Mint

India managers more upbeat during crisis than China's

Corporate India is optimistic about managing the impact of the global slowdown—and emerging stronger from the storm—than China Inc., though China's economy is forecast to grow at a faster clip of at least 7% this year.

Par Sri Rajan and David Mountain

First published on juillet 23, 2009
min


A Bain and Co. global survey shows that less than 40% of Indian managers think their decisions are guided by short-term financial considerations instead of long-term strategies. The Indian economy is set to grow at least 5% in 2009, according to the World Bank, and possibly higher in the view of other international agencies. This underlies India's relative insulation from the severe shocks suffered by the global financial system, and has instilled a sense of confidence in the country's executives about the future. In fact, corporate India exudes greater optimism about managing the impact of the global slowdown—and emerging stronger from the storm—than China Inc., though China's economy is forecast to grow at a faster clip of at least 7% this year. This confidence is reflected in a Bain and Co. global survey, which found that a large majority of Indian executives believe their companies responded proactively to the downturn: Only two out of 10 felt their firms waited too long to act. In China, 40% of managers felt their firms' response was slow, while for rest of Asia Pacific the figure was 34%. Also, less than half of Indian managers agreed that unclear decision making authority has hurt their company's performance whereas nearly two-thirds of Chinese executives thought so. Our 2009 survey of executive views on business trends further shows that less than 40% of Indian managers think their decisions are guided by short-term financial considerations instead of long-term strategies. In China, 54% of executives believe short-term financials dictate their decisions. The research covered at least 1,400 managers across the world, including nearly 130 from India and 100 from mainland China. The survey showed distinct differences between Indian and Chinese managers and provided new insights into how they think their companies are handling the global downturn—and where their organizations are headed when the economy recovers. Globally, it showed that Indian managers, when compared with their counterparts in North America, Europe, and the rest of Asia, were the most confident on a range of business issues as they ride out the downturn. For example, the survey showed that 80% of Indian managers believe their company will use the downturn to improve its competitive position, compared with 70% of Chinese and a similar number of North American executives. While it is impossible for more than half of the companies to improve their competitive position, the finding illustrates the comparative level of confidence on the part of Indian managers. The survey also asked executives about the importance of international growth. It found that close to 90% of Chinese executives still feel international growth will be vital to their firms' performance in the next five years. China is facing a significant slump in exports, which fell at least 21% in June compared with June 2008. To counter this slowdown, China has acted swiftly to boost domestic demand by implementing a nearly $600 billion (Rs29 trillion) stimulus package. Domestic consumers have responded—as seen in retail sales rising at least 15% in June against the same month last year. The stimulus has also resulted in a surge in fixed asset investments, with the number of new projects up 96% in January–May year-on-year. But this massive programme will take time to percolate across the entire economy and build momentum for higher gross domestic product (GDP) growth. In India, where domestic growth has so far held up and provided a protective cushion to the economy, as many as 72% of executives feel international growth is crucial for the future. But it is clear that India needs to do more to boost domestic demand and must invest in infrastructure if it is to achieve its ambition of returning to 9% GDP growth. However, there are some common themes as well. The vast majority of executives in both China and India—85% and 89%, respectively—still believe innovation is more important than cost-cutting for long-term success. In North America, a significantly lower 67% hold the same view. The reduced enthusiasm for innovation in the world's biggest economy is understandable: When a company's survival is at stake, innovation often takes a back seat. This sentiment is a sharp contrast to the late 1990s which was seen as a great period of innovation in corporate America, especially in the information technology and biotechnology sectors. What everyone seems to agree on is that the established ranking of companies is likely to change. Only about a quarter of the respondents—consistent throughout the world—expect today's market leaders to be top-ranked five years from now. But a major reordering of industry leadership ranking presents both strategic opportunities as well as risks, with more firms recording dramatic changes than in normal times. A Bain study that analysed the net profit margins, sales growth and shareholder returns of at least 750 firms showed that in the 2001 US recession, nearly twice as many companies moved from the top to the bottom of the pack compared with the subsequent period of economic growth. This downturn has the potential to have similar outcomes, especially given the fact that it will be more prolonged. The survey shows the majority of executives in Asia, Europe, Latin America and North America are preparing for the slowdown to last at least until early 2010. Until then, companies need to monitor the environment and, if possible, seize opportunities to enhance their strategic position and strengthen their core business. The following represent four elements of a game plan that every company should consider: Balance your company's short-term financial stability (through cost competitiveness) with long-term investment, with an emphasis on innovation Protect—and grow—customer loyalty by focusing on promoters of your brand and converting those who are "passive" or lukewarm into promoters Manage complexity-organizational, product and process-so that your organization remains nimble in the downturn. However, separate complexity that benefits your business from what hurts the organization Keep an outward focus: look for acquisitions if your company's cash and strategic positions are strong, and keep an eye out for expansion possibilities in new segments and new geographies Sri Rajan is a partner with Bain & Co. in New Delhi and leads the M&A and private equity practices in India. David Mountain leads the financial services practice in India and is based in Bain's Mumbai office.

