This report from Burson Marsteller shows that Asia’s top 200 firms are increasing their engagement on social networks and micro-blogs. However, majority of these firms do not seem to have a long-term social media marketing strategy and lag their peers from the west.
The Economist‘s special report on India Inc. states that unlike in western economies, successful Indian firms are predominantly government owned or family owned businesses. The conglomerate is the business model of choice and this empire building is reflective of the 1900’s economic landscape of the US. An Infosys is an exception, rather than the norm.
All this might seem a recipe for disaster. In Korea and Japan closely held and widely spread firms became slothful. So far India Inc has been different: its big business houses compete and innovate fiercely. Their returns on capital are neither pathetic nor outrageous and most are prepared to invest billions of dollars in the risky capital projects that India needs so badly.
In the past decade Indian business has not been on a journey towards someone else’s economic model, whether Chinese, European or American. It has not been growing out of an immature phase, or shaking off a simpler way of doing things. Instead it seems to have established its own equilibrium—what might be called “capindialism”—in which profits are controlled not by institutional shareholders but mainly by the state, or by entrepreneurs and their descendants. Outside the state firms, the fiddly conglomerate is the favoured form of organisation.
The special report blames India’s soft state for being the reason firms choose to grow into conglomerate structures. It claims that ‘horizontal and vertical diversification’ of professionally managed firms is proof of this thesis.
Yet the best explanation is India’s soft state. Courts can take years to make their minds up, so contracts are hard to enforce. Infrastructure is often poor, supply chains tricky, red tape a hazard, and markets for people, materials and finished goods unreliable. Tarun Khanna and Krishna Palepu of Harvard Business School coined this idea in a 1997 paper. In these circumstances it makes sense to do things yourself.
This cause and effect reasoning seems to be rather simplistic for the complicated Indian Thali . It ignores the unique role of the joint family in Indian society. It also ignores cultural and legal norms that encourage dynastic progression of company ownership and wealth. This ownership structure also promotes a more long-term view by Indian business houses. Unlike institutionalized firms, where bosses have to meet quarter to quarter performance measures, family owned businesses are more focused on creating wealth in the long-term, for the next generation. Thus they invest in frugal products (which, according to the report, do not generate high profits), which is a means to hook the millions of potential middle-class customers of tomorrow.
Overall, though the analysis comes across at times as bit contrived (it works towards the underlying assumption that one size fits all – the institutionalized business models that are successful in the west are the best) and at other times a bit naïve (for example, the report mixes up vertical integration, related diversification and unrelated diversification), the report is well written and worth a read. It raises several key questions and invigorates critical thinking on the state of India’s economic landscape.
If India is to finish the long journey to superpower status that has been plotted for it by many forecasters, it will have to get its act together on things like infrastructure, efficient land allocation, education, bond markets, reliable supply chains and the enforcement of contracts. Yet if it manages to make progress in these areas, the rationale for sprawling big business groups—sometimes almost like mini-states in their own right, as substitutes for the real thing—will gradually disappear. A big danger, then, to Indian business’s current way of doing things is long-term economic success. It would make today’s approach to organising firms redundant.
Read more at Business in India: Building India Inc | The Economist, Adventures in capitalism | The Economist, Family firms: The Bollygarchs’ magic mix | The Economist, and The Indian miracle and the future: Rolls-Royces and pot-holes | The Economist.
Cognizant’s CFO says that their acquisition strategy is to acquire specific technology and service skills, competencies and capabilities through focused, small-sized acquisitions. The maximum size of these acquisitions is $200 million – 3.3% of its approximately $6 billion revenues. Cognizant’s acquisition of Zaffera is the most recent in a series of such strategic acquisitions aimed at gaining specific knowledge.
Our acquisition strategy is towards very targeted tuck-in small deals which are targeted towards geographic expansion, building industry expertise and lastly, to acquire technology and services capability. For example, our PIPC acquisition was a very targeted acquisition. PIPC has expertise in large program management capability. It also had geographic presence in the UK and Australia. It has helped us in getting large development projects. Our sweet spot is $20-80 million deals and at the upper end it is $200 million. It is far easier to integrate.
