Raghav_12 Posted May 25, 2012 Posted May 25, 2012 http://articles.economictimes.indiatimes.com/2012-05-24/news/31838883_1_bharti-airtel-ril-shares-infosys-technologies MUMBAI: Each has its unique set of woes, some of which are reflective of an economic slowdown and inconsistency and inertia in policy making. Still, when it comes to India's Big Three - Reliance Industries (RIL), Infosys Technologies and Bharti Airtel - management consultants feel their problem could be a fundamental one: that these bellwethers may not have enough strategic and innovative steam to find 'the next big thing'; and have become vulnerable given the swift changes across several fronts from technology to demographics. Together, RIL, Infosys and Bharti constitute a little over a fifth of the weightage of the 30-share Sensex. They have been India's three most valuable companies, with a collective market cap of close to Rs 5.45 lakh crore - almost equivalent to what Facebook was valued at pre-IPO - at the best of times. Of late, however, the tea leaves have had little comfort for those trying to buy into the future of Reliance Industries, Infosys and Bharti Airtel. Over the past year, in which Sensex was down 11%, RIL shares have lost 24%, Bharti 23% and Infosys 18%. RIL, India's largest private company by sales, posted subdued results for the March quarter - net profit was down by a little over a fifth - reflecting sustained weakness in refining margins and lower production from its D-6 block in the Krishna-Godavari basin. Bharti Airtel, India's largest and the world's fifth-biggest mobile carrier by users, posted its ninth straight quarter of falling profits in the March quarter in the face of intense price competition. "The sector is now characterised by an overcrowded market, steep decline in tariffs, growing network operating expenses as well as regulatory costs. Additionally, in recent times, there has been high regulatory uncertainty with a lack of policies that are conducive to industry growth," said a Bharti Airtel spokesperson in an emailed response. Infosys has lost the coveted position of being arguably India's most respected company - not just for its stellar growth and margins, but also for best practices in shareholder transparency and talent management - thanks to a not-too-smooth process of leadership transition. RIL and Infosys declined to participate in this feature. "The poor show of RIL and Bharti reflects the state of affairs," says Janmejaya Sinha, chairman, Asia Pacific of Boston Consulting Group. "Issues related to government policy play spoilsport for these two companies," he adds. To be sure, the growth rate in the world's largest democracy slipped to 6.1% in the December quarter, the worst in more than two years, due to the poor performance of manufacturing, mining and agriculture. Moreover, the reluctance of policy makers to take steps to inject confidence into industry has knocked the wind out of its sales. Sinha reckons that the government's lack of focus on the petroleum and telecom sectors has hit RIL and Bharti. Their woes may have less to do with the economy and more with politics. "The other systematic explanation is that both RIL and Bharti operate in sectors where political connections are critical," says Pankaj Ghemawat, a professor, author and strategist. "The recent troubles, to some extent, may reflect a change in political relationships rather than the general economic slowdown in India," adds the professor at IESE Business School in Barcelona. However, the bigger worry for these companies - and investors in them - is whether their best is behind them, and whether they have enough strategic and innovative steam to find the next big thing. "Why do successful, established companies struggle to find the next big thing," asks Vijay Govindarajan, the Earl C Daum 1924 professor of international business at the Tuck School of Business at Dartmouth. The professor illustrates the answer to that question with three examples: Microsoft was unable to create a Google, home video giant Blockbuster couldn't come up with a Netflix, and AT&T didn't give birth to Skype. "Indian companies that have achieved success in the past 20 years are vulnerable, given the rapid pace of change in technology, customer demographics, regulation, globalisation, and so on," adds the author of bestsellers like 'Ten Rules for Strategic Innovators' and 'The Other Side of Innovation'. To put that in perspective, 4G services - which allow high-speed video streaming and data access - may well be the next growth trigger for Bharti (and for RIL, too). "The next big thing will be data. With over 120 million net users, India is set to play a major role in the data revolution," says the Bharti spokesperson. Shale gas - natural gas from shale formations - could be one big game changer for RIL as demand for cleaner and safer fuels increases. RIL has shale gas JVs in the US. For Infosys, the next big step-up may well be on the talent front - to build a truly global multinational on the back of multicultural talent. The worry, however is there's little clarity or confidence about the execution of these strategies. "In mature markets, more than nine-tenths of a competitive advantage - as manifested by above-average performance - tends to disappear within a decade," says Ghemawat. He does, however, add that the setbacks of the Indian companies may well be temporary, and that their 'top management teams' could see them through the storm. Kavil Ramachandran, professor at ISB Hyderabad, reckons that RIL and Bharti will bounce back "because they are led by entrepreneurial managers". Interesting article on three leading companies of India which helped a lot to create image of growing and shining india. All three of these are struggling now simple because they were to adapt with the changes happening in eco-system. These stories clearly highlight the fact why organizations need to innovate continuously and why a visionary leadership is must. I would have loved to add DLF as the fourth company in this list.
