2009 India IXP

[sajiv]

2009 India IXP

Incredible India: New Opportunities and New Challenges

Forty-two HBS students decided to spend their spring break on the India Immersion eXPerience, a trip that proved to be one of the most amazing learning experiences of their MBA curriculum. Led by faculty professors Shawn Cole and Aldo Musacchio, the IXP clearly surpassed all expectations providing exposure to many diverse aspects of the Indian subcontinent - from the surprising growth achieved by many of the major corporations all the way down to day-to-day life at the bottom of the pyramid.

HBS students did not show any hesitation in openly challenging the portfolio strategies of some of the major Indian conglomerates, and were not afraid to ask crisp questions on a wide array of topics - e.g., corruption, politics, inequality, business and education - to the panelists and executives from major banks, institutions, and private equity shops.

The real-life exposure to the public infrastructure gaps, the huge disparities between public and private education systems, the entrepreneurial activities within Dharavi (the slum area made famous by the recent movie Slumdog Millionaire) as well as the visit to rural villages and world-renowned tourist attractions made the trip a rich mosaic of experiences that confirmed the importance of beyond-the-classroom experiences for future MBAs.

Trepidation, curiosity, and an awesome sense of relaxation. No classes for the week, just three key cases assigned to prepare us for this India IXP: a country case, a rapidly-growing microfinance company, and an overview of the economic development programs for the slums of Mumbai. What more to expect?

A great amount of fun and opportunities to learn. That is what the HBS crew was expecting when it was greeted by flower necklaces and a crowd of ridiculously outdated taxis at the Mumbai airport. The first encounter with this city of 14 million people evokes surprise in the western tourist. On the bus ride from the airport to the Taj President Hotel we begin to catch a glimpse of what type of contrasts India was about to reveal: buzzing activity at all hours of the night, modern high-rise buildings right next to dangerously tumbledown homes, crazy traffic and people, people, people everywhere. People sleeping at night on the sidewalks, people taking care of our luggage, people making sure we are not missing anything.

Arriving at the hotel, as an MBA student, you are quickly reminded that India has a major and probably sustainable labor cost advantage: it is impossible not to notice that most tasks are currently overstaffed. There are three people at the counter working together to check you in, and two clerks are eager to serve you even if you walk into a shop to purchase nothing but a pack of chocolate. One prints the receipt; the other hands you the shopping bag. This is India. Why be surprised if IT technology and cost-cutting programs have yet to cut FTEs by 50%?

The next day, after fighting off the jetlag we are immersed in the city for a heritage walk around the major tourist areas of Mumbai. It is a Sunday morning, and many HBS students - after visiting the "Gateway to India" and other colonial buildings - find themselves taking pictures of the poor kids playing cricket in the empty city streets. We will have to wait for the next day to see the real Mumbai: traffic jams and the crowds everywhere, as over 6 million people commute from the outskirts to come work in the heart of the city. After this first exploratory walk, we are scheduled to have a welcome lunch followed by a discussion with the CEO of KKR India and Jerry Rao, entrepreneur and former chairman of Nasscom, an employers' association of BPO companies, recent Chairman and CEO of an IT and Business Process Outsourcing company. The meetings serve as a great introduction to the country's rapidly developing economy, as seen from the point of view of an investor and an entrepreneur. It clearly seems like PE funds are waiting for valuations to come down before continuing to invest in the country while BPO businesses face the challenge of adapting to a change in demand from western countries.

A first Indian food dinner will close the official day of activities, while a group of usual suspects proceeds to explore the Mumbai night scene. Section Jers have the benefit of going on the air at a local radio station (est. audience 900,000 listeners!), clearly showing off their mastery of marketing and leadership skills applied to the love troubles of the Indians calling in to consult live with the "HBS love crew".

The very next day, the alarm sounds early for our transfer to the Mahindra & Mahindra headquarters. After a presentation by the heads of strategy and HR, our group is split into one of the three tracks of the IXP: Business Process Outsourcing (BPO), Financial Markets and Bottom of the Pyramid. Since you might wonder how an automotive company can provide insights into such different fields, I feel compelled to say that the M&M group has successfully invested in businesses ranging from travel companies to consumer goods and technology outsourcing, all the while achieving impressive growth rates (in spite of conglomerate discount discussed in FIN1).

With double-digit economic growth in past years expected to continue north of 6% even through the worldwide recession, India clearly has a great opportunity to be the first mover and pre-empt market share in many sectors that are totally new in the country. The family conglomerates, with their rich coffers and far-reaching web of diversified suppliers, government contacts, distribution networks and management expertise are usually in pole position to capture new opportunities as they arise.

