These are unprecedented times for corporate India—high volatility in global markets, liquidity squeeze, fluctuating input costs, impending general elections. There were slowdowns earlier too, but the degree of volatility and potential for structural change posed by this crisis is such that it could well call for the playbook to be written afresh.
And to compound the challenge, most Indian companies are expected to manage not just for survival (short run earnings sustainability), but also to continue building growth platforms. How are Indian CEOs gearing up?
The Chinese use two brush strokes to write the word ‘crisis.’ One brush stroke stands for danger; the other for opportunity. The message being that in a crisis, be aware of the danger, but recognise the opportunity.
Indian CEOs seem to get this. In our survey, they recognise that in the next 5 years, the global and local macroeconomic situation will be the top two forces impacting their business.
Director finance, NALCO put it, “across the board”, and most certainly in metals, the turnaround will happen only when the stimulus package trickles down and impacts the liquidity position and spending habits of the Americans” or, for those more concerned with local demand. Growth will be slower than historical average in the next few quarters, and we need to plan for this well in advance.
Along with the uncertain macro backdrop, Indian CEOs are also seized with two other major concerns — increasing the scope and intensity of competitive challenge, and availability of talent.
All is not doom and gloom though. In spite of these challenges, more than eight out of every ten CEOs were optimistic about business prospects over the next three years.
Some are still in the ‘firing on all cylinders’ mode, others are more mindful of balancing different priorities for the short-term with long-term imperatives. Marico plans to continue to tighten their belt, but continue to invest in innovation & talent for driving future growth.
It is easy to achieve short-term margin improvement by reducing long term expenditure, but it can impact the growth momentum which is very difficult to recoup.
However, there’s a qualitative difference in the framing that CEOs are placing around this ambition – value delivery. New product introductions are critical, not just to ensure freshness but also to keep enhancing the ‘value’ that you provide to consumers. In tougher times, that’s really important.
Also, investing for growth is far more targeted. CEO, Future Generali says while they have pruned down some of our expansion plans for the back-office they are going ahead with their original aggressive ramp-up for the customer-facing field force.
Interestingly, among sources of revenue growth, CEOs rated acquiring new consumers as the preferred route: a natural choice for many low-penetration categories in this 1billion+ population.
At the same time, some sectors like financial services that are more directly impacted by the global crisis are already tightening belts. It’s now back to the 1995-1998 action agenda: sweating fixed assets, optimising distribution , rationalising product portfolio, hard nosed people productivity, squeezing value out of every rupee etc. to position the organisation for the bounce back post this interim stutter in the economy.
While reducing the cost base is an obvious preparation to manage operating leverage in case demand deteriorates further, the other aspect enhancing the talent base is about having adequate capability to manage the tumultuous times. Many of the managers today haven’t been through a significant downturn. Enhancing their skill-set is important in order to prepare for the future which might turn out to be different from expectations.
Not building the platform to continually attract and retain top quality talent and not possessing the agility to respond to the dynamic market conditions (including the liquidity crunch) are the key risks facing India Inc. over the new few years.
Given the real and increasingly certain nature of these risks, most Indian CEOs have firmly grounded their business plans in reality . Even while planning the growth agenda, CEOs continue to explore opportunities to immunise their businesses from any sudden shocks arising out of the global macroeconomic crises.
Diversifying into new markets, driving down supplier costs and integrating overlapping systems/functions are the most important tools in the ‘recession proofing’ toolkit of the CEOs. One CEO explains “It is not about today or the future, it is about today AND the future”.
So the good news is, India Inc continues to maintain its overall tone of optimism, albeit cautiously. While CEOs today are certainly more guarded in their approach than they were even a quarter ago, the fact remains that most Indian companies seem to be relatively less impacted as compared to their counterparts in the Western world. While some of it is industry specific and relative degree of financial and market exposure to the Western markets, the rest seems to be derived from the high salience of domestic consumption for India.
Overall, corporate India seems to be coping with this suddenly receding economy, judiciously balancing sustenance for now and investing for growth.