Sehwag1830 Posted May 25, 2012 Posted May 25, 2012 These companies invest next to nothing money in R&D. They have grown so big due to cheap labour and political connection.
surajmal Posted May 25, 2012 Posted May 25, 2012 These companies invest next to nothing money in R&D. They have grown so big due to cheap labour and political connection. Are there any private cos in India that indulge in R&D? As far as I can tell it is only the public sector ones like DRDO, GTRE etc and the results are there for everyone to see. It is the baniya class short term thinking that is at fault. No Pain No Gain Chew tiyon ki aulad.
Sehwag1830 Posted May 25, 2012 Posted May 25, 2012 ^^ I think Bajaj Auto, Mahindra, Tata Motors do some R&D.
Raghav_12 Posted May 25, 2012 Author Posted May 25, 2012 It's not entirely about not investing in R&D, though that is one of the reason behind their struggles. Actually all of these companies became big exploiting easy pickings and taking advantage of early movers. Infosys probably figured out cost-arbitrage in labour ahead of others and thrived on that to become 7-8 Bn Dollar company. Bharti was also pretty quick to ride on the wave of mobile revolution in India and became big. Beyond taking advantage of available open opportunities, these companies didn't do anything which would have helped them create sustainable competitive advantage. Infosys faced issues with their leadership as well. They taking loyalities to their co-founders a bit too far by allowing each one of them to become CEO.
Sehwag1830 Posted May 25, 2012 Posted May 25, 2012 ^^^^ Bharti is now into retail business . Do you see anywhere in World a mobile company going into retail .This is typical baniya mentality of going in any sector in which you see money . Videocon an electronic company is in petroleum sector . Only in India.
Sachin=GOD Posted May 25, 2012 Posted May 25, 2012 ^^^^ Bharti is now into retail business . Do you see anywhere in World a mobile company going into retail .This is typical baniya mentality of going in any sector in which you see money . Videocon an electronic company is in petroleum sector . Only in India. diversification :dontknow:
Sehwag1830 Posted May 25, 2012 Posted May 25, 2012 diversification :dontknow: Diversification in sectors which is absolute no relation to your core industry ? If Airtel had moved to telecom equipment industry, telecom software industry this would be called diversification. Most of these companies have grown so big due to political connection. It is extremely frustrating to start a business in India due to large number of hurdles. Will APPLE move into automobile sector for diversification ?
Sachin=GOD Posted May 25, 2012 Posted May 25, 2012 Diversification in sectors which is absolute no relation to your core industry ? If Airtel had moved to telecom equipment industry, telecom software industry this would be called diversification. Most of these companies have grown so big due to political connection. It is extremely frustrating to start a business in India due to large number of hurdles. Will APPLE move into automobile sector for diversification ? there is enormous opportunity in organized retail and these big companies have all the resources needed so why shouldn't they enter? Just because a company started from one sector does not mean that it has to stay in that sector throughout its existence.
Sehwag1830 Posted May 25, 2012 Posted May 25, 2012 there is enormous opportunity in organized retail and these big companies have all the resources needed so why shouldn't they enter? Just because a company started from one sector does not mean that it has to stay in that sector throughout its existence. I am all for diversification. But these companies have next no nothing R&D expertise. Tommarow if there is scope in power sector, expect most of these companies to have a JV with foreign power equipment companies and start bidding for it. Most of the top companies in the World spend 3 to 4 % of their entire Revenue on R & D . Same can't be said about India.
surajmal Posted May 25, 2012 Posted May 25, 2012 I am all for diversification. But these companies have next no nothing R&D expertise. Tommarow if there is scope in power sector' date= expect most of these companies to have a JV with foreign power equipment companies and start bidding for it. Most of the top companies in the World spend 3 to 4 % of their entire Revenue on R & D . Same can't be said about India. BHEL, L&T and few smaller companies like Bharat Forge already have that covered. There is no way they let greedy pigs like RIL, Tata and Birla take a share from the pie.