The afternoon meetings, with ICICI Bank and the National Stock Exchange (NSE), are key in helping us shed light on the steps India is taking to provide adequate financing to the fast-growing set of conglomerates, start-ups, and local multinational affiliates.

ICICI is the major private sector bank in the country, with offices in 18 countries and activities fostering the development of a modern financial system, including credit cards, life insurance, venture capital, asset management as well as the support to a growing number of microfinance institutions. The striking contrast between the thriving banks and corporations and the overall country development can perhaps be exemplified by the experience we had even as we stepped inside the building. As we neared the bank, nobody could fail to be impressed by this monolithic glass and steel structure. Yet stepping off the bus we are greeted by roads and sidewalks which had to be navigated with extreme caution for fear of falling foul of a huge pothole or massive puddle. This experience seemed to typify the modern India, the mahogany-paneled corporate meeting rooms which found themselves just a few feet away from a place where even the most basic infrastructure was lacking.

The visit to the NSE allowed HBS students to grasp the evolution of the financial, regulatory and capital market environment. Among the panelists - sitting adjacent to the CEO of the stock exchange - is the CEO of JPMorgan India, a charismatic Indian woman with a long experience in ICICI and recently voted one of the most powerful women in business. India used to have many different stock markets, mostly illiquid and inefficient, where many family owners of public companies preferred to IPO only 20% of equity in order to raise funds without losing control or upside potential. Although this procedure conforms to the best TEM takeaways, the process ultimately resulted in powerless and poorly informed investors. A major change was ushered in by technological innovation (NSE is a totally paperless exchange, ready to switch to one-day clearance of trades), new regulations and increasing efforts against corruption. After a Q&A session, doubts remain as to whether the regulatory environment in certain cases might be perceived by companies as a guideline rather than as the law.

Later that night, we are reminded of the dense and exciting schedule for the next day: many of our readers have probably seen the scenes from the Oscar-winning masterpiece "Slumdog Millionaire" and will understand our curiosity in proceeding in a field exercise in the streets of Mumbai, followed by a visit to Dharavi, the largest slum in Asia featured in the movie. The next day, before the IXP group was divided into small teams set to explore retail businesses, street vendors and educational institutions, we were joined by some local college students who would help us survive the real, non-touristic Mumbai.

It would be impossible to sum up such an experience, but something to emphasize is surely the huge disparity in education between the public municipal schools (old buildings and crowded classrooms) and the privileged, private school (certified Cambridge IB). During a meeting in a public school, where donations from the Rotary and volunteers from Life Trust had set up a computer and a multimedia lab (clearly a major improvement but still not sufficient to provide exposure to IT to all the many students at the school), we asked what the kids wanted to do when they grew up. After some moments of silence, a few stated their aspiration to become a doctor or a teacher, while the majority remained silent and undecided. To the HBS student already accustomed to Aldrich Hall, this classroom with buttered walls and overused desks seemed so far from the representation of an economic threat to western jobs that the country is sometimes associated with. It seemed more like a battered place in need of help and support.

By contrast, in the private school, we were greeted by the principal in her office, a glass wall separating her from the adjacent indoor swimming pool. We proceeded on a tour of labs and facilities that were better than the ones most of us had studied in, and when we surveyed students about their aspirations, it became clear that the contrast was more than superficial. We were astonished to hear very decisive 10-year-olds wanting to be "nanotechnologists" and "interior designers". This is another side of India, the one that will most likely yield future businesses and innovation.

After some "minor" logistical coordination, achieved thanks to the help of the local students and the great HBS staff on the IXP, the group proceeded to visit Dharavi in small groups. It is impossible to describe a place where 700,000 people live within two square miles of slums, where rents average around $6 per month and the total economic product the community generates is estimated at $600 million per year. That's right, people in this slum actually work at a myriad of micro-manufacturing plants, producing a vast array of items - from leather goods and travel bags to aluminum and plastic recycling. Walking through the narrow alleys, the impression is to be starring in a movie. We pass several workshops where the most basic safety measures are nonexistent, and we cannot help but be impressed by the entrepreneurial drive of the slum's inhabitants, which is proven time and time again during our visit. At each turn the air changes and reflects a different type of production or dwelling. None of us doubt that nothing in North America or Europe can compare to this.

