Riding the Tiger – Running just to stand still

Riding the Tiger – Running just to stand still

February 10, 2017

In today's highly competitive environment, companies have to run just to stand still. To survive, they need to live by the Olympic motto citius, altius, fortius – faster, higher, stronger. This is particularly applicable to companies operating out of India, as they have several additional challenges to overcome compared to rivals from developed and other emerging countries. Some of the factors include the lack of infrastructure, the availability of electricity, the cost of and access to capital, the implicit cost of institutional voids, the challenge of a country-of-origin disadvantage and the absence of an adequately trained workforce.

India's logistics performance had declined in the last seven to eight years due to capacity constraints at major ports and their low mechanization levels, slow inland freight movement, and lack of last mile connectivity. India's rank is now 54, down from 39 in 2007. Inverted duty structures, where finished goods are taxed at lower rates than raw materials or intermediate products, discourage domestic value addition in some sectors. Import and export procedures need to be further streamlined to enable seamless movement of goods. Social capital, characterized by regional trust and the rule of law can be further improved and would enable stronger decentralization in companies, hence enabling growth beyond what we currently see in the market. Non-performing assets of Indian state-owned and some private banks and their exposure to restructured advances under the corporate debt restructuring mechanism are very high. This is an indication of a misallocation of resources, which results in negative consequences for India's overall total productivity factor.

The list of challenges for doing business in India is long and may appear daunting from the outside. However, all is not lost. A number of companies have developed operating models that enable profitable growth in India. Many of these have done exceedingly well. All of them have a relentless pursuit of operational excellence at their core.

Take Maruti-Suzuki as an example. The company created a virtuous cycle around volume up and cost down. Despite significant competition in India over the last decade, Maruti still rules the roost in the highly competitive passenger vehicle market by a large margin. Adani Ports and Special Economic Zone Ltd. (APSEZL) is a key business of the Adani Group and uniquely positioned to take advantage of the favorable environment for sea trade in India. The vision that a modern, professionally operated port would draw enough traffic from government run ports complemented with stringent, technology and global benchmark-based execution created a business that counts among the best in terms of operational and financial KPIs globally. EFD, a European induction heating company, leveraged an early entry into India and fast adaptation to local needs to become a profitable, leading player in its industry.