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**How **India’s executives see the world
Business leaders across India share an upbeat vision of the future while recognizing the obstacles ahead.
Erica J. Bever, Elizabeth Stephenson, and David W. Tanner
The McKinsey Quarterly, 2005 Special Edition: Fulfilling India’s promise
By and large, executives in India1 think that the opening up of the global economy presents them with huge opportunities for growth. A McKinsey Quarterly survey, which polled more than 9,300 executives around the world, including 537 in India (Exhibit 1), shows that Indian business leaders are much more optimistic about the future than are their international peers. Yet rather surprisingly for a country with one of the world’s largest labor pools, they see the high cost and low availability of talent as the single greatest constraint on their companies—a problem that worries them much more than it does their counterparts around the world.2
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With a relatively young population of 1.1 billion people, India has a vast reserve of workers, but our Indian respondents say that finding the right ones will be difficult. Indeed, 81 percent of them (as compared with 73 percent of the global panel) told us that the cost and availability of talent will be a significant constraint on business over the next five years. Indian IT executives feel this kind of pressure more keenly than do their counterparts in other sectors: 91 percent of them say that it is a significant constraint on the growth of their companies (Exhibit 2). These views may reflect the rising cost of IT, engineering, and management employees in hotbeds of growth such as Bangalore, Hyderabad, and Mumbai (see “Ensuring India’s offshoring future”).
These concerns haven’t darkened the overall outlook of Indian executives: 88 percent of them believe that continued economic liberalization is vital to the future of global business. Even more of them think that the by-products of liberalization—increasing affluence in emerging economies and the proliferation of low-cost manufacturing options—will be important global business trends. Geopolitical instability and growing environmental hazards rank lowest on the Indian executives’ list of important trends, with only about half seeing them as important. Just one trend was much less important to Indian executives than to the global panel: the aging population and declining workforce of developed economies.
In general, Indian executives believe that the trends driving the world economy will be important for the profitability of the companies they run. Eighty-five percent of them (as compared with only 60 percent of the global panel) feel that a more open world economy will increase the profits of their own companies over the next five years. Some 80 percent of the Indian respondents expect that greater affluence, the more widespread use of low-cost manufacturing options, and increasing technological innovation will make their own companies more profitable.
Where’s the growth?
Indian executives see their best growth prospects in the home market—58 percent of them expect India to provide most of their companies’ sales growth during the next five years. Yet they are far more excited about global opportunities than are their Chinese counterparts, 85 percent of whom see China itself as the country offering the greatest potential for growth. Surprisingly, Indian business leaders don’t seem to have much interest in China, and Chinese business leaders return the feeling. A quarter of the executives on our global panel regard China as the most important growth center—a close second to the United States—but only 4 percent of the Indian business leaders share that belief (Exhibit 3). Only 2 percent of the Chinese respondents see India as their major growth market, putting it behind both the United States (9 percent) and the United Kingdom (5 percent).
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Companies around the world also seem to be slow in warming to India. Only 5 percent of the respondents on the global panel expect it to account for most of their companies’ sales growth during the next five years—far behind the front-runners, the United States (27 percent) and China (25 percent). Of those executives who regard India as a major growth opportunity, 30 percent work for US companies and 31 percent for European ones. Most of their companies compete in the manufacturing, IT, and financial-services sectors. These executives, like their Indian counterparts, were most concerned about recruiting appropriate talent.
Twenty-six percent of our Indian respondents say that the United States will generate more sales growth for their companies than any other country will during the next five years, putting it second only to India. An even higher percentage of Indian IT executives—65 percent—view the United States as their most promising market, while only 18 percent of them think that India has the greatest potential. A subgroup of executives from our global panel, many of them in IT, underlined India’s value as an offshoring venue (Exhibit 4): 65 percent said that they either had located or were planning to locate IT activities there. Except for R&D, where China was a close rival, India was the clear leader for a range of offshored functions.
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As for the sector-by-sector findings of our survey, executives on the global panel view health care and energy as the top growth industries. But Indian executives, by a small margin, award that honor to the telecommunications industry (17 percent), followed closely by health care and high tech (with 16 percent each). The sectoral results for India show an interesting bias that generally wasn’t shared by the global panel: Indian executives tend to see their own industries as the most promising of all. Twenty-nine percent of the Indian respondents in high tech, for instance, believe that it will enjoy the highest growth rate during the next five years. Similarly, financial-services and telecom executives view their own industries as the fastest-growing ones, while executives in consumer goods are split between that industry and high tech.
How to grow
Almost 50 percent of the executives on the global panel believe that innovation—either the improvement of current products or the emergence of new ones—will be the most important driver of growth during the next five years. A relatively high proportion of Indian executives in health care and telecommunications share this belief, but only 40 percent of all Indian executives do (Exhibit 5). Twenty percent of Indian executives, with a particular concentration in the IT and energy sectors, see acquisitions as the most important source of growth, as compared with 15 percent of the global panel. Geographic expansion and the development of better approaches to distribution are also concerns for Indian executives.
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What’s stopping them?
Business leaders throughout the world face similar constraints on growth, but Indian executives feel them more acutely (Exhibit 6). After the cost and availability of talent, the Indians see competition—an intensely competitive environment, increasingly sophisticated consumers, and innovation by rivals—as the greatest obstacle to their companies’ growth. They also feel particularly pinched by the difficulty of operating in a fast-growing developing economy. Sixty percent of them regard an inadequate infrastructure as a significant or very significant constraint on growth, a view shared by only 23 percent of the global panel. Lack of access to capital, inadequate legal protection, excessive regulation, and vulnerability to the rising prices of natural resources also weigh more heavily on the minds of Indian executives than on executives generally. In fact, Indian executives—despite their optimism about the future and their growing role in the global economy—are more prone to believe that they face major obstacles than are their counterparts elsewhere.
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