outsourcing services for strategic sourcing, procurement, product design, manufacturing, logistics, fulfillment, inventory management, and supply chain planning and collaboration.