Exclusive interview with the former Chairman of Microsoft India.
By Deepak Chitnis
WASHINGTON, DC: Ravi Venkatesan is a board member at Infosys, and is the former Chairman of Cummins India, and Microsoft India. He is also the Chairman and co-Founder of Social Venture Partners India, a “network of engaged leaders attempting to address complex social issues through venture philanthropy,” is involved with the Harvard Business School’s Globla Alumni Board, and is the author of the critically acclaimed book “Conquering the Chaos – Win in India, Win Everywhere.”
Originally from India, Venkatesan attended IIT Bombay from 1981-1985, earning his B.Tech in Mechanical Engineering. He then came to the US, attending Purdue University for his M.S. degree, and finally earned his M.B.A. from Harvard Business School in the early 1990s.
Recently, Venkatesan was in Washington, DC, where he attended a number of events, including a book event organized by the American India Foundation. He sat down for an exclusive chat with The American Bazaar, in which Venkatesan discussed how India can go forward with its new Modi-led government, what he hopes for Infosys in light of its management shuffles over the last few months, and what India can do to expand as a global power and re-forge ties with the US, particularly with the issue of immigration reform still looming large.
Excerpts from the interview:
You are very optimistic about the Modi government? What makes you think that the Prime Minister Narendra Modi may be able to duplicate the success he had in Gujarat at the national level?
When you hire a CEO for a company, you look for a few things. You look at the person’s track record, you look at their competencies, and most of all, you look at the character of the person. Then, you make a bet that the person can replicate their success again on a bigger stage.
So with Prime Minister Modi, we are counting on his track record, his convictions about the economy and development, his ability to hold the bureaucracy accountable and get things done, on his indomitable drive, and his determination. The very strong and historic mandate that he has received is also very reassuring. Over a relatively short time, we will likely see more BJP-led states and more BJP seats in Rajya Sabha, as well. So this is a government that, for the first time in 30 years, can actually get things done.
In your opinion, what should the new government in India do immediately to get the economy back on track?
There are a few things that India must do. It has to re-establish the confidence of global companies to come and invest in India, so that India can jump-start the inflow of crucial FDIs. India also has to make it easier for companies to conduct business in India, which goes hand-in-hand with making India more attractive to multi-nationals. Also related to that is India’s tax system, which badly needs to be overhauled and made more transparent. And finally, there needs to be significant judicial reform; India needs to cut out the red tape and create better IP protection, and judicial reform will also lead to less corruption, which is rampant in India.
What kind of time frame would you put on how long it will take for the US and India to get back on track, diplomatically speaking? When do you think relations will be back to, or even surpass, their pre-2013 peak?
I sense that in Washington, there is a lot of excitement about the new government and a keen desire to rebuild the relationship. Clearly the Prime Minister also believes that the US is a critical partner, which is why he has prioritized his visit to the US in September. So it should not be incredibly hard to reverse the momentum in the relationship.
Trade and investment issues are the key, and so to the extent that some of the things which have really vexed US companies can be addressed, even partially – tax harassment, FDI cap in defense or insurance for instance – the business climate will significantly improve. I suspect that the Indian diaspora in the US, perhaps especially the Gujarati community, will play an important role too in fostering closer ties. Matters in Afghanistan are very concerning and it is important for India and America to forge a collaborative partnership as the troop drawdown happens.
If these few things happen, I believe it won’t be very long if the relationship swings around to a new high.
You have advised that multinationals interested in coming to India must adapt to India as opposed to the other way around – easier said than done, isn’t it?
Much easier said than done. Most companies tend to rigidly replicate the model that made them successful in developed markets. That simply doesn’t work, unless you are selling luxury goods like Gucci or airplanes like Boeing. In most cases, you have to get down the economic pyramid to the middle of the market or you hit a growth wall that I call the midway trap. Apple is a good case of a company that is stuck in this trap; it has about a 4% share of one of the largest and fastest growing smartphone markets in the world because it doesn’t want to bend its model.
Big pharma companies are the same way and, as a result, they are locked out and frustrated at one of the most important markets in the world. So it’s really important to recognize that emerging markets like India are quite fundamentally different from developed markets – in terms of consumer preferences, in terms of disposable income, regulatory environment , basic infrastructure and so on. And therefore, to succeed, companies have to think and operate more locally.
Companies that have done well in India – companies like IBM, Cummins, Pepsi or McDonalds – all understand this. Companies that don’t fundamentally get this struggle, and this group includes very illustrious firms like Caterpillar, Walmart, American Express, and Apple. The essential difference is a CEO who is truly a global thinker, who has affection for the country and is willing to bet on its potential.
Infosys, on whose board you serve, is in the middle of some radical restructuring. There are reports its CEO is going to work out of the United States. What should Vishal Sikka do to steady the ship?
As a board member it is not possible for me to comment on company matters, but clearly we are counting on Vishal to build a strong team around him, to give clients confidence that we can deliver unmatched business value and over time drive more innovation in new areas such as software automation or the internet of things. Despite recent challenges, Infosys is still a spectacular company and we’re excited about regaining momentum with new leadership.
Globally, just how competitive are Indian companies?
Well it’s a very broad question. In certain industries, Indian companies are quite competitive globally. Take IT services or pharma, for instance. Some of our large companies like Tata Motors or the Aditya Birla group are also doing well. Due to the poor business climate in India over the past four years, many Indian companies have also focused more on overseas markets with good success; Bajaj Auto, Elgi and Kirloskar come to mind.
