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Where Will Growth Come From?
Every CEO bears this question in mind. One can hear him discuss it, see it in his eyes, or observe it in his strategic moves – every move intended to answer the very question of generating growth.
Recently, I was performing an acquisition analysis for a NASDAQ-listed company. Our company was attempting to acquire a target in red. I researched its particular market niche via secondary findings and speaking with experts and was astonished to find out that this segment’s U.S. market was shrinking. It had declined by about 6.5% for the last three years! No wonder why the target company was incurring losses.
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On the other hand, the market in Asia enjoyed double-digit growth. It had been forecasted to grow by about 19% for the next 2-3 years. There was no wonder why this particular company was incurring losses, as they did not have substantial Asia presence. Their competition, however, had first-mover advantage and a lead in relationship building.
Still, a smart management team can turn around this target acquisition by cutting its overhead. But my question is --- how long can that be sustained? How long can a company survive by operating in a shrinking market? For companies in this space to prosper, it has to strategize an entry into growing economies. And for that matter, companies in many industries will have to follow suit.
Of the growing economies in the BRIC countries, I propose, for long-term sustained growth, that investing and having market presence in India should be on the front burner of any top executive. India has experienced a bull market like never before in the last 2-3 years. By early expansion into India, companies have ripped home a fortune. Let me run you through some numbers and recent historical information:
- The Indian economy’s growth rate has averaged above 7% over the past three years, yet future expectations for growth are even higher. India was the second fastest growing major economy in the world, with a GDP growth rate of 8.1% at the end of the first quarter of 2005–2006.
- At last year’s India Economic Summit, Prime Minister Manmohan Singh, founder of Indian reforms in 1991, underscored that India should be targeting 10% growth if its savings rate improves, agricultural output increases and infrastructure substantially upgrades. His overarching vision is that of an “inclusive, prosperous, democratic and equitable India.”
- The economy of India is the fourth largest in the world as measured by purchasing power parity, with a gross domestic product of US $3.6 Trillion.
- Nearing the end of 2005, The Economic Times reported that many Indian companies have seen their bottom lines rise to such an extent that they have surpassed the net profit for the last full year in just three months of the current fiscal year. Not only has that trend continued through mid-2006, it has accelerated into a higher gear.
- Over 100 MNC’s have set up sourcing and R&D facilities in India in the past five years. This includes GE, Bell Labs, Du Pont, Daimler Chrysler, Eli Lilly, Intel, Monsanto, Texas Instruments, Caterpillar, Cummins, GM. Microsoft, and IBM.