We hosted a members-only teleconference this morning with a presentation from a General Manager at one of India's largest companies, organized quite a while back, on the topic of evaluating locations for operations within India. Naturally, questions were raised regarding how this process may have changed in light of last week's events in Mumbai, and his comments (he is actually based in Mumbai) are worth sharing as an addition to our thoughts on this from a couple of days ago. Two points he made:
1. Variation Within India (or any country) is Less Important than Variation across Countries: The point made here is that any company entering India should already have made certain assumptions about locating there instead of in another country, and so once that's factored in, security becomes less a concern in terms of deciding where to operate within India. The only addition we'd make here is that indeed, companies should be factoring in security considerations when deciding whether India is the right market for them. Whether they've done that in the past is an open question; most likely they won't make the mistake of excluding this in the future.
2. Within India, Pay Attention to General Political and Economic Stability: The above having been noted, our member did emphasize that there are some leading indicators that companies can watch out for to understand any important variations within India, particularly at a state-by-state level. Two in particular that he mentioned. First, there are some pockets of India that are known to have higher levels of general political/social instability (e.g., Kashmir), and companies should of course be aware of those and factor that into decision-making. Second, he suggested that companies should be looking more closely at indicators of political and economic stability, including such items as political competition, attitudes toward business, and corruption. For the latter, a good source identified for information on a state-by-state level is joint research by Transparency International and India's Center for Media Studies in Delhi, which can be found here (see page 17 for the state-level coverage).
Corporate Executive Board members will be able to access a replay of this teleconference, which addressed a wide range of additional topics besides factoring last week's events into location decision-making in India, early next week. Send me an email and I'll be happy to pass on a link when it's ready.
We've continued our look across the Corporate Executive Board's executive membership programs for resources and advice that might be helpful as you think about what last week's events mean for your business. So in addition to our member's great advice above, and the items we noted earlier this week, three more:
1. Anticipate,
and Establish Controls for, the Next Risk: Our Procurement Strategy Council
has highlighted the efforts of one of our members to
identify a holistic view of offshoring risks, and to take that a step further by
clearly
articulating risk mitigation strategies (Link for Procurement Strategy Council members). This company divides
risks into three categories – Reputation, Project Failure, and Process
Efficiency. They then develop a matrix that catalogues risk control activities,
responsibilities, testing, and gaps needing to be addressed. To ensure resources
aren’t overspent in developing and testing mitigation plans, they “tier” the
level of depth required for the different risk categories: Detailed mitigation
plans for Reputation Risks, identification of mitigation actions for Project
Failure Risks, and “Watch for and React” for Process Efficiency Risks. Many companies begin activities like this centrally, and then drill down to function-specific evaluations, for example understanding and planning work-arounds for logistics/distribution disruptions (Link for Supply Chain Executive Board members).
2. Revisit Your
Investment Decision-Making Frameworks: Events like this provide a good opportunity to
tighten discipline around investment decision-making company-wide. Research from
our Corporate Strategy Board highlights two
important practices companies often use in making international investment
decisions (Link for Corporate Strategy Board members). First, companies typically establish monetary thresholds for
determining who is involved in decision-making and how in-depth investment
evaluations are. We’d recommend adding a risk threshold to that filter, and
re-visiting where your thresholds currently sit, and whether that’s correct,
given both the volatility that exists around the world and the limited amount of
investment capital most companies currently have. Second, companies seek to
maintain a healthy balance in their international exposure. If your risk
assessments of India are changing, that may in turn
alter that balance.
3. Maintain A
Constant Watch: Information availability in emerging markets can be
difficult, and many executives find new emerging markets contexts unapproachable
in terms of understanding what’s happening on the ground on a day-to-day basis. As indicated by our member this morning, although the scale of the Mumbai events was unusual,
violence in India is to some extent not news. Companies with
good processes in place for monitoring the local situation would likely have had
steps already in place to mitigate risks from such violence and ensure
continuity of operations. We’ve heard a number of different practices that
companies use to maintain understanding of local conditions, ranging from
establishing local teams dedicated to monitoring news on the ground in high risk
and/or strategically important countries, to appointment
of a centrally-located expert (Link for Corporate Strategy Board members) who combines secondary resources with regular
local visits and conversations with country experts, to centralized databases
where all staff can enter information they’ve come across on potential risks in
different countries (Link for Procurement Strategy Council members).