However, the vast majority of Indian companies still have a long way to go. They often have a good cost structure and can compete on price. However, to become more competitive, they have to improve corporate governance, upgrade talent, invest much more in R&D and innovation and slowly venture overseas. This is a big step and a long journey so too many companies I fear aren’t doing enough to become competitive.
India is always going to be compared to China, whether people like it or not – is it a fair comparison?
Fair or not, it’s a comparison that is inevitable. We are two giant neighbors, each with a billion people, both ancient civilizations that were the world’s greatest economies up to about 1800. Until 1985, we were at the same level of economic development. China took off economically, India has done OK, but we are still only a fifth of China’s GDP. As a result, China is a global power; India is only a regional player.
But this is a long-term game and India can still do well if it builds on its considerable strengths, becomes an easier place to do business, improves infrastructure and becomes a competitive manufacturing nation. But when we compare countries, it shouldn’t just be on the basis of GDP; we also need to look at whether the government is delivering the basics for everyone – justice, education, and healthcare, for instance. Also is growth happening in an environmentally sustainable way. When you look at the picture holistically, both countries need to do much better.
The US is still grappling with immigration reform legislation, and the H-1B program could undergo massive changes if that bill comes to pass – what is your opinion on expanding the H-1B cap to bring in more temporary, high-skilled workers to the US? What do you think of the claims that the H-1B program is becoming a cheap labor source for tech firms such as Infosys? Do you think the program can be reformed in a way that keeps both India and the US happy?
Of course the US should let in more skilled workers – it would be to their advantage to do so, not just in the self-interest of Indian IT companies. But fundamentally, Indian firms need to globalize more fully and adjust their business models so they are less dependent on large numbers of H-1B visas.
Indian IT firms have badly needed to do a number of things to make themselves more competitive, and arguably the most important thing for them to do is to develop a new business model that doesn’t rely so heavily on outsourcing and offshoring. As I wrote in an Harvard Business Review piece last year, the immigration reform bill “will force employers to attest that they tried to recruit American citizens before offering jobs to foreigners, the US Labor Department can scrutinize hiring decisions after they are made. That will create uncertainty, open the floodgates to litigation, and force companies to fill jobs rather than seek talent.”
Indian IT firms need to start localizing their work-forces and leadership teams. Again, as I said in the past, these companies really need to “abandon cost arbitrage and pursue differentiation, and turn their major overseas units into hubs in a global network. That will allow them to shift from renting out intelligence to creating intellectual property.” By doing this, Indian companies will stop being viewed as IT “body shops” and rather as the multi-national IT giants that they want to be viewed as.
Most importantly, however, it will show the world that Indian companies are not entirely dependent on US visas in order to succeed.
You are also into venture philanthropy, through the Social Venture Partners India. Tell us more about it.
Today, India is frankly a “flailing state”. Eight hundred million Indians live on the edge earning less than $2 per day. Half our population has no access to toilets and two-thirds don’t have access to drinking water. We have the largest number of illiterate people in the world and the largest number of people living in slavery. Our institutions are crumbling and the rotten judicial system is the biggest concern. Nearly a third of our elected representatives have criminal cases against them. I could go on and on.
Now, while many of us are excited about the new government and the new PM, one man can’t solve it all. We need everyone to pitch in to fix the many issues that ail India and particularly we need the educated affluent elite to do more. This group today is largely disengaged although there is a growing desire amongst people of all ages to “give back” and to make a difference. So we started SVP in Bangalore to make it easier for people to plug into a network of like minded people, pool some of their philanthropic giving, use a disciplined approach to make grants to good non-profits and most of all roll up their sleeves and help scale these organizations.
The outcome is not just social impact but more importantly better and more engaged citizens. This is what ultimately will tip India in the right direction. SVP is a US based but global network and we really liked their philosophy; today we have 80 partners or donors in Bangalore, nearly 50 each in Pune and Mumbai. We hope to create a national movement over time.
Along with this, with some colleagues we also started a fund called Unitus Seed Fund, which invests in early stage social enterprises. We think that many of India’s challenges- such as access to water, education, vocational skills, electricity, toilets, healthcare- cant be left to government alone. We need to find entrepreneurial business solutions to these issues and so we are funding bright and committed entrepreneurs who see opportunity in these challenges. We are now one of the most active impact investors in India and this is an incredibly exciting venture.
Talk a bit about the inspiration for your new book, and what you hope the book accomplishes?
I went back to India in 1996 and, over the following 15 years, I had the fantastic good fortune to help build not one but two billion dollar businesses – first for Cummins, and then Microsoft. I realized two things as I reflected on my experience.
First: successes like these are quite rare. Most companies have failed to make India an important part of their business and this is as much due to the lack of understanding at their headquarters as the challenges of the market.
Second: India needs to become a less hostile place to do business if we want to attract investment and create jobs. We simply can’t afford to go on like this. So I wanted to shine the spotlight on these issues and help companies conquer the chaos of India and succeed.
What I hope is that more companies will take the plunge into the difficult but wonderful Indian market and build marvelous businesses there and that India too gains as a result.
1 Comment
Ravi have portrayed the business challenges in India and its madicies too. Fantastic move in the form of Social Venture Partner and Unitus Seed Fund..