Why Do Tech Companies Get Stuck In A Rut of Low To No Growth In India ?

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“A good hockey player plays where the puck is. A great  hockey player plays where the puck is going to be” said the greatest ice hockey player of all time, Wayne Gretzky.

This insightful statement fits a vast range of companies, both local and MNC, operating in India. A range of product companies, particularly tech product outfits, have been in India for over a decade, stuck in the $10 million to $20 million range, with the promise of growth in the large Indian market largely unrealised. Among Indian companies, when was the last time an Indian software services ( the ITES business n India is now over 30 years old) outfit hit $1billion in revenue (Cognizant, US-based did so some years ago)? Tech Mahindra and iGate (not “Indian” any more) grew through one large acquisition, better described as mergers). What happened to Polaris, Nucleus,  Mphasis,Sasken etc? Even Mindtree is still stuck at around $500million! Why could they not develop the escape velocity to enable them to enter the big league? My submission is as follows:

  1. As Gretzky’s quote implies, most businesses build their organizations for managing existing businesses and not for where they want their businesses to be  5  years or 10 years from now.  They,therefore, for eg, hire people, build processes and business models for  managing their existing businesses. An American network security company which has been in India for over a decade, has revenues of only $18-$20Mn, never seems to breakout of the pedestrian growth rate they are stuck into. A new Country Manager (read “sales manager”) follows every couple of years and life goes on. These companies hire people good for the 18-20Mn that they do now-should they not hire people who can take the revenues to $50-100 mn? Do they focus on building channels to grow their businesses, spend marketing dollars to build a brand?Do they spend time understanding their customer’s  imperatives and drivers of  their businesses? Do they try to become a part of the fabric of the business landscape of the markets they purport to serve?My view is that these companies need to rise above being in transaction mode and learn to deliver real value to their customers and markets.And to do this, re-engineering their organizations to cater to the long term vision rather than today’s business is essential.
  2. Conventional wisdom has it that Infosys built its business on the foundation of being a tech powerhouse  defined by their back-end project delivery capabilities.The reality is that the founders actually built a formidable sales and marketing machine that could cover every market and customer segment that they targeted.It was Infosys’s best kept secret-the marketing message was about transparency, processes, HR policies, fancy campuses while the sales force raced along closing deals to keep the delivery factories buzzing. As Gretzky said ” you miss 100% of the shots you don’t take”.  The inability of  tech businesses to look at markets  with the prism of sales and marketing  results in a serious lack of coverage.If you are not present where the deals are, how can you win the deal? Winning begins with showing up! MNCs see India, typically, from the framework of their comfort zones of APAC region, where most markets are “single-city” markets like Thailand, Singapore and Indonesia  and where 90% of the business is centred around the capitals Bangkok, Jakarta etc. India, on the other hand, has 5 large metros plus about 30 tier 2 cities which contribute significant revenues. Our markets are more like US, where business is spread across the country in multiple cities. So MNCs in India need to build  go-to-market strategies to suit our markets.Many of our software companies have still not figured out that the global delivery model has been cracked by every kirana services company! The toughest problem is customer acquisition and not services delivery  (our techies are not likely to be happy with this reality!).  If being a billion dollar company is an aspiration then the plans and investments need to be made accordingly.Even tech companies exist to serve customers and they need to realise that customers will not come to them-they need to reach out to customers. Of the 5 largest telecom service providers in India only one is losing money every quarter and every year. It is not a coincidence that they were the last to figure out that telecom is a not a technology business but a consumer and branding business!! They are yet to rejig their organisation from focussing on the technology backbone and moving towards a customer facing FMCG business with its attendant strategy and culture. Building a market focussed revenue generating engine is not cheap but you got to do what you gotta do! Investments in markets must be inline with where you want to go and not where you are. In the early 2000s , a small software services company was acquired by a large  and venerable Indian business group. They spent the next three years “strengthening” the already strong back-end delivery systems while investing nil in building a sales and marketing engine. The inevitable followed viz. revenue fell, the company was merged with another group company and then re-packaged and sold.The reality is that it is infinitely more difficult to acquire  customers than building a delivery engine. Companies die more often due to lack of customers than any other reason.
  3. As mentioned earlier, markets in India are not single-city markets-they are complex markets, a mix of large, medium and small companies varying wildly in culture, technology sophistication and business and operational methodology.They vary from MNCs, public enterprises, private enterprises, start-ups, conservative family-run and professionally managed organisations. To address these markets, the quality and style of leadership makes all the difference. The sales manager, dressed up as a Country Manager (or MD-India, President-India, CEO-India etc) will meet the requirements of today.He is the guy who will close today’s deals, he is the transaction guy.But to reach where you want to be, the leader needs to rise above being in transaction mode and plug into the imperatives of the markets and indeed the country.To be able to observe and articulate the larger trend in the country and dovetail your company’s products, resources and strategy defines long-term success.This requires skill beyond deal-making-a broad understanding of the nation’s trajectory, the government’s vision for the country and overall defining trends- for eg. long-term declining commodity prices and their impact on corporations and the economy, implications of rapid digitisation, economic reform and a nuanced understanding of demographics and culture. This comes with experience and knowledge of business cycles and a deeply aware leader who can articulate the future and face up to reality. The sales manager will sell the technical merits of the company’s products while the leader will articulate the business benefits of a partnership-a perfect bend of short-term revenue  along with the creation of a long-term revenue stream.
  4. So what should companies that aspire to garner their rightful share of markets do?
  • Build a team which is a blend of experienced leaders and managers with the potential to grow into leaders
  • develop an institutionalised understanding of markets they serve.This is particularly important for US tech MNCs with their frequent changes in personnel and short-term, quarterly view of markets.
  • Understand the power compounding-eg. 20% annual growth doubles the business in 4 years.This is nothing to sneeze at. Many a manager in India committed himself ( fearing for his job) to 50-100% growth to their APAC management during the 20010-2014 period (with both global and Indian economies in a mess) because they would accept nothing less from an emerging market like India. Inevitably, disappointment, loss of credibility, change in leadership etc followed. In an extreme case, an MNC country head committed to triple revenue in three years, in India, during that period and asked for resources appropriate to the plan. That the global management lacked an understanding of the markets and thus agreed to an unrealistic plan reflects  the level of understanding of the macro picture of APAC management about India and the world.
  • As Phillip Kotler says in his iconic book on marketing management, the best rat-trap in the world will not get customers queuing up at your door.You have to go to them. So, build a sales and marketing engine that meets your plans realistically.

The bottom line is that growth is about a deep and broad understanding of markets and their imperatives and then building an organisation that can deliver on the promise of the market.

The article is written by Nagendra Venkaswamy, Managing Director, CEO and Startup Mentor. Mr. Venkaswamy holds more than 3-decade of experience by working in many top-notch tech firms including Wipro, IBM and DataCraft.



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