Emerging Markets Connect

More on Mumbai: Breaking Views from A Leading Indian Company

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).

After Mumbai: Make Sure You're Looking at the Bigger Picture

Last week's terrorist attacks in Mumbai raised new questions among many about the relative risk of doing business in India. This is particularly true for foreign businesses operating there, since the targets of the attacks were largely foreigners.

Reaction so far, however, appears to have been relatively muted. Many are limiting travel to India in the short term, but there is, correctly, little talk about India somehow becoming a location that will be taken "off the map" by multinationals. Indeed, our members have noted that while there has been some disruption to their India operations, by Friday of last week even in Mumbai offices were full and work continuing. In the words of one member: "Life goes on."

Although it's still relatively early and information continues to emerge, a few thoughts as conditions evolve:
1. Don't Over-React: There is at times a temptation to take high profile events such as last week's attacks and apply them wholesale to a country or situation. India is too important a market over the long term for companies to think this way. Indeed, it appears that most are taking a measured tone -- comparing this situation to the 2001 attacks in the United States or the 2005 attacks in London, where the overall impact was short-lived -- and pressing forward with their strategic plans for India, although naturally perhaps with a few new security considerations.
2. Don't Under-React Either: Violence in India is a growing concern, enough so that we had been researching the subject in preparation for our quarterly India Briefing. Before last week, India had already been rocked by 64 bomb blasts in less than six months this year, leaving more than 215 dead and over 900 injured, including events in major business centers like Bangalore and Delhi. Although in cases like the Mumbai blasts the motivations appear to have been linked to larger tensions between India and Pakistan, or Hindus and Muslims more generally within India, violence has targeted business interests in many cases to raise the profile of events and attempt to destabilize India's positive economic development. Companies need to be taking precautions in India, particularly in major urban centers, to protect their staff and their investments. Many do this already of course, but a review of procedures and benchmarking against practices in other high security urban areas (including places like New York and London) is worthwhile.
3. Assess the Entire Theater: Looking back at best practices we've featured across the Corporate Executive Board around how companies deal with risk, useful advice comes from our Information Risk Executive Council (IREC members can access a full case profile here). One profiled company found that its location risk assessments were too technical for enterprise-wide conversations, limited in scope, and ultimately inactionable. This company completely revamped the way it evaluates risks in different countries around the world, categorizing them into Business Assets, Cyber Threats, Political and Economic Threats, and Natural Hazards. By assigning risk levels to each of these categories, they're able to make a holistic risk evaluation, and identify areas needing additional investment when decisions are made to build or expand operations in a given location. They're also able to better track changes over time and ensure their investments and practices are keeping pace.

One potentially positive outcome of these events is that they will intensify pressure on Indian authorities to take more aggressive steps to prevent militant attacks like this. Criticism of India's overall preparedness for crisis response is mounting from both the business community and local and international political circles, and some accountability has already begun with resignation of India's Home Minister.

The high-level point here is to stay alert, in India and frankly wherever you operate. Use this as an opportunity to add depth to your overall risk evaluation of India and other international locations where you do business. This is probably a particularly good time to do this, as economic volatility can at times lead to political and social instability as well.