“Access to emerging markets and innovation are becoming important drivers for globalisation strategies”

“Access to emerging markets and innovation are becoming important drivers for globalisation strategies”

Incorporated in the year 2002, Bengaluru-based Zinnov Management Consulting Pvt. Ltd. (Zinnov) is a management consultancy firm that provides services in the areas of offshore advisory, human capital optimisation and market expansion to Fortune 1000 companies. With a team strength of close to 65, the company also has an office in Houston, Texas in the United States. In this interview, Pari Natarajan, co-founder and chief-executive officer (CEO) of Zinnov, talks to Poornima Kavlekar on how companies are globalising and the key factors that need to be addressed to successfully globalise.

What are the key drivers of a good globalisation strategy ?

For most companies, the key driver is cost savings. The lower cost points in China and India is really how it all started. Companies from developed markets then realised that they were not able to hire talent from their own country and it was important for them to tap into the talent pool available in India, China and some European countries.

Over the last two years, two other key drivers have come in – access to emerging markets and innovation. For many of these companies, growth in the emerging markets is much faster than the growth in developed markets. And it is important for them to look at globalisation with respect to access to market as well. Indian teams are able to come up with new ideas for innovation, which can sometimes be difficult for teams in developed countries.

So, while cost and talent continue to be the main drivers, access to emerging markets and innovation are becoming important drivers for globalisation strategies.

What about R&D globalisation ?

The drivers for R&D globalisation are also the same. It is about cost, talent and innovation. The biggest thing that changed after the recession is the fact that the growth in emerging markets is much faster than that in developed markets. And that is making CEOs of companies look at India in a different light compared to how things were few years ago when it was just cost advantage. Now, many CEOs visit India and understand how to tap the market. They want to know if they build something in India, is it relevant in other markets? This is what GE calls reverse innovation and Google calls inspired innovation.

And, what are the business challenges for R&D globalisation ?

The evolution of R&D in India has been only in the last 10 years. And thus, the experience level of technical talent is not high compared to how it is in the U.S. It is very difficult to hire people with 15 years of R&D experience in India.

Also, it is sometimes very difficult for companies doing R&D from India to understand how the U.S. customer thinks and their exposure to that market is not enough. So proximity the customer has to be established, somehow.

What does India have to offer when compared to other developing counties with respect to skill and cost, among other things ? Are there any new indicators that have evolved in recent times ?

Many product companies are looking at building solutions, as they want to move up the value chain. But, they need to understand the information technology (IT) needs of their customers. And companies that are moving up the value chain, like Infosys and Wipro, are becoming advisors to the chief-information officers of such companies. They are able to help product companies in coming up with solutions for their product and taking it to market. Thus, a healthy ecosystem of IT companies in India is helping companies with their R&D.

Another driver is availability of developers in India. The new trend in the market is about building platforms. More companies are looking at creating platforms and when you create a platform, a third-party is needed to build products on top of it. And India has the highest number of new engineers who can potentially do that.

Is managing human capital the key challenge while entering new markets ?

Yes, it is, especially in a country like India where the aspiration levels of engineers is very high. People want to make more money and want quick growth. They want to tap into the opportunities as fast as they can. This creates a human capital challenge, especially, when you are headquartered in the U.S. with just a three per cent attrition rate. It is difficult for them to digest India’s attrition rate of 15 to 20 per cent.

The salary increase in the U.S. is less than their inflation rate. But, in India, the salary level goes up significantly, with increase in experience.

Also, salaries of senior technical professionals are almost on par with their peers in the U.S. For example, if a professional with 15 to 20 years experience gets close to Rs. 60 to 70 lakh p.a in India, the global teams wonder where the cost advantage is.

In the recent past, Indian companies have gone the acquisition route to tap into newer markets.  What are the main challenges for an Indian manager managing operations in a foreign country ?

Indian managers need to understand the culture of the company and build trust and assure their employees on job security.  They also need to understand how people work in different countries and set expectations accordingly. I believe these factors are critical.

For companies, especially consumer focused ones, what are the key factors for success in a new country ?

It really depends on the product. Take Apple’s iPod for instance. It has been built for the globe, but there is only a certain percentage of population that is going to adopt it. The fundamental issue with this product is that it has to be connected to a computer to sync. So in India, the product is sold to only to those who have computer access. What about the next level of the population? Any global consumer product company is going to find its success in the top five to ten per cent of the population of developing countries because their living style, affordability and propensity to pay is comparable with the population in the U.S. But, it is a challenge for global companies to tap rest of the population in India.

However, as the five per cent of India’s population is similar to the overall population of the U.S., it is easier for Indian companies to tap the U.S. market. And the penetration is better as consumers are open to making purchases through the Internet. It is easier for Indian companies to approach a customer in the U.S. through advertisements on Facebook or Google as against advertising in the local papers. And due to this, companies like Tutor Vista (the online tutoring service) have been extremely successful in selling to consumers abroad.

On a different note, can you help us understand what it takes to set up a management consultancy firm ? Take us through your first year of starting up.

It is all about building credibility. People work with us because we give them credible and incremental advice and if they do not trust our judgement and advice it is going to be difficult for them to implement those. And to do that we need to build strong credibility and network in the market. That is a fundamental ingredient for a management consultancy.

Our first year was a struggle and when we got our first customer after one year, we almost did the project for free. Once we delivered, our customer was happy and referred us to more companies. That is how we built our network. There is no shortcut. If you have 20 years of experience and are from a company like McKinsey, it may be easier to start a consultancy firm as they come with a pedigree. But for us, with no experience, no network or pedigree, our beginning years were tough.

Poornima Kavlekar has been associated with The Smart CEO since the time of launch and is the Consulting Editor of the magazine. She has been writing for almost 20 years on a cross section of topics including stocks and personal finance and now, on entrepreneurship and growth enterprises. She is a trained Yoga Teacher, an avid endurance Cyclist and a Veena player.