| |
During the last
year or so, G7 has given way to the G20, HSBC has moved its
Group Chief Executive to Hong Kong, Anthony Bolton has come
out of retirement to invest in China and Cox & Kings, the
oldest British travel company, has moved its headquarters to
India. The heavily indebted Western economies are
anticipating low growth for several years whilst China and
India seem to have taken the financial crisis pretty much in
their stride. They both suffered a minor shock but have
regained their growth remarkably quickly. According to the
IMF, the world economy declined by 0.6% in 2009. The
developed economies declined by 3.2% and the emerging
economies, in fact, grew by 2.4%. In 2010 the IMF forecasts
that the world economy will grow by 4.2% - the developed
economies by 2.3% and the emerging economies by 6.3%. By the
end of this decade, the combined GDP of emerging economies
is likely to be greater than that of the developed
economies.
It is important to analyse what is happening in a logical
and dispassionate manner. Too often this discussion gets
hijacked by emotions; whether it is patriotism, insecurity,
arrogance or a combination of all. Throughout history,
empires have been built and they have come to an end. The
British Empire ended several decades ago but Britain marches
on. Standards of living have risen since the end of the
empire; we have greater democracy, better human rights, and
a more egalitarian and meritocratic society. Therefore,
whilst in relative terms, Britain may be a shadow of its
former self; in absolute terms, it has been doing perfectly
well.
The modern day equivalent of empires is the dominance and
influence of superpowers. Since the Second World War, the
United States, and for a period, the Soviet Union has held
that status. The United States remains the biggest military
power, the biggest economy and the biggest market for most
things. Over the next few years, there will be other
countries like China and India, which will have greater
economic and political influence than they had in the
twentieth century. The rise of China and India does not
necessarily mean the fall of the West. It purely means that
the West cannot be complacent and take things for granted.
It will have to be competitive. After all, we in the West
make great efforts to ensure that there is competition in
the various industries, because we inherently believe that
competition leads to hard work, innovation, achievement and
progress. In the world economy too, competition will lead to
all of the above.
However, we must prepare for competition. We must take
education more seriously than we do. In too many cases,
parents seem to think that the upbringing and education of
their children is somebody else’s problem. Too many people
arrive in the job market armed with a charter of rights and
no appreciation of their responsibilities. Being born in one
part of the world rather than the other does not confer a
divine right to a higher standard of living. Therefore, in
order to justify substantially higher standards of living in
the West, we must produce products and services which are of
a quality that cannot be replicated, at a fifth of the cost,
in the East.
Once we face up to the facts, then there is no reason to be
downbeat. Instead, we should be enthused by the opportunity.
We should improve our products, services, regulatory and
political regimes and compete. After all, we do have a head
start. Britain, with its geographical position, language and
historic ties to most parts of the world is uniquely placed
to occupy a central place in the economic world. Global
competition, like global trade, should lead to efficiencies,
innovation and a higher standard of living for all.
British companies, however, need to mark a presence in
countries like India and China before it is too late. What
is happening in India, for instance, is what senior business
executives describe as an “opportunity grab”. New sectors
open up; companies take up their positions; and then develop
the market to profitability. Mergers & Acquisitions take
place; occasionally a player fails but for companies who do
not take a position in the early days, entry comes at an
astronomical premium. Tesco has taken a position in a
nascent organised retail market and will grow with the
market. Vodafone, principally, arrived in India when the
mobile telecom market was already developed. It paid an
enormous premium to take its position and it is difficult to
see how it will make a great return.
Therefore, the correct strategy for British companies is to
formulate and implement a strategy for India now. True, the
returns will not be great for the first few years; small
losses may also need to be borne. However, this investment
will pay off in the medium to long term and the alternative
of waiting for the market to develop and then start looking
for partners and opportunities will involve substantial
premiums. India is a very complex country with extremely
clever businesspeople, who know their market well. So, the
Chief Executives of British companies need to directly
involve themselves in formulating the strategy and tying up
a partner. The detail can of course be delegated to the
business development departments but the Chief Executive
must be involved in all the key decisions during the
process. The key areas in which British companies have
historically gone wrong are the choice of partner and an
underestimation of the political and cultural influences on
their businesses.
British companies have a great opportunity to position
themselves as winners in this changing world. Most of us
would not be in business if it was not for the excitement of
spotting and rising up to new challenges.
Samuel Johar is Chairman of Buchanan
Harvey & Co., an Executive Search and India Advisory firm.
Building bridges between corporations, executives and countries.
|
|