A Bain and Co. global survey shows that less than 40% of Indian managers think their decisions are guided by short-term financial considerations instead of long-term strategies. The Indian economy is set to grow at least 5% in 2009, according to the World Bank, and possibly higher in the view of other international agencies. This underlies India's relative insulation from the severe shocks suffered by the global financial system, and has instilled a sense of confidence in the country's executives about the future.

In fact, corporate India exudes greater optimism about managing the impact of the global slowdown—and emerging stronger from the storm—than China Inc., though China's economy is forecast to grow at a faster clip of at least 7% this year.

This confidence is reflected in a Bain and Co. global survey, which found that a large majority of Indian executives believe their companies responded proactively to the downturn: Only two out of 10 felt their firms waited too long to act. In China, 40% of managers felt their firms' response was slow, while for rest of Asia Pacific the figure was 34%.

Also, less than half of Indian managers agreed that unclear decision making authority has hurt their company's performance whereas nearly two-thirds of Chinese executives thought so.

Our 2009 survey of executive views on business trends further shows that less than 40% of Indian managers think their decisions are guided by short-term financial considerations instead of long-term strategies. In China, 54% of executives believe short-term financials dictate their decisions. The research covered at least 1,400 managers across the world, including nearly 130 from India and 100 from mainland China.

The survey showed distinct differences between Indian and Chinese managers and provided new insights into how they think their companies are handling the global downturn—and where their organizations are headed when the economy recovers.

Globally, it showed that Indian managers, when compared with their counterparts in North America, Europe, and the rest of Asia, were the most confident on a range of business issues as they ride out the downturn. For example, the survey showed that 80% of Indian managers believe their company will use the downturn to improve its competitive position, compared with 70% of Chinese and a similar number of North American executives. While it is impossible for more than half of the companies to improve their competitive position, the finding illustrates the comparative level of confidence on the part of Indian managers.

The survey also asked executives about the importance of international growth. It found that close to 90% of Chinese executives still feel international growth will be vital to their firms' performance in the next five years. China is facing a significant slump in exports, which fell at least 21% in June compared with June 2008.

To counter this slowdown, China has acted swiftly to boost domestic demand by implementing a nearly $600 billion (Rs29 trillion) stimulus package. Domestic consumers have responded—as seen in retail sales rising at least 15% in June against the same month last year.

The stimulus has also resulted in a surge in fixed asset investments, with the number of new projects up 96% in January–May year-on-year. But this massive programme will take time to percolate across the entire economy and build momentum for higher gross domestic product (GDP) growth.

In India, where domestic growth has so far held up and provided a protective cushion to the economy, as many as 72% of executives feel international growth is crucial for the future. But it is clear that India needs to do more to boost domestic demand and must invest in infrastructure if it is to achieve its ambition of returning to 9% GDP growth.

However, there are some common themes as well. The vast majority of executives in both China and India—85% and 89%, respectively—still believe innovation is more important than cost-cutting for long-term success.

In North America, a significantly lower 67% hold the same view. The reduced enthusiasm for innovation in the world's biggest economy is understandable: When a company's survival is at stake, innovation often takes a back seat. This sentiment is a sharp contrast to the late 1990s which was seen as a great period of innovation in corporate America, especially in the information technology and biotechnology sectors.

What everyone seems to agree on is that the established ranking of companies is likely to change. Only about a quarter of the respondents—consistent throughout the world—expect today's market leaders to be top-ranked five years from now.

But a major reordering of industry leadership ranking presents both strategic opportunities as well as risks, with more firms recording dramatic changes than in normal times.

A Bain study that analysed the net profit margins, sales growth and shareholder returns of at least 750 firms showed that in the 2001 US recession, nearly twice as many companies moved from the top to the bottom of the pack compared with the subsequent period of economic growth.

This downturn has the potential to have similar outcomes, especially given the fact that it will be more prolonged. The survey shows the majority of executives in Asia, Europe, Latin America and North America are preparing for the slowdown to last at least until early 2010.

Until then, companies need to monitor the environment and, if possible, seize opportunities to enhance their strategic position and strengthen their core business. The following represent four elements of a game plan that every company should consider:

Balance your company's short-term financial stability (through cost competitiveness) with long-term investment, with an emphasis on innovation
Protect—and grow—customer loyalty by focusing on promoters of your brand and converting those who are "passive" or lukewarm into promoters
Manage complexity-organizational, product and process-so that your organization remains nimble in the downturn. However, separate complexity that benefits your business from what hurts the organization
Keep an outward focus: look for acquisitions if your company's cash and strategic positions are strong, and keep an eye out for expansion possibilities in new segments and new geographies

Sri Rajan is a partner with Bain & Co. in New Delhi and leads the M&A and private equity practices in India. David Mountain leads the financial services practice in India and is based in Bain's Mumbai office.