Sehwag1830 Posted May 25, 2012 Posted May 25, 2012 BHEL' date=' L&T and few smaller companies like Bharat Forge already have that covered. There is no way they let greedy pigs like RIL, Tata and Birla take a share from the pie.[/quote'] Actually, they have already done that. Import cheap stuffs from China. And the result is this http://articles.timesofindia.indiatimes.com/2012-05-24/chandigarh/31839787_1_power-plant-khedar-bhel-units I think this must be Reliance ( Anil ) who imports everything from China and sells it to India.
surajmal Posted May 25, 2012 Posted May 25, 2012 Actually, they have already done that. Import cheap stuffs from China. And the result is this http://articles.timesofindia.indiatimes.com/2012-05-24/chandigarh/31839787_1_power-plant-khedar-bhel-units I think this must be Reliance ( Anil ) who imports everything from China and sells it to India. that is reliance power (so tranmission of electricity). I meant more Power generation equipment. BHEL & L&T blow RIL, Tata and Birla out of the water in that sector. I think L&T already has a JV with Mitsubishi Heavy industries for heavier turbines. Considering the boom that is about to take place in the nuclear power generation, L&T (and BHEL for that matter) wouldn't let another major domestic player to sweep in to mess with their future revenue projections in Heavy Machinery (specifically for power generation) So Reliance Power is finished as soon as L&T can supply power companies with their new line of turbines. Unless they go into business together. But L&T guys have got to know that Ambanis will screw them at the first sign of opportunity.
Raghav_12 Posted May 25, 2012 Author Posted May 25, 2012 Actually, they have already done that. Import cheap stuffs from China. And the result is this http://articles.timesofindia.indiatimes.com/2012-05-24/chandigarh/31839787_1_power-plant-khedar-bhel-units I think this must be Reliance ( Anil ) who imports everything from China and sells it to India. Target, which is second largest retail chain in US, behind Wal Mart, buys 95% of their stuff from China. This I have heard from my friend who is sourcing manager over there. I am pretty sure percentage would be somewhat similar for WalMart. Infosys used to seem diffrerent from Reliance and Mittal's who just put money wherever they see opportunity to make quick bucks. But they too seem to have messed up and could not anticipate this situation. Practically in IT service industry there are no entry barriers. If I have contacts I can get a project from US and can get that executed with help of non-expensive resources so easily avaiable in India. Infosys or other IT companies do the same, just at a bigger scale.
Sehwag1830 Posted May 25, 2012 Posted May 25, 2012 @Raghav Profits made by TCS, Infosys are huge ( 1.5-2 billion $ for both ) . If they had used that money in R&D , they could have become Adobe , IBM, Microsoft like companies . Do you know what they do of humongous profit ? And what is the salary scale at TCS /Infosys ?
surajmal Posted May 25, 2012 Posted May 25, 2012 @Raghav Profits made by TCS, Infosys are huge ( 1.5-2 billion $ for both ) . If they had used that money in R&D , they could have become Adobe , IBM, Microsoft like companies . Do you know what they do of humongous profit ? And what is the salary scale at TCS /Infosys ? That is the sad part isn't it. Considering the amount of cheap talent available to them, you would think anyone of the big software companies would have come up with a well known proprietary software by now. But zilch. Even if there are any advances made (which shows the talent is there so forget what that 4 eyed chimp murthy says), it is usually by the indian branches of multinationals.
Sehwag1830 Posted May 25, 2012 Posted May 25, 2012 ^^^^ Funny things is here at IITs , they are looked as the companies where only those students go for jobs which are not selected by anyother companies. Why don't they hire few IIT toppers from CS department by paying them good salaries and see the result ? There is no harm in trying.
Raghav_12 Posted May 25, 2012 Author Posted May 25, 2012 @Raghav Profits made by TCS, Infosys are huge ( 1.5-2 billion $ for both ) . If they had used that money in R&D , they could have become Adobe , IBM, Microsoft like companies . Do you know what they do of humongous profit ? And what is the salary scale at TCS /Infosys ? Yes. I agree they didn't do anything with these huge profits to make themselves sustainable in an environment where there is be no cost arbitrage for labour. Right now situation is with inflation and salaries rise in India labor cost arbitrage eroding at fast pace. So, if these companies, don't invest in creation of entry barriers very soon, they'll be gone. If nothing, I hope they'll achieve level of maturity in process which could set them apart from other companies and could compete with other companies of the world even if pricing is same.
Crookbond Posted May 25, 2012 Posted May 25, 2012 Successful companies "create" great things because they want to - be it a service or a product - not because of making x Million dollars. I doubt that's the mentality of these companies.
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