India Shining, but what about quality and efficiencies?

After being in Japan for around 6 months, I recently visited India for a couple of weeks. During this entire visit, one question continuously banged my head – India is growing, lots of money is pouring in, much is being spent on infrastructure development and people empowerment, but is it being spent efficiently? The answer to me was no, we are still far behind in using the money to its best optimum level. We are not able to achieve the service/quality levels that should be achieved after spending funds to this extent. In this write-up I have touched some of such issues based on my observations.

I was travelling on Air-India from Narita to Delhi; this was my first time to travel on Air-India. I was expecting the aircraft to be shabby but to my surprise the Boeing was very nicely maintained. Now what was unpleasant was the service offered, if an Indian (I) was uncomfortable with the service, foreigners would surely be uncomfortable. First of all most of flight attendants were well above the age of 40, no disrespect to them but internationally the trend is to have young, energetic, charming flight attendants; since flight attendant is a very highly sought after job getting fresh faces into the staff wouldn’t be a big issue. Next the service they offered was not at all chivalrous, the way they served food, the way they attended calls was inclined toward impolite. There were also some funny incidents like before the flight took off, a flight attendant opened to air freshener bottles and with two hands up in the air moved in both the pathways saying excuse excuse, this was something like taking incense sticks across the plane. Later while taking a transit from international to domestic airport, an AC bus (in poor condition) with a seating capacity of 50, was carrying a single passenger (me); leave green energy but what about the business efficiencies too?  These were just some of the incidents, but they are enough to suggest that my dear Indians we need to wake up, get out of our comfort zone and provide world-class services and quality to become world leaders. This reminds me of a recent Indian film which said “Kabil bano, Kamiyabi apke kadam chumegi” which means become competent enough, success would kiss your feet.

Let’s have a look at the rapid infrastructure growth in India; the recent budget allocated large funds for infrastructure development but what about the quality. In front of my house, construction of footpaths was going on, but not on a single day did I see any laborer doing the job of watering the cement work. The result is what we see everywhere in India, the tiles come out of the concrete or concrete develops cracks. I understand that keeping a check on corruption, bureaucracy is very difficult in such a large country but can’t we have some kind of inbuilt mechanism wherein the mistake cannot happen, Japanese call it pokayoke. Have requirements where in cement which does not require watering is used. In India I have never seen a scheduled bridge being completed on the target date, why not? Why can’t we achieve the dates? The tar roads that are most popular in India, why do they need to be redone again and again? We have some old roads, which are still rock solid but new roads require frequent maintenance, is this related to more earnings for contractors in maintenance work? Money is being spent on infrastructure at the rate of good quality work, but in spite of the quality mechanism being in place the end product is not expected quality. We all know why this is happening? We all, the bureaucrats and the government should now understand that if we want to reach the world no 1 position, quality matters; after all the money spent on the growth of country is money contributed by every Indian through various taxes and fees.

Next I would like to touch the issue of privatization; in India we have seen the great improvement in service quality at airports since they are being run by private companies. How about applying this mechanism to government properties such as rest houses too? Most of the rest houses are located at prime location or scenic tourist places, but they are maintained very poorly and even the service staff have a typical government mindset, wherein they are least bothered about the guests unless the guest is a VIP or above. Give these rest houses to private companies to run, before complete rollover, try pilot projects and based on the results decide the strategies.

I understand that all of the above measures cannot be taken overnight and they are not much in line with Indian mentality, but I believe that change is the only permanent thing in life. If we do not change right now, we would miss the train to the top slot, we would grow over the short run, FIIs would pump in money as long as they find the India story interesting and one fine day stop pumping further money. Wouldn’t it be better that we become not only the best investment centre but also the best service/product/resources provider? We have already provided these levels of services through institutions such as ISRO, where the world recognizes India as a super power in Satellite launching.

Globalization: Japan-India PE perspective (continued)

In the last post I touched the issue of 4 ways of looking at the PE/VC relations between Japan and India. In this post, I would try to elaborate on these 4 ways about how the Japanese PE/VC firms could look to seek a pie of the India story cake.

