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In India, There's a Reason Apple Inc. Can't Beat Google

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The former chairman of Microsoft India offers a few secrets for CEOs seeking success in emerging markets -- plus, the key to earning Bill Gates's respect.

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To get a sense of the challenges facing major multinational corporations in India, just look at the recent headlines about mighty Wal-Mart (NYSE:WMT). From Forbes: "Wal-Mart's troubles continue in India." From the Wall Street Journal: "Wal-Mart India Head Leaves Company." From Reuters: "Red tape, graft mean India not such a super market for Wal-Mart."

Ravi Venkatesan understands those challenges. Venkatesan, the former chairman of Microsoft (NASDAQ:MSFT) India and the author of Conquering the Chaos: Win in India, Win Everywhere, insists, however, that the opportunities in India are well worth the struggles. The Fiscal Times spoke to Venkatesan recently about that "chaos" in India and much more.

The Fiscal Times (TFT): You dedicate the book to "honest and upright government officials in all emerging markets for the courage they show every day." Why is it so hard for them?

Ravi Venkatesan (RV): The whole system is corrupt. And to be the lone person who resists it is a big challenge. When you are a junior bureaucrat, all they do is transfer you to a less inconvenient spot. As you grow senior, it becomes harder and harder. So when you find an exemplary official, my respect for them is enormous.

TFT: There was a period of great hope that India's political system and economy were both going to develop...

RV: It's still a great hope. But progress is a muddled one of two steps forward, one back. We're just in that slight regressive phase; I hope we again continue to shuffle forward.

TFT: Does that apply to the political system as well?

RV: There's a term called punctuated equilibrium in the evolution of species. It's pretty calm for a long time and then there's some huge event.... Political things happen in big steps, whereas the economy is much more vibrant and continuously buzzing along. But graft, corruption, bureaucracy, [and] chaos are not unique to India. It's absolutely a distinguishing feature of all emerging markets. And the advice I give to companies is learn to thrive on chaos rather than flee it or wish it away. For the foreseeable future these markets will have these characteristics. It's unlikely India or anyone else is going to be dramatically less corrupt in five years.

How Coke Went From Bad to Good

TFT: Does that tie into another theme of the book, thinking long term? We've seen cases of major multinational companies here that get caught up trying to get the win quickly and that means playing by those local rules, even if they're corrupt.

RV: Yes, so it requires great courage – the courage to do what is right rather than what is expedient and convenient. India and many of these markets have had colonial rule. Then they have had experiments with socialism. There's a fundamental distrust of business and of foreign companies in particular. You need to operate for the long term. You need to be seen as doing well by doing good. Give back to society and the development of the country.

Coke (NASDAQ:COKE), for instance, got into huge problems repeatedly in the '90s and early 2000s. It's because they forgot this. They were pumping out groundwater, which is scarce, bottling it, selling it for a nice markup, and repatriating profits. So it became the ugly multinational. Eventually they learned their lesson; they started doing huge amounts of work to conserve water, install drip irrigation systems, rainwater harvesting, invested quite a bit in sustainable practices. Today, for at least a decade, you wouldn't have heard of any agitation against Coke. McDonald's (NYSE:MCD), same thing. They've gone native; they're playing the long game. Monsanto (NYSE:MON) has yet to learn. The companies that are going to succeed are those that take that 50-year perspective and operate in that fashion.

TFT: The 50-year perspective? It sounds…

RV: It's crazy.

TFT: Yeah. For somebody who is in business day to day...

RV: The 50-year perspective – you've got to have your eye on that. But you need to have at least a 5- to 10-year horizon on your investments, which is the problem. Look at McDonald's. It took them nine years to figure out how to make a store profitable and get the supply chain for potatoes and other things in place. Nine years. In that period they've invested well over $100 million. Now they're cranking out stores and each one is profitable within three months. Because they've got the model…. The problem is that U.S. CEOs' tenure is down to six years on average. So it's pretty rare that you find a CEO that says, 'Oh, let me do the hard work and let my successor collect all the fruits.' It's an extraordinarily rare one: Sam Palmisano at IBM (NYSE:IBM), companies like Deere (NYSE:DE), Cummins (NYSE:CMI), Honeywell (NYSE:HON). As a CEO, you have to survive the quarter and have your eye on the short term. But you also get to make one or two long-term bets. I'm suggesting India is a worthy candidate of being that long-term roll of the die.

TFT: Is that also in large part because of India's role as a leader in emerging markets?

RV: I call it the archetype, in its opportunities, the structure of the market and the challenges. It's the perfect exemplar for all emerging markets. If you crack it here, you can take the model and take it elsewhere.

Don't Give Up on the Massive Middle

TFT: You say that a multinational can't just take its existing business model and stamp it on India and everywhere else and expect it to work. Yet if they're adapting to the Indian market, that may be a template for how to approach emerging markets?

RV: Exactly. And not just emerging markets – the middle of the pyramid in all markets. India became famous as the place where single-use sizes of shampoo and soap were developed. Because people were so poor, they couldn't afford $4 or something on a bottle that would last six months. So you had a single-use thing that might cost $.05. This was wildly popular in the emerging markets. Now, Unilever (NYSE:UN) says, "Holy cow, in Greece and Spain, people have the same income compression. They're loving the same thing." So it's not just emerging markets. It's for the lower middle class in all countries.... Companies need two models. One for the affluent segment, and one for these chaotic but aspiring middles.
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