The Hindu Business Line : Foreign, or feudal, direct investment?

IN THE late 1970s, when I, along with a group of very interesting colleagues, graduated from the Jamnalal Bajaj Institute of Management Studies, we faced a choice in terms of the placement opportunities available to us. What sort of a job did we want to start our working careers with?

For a number of my colleagues there was family business to go to, where they would greatly enjoy the prospect of applying the significant skills and lessons in professionalism, and in time grow those businesses into stars of the corporate firmament.

But for the majority of us, coming from the salaried middle-classes, the options were in the Indian enterprises that were prominent in our placement activities since, at that time, companies from abroad had not started beating a path to the doors of Indian management institutes. The real option was, did we seek a position in a multinational corporation operating in India, or would some of us seek positions in Indian enterprises?

The outcome of such a mental debate was clear. The first preferences were the MNCs operating in India, such as Hindustan Lever, Richardson Hindustan, Madura Coats, First National City Bank (as it was then), Grindlays Bank, Grindwell Norton, Guest Keen & Williams or Consolidated Pneumatic.

The latter two or three types of firms appealed to the engineers amongst us who would get a chance to shine in both of their chosen disciplines, engineering and management.

Very few of us would choose to join the then significant family groups in India, such as the Birlas, the Singhanias, the Bangurs, the Thapars, the Poddars, the Kilachands or the Hirachands. The Ambanis were at that time not even a blip on India Inc.'s radar.

The Tatas were acceptable provided one made into the administrative service, and Voltas was quite a decent choice because it was a half-and-half joint venture with its Swiss associates.

The reasoning, implicit though, was clear. There was no question of an overseas placement then. India was in the penultimate stages of its autarky and our minds, while malleable, were practical enough to realise that the global emancipation was a decade or two into the future. In the MNCs, we would be allowed to be a part of a professional management culture, where we would be allowed to exercise our functional skills and grow without regard to the extra-constitutional niceties and proprieties being observed in the promotions process.

Training was formal, appraisal equitable, and growth and, subsequent career success, was based on performance. In a sense, the Army approach prevailed. One never became a General unless one had been a Captain and a Colonel. Or to take an Air Force analogy, one could never become an ace unless one had learnt to fly. Then, one could also become an Air Marshal.

Why were Indian companies out? For a start, notwithstanding the gigantic size of some enterprises, there was always a whiff of the jagirdari mentality pervading dealings with these companies.

The Hindu Undivided Family syndrome, something that we had to learn about in undergraduation, was apparent and the role of the karta was paramount. He never had a formal position in the enterprises, but his presence was always there and the control of the clan on the enterprise would never be let go. One was working not for the greater good of the Indian populace but for the greater glory of the clan.

The carrying out of functional activities was, all too often, liable to compromise and there was the all-too-real possibility that some spoilt-brat of the karta would be catapulted over the heads of seasoned professionals as the head of an enterprise. I saw this happen in Calcutta in the late 1970s. The group as a whole, alas, is no more!

One can argue that lenders of capital would, surely, make sure that the management teams in place were suitable for delivering performance. That is what happens abroad.

Venture capitalists make sure that good teams are in place, so that their investments are protected from the not-so-occasional mistakes that founding entrepreneurs make. But given the high debt-equity ratios of Indian enterprises, and the fact that suppliers of debt were government organisations, there was the classic situation akin to land grants made by the British in colonial times to create landed gentry of loyal talukdars and zamindars.

There was a permanent settlement of land to be exploited by the grantees, subject to the Government receiving its largesse from time to time.

In a similar manner, during the licence raj, the Government created a class of proprietors who had now landed as the owners of substantial enterprises and could do what they liked, provided the government was helped out in its times of need. Indian enterprises were feudal in character and such an organisational ambience just had no appeal for a young management school graduate in the late 1970s. The Indian corporate ethos was talukdari.

So, what is the management graduate of 2005 to do? An entrepreneurial revolution has happened in India. Has a management revolution also occurred? Will the graduate prefer foreign direct investment or feudal direct investment? Has the entrepreneurial sector grown up and become professional? Has the karta now acquired the ability to let go and let the professional managers take charge all the way?

These are fundamental questions staring at the very nature of professional management in India. Companies such asInfosys, Reliance, Ranbaxy, TCS, HCL, Wipro, ICICI, BPL, Bharti and Dr Reddy's Labs owe their founding and growth to strong entrepreneurial personalities, who have realised the existence of opportunities, have put together the necessary collection of resources and then organised their enterprises to deliver to the markets.

But, how many of them are truly professional enterprises where the founder has let go once the organisation has grown up? Are they organisations where a young person, wanting to be management professional, today can look forward to a lifetime of professional opportunities and growth?

I am sure that many of the organisations' founders are in the mould of Andrew Carnegie or John D. Rockefeller who, having achieved what they had sought to accomplish, were content to let professionals fully take over the control and management of their enterprises, and to spend the rest of their lives creating various endowments for the benefit of humanity. It is not surprising that US Steel and the Standard Oil Companies were once the chosen employment destinations for thousands of professionals in the US.

Is there a similar situation in India yet? I fear not. If the latest antics of the Ambani duo are a guide, then Indian industry has at least a generation to go before it is taken seriously as a grouping of firms that is professionally managed. In the recent past, there was Ranbaxy, where the professional CEO was replaced so as to make way for the founder's two grandsons to take charge.

The founder's son, to be sure, had the vision and charisma to transform a tiny tablet manufacturer from sleepy Okhla into the standard bearer for Indian MNCs. Will these attributes continue? Will the same attitudes persist?

In the not-so-recent past, there was the case of the Mafatlal Group breaking up because of the bad blood within the family caused by issues that can be best described as of an extremely personal nature.

The events, to do with the will, among the Birlas and the press comments about the conflict between the founder of BPL and his son-in-law, who runs the cellular arm, BPL Mobile, are indications that even today, howsoever large it is and extravagant its claims to professionalism, Indian industry has not shed its intrinsic small-town family mentality. It is still feudal in character. Coupled with the availability of easy money and the lack of discipline that is normally imposed by investors and lenders, because the financial sector in India has yet to come of age, it is still talukdari raj for the Indian industry.

If I were a management graduate today, I would be excited at the many opportunities available, whether for employment or for pursuing my own independent entrepreneurial options. But I would also be quite appalled at the negative attitude shown by the political classes towards MNCs, which bring foreign direct investment to the country. MNCs will provide me attractive employment options, avenues for learning, networking skills and an opportunity to show my mettle without regard to extraneous considerations. As a young professional in India today, I would prefer foreign direct investment to feudal direct investment, just as it was a generation ago.

(The author is Professor of Technology Strategy, University of Texas at Dallas. He can be reached at majumdar@utdallas.edu)

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