New Manager

‘The market doesn't respect age but performance'

Vinay Kamath | Updated on February 20, 2011

Adil Zainulbhai, MD, McKinsey & Co, India. — Photo: Bijoy Ghosh

Adil Zainulbhai, Managing Director, McKinsey India, on the changes in corporate India, family-run businesses, age vs performance and the China-India comparison.

Adil Zainulbhai has just finished his talk to an audience listening in rapt attention about the five major changes he sees happening in the world economy in the near future. Delivering the keynote address at the annual convention of the Madras Management Association last week, the tall, bearded Managing Director of McKinsey & Co India prefaces his talk saying that predicting the future can be hazardous. The five changes he sees happening are: a power shift to developing nations which are seeing an economic resurgence; how developed countries will need to find a way to boost their productivity; how innovative companies will harness the power of an increasingly inter-connected world; resources scarcity will see higher pricing of water even and, lastly, given several cataclysmic world events, the future will see the state putting more safety nets in place as leaving things to the market alone is seen to be too risky. The upside, he says, is most of these trends will work in India's favour and create a huge amount of jobs. Post his talk, Zainulbhai spoke to The New Manager on a wide variety of issues facing Indian corporates today. Excerpts:

What is the fundamental change that Indian corporates are seeing today and how is it impacting them?

We see two or three things here: One is there is the growth of a new generation of entrepreneurs, very aggressive and with high ambitions and taking full advantage of the Indian economy to grow very fast. Many of the older companies which have not adapted are dying. This is the first time that we are seeing companies that are dying because of bad management. A lot of good, young entrepreneurs are running companies which are very successful. You have to compete.

Second - many companies have a huge shortage of talent because they are growing so fast that they have not had a chance to hire and train middle managers; you want people who can run divisions and businesses. This issue of management and senior technical talent is a very big issue; a lot of companies are looking to hire expat talent and also looking to accelerate the training of their people because they simply cannot catch up with the level of opportunity available.

Third, there was a huge amount of borrowing taking place three years ago because investment bankers were telling companies that money was freely available, and companies were so excited about the growth potential they went out and borrowed hugely. But, now companies are more cautious and want to be prepared for an era when money is not available or money is expensive.

Fourth, companies have to deal with the fact that while the Licence Raj is dead, the government can intervene in many ways as far as land, water and clearances are concerned, and many large projects are held up. Now, you saw the IIP slowing down, FDI has slowed down, large projects have slowed down, you can see it coming, government permissions and lack of infrastructure is fundamentally slowing down many companies.

Companies are asking, how does one deal with this, where the level of government interactions required has increased dramatically. And, that is what people are worried about. Also, companies are anticipating that a lot of the competition from MNCs is going to be increasing, because even five years ago most MNCs were asking, why India, they were not convinced, they were wary about how to do business in India – today, nobody is asking that question. Today, they are asking the question, how can we be in India, not whether. The net impact of that is that most of the companies could face more intense competition for the Indian market. I personally feel that is very good because everyone will have to get better, and use technology better and more effectively.

There was that argument earlier that Indian companies did not have access to cheaper capital like their Western counterparts, had less access to technology. That is no longer an argument, is it, that they don't have a level playing field?

In the Indian market, Indian companies have a huge advantage. Because they have land, plants, they know how to execute in the Indian environment. Foreign companies have to start from scratch, and they don't have an advantage on capital anymore. Indian companies understand that in the short term, if they can keep foreign competition out, then profits are higher. But, there are many industries which have opened up to foreign competition and it has made the whole industry better. Indian car companies are better because of foreign competition coming in.

What's the impact on family businesses? They still dominate the Indian business scene, don't they?

Whether you are a family business or corporate business, there is no guarantee that you will succeed. Either you manage well or you die. The old tradition of I'll run it how I like it, won't work. One of the things I am seeing in all family-run businesses is that they are asking outsiders like us and others to help them develop a plan to professionalise their companies. Some will adapt well and some won't.

The CEO is getting younger. Is that the way things are evolving? Is there no respect for grey hair any more?

The pace at which things are changing is high and today's CEO requires high levels of energy. You are asking CEOs to manage the external environment, to have a hands-on understanding of the business. That's all a big ask. One of the requirements in today's environment, in addition to everything else, is that one requires energy. If you don't have that energy, you can't keep up. It's not that people don't have respect for age – today they don't have respect for anything, other than performance! The market doesn't respect age but performance. You should never underestimate the value of sheer performance, if it turns out either the younger or the older guy is delivering, then the market will value that. If you look at some of our chairmen, they are 75, but they are delivering, so nobody questions them.