  1. Invest in Indian Companies – After talking to various PE/VC firms in Japan I noticed that they have very less exposure to the Indian markets. They almost have no Indian company in their portfolio. We need to understand that to capitalize on the emerging economies; companies need to understand the local markets and who can know these markets better than the local Indian companies? I completely agree that to have companies from other country on the portfolio, someone from the investment firm needs to understand the target country’s culture and people. But that should not be an issue for Japan, since many Indian business professionals work in Japan and they are bilingual too. Off-course in the beginning aligning to some new county’s customs and business would be a problem for the investment firm, but that’s fair enough given the better IRRs.
  2. Streamline the Indian companies – Now once the Indian companies are in the portfolio, the Japanese GPs can streamline their operations while restructuring the company. The GPs can then use the knowledge of their world-class quality tools such as TQM, JIT to improve the efficiencies and take the company to new avenues. They can also restructure the company to serve the Japanese markets, like Daiso’s main suppliers are from China and Indonesia, similarly companies in India can also have products catering to Japanese markets, become suppliers to companies such as Uniqlo.
  3. Bring LPs from India on board – As I said in the last post due to not up-to mark performance of the Japanese GPs, some LPs here might have turned a bit unwilling to invest. The unwillingness is but natural because the LPs would always be expecting for much above market returns, which may be high expectation over the short run. However with the recent boom in India, there would be cash-rich LPs in India, looking for fundamentally strong companies in Japan, to invest in. In India basically most of the PE firms, are arms of business conglomerates, Birla, Fortune, Premji and now even Infosys to name a few. These firms would be willing to invest in companies having businesses allied to their business, such as Fortune could invest in a brilliant technology catering to the Retail markets, Premji Capital could invest in some brilliant embedded technology company.
  4. Take the Portfolio company’s products to India – Japan, a technology power has immense potential in terms of technological innovations, the need of the day is to synchronize the applications of these innovations to the needs of emerging economies, and if the GPs can achieve this during the restructuring of portfolio companies, planned to cater to India markets it would be very fruitful. Let’s take an example of this aspect; India has set a target of generating additional 78,500 MW of electricity by 2012, of which Solar and Hydro Power also form a crucial part. India has set an immediate target of 1000 MW of Solar energy by 2013 under the Solar mission and 20,000 MW by 2022. Some days back I was reading in Nikkei Weekly that due to high costs Japan has lost market of photovoltaic cells to Korea and Taiwan, but these days there is some movement for regaining the lost place. If PE firms having such companies in portfolio can have an offering for Indian markets, it would be a right offering at right time. But not to forget, in India cost and durability play a vital role, so due care should be taken of these aspects. Some days back I was looking at a hydropower Japanese product, it is a box, which just needs to be placed in a stream of water, may be river, city sewage drains, industrial drains and it would in turn generate power. Now if this product can be adaptable to Indian needs it would be interesting. Suppose it can generate enough electricity to pump water for a river side farm, than farmers would readily use it, even the government could pitch in with subsidies, because it’s addressing the immediate need of power shortage in India.

Globalization : Japan-India PE perspective

We understand that Globalization means sourcing resources from places, where we get them in the right amount, at the right rate and in the right quantity; this in turn results in efficiencies.

Now let’s analyze India-Japan Private Equity-Venture Capital (PE/VC) viewpoint using this principle. A General Partner invests time, capital, talent and energy in the enterprise and optimizes its performance, if required restructures it. The result is a better enterprise with improved revenues, efficiencies, bottom lines and off course better valuations. Post this they sell their stake in the enterprise through various exit strategies; IPO, sale in secondary markets and sale to a strategic investor to name some. In today’s globalized world the PE transactions need not be limited by boundaries and in many cases it’s happening so, however if we look at the Japan-India PE activities we do not see much happening on this front.

Japan has always been a technology power and being a developed nation and high per capita income has the capital to invest, however due to shrinking domestic markets does not have much promising investment opportunities, if the invested enterprises aim only local consumption. Also the Limited Partners from Japan these days are turning a bit reluctant. India on the other hand has an increasing customer base, incomes, investment opportunities, HNIs, Institutional Investors and companies looking for advanced technologies.

If these two nations can bring about a proper synchronization between all these resources and needs of them, it would be a win-win situation for both the nations. Not to forget India and Japan share a lot common in their cultures and this can help them in doing businesses successfully. However today if we see the portfolio of any big PE/VC firm in Japan or India they have negligible cross investments.

This disparity could be looked in four ways; I would discuss more about it in my next writing.