Since the topic is scaling up and going global, I would like to mention here that scaling up domestically means something and scaling up globally is something altogether different. If you want to scale up in this country all you need to do is spend money replicating what you have. For example, transcending the border of the states and getting into some other states making a national organisation is one way. It's possible for you depending upon which industry you are in. It is possible that your satiation related to ambitions will be met within this market, but if you want to really go global then the competencies which will be taking you in the international market are completely different. So unless and until you have a competency elevation done, you can't go global. Because it may be a short lived blip available for you which will not sustain and you have got to have a lot more things done if you really want to be a global organisation.
"Unless you have a competency elevation done, you can't go global"
Thermax MD & CEO, MS Unnikrishnan, on how to survive and thrive in the global market
First and foremost you cannot be thinking as an Indian owner of an international company. You should have an inclusiveness of thinking in your capabilities where you can accept any nationality and ask that question to yourself as an owner. You can have employees both in India and outside. But you cannot be a successful organisation if you are unable to have a mindset to not differentiate between human beings. Next, you can start as a component supplier with your Indian principle, if you are an OEM equivalent or OEM supplier equivalent, otherwise you will have to start at a product level. But you cannot start at a component level. Those who are fortunate enough to supply to somebody who manufactures a large equipment, can continue to be a global supplier. That is an entry ticket available to you.
But ideally speaking, a company should be product-oriented, which refers to assimilation of components. So the standard of manufacturing in terms of quality has to be set to a global benchmark. Check for yourself if you are there. If you are not there, take your own time and prepare yourself well. It's a war and you have to prepare yourself to be a global organisation.
You must also recognise the fact that the risk perception you have when you are conducting business in your own country versus when you move out of the country, is going to be absolutely different. The legalities of each land are going to be very complex and different. You need to understand which are the global markets you want to operate in and choose them wisely. Then, learn about their legal systems because most of them have legalities which may be unknown to you. If you get stuck somewhere and receive a back charge from a multinational, it can wind up your organisation. In India, we possibly replace the components or apologise to the MD of the company. But things don’t happen the same way in the global arena.
Performance in the world is not like the way you perform in India. Outside, intolerance is of a very high nature. Comparatively, India is very tolerant. So you should understand that there could be performance penalties, while working globally, which can wipe off your company. So choose countries where legalities are permissible. The terms of payment used in India may differ from rest of the world. Many a times, there could be a letter of credit that may sometimes come with conditions. You have to be very careful about such issues.
Foreign currency management in the volatile world is something that you have to learn. You have the capability to create a good product, supply it and take money for it, then don't go for a punt. Imagine a situation where you have taken an order valued at $100,000. If you had taken such an order five months ago, when the Indian currency was Rs.68 a dollar, you would have got Rs.68 lakh. But if you were supplying today, it is only Rs.64.5 a dollar. If you were operating on a 10% margin, half of your margin is already gone. So you have to learn how to hedge your future by taking a forward cover, for the order that you have already received, to recognise the money maybe six months or one year later. Some companies are already organised. But those who are yet to jump onto the bandwagon are advised to have a framework related to financial management.
In the future, you will have some ramifications to enter the international market. Every country has become inward looking and demands jobs to be created in their own country. This is neither going to start nor end with America. It is virtually going to be there in every part of the world. If you want to sustain as a player in any global market, you will be compelled to invest and move the capital to that particular country and create local employment. You may still be able to get your technology, royalty and dividend back into your country. But the world will not permit you to export out of the country beyond a point. Below the radar all of you will be allowed to do it, say, when you are the size of a Rs.100 crore to Rs.500 crore exporter. But the moment you reach hundreds of millions of dollars in terms of exporting out of a country, you will be above the radar. Naturally, you will be asked by the local government to create local capacities. It would be wise for you to do such a thing. If you are the owner of an intellectual property, my suggestion would be to keep it out of India. Make it global — register it in Netherlands or register it in a country like Singapore so that neutrality is established. Otherwise you will have an inter-country problem. For example, if India and the country where you are going to export have some legal issue tomorrow, they will not allow you to take the money into your country. But a neutral country like Singapore or Netherlands will possibly permit you to do it. As such your investment also has to be rooted there because you would then be getting to the next level, that is, globalising yourself where you are present in multiple countries. Your investment should not be from country to country. It should be from a hub — like we are currently doing for a South East Asian investment. We have created a holding company in Singapore. The money is invested in this company which in turn will be feeding money needed for the equity for our Indonesian or Thailand interface. When you move a huge quantum of capital, you will have to protect yourself from the money that you are putting into it. Ultimately, it may be the bank’s money that you may be investing but that's a necessity. There are also migration requirements.
So start with the component, get to a product level and then solution level. A solution organisation will survive in the world irrespective of whatever is going to happen because you are aware of the application. The moment you are a component maker you are camouflaged inside as a casing, but when you are a product maker it is getting into a solution. The ultimate key to survival for a business in the global perspective is being a solution provider — whether it is a small or a big item. In the 21st century if you are not able to globalise your edifice, you need to have intellectual capital inducted into the organisation to take it global. This is because sustainability will happen only through innovation and knowledge.
This is the second of a two-part series. You can read part one here.