India and globalization trends
Last week, Krishnan Patel an economics professor from India visited CMU and I invited him to give a lecture to my students. Following was what he shared with students in my globalization class.
Krishnan: “India companies are concerned with global competition even they have been very successful in taking the advantage of globalization. For many years India has been successful in providing IT outsourcing business, has achieved over $100 Billion dollars in revenue and created million of new jobs in India. However technology is changing fast but the education system is not be able to catch up so currently this business is beginning to slow down. At the same time, as India is looking outward, more foreign companies are moving in and compete with local companies. Before fast food companies like KFC, McDonald, Pizza Hut, and Starbuck came, India had million of small restaurants, tea and coffee shops but now the number is about a third of what was. Before large foreign construction companies came, there were hundred thousands of mid-sized construction companies but today only few thousands left. Basically globalization is a two ways street and you must be careful to balance the flow, else you may be at a disadvantage.”
Student: “But globalization is about competition. Better managed companies will expand to new markets and win, not so well managed companies will be wiped out. However competition will benefit consumers for better quality, services, and prices.”
Krishnan: “Exactly, competition will lower price, increase quality so to stay competitive India must improve its education system to develop more skilled managers, especially the middle level to manage companies so they can compete with foreigners and survive. We have to learn how global companies are operating. We have to learn how these companies are leveraging technology to boost innovation, strengthen customer relationships, and expand their businesses. That means India need to have both effective and efficient management system in place to compete and grow. In this case, the most important is to have a better education system to develop the next generation of managers and business leaders.”
Student: “But how could small local companies expand and become global companies when others big companies already dominate the market?”
Krishnan: “Globalization is about new opportunity and every company, regardless big or small, will have the same opportunity if they know how to seize it. It may take time for small company to expand the business globally but many Indian companies are doing it with the help of technology. If you look back twenty years ago, Infosys, TCS, Wipro or HCL were all small local companies with few hundred workers but they all grew to large global companies with hundred thousand workers and compete with IBM, Accenture, EDS and others. It is really about having good vision, good leaderships and better managers. They knew how to seize the opportunity when the needs come and succeed. These are young companies that represent the new India, the new generation of leaders and new way of doing business.
For many years most Indian companies did not pay attention to technology. They did thing the “Old ways” with “Old thinking” because labor was cheap so most local companies were not efficient and full of bureaucracy. As long as they were profitable, they did not care; as long as nothing threatens their jobs, they did not think much about improving anything. The old thinking was “We are doing well, why change?” However when foreign companies moved in, they wiped out most of these inefficient companies and suddenly everybody was concerned. It is too late for most managers as they were losing their jobs and their dignity. Let me give you an example, every time Wal Mart opens a store in a city, about hundred small businesses shut down and thousands of managers lost their jobs. Workers do not have problem as they can work for Wal Mart so to them it is just a matter of switching jobs. Managers cannot do that as they spend more time in meetings rather than managing anything. They do not have the skills that foreign companies need. Foreign companies prefer to hire young college graduates and train them than hiring experienced managers with “old thinking”. Today India has hundred thousands of “unemployed middle level managers” many with twenty or thirty of experiences and they complained loudly about globalization and changes.”
Student: “What happen next? What do you think about globalization and its impact to your country?”
Krishnan: “However as many old companies are gone, new companies begin to appear. These are the next generation of company that managed by younger managers, many are college graduates with “new thinking”. There is basic change in mindset and operation of these companies and they are challenging old established companies which open up competition among local companies. There younger companies are using technology tools such as business management software, mobile technology, analytics and social media to drive cost efficiencies, optimize the supply chain, improve product and service development, and improve innovation. As new companies are doing well with better profits, they expand the business. Currently many of them are technology companies but it is changing fast and move quickly to other areas. Globalization changes many things and creates more opportunities because there are new types of restaurants, coffee and tea houses that compete with KFC, McDonald, Starbuck etc. There are new banks, new financial companies that compete with City Bank, Bank of America etc. The change is happening quickly with the new generation of younger people. They are the generation that is well educated; they understand the need to adapt to global marketplace so currently India is in the middle of a significant business transformation. A key driver for this transformation is to seize the opportunities in expanding markets by entering new geographic markets. Indian companies are now doing business across the world, including Europe and the US. They are also looking at emerging markets such as South East Asia, Middle East and South America etc... ”
Student: “What do you think is the key success of these companies?”
Krishnan: “It is education. Many of these company's owners and managers are graduating from foreign universities or having experiences in foreign companies and they understand the need to change as well as the opportunities. They combine their expertise with the available of India workforce to seize the opportunity and expand their companies. Among them, 38% are in manufacturing, 23% are in IT professional services and consultation, 19% are in foods exports and imports, 12% are in retail and wholesale. About 32% have revenues of $20 – $100 Million dollars and 36% have revenues between $100 - $350 Million dollars. The weakness of these companies is they do not have enough skilled workers to continue their growth and that is why they pressure for more improvement in education. If we have another million skilled workers, I think these companies could have a 25% growth rate every year and create at least 10 million new jobs for India.”
Student: “So do you think India will be one of the most powerful countries in this 21st century?”
Krishnan: “India has many problems that it must solve in order to be a powerful nation. However it is changing to the right direction and everything is caused by the younger generation that grows up with information technology. These people understand what does it take to succeed in this globalized world and they go after it. I think having a good education system is the first step to change the thinking of our people. When their minds change, many things can be accomplished.”
Sources
- Blogs of Prof. John Vu, Carnegie Mellon University