The debate about the MNC bogey and them coming and taking away markets is now dead, right? The last decade has seen a spate of MNCs enter the Indian market and establish themselves.

This year, you will see almost 40 MNCs in India that will each have over Rs 4,500 crore in sales. There are very few sectors that MNCs are not allowed in, defence, airlines, and such, otherwise India is a wide open market. Compared to China, India is a wide open market. It's a fact of life.

In 1991 India was not part of the global trading or financial system. Over a 20-year period we have become a much more important economy. We are not there yet, obviously, but we can't go back so that's the world. India's policy now is very much similar to what Deng Xiaoping once said, to quote: “I don't care if it's a white cat or a black cat. It's a good cat as long as it catches mice!” In India we need to lift 300 million people out of poverty and whichever way we can do it …

There has also been a sea change in the way Indian policy makers have formulated policy?

Of course, it has moved towards opening things up, believing that the government can't do everything, that it shouldn't do everything. There is still some suspicion about the private sector, as many bureaucrats and policy makers grew up during the Socialist era, but the broad sweep of history suggests that we will become more open and allow more companies to come in.

Someone like you came back from the US a few years ago to work in India. Do you see a trend of executives coming back to work in India from the West?

If you talk to executive recruiters, one of the things they will tell you is that there is a much larger number of Indian and non-Indian expats wanting to work in India. That has grown dramatically. If you are building a telecom company and growing fast, there is no choice, there is not enough competence. And, today, where the compensation has grown, people are coming here from all over the world; we're getting resumes from Harvard Business School from students wanting to come out here and work. Even at the CEO level, people want to come and work here. There was a time when three of our airlines were run by expats. If you look at banks, quite a few expats there, in telecom companies, there is a migration of talent here.

Invariably there is a comparison between China and India. What do you advise the companies you consult for? Is it an either or situation or you tell them to head to both countries?

One of the things we tell everyone is that it's not just India and China but all the BRIC countries, and companies which are large can do more than one country. All of these markets are growing. It's useless to say that India should be like China, we have to develop our economy the way it makes sense for us in our circumstances. We are a democracy and we are not going to change that. Given that, what else can change? Think about it, we went from $2 billion FDI in 2002 to $25 billion last year, we've opened up and we will have to continue to do that as the economy will need the money to grow.

What is the debate in the corporate world today? Is it about growth, talent?

Three-four themes there: Given the opportunities in India, should we go international? And, it's not a given that in every industry that you should go international, in some it's a strategic imperative, but in many it is not. Second decision is how to take advantage of the growth opportunities given the shortage of talent. Third, the scale of corruption has gone up and how do you deal with that? That's a big issue. For a small to medium-sized entrepreneur, the issue is how do you transition from a family-run company to professional management.

Is there also a concern that many of the industries will be dominated by MNCs and very few Indian-owned enterprises will exist eventually?

Think about it from a policy standpoint, it's nice that we have Infosys and TCS but it's also nice that we have an IBM that is hiring a 100,000 people. That's fantastic. If you were an Indian company seeing the onslaught of MNCs, you have few choices, either improve your performance, you can sell out now or put tariff barriers. There are three choices to survive. But, in the long term what will allow you to survive is improving one's performance.

As head of McKinsey, where do you get your stimulus from, your ideas and your thoughts about the coming big change?

It's called the network effect. If you're talking to people around the world, that feeds on itself. So when I talk to my colleagues elsewhere, you get information on trends and how people are thinking. Most of our trends are not purely from analytical work but from thousands of conversations that we have and also from work with leading economic thinkers and seeing it in action.

Of course, nobody would have a clue that events would unfold the way they did in Egypt?

As Donald Rumsfeld said, there are known knowns and known unknowns. Which means you know you don't know that! But the stuff that gets you is the unknowns. You never knew about it and you didn't even know it was something that you had to worry about.

What about new media, how are today's CEOs, who grew up in the Eighties, dealing with that?

Well, learn how to deal with it quickly. You have to understand the mindset of the young people you hire. You have to understand digital media for advertising. All sorts of things. To give you an example, you can go to an executive search firm to hire somebody, but today people are using LinkedIn. That has fundamentally changed how you target and hire the right guys. You multiply that across all industries … you have to stay ahead of those trends and if you don't pay attention, somebody else will take advantage of it.

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Published on February 20, 2011

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