Professor Gupta is the author of four highly claimed books: Getting China and India Right, The Quest for Global Dominance, Smart Globalization, and Global Strategy and Organization.
Dr. Gupta has been recognized by Business Week as an Outstanding Faculty in its Guide to the Best B-Schools, inducted into the Academy of Management Journals’ Hall of Fame, and ranked by Management International Review as one of the “Top 20 North American Superstars” for research in strategy and organization.
China and India have always been in the forefront of any business conversations and policies due to its high consumer population. No marketing strategy in today’s world happens without the two countries being questioned in terms of the speed to market and talent pool. It was enlightening to converse with Dr. Anil Gupta who basically said that entrepreneurs need to understand China and India together. He further elaborates the concept of seeing the two high powered countries in four lenses and how no other countries in the world is playing out in high speed and at the same time. As an entrepreneur, it is important to identify and study the common mistakes that companies make while designing robust “working” strategies in China and India.
According to Dr. Gupta and Haiyan Wang in their new book “Getting China and India Right: Strategies for Leveraging the World's Fastest Growing Economies for Global Advantage ”, no other country in the world where all four stories (Mega Markets, Cost-Efficiency Platforms, Innovation Platforms and Launch of new Global Competitors) are playing out in high speed and at the same time. What are some of the common mistakes that companies make while designing strategies for China and India?
Dr. Anil Gupta will be in Michigan on Thursday, May 28th at Southfield speaking at The Indus Entrepreneurs (TiE Detroit) monthly event.
Here are some excerpts from his conversation with Anu Gopalakrishnan, a miindia.com exclusive:
You talk a lot about India and China being incredible growth markets, but in 20 years china will have an aging population (similar to Japan now), will this be an issue for investors?
I don’t think so.
Yes. There is a growth slow-down but it will definitely not affect the investors. In 20 years growth rate in china will slow down. About 2015-2017, china’s population will start to age. Old age dependency ratio will begin to rise – 65 and older. The age group of the working population is 15 to 64. In other words, below 15 and above 65 are dependents. The growth of any economy is dependent on the working population. The increase in taxes may be an issue for China. However, what that means is that China may not come to standstill. China will have to pay a demography tax- meaning its growth rate will be 2-3% lower. For example, China in the last ten years without counting the year 2009, grew by 11% If they begin to come out of the slump by the end of 2010 – 2015, they would grow at 8%- after that it could fall to 5-6% growth rate. If you look at India at the same level, India may be growing faster than China in 2015 and could possibly be one of the two fastest growing economies through 2025.
China would remain one of the two most important stories. India and china in comparison have performed pretty well over the last five years, including 2009. China has grown 2-3% faster than India. This year India will grow by 5% and china will be 7%. China has an effective dictatorship and can implement its national policies through command and control. They don’t need to worry about votes, state counsel etc. Majority of them are technocrats, good engineers designing comprehensive plans. They can force implementation with far greater speed and effectiveness than India.
How is the global environment different from say ten years ago?
Remember, Asia is 60% of the world’s population – bigger than the rest of the world combined. The rise of Asia began with Japan in the 1950’s, late 60’s in South Korea. The next phase was Taiwan, Hong Kong and Singapore- newly industrializing economies. After that, we had the Philippines, Malaysia, and Indonesia – called the Asian Tigers. This happened in the 1980’s and 1990’s. The current story is the story of India and China, far bigger than any other of these economies – both by population and geographic size. 10% growth rate in Thailand in impressive but is nothing compared to India and China’s 10% growth.
What we are seeing is that when the SE Asian nations (Asian Tigers) were growing rapidly- India and China were waiting to take off and what you see now is that they have eclipsed the other economies.
That’s why it is impossible to imagine any other country in Asia or the rest of the world other than China and India. They may not be the latest stories, but remember, they are powerful stories.
As governments in China and India became sensible, they embraced global integration. Governments became smart. Now the late industrial revolution is taking place. What made US and Europe rich, is now making India and China rich.
What about the untapped African continent?
Last ten years, Africa has been growing much faster than the previous 50 years. Its’ growth rate is 5% a year which is clearly higher than any other developed economies. Though some parts of the continent is getting to be increasingly wealthy, it will not eclipse India and China. Again, it has to do with the geographic size and population. Africa may be growing nicely at 5%, it is growing much more slowly as compared to India and China. I don’t think Africa will catch up with them in the near future.