- Cognizant gaining capabilities through acquisitions (abhishekkathuria.wordpress.com)
- More technology acquisitions for IBM (abhishekkathuria.wordpress.com)
India has a 22% share in the global engineering research and development(ER&D) outsourcing market, with current revenues of $10 billion expected to grow to $40 billion by the end of the decade. Hopefully, this export-oriented R&D will have spillover effects for local industry and help in improved manufacturing innovation for Indian firms, especially in fast growing sectors.
With over 400 service providers employing nearly two lakh people and revenue of $9-10 billion, ER&D currently contributes 15 per cent of the $60 billion strong Indian IT-BPO export industry. During FY 2011, the cost savings by India-based ER&D Centres was over $20 billion.
Elaborating on sectors expected to have a bright future in India, Pandit said, “The Indian market is booming and as a country, we are no.1 when it comes to ER&D outsourcing. Sectors such as consumer electronics, automotive, energy, telecom and medical electronics have a great future.”
Read more in ‘Future bright for consumer electronics, automotive sectors’ – Indian Express and Business Line : Industry & Economy / Info-tech : Nasscom pegs engineering design market at $40 b by 2020.
How much of a response rate is considered good in organizational surveys? The answer to this question seems to differ for different disciplines and journals. A few key points that I found in my reading of the literature are:
- In 2005, studies that collected organizational level data (for example, data on sales, profit, strategic orientation, innovation) had an average response rate of 35%, with standard deviation of 18.2 (Baruch & Brooks, 2008).
- Response rates have decreased over the years.
- Response rates for studies that utilize individual level data are statistically significantly higher.
- Response rates are statistically significantly lower for studies that are conducted outside the United States due to cultural differences.
- Some research finds higher response rates for web-based surveys. Other research finds that web surveys have lower response rates due to confidentiality and security concerns.
- Response rates from countries with high average power distance (Hofstede, 1980) are lower than countries with low average power distance (Harzing, 2000). Power distance reflects the average perception of differences in power within a society. Low power distance implies that less powerful members of institutions expect more consultative relationships with more powerful members, while high power distance implies a greater acceptance of autocratic relationships with those in higher, formal positions. Thus studies conducted in India are expected to have lower response rates due to the high power distance score for India (77) as compared to the USA (40).
Baruch, Y. and Brooks, H. “Survey response rate levels and trends in organizational research“, Human Relations August 2008 61: 1139-1160, doi:10.1177/0018726708094863
Harzing, A.W. “Cross-national industrial mail surveys: Why do response rates differ between countries?” Industrial Marketing Management, 2000, 29, 243–54.
Hofstede, G. “Culture’s consequences: International differences in work-related values”, Vol. 5. Beverly Hills, CA: SAGE, 1980.
Smith, C. B. “Casting the net: Surveying an Internet population”, . J. Comput. Mediat. Commun., 1997, 3: 77–84.
This exciting case study – IESE Insight No Bells, No Whistles: The Simple Case of Primark – examines Primark, a fashion retailer that has taken the UK market by storm in past few years. The Primark model depends upon offering rapidly changing clothing lines at low prices. This is achieved through a combination of a responsive & agile supply chain, massive sized stores (think Super stores), rock-bottom costs (one could argue that stores are understaffed) and quick inventory turnover (if you like something, buy it now – it won’t be there tomorrow). Thus Primark leverages two key organizational capabilities – the ability to sense a new fashion and the ability to respond by quickly mass producing a single lot in multiple sizes and colors.
Successful organizations are ambidextrous, i.e. they simultaneously engage in the conflicting strategies of exploring new businesses and exploiting existing ones. New research shows that ambidexterity starts from the top.
1. develop an overarching aspirational strategic outlook or identity of the organization
2. foster conflict between old and new businesses at their level and not at lower levels of the organization
3. are consistently inconsistent by adopting conflicting standards for new and old businesses
Read more at The Ambidextrous CEO – Harvard Business Review.