After the Dharavi tour, it is time to clean up and go to the glamorous alumni event that the HBS system has set up to fuel momentum around the India Alumni Club. On the top floor of another lavish hotel, overwhelmed by wine, whiskey and canapés, the alleyways of Dharavi seem a world away. From rags to riches, India wants to show us all its appeal.

The main event of the next day is the visit to Godrej Industries, a very impressive conglomerate operating under a "modified private equity model", whose portfolio is challenged by HBS students looking for internal strategic consistency. Again, FIN1 concepts, Strategic "focus on core business" and Wall Street "investors can diversify themselves" mantras don't seem to apply in this developing country full of diverse opportunities for those that already have a successful business.

During the meeting, a small group pays a visit to Boston Analytics (BA), a very interesting outsourcing company where Mr. Adi Godrej decided to invest some years ago. We had all read of Office Tiger and other similar companies that outsourced labor-intensive low-level tasks for western companies, but we were caught off-guard by the quality and level of sophistication of the BA projects. The management consultants in the room were clearly amazed at seeing results that could well have fitted into the back-up studies of a major strategic project to take over the Indian market in a specific sector.

After lunch, we headed to the airport where we took a "Kingfisher Airlines" (KA) flight to New Delhi. It is worth noting that KA clearly must have took some inspiration from Singapore Airlines, since the service was far better than any major airline company could afford to offer and the recruitment policy for the cabin staff was clear to any man's eyes!

Thursday started with a Pratham presentation in our luxurious Oberoi hotel. Pratham is a non-profit organization that recruits non-professional teachers to supplement public schools in the city and provide basic education in rural villages across India. It is a powerhouse reaching thousands of villages with a very slim budget, mostly funded by oversea donors. Its leader and founder, Dr. Madhav Chavan, is a former professor of Chemistry at the University of Houston who decided to come back to India to make a difference, and has surely succeeded in his mission.

Before lunch, we head to the meeting with the executives of Indian Railways, which for us represented a double turnaround success: they managed to successfully turn around a company that was on the brink of bankruptcy in 2001 to achieve a $6 billion cash surplus in 2008, and they did so in a country like India, where the market is huge but the rolling stock is scarily outdated. Just to give an example, several tales can be narrated about the Mumbai railway system, where 500 people cram into carriages built for 200, and according to a recent CNN/Reuters article about 10 people per day lose their lives falling from the crowded trains. On this note, part of the HBS Educational track team had the privilege of experiencing what it feels like to jump from a moving train when the convoy directed to a public school took off too soon after our last stop.

After the incident, we were all excited and curious to meet Dr. Sudhir Kumar, Officer on Special Duty at the Indian Minister of Railways. This very humble man managed to turn around a company that employs around 1.4 million workers through a combination of finance, marketing, operational and leadership efforts. He used both public and private investments, introduced innovative services, redesigned the pricing and operations strategy increasing ticket sales, and introducing heavier and longer trains. We were surprised to discover that such a powerful leader was also so humble. Kumar receives a nominal salary of approximately $500 a month.

The final days of the IXP were dedicated to visiting Agra, with its immense Agra Fort and the world renowned Taj Mahal. But before crossing a checkmark on one of the Seven Wonders of the World and filling the digital cameras with the white cupolas of this beautiful monument, we have one final but very meaningful stop to make. Small, 6-passenger vans take us deep into the rural areas between Delhi and Agra. After disembarking from the vehicle we proceed to walk for a few minutes until we arrive at a partially torn-down wall. Our guide explains to us that beyond the wall, there is one of the local villages that participates in the programs run by SKS microfinance, one of the three organizations described in our IXP case study. We are scheduled to attend a local meeting between the women of the village and the SKS representatives.

After walking a few hundred yards, we see a big esplanade with a statue of the father of the Indian constitution, and a big tree under which beautifully dressed women are sitting in a circle. They begin to pronounce the vow to abide by the contract with SKS, and the meeting proceeds peacefully as the microfinance representative collects the weekly payments. If one woman is absent or cannot repay the loan, the others within her support group will make up the difference for the week, ensuring no default on collection is registered by SKS. The system works, and allows this poor area to jumpstart its economic activities through micro shops and local production.

On the way back to our vehicles, we unsuccessfully attempt to take pictures with the local kids, who excitedly run towards us until we take out our cameras. They are clearly used to too many paparazzi and are not interested in being featured in yet another article, but we will save forever in our memories their smiles, those of poor people who are happy with what they have, and yet are waiting for their opportunity to improve their condition. If there is one thing that I surely personally took away from the IXP, is the desire to help these people improve their condition. They deserve it, and we ought to do what we can to help.