Reimagining India: Unlocking the Potential of Asia’s Next Superpower (20 page)

This tide was strong enough to lift any boat, so we decided to build big. Our goal was to be the country’s number-one company in pharmaceuticals and nutrition within five years. We knew we couldn’t achieve that through organic growth alone; that kind of presence would require acquisition or partnership.

But buying a company in India isn’t simple. Even large Indian enterprises often are family owned or controlled, with the first- and second-generation owners still active. Getting to know them takes time; it took eighteen months of meetings to finally do the deal that would make us the country’s pharmaceutical leader.

We made a series of key transactions in 2010, acquiring the pharmaceutical business of Belgium-based Solvay, which had an Indian operation larger than our own, and forming a partnership with a major Indian pharmaceutical maker to market drugs in emerging economies outside India. Then came the deal that was fundamental to our vision: our $3.7 billion acquisition of Piramal Healthcare Solutions (PHS), a part of the Piramal Group, one of India’s largest companies.

Naysayers said the price was excessive, but we felt that to realize our goal of becoming a truly Indian company, we needed to establish roots, not merely sell products. PHS brought us both manufacturing and research operations in-country, as well as a portfolio of hundreds of valuable medications, and a sales and distribution system that ran throughout the breadth of the country—even into rural areas with relatively little health-care infrastructure.

These actions made us one of the largest players in the health-care system of the second most populous nation on earth. In just four years, we’ve achieved our goal of attaining a number-one position in India’s pharmaceutical sector, where we have about 7 percent of the market.
India now represents more than 4 percent of our total sales and almost 5 percent of profits—percentages that will surely grow.

As important as India is for Abbott, investments like ours are equally important and beneficial to India. We have not just a commercial presence in India today but also a scientific presence and a manufacturing presence. We’re creating jobs, collaborating with universities. We are helping to bring health care to more people than live in all of the traditionally developed economies put together—advanced care for millions, and effective care to hundreds of millions more who previously had little or no access. That our company has a 125-year record of not only providing high-quality medical products but also of continually advancing the standard of care matters.

So it is my hope that India will continue welcoming foreign investors—and that other multinationals will seize the chance. Our experience so far suggests that India itself is evolving no less dynamically than our operations there. We’ve come a long way since I bought that medicine in Mumbai, and I believe that the benefits, both corporate and societal, are as large as the country itself, and that they’ll keep accruing for years to come.

Philip Clarke

Philip Clarke is CEO of Tesco PLC
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In markets the world over, consumers are embracing new technologies and radically changing the way they shop. Whether they reside in Manchester, Manhattan, or Mumbai, customers are increasingly making purchases online, logging on to social media to discuss and choose products, and using smartphone apps to find the best deals. Global e-commerce topped $1 trillion in 2012; it grew 33 percent in the Asia Pacific region, which could soon surpass North America as the number one region for online sales. The changes sweeping the Asia Pacific are now gathering momentum in India.

As it expands and builds in strength, this extraordinary transformation is improving the living standards of hundreds of millions of people. The spread of digital technologies has unleashed powerful and sometimes disruptive changes in retailing all around the globe. India, too, will benefit from—and be buffeted by—those forces.

Change in retailing has been the subject of intense controversy in India in recent years, mainly because of concerns about the effects of investment by foreign retail chains in the Indian market. It’s no secret that as the world’s third-largest retail company, we at Tesco are advocates of the benefits foreign direct investment in retail can bring to consumers, suppliers, and communities. We’ve welcomed the debate about foreign investment. But we also believe the conversation should evolve and widen, to consider where India’s vast consumer market is heading in the next decade or two.

My view is that over the next ten years, new technologies will have a profound and lasting impact on the way Indians shop, altering consumers’ lives far more meaningfully than the size or glitziness of their towns’ shopping malls. Technology was once simply a way to improve operations in-store or enhance a supply chain. But now, in India as in the rest of the world, the balance has shifted. With digital devices at their fingertips, consumers are the ones driving the change.

India bears all the hallmarks of a country where digital technology will bring enormous benefits. Already India has 120 million Internet users, making it the third-largest base of users in the world. The rate at which Indians are adopting the Internet is much faster than advanced economies and many developing economies. In 2011, Google predicted India would add two hundred million Internet users by the end of 2013. A survey conducted by the Internet and Mobile Association of India suggests the number of Internet users in rural parts of the country reached forty-five million by the end of 2012.

But in many ways, India’s digital commerce revolution will be unique. In India, people who access the Internet only through a mobile or a tablet device are expected to account for 75 percent of new users and 55 percent of all users by 2015. Inevitably that will mean greater demand for content designed for the small screen. As Internet penetration increases and this new multichannel world expands, Indian consumers will enjoy unparalleled choice: not just more information and a greater variety of goods and services to buy but also a choice of ways to shop at whatever time they like. Taking full advantage of the multiplicity of channels, they can bargain-hunt online, then browse in-store, order online, and pick up their purchase at the store. And they will exercise far more clout than before thanks to social media, which creates fashions in seconds, making or destroying brands within a day. The explosion of information also has
given customers the power to force companies to become more transparent and accountable to those they serve.

Here’s a recent example of how new technologies have helped us at Tesco engage with our customers and learn from them: In the UK, we asked customers on Facebook to think of a new ice cream flavor. We got more than a thousand entries. The winning flavor—Amaretto, cherry, and almond—is currently being developed and should be available later this year.