Anil K. Gupta is widely recognized as one of the world's leading experts on global strategy and organization. He is the author of over sixty papers and three books: The Quest for Global Dominance, Smart Globalization, and Global Strategy and Organization. His invited opinion pieces have appeared in The Wall Street Journal, Financial Times, The Economic Times, and China Daily. One of his papers was recognized as one of the ten most-often cited articles in the entire 40-year history of Academy of Management Journal.
Could you talk a bit about using the Mass versus Premium markets for revenue?
Well, take China and India – the two countries are 70% alike and 30% different. Take China for example- 3rd largest economy in the world, second largest economy that has taken over Japan- 1/3rd of the US economy size. Its per capita income is 1/15th of the US. The buying power of Chinese is much lesser than the average American. There is a market at the very top- rich segment. Not a whole lot different from anywhere else.
Take the middle income of Chinese, the buying power is much less than middle income of Americans- the numbers are larger in China. 500 million people will be moving from the lower end and migrating to the urban middle income segment from now through 2025.
As China and India become richer, the bulk of the buying power will take place in the middle income level that happened. Companies have to act when the markets are growing. This is like an Amazon. Creating mass products (that are ultra low cost) and services is the key for these newly identified mega markets.
What are the few things to consider while designing a global strategy?
Firstly, ask the question - what is the value proposition- why global?
The answer should be Simplify and not to make it simplistic. Any company, young or established, big or small can globalize on the front end meaning their market space by keeping the backend operations in one country or vice versa. In this case, if you need to globalize both- front end or back end, is it to expand the size of the target market (You need to be selling in a number of countries – globalizing the market presence), or the efficiencies (You don’t globalize your market presence, globalize supply chain), or do you want to globalize both market and supply chain where the complexity is a little different.
What is the source of value? Globalization increases fixed cost and complexity. The second question I would pose is in what sequence do you globalize your footprint? What’s country number two? Should it be India, China, and Germany – how do you prioritize the country number two? If it is for cost effective reasons, what sequence should you follow in globalizing the company foot print.
The third question I would pose is – as the venture globalizes the footprint on front end or back end- how would you organizationally run an integrated enterprise so that it does not become a loose federation?
Some entrepreneurs are successful in the US, but once they think about emerging economies, something goes wrong – is it their approach, business model or simply strategic.
Pick the most common, underlying factor. If you already have an US based venture and are looking to explore a different location/country where the characteristics of emerging economy are very different, you need to know what you are there for - market for products, services or for people. Because the emerging economies are so different, US entrepreneurs seek to bring that same experience into those markets. When a market is quite similar (geographically similar), the likelihood of success is pretty high.
The most common mistake entrepreneurs make is trying to run an alien market through remote control. You will see an entrepreneur sitting in the United States and trying to grow a business in China, India, and Mexico, Vietnam or any other. The failure is not because of geographic distance, but it is more so cultural and economic. So, there arises a need for a local person. If you hire a local manager, there would be times when the local counterpart says “I am doing all the work, this person in the US is making all the money”. This can result in the theft of intellectual property and very soon you would find your once local counterpart, your greatest competitor. The incentives for that to happen are high.
The solution lies with the US based entrepreneur who can find in the local person, trust and competence and to make that individual an equity partner in the India based partnership firm. This will provide the local counterpart now turned equity partner, privileges and incentives for making the company grow. This approach will reduce micro-management costs, incentives are aligned and ventures become more productive.
How do you think the Global Enterprise Model should act and feel like?
Sharing the statement made by Infosys Chairman of the Board and Chief Mentor Dr. Narayan Murthy “for us globalization means selling where the customers are, cheapest capital, innovation, talented people, blind to nationality and geography- an enterprise that says – we want to leverage the world both in terms of markets and in terms of resources without being ethnocentric and recognizing that all markets are not of equal size (and we have to prioritize) and not all the economies have the same cost structure or talent pool.”
In other words, this means we have to figure out where we need to concentrate on our operations, where we target customers. These may not be the same set of countries. R&D, Operations and Marketing in different countries work in a coherent fashion. Such is a global enterprise. IBM is a great example of being an integrated global enterprise. On a world-wide basis, a third of IBM’s software is sourced from china, a third of IT employees based in India, one of the RD bases in China and India, serves customers in every country in the world.
Well, Dr. Anil Gupta gave us four areas to rethink - global strategy, innovation, organization, and lastly, our very mindsets. Time and again Dr. Gupta and his counterpart Haiyan Wang have stated that innovation opportunities abound at the bottom of the pyramid and that companies should use this segment as a "learning laboratory" for the discovery of new business models.
Dr. Anil Gupta will be speaking at The Indus Entrepreneurs (TiE Detroit) monthly event at Southfield on Thursday, May 28th, 2009.