What can the Indian Tiger learn from its Celtic counterpart?
The Celtic Tiger
The Celtic Tiger was quite a phenomenon: between 1995 and 2000, Ireland’s GDP grew an average of 9.4% per annum, and 5.5% between 2001 and 2008. Ireland went from being one of Europe’s poorest nations, to one of its richest.
But all that changed with the economic downturn, with the economy shrinking, employment rising and Moody’s downgrading of Government bond ratings to junk.
Ireland’s property boom and high personal debt (combined with low levels of saving) contributed to Ireland’s downfall after the property bubble burst and the global economy went into recession. A report by Davy Research in 2010 also concluded that Ireland had largely wasted its boom years by investing in the wrong places.
The Indian Tiger
Like Ireland, India has been very successful in attracting multinationals. Since starting economic reforms in the early 1990s, India has also grown its own multinationals. Its attractiveness to companies looking to set up shop in India is not just based on lower labour costs, but also world-class skills.
Like Ireland, India is experiencing a property boom, particularly in the cities where hundreds are moving to every day. Unlike Ireland, though, India has high and increasing levels of personal savings - up from 23% in 1990-91 to 34% in 2010-11, according to the Government of India Economic Survey 2010-11 - which allows investment and resilience, without reliance on foreign economies.
This is supported by how well the Indian economy fared during the recession – growth dipped briefly in 2007 – 2009 and was back up to 8.5% in 2010-11.
What next for India?
These factors would argue in favour of the Indian Tiger being well placed to avoid the crash and burn experienced in Ireland. However, I believe there are a number of areas in business still to be addressed for India to realise its full potential.
- Ease of doing business
- Skills development
McKinsey Global Institute estimates that India needs to increase its level of capital expenditure eight fold over the next twenty years to bridge the gap that currently exists between the demand for services and the country’s ability to provide.
Government ministers commenting in various Indian newspapers agree that insufficient infrastructure is a barrier to growth.
Ease of doing business
The Indian Government is making moves in the right direction, for example the liberalisation of the financial sector, but doing business India is still extremely difficult. The World Bank ranks India 132nd out of 183 countries (Doing Business 2012). Some metrics are even worse:
- Starting a business - 166
- Dealing with construction permits - 181
- Enforcing contracts - 182
None of these measures is improving – all three had the same ranking in 2011, although the overall ranking has improved slightly, rising from 139th in 2011. China, arguably India’s closest contender, ranks 91st.
India has some very highly skilled people – the technology sector is highly regarded and many organisations base their R&D operations in India. However, not enough of the population have been educated to this level and demand for skilled workers outstrips supply.
The Indian school system is not producing enough graduates and school leavers with the necessary skill levels to meet future demand, especially as demographic changes of aging in working populations in the US and Europe are likely to create a global movement of jobs to countries such as India.
The Indian Government is working hard to address this, driven by the National Knowledge Commission, whose objective is to transform India into a knowledge society. New schools, universities and institutes of technology are being set up, and there is an increased focus on the teaching of English and vocational training.
While that is great news for the future, many Indian employees today feel disengaged. The global workforce study by Towers Watson showed that 56% felt disengaged at work, due to the large disconnect between their personal aspirations and their day-to-day professional activities. As in every economy, high attrition rates hurt business.
Management skills are vital to lead businesses and engage and motivate teams. This goes through all levels of business, not just corporate. Professional management skills are needed just as much in family run businesses, particularly given that family businesses are prevalent in India and are likely to generate many of the next wave of Indian multinationals.
A survey by Nicholas Bloom (Stanford), Raffaella Sadun (Harvard) and John Van Reenan (LSE) shows that family run firms need professional managers to succeed. They surveyed thousands of medium sized firms across 20 countries to develop a management quality index that showed that the worst managed firms are those where the CEO is the founder or a family member. Family firms with an outside CEO far much better.
Writing in the Harvard Business Review, Navi Radjou, Dr Jaideep Prabhu, Dr Prasad Kaipa and Dr Simone Ahuja urge Indian businesses to stop being so insular and integrate into the global knowledge economy to collaborate with and learn from others.
I could not agree more. The drive to turn India into a knowledge society, combined with strong global partnerships and financial stability should prove to be a winning formula for the on-going survival of the Indian Tiger.