Indian retailers, too, can grasp such opportunities. India’s retailing path will differ from that of the West, where organized retail progressed from market stall to physical stores and national chains. The combination of the nation’s diversity and scale with digital technology suggests India could leapfrog from traditional retailing, focused on physical stores, straight into the multichannel world of “bricks and clicks.” Although starting from a lower base than other large markets, such as China, India’s e-commerce sales are set to rise faster—from $1.6 billion in 2012 to $8.8 billion in 2016, according to Forrester Research.

Whether you are a large, small, or even a narrow niche retailer in India, there will be no physical constraints on your ability to reach customers. For larger retailers, it will be easier to manage challenges such as expensive real estate, parking, and transport links. Niche retailers can operate from smaller spaces yet reach more customers across the country.

To capitalize more fully on these new opportunities, Indian retailers must work with suppliers to drive growth and efficiencies in the supply chain and distribution networks. Developing partnerships with suppliers will help improve products’ quality, freshness, and flavor.

At Tesco, we’re using blogs, discussion forums, and customer data to make our operations more transparent and accessible to our suppliers. With social media causing consumers’ tastes to change ever more quickly, the challenge now is to keep up with the change by analyzing data rapidly and sharing it throughout the supply chain, so manufacturers,
farmers—and anyone involved in shaping the product—can help maximize its appeal.

With that aim in mind, a new dedicated Tesco online community for our international producers, farmers, and growers—including India—is forging more productive relationships among Tesco and other producers across the globe, down the supply chain. By tapping into this knowledge through an Internet forum, individual suppliers can learn from our buyers what customers want, exchange ideas with their peers across the world, and also let us know how we can be a better partner to them.

To drive modern retail fully forward, India needs to develop its own skills and experience. That is happening at our Hindustan Service Centre in Bangalore, where a staff of over sixty-five hundred has built a core expertise in applying technology to modern supply chain and retailing in the West, working on everything from store layouts to app developments to the mathematics of the supply chain. One of the teams, which focuses on transport planning, receives store orders daily from Thailand and provides optimized transport plans for our distribution centers there. They plan eight hundred to one thousand trips per day, covering five major distribution centers, five regional hubs, and over one thousand stores.

This kind of experience is already creating the thinkers, entrepreneurs, and innovators who will help India make the leap into modern retail—one that is right for the Indian customer. In the midst of change, retailers should not get carried away by new technology but remain focused on the customer. Technology is always changing, while consumers’ instincts and values remain constant. They will always want value, choice, and convenience, delivered by a retailer that truly understands their needs and can anticipate their wishes. And they will always want a retailer that goes the extra mile for them to win and retain their loyalty.

In this ever-changing world, in any country, that loyalty remains the key to a successful retailer. India is no different—though the opportunities and rewards for success are immense. Exploiting technology adeptly will be critical to winning the competitive battle. But the most important consequence of all will be the gains reaped by the Indian people.

Vikash Daga and Vivek Pandit

Vikash Daga is a partner in McKinsey’s Delhi office. Vivek Pandit is a senior partner in McKinsey’s Mumbai office.

Over the next three to five years, India will be one of the fastest-growing and most vibrant digital markets in the world. More important, the rise and expansion of digital technologies will challenge economic, political, and social orthodoxies at an unsettling pace. Digital technologies represent a major business opportunity; we believe that they will also transform how Indians connect with their society.

Digital India is on the cusp of major change for three mutually reinforcing reasons: (1) the billions being invested into technologies like 3G/4G, including the government’s national broadband plan to expand digital access to 160 million more users; (2) the evolution of low-cost smart devices and India’s well-established local content and service ecosystem; and (3) a strong desire to replace decrepit and restrictive structures in favor of political accountability and enhanced social mobility. Considering that half of India’s 1.2 billion citizens are below the age of twenty-five, the momentum is irreversible—and the consequences will be momentous.

In economic terms, the Internet contributes about 1.6 percent of India’s GDP, or $30 billion, and accounts for six million jobs (directly and indirectly). According to McKinsey research,
¹
that could double by
2015—if India makes the right investments. This is not just a matter of profits. Already, India has found that better connectivity can bring unexpected but welcome benefits. For example, one study found that infant mortality was lower in areas where Internet kiosks provided information on pre- and postnatal care. And enterprises like Drishtee, whose franchisees have created profitable e-businesses (chiefly related to education and banking) in rural Assam, Bihar, and Uttar Pradesh, prove that the digital economy can succeed in diverse conditions. Digital technologies and access have made doing well while doing good easier than ever.

Politically, digital literacy is testing several pillars of the state. For example, the government’s relative secrecy about its inner workings and its claims about India’s progress no longer go unchallenged. That brings a wider cross section of society into the debate. Citizens are creating their own measures to evaluate government performance.

Socially, online communities are redefining identity and allowing individuals the freedom to shape their destinies. Assigned identities based on caste, religion, ethnicity, and other politically convenient divisions have long shackled the aspirations of too many youths. In a country where an estimated 85 percent of marriages are arranged, for example, there is now a multibillion-dollar industry of more than thirty million online matrimonial profiles. Of these, only 40 percent are managed by parents. Such digital domains profoundly accelerate freedom of choice and will play a pivotal role in India’s social evolution.

India is still at the beginning of its digital journey and needs to do more to reach its potential. In March 2013, the
Economist
concluded, “The original emerging-market tech pioneer has fallen behind in the Internet era.” We think it is going to catch up: The infrastructure is building, the economics are changing for the better, and the desire is there. Digital technologies represent a major business opportunity; we believe that they will also change the consumer and, in important ways, transform how Indians connect with their society.