Why do global companies prefer Indian CEOs? - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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Why do global companies prefer Indian CEOs? 

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In this issue:
» Will the Indian govt stick to its fiscal deficit targets?
» Will Gujarat become a global auto hub?
» China jittery over US debt crisis
» Food inflation at 29-month low
» ...and more!

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00:00
 
What do you think is one of India's leading exports? Time magazine has recently given an interesting answer to this. It says that CEOs are one of India's most important exports to global companies.

Yes, if you look around the global boardroom, the evidence comes pouring. There is a long list of Indians heading global companies. Anshu Jain was recently named co-CEO of Deutsche Bank. This means that once Jeurgen Fitschen retires, we'll see an Indian leading Europe's most powerful bank. Vikram Pandit is already the top boss of Citigroup. Indra Nooyi heads Pepsico. Sanjay Jha heads Motorola.Vindi Banga once led the food and personal care behemoth Unilever before he became a partner at a private-equity firm. His brother, Ajay Banga, was last year elevated to the position of CEO of MasterCard. We could go on naming many more names. In fact, even Warren Buffett has an Indian by the name of Ajit Jain heading his reinsurance business. And he's also one of the probable candidates who will take over the reins of Berkshire Hathaway from the Oracle of Omaha.

It's clear that Indians are the preferred breed for the top jobs at global companies. But what makes them so apt for the position? Let's go the other way round. What is it that global companies value the most apart from obvious things like knowledge and leadership skills? The answer is multiculturalism! In an increasingly globalised world, you need leaders who can easily merge into different cultures, adapt to different environments and have the skills to deal with changing and challenging business dynamics. Interestingly, many Indians grow up doing exactly those kinds of things.

India has a rich and varied culture. We have 29 languages, each of which is spoken by at least a million people. There are another 122 which are spoken by at least 10,000 people. Apart from linguistic diversity, we have people following different religions. So Indians learn early on to mix and adapt with various cultures and traditions. That puts them at ease when faced with similar situations in the global arena.

Secondly, Indians learn the precious art of negotiation pretty well given the political red tape that they have to face in their native country. They learn to kick open rigid doors or create new ones if the need be. The third important ingredient is the gift of the English language, a legacy left by our erstwhile colonial masters.

What, according to you, makes Indians apt for the top jobs at global companies? Share your comments with us or post your views on our Facebook page.

01:16  Chart of the day
 
The theory of purchasing power parity (PPP) tries to arrive at the correct exchange rate for currencies. It puts forth that over the long term exchange rates should tend towards the rate that would equalise the prices of a basket of goods and services across the globe. The Big Mac index does exactly that. It compares the price of the same kind of burger across the world and accordingly suggests if a currency is undervalued or overvalued against another currency. Today's chart of the day shows that according to the raw Big Mac index, the Indian rupee is 53% undervalued against the US dollar. Of course, a cheap burger in India doesn't necessarily mean that the currency is extremely undervalued. Average prices are usually lesser in poor countries like India where labour costs are relatively much lower than their developed counterparts. It is important to take into account factors such GDP per person to get a true idea of the appropriate exchange rates.

Data source: The Economist


01:59
 
The Indian government is not known for sticking to its fiscal plans. Rarely has it managed to come even close to its budgeted target. The last time we hoped that the Fiscal Responsibility and Budgetary Management Act (FRBM) will bring its due result, the global financial crisis took its toll on government finances. Bringing down fiscal deficit level, was, however one of the key promises that the Union Budget 2011-12 won accolades for. It assured investors in India and abroad about the government's commitment to achieve fiscal prudence. Even a marginal improvement in the fiscal deficit ratio from 4.7% to 4.6% by FY12 seemed relevant. For it meant that the government would make an attempt to grow the economy without relying on excessive debt. The basis of this assumption was tax collections to the tune of Rs 6.6 trillion for the current fiscal. Here again, the GDP growth estimated for the financial year 2011-12 was nearly 9%. Needless to say that the government had been overoptimistic in its projections to give the Union Budget a 'feel good' factor. Given the rise in commodity prices and interest rates, it was not very difficult to assume that growth level in FY12 will be lower than that achieved last fiscal. And tax collections are but a reflection of rise in economic output and profitability. Hence it should come as no surprise if the government fails to meet its tax collection target this year and resorts to more borrowings. But again, convincing investors that it is on the path of fiscal prudence will be more difficult this time.

02:37
 
When Tata Motors had problems in Singur, West Bengal with respect to its Nano plant, Gujarat saw a huge opportunity. Indeed, it left no stone unturned in ensuring that Tata Motors was able to set up its plant at Sanand and produce the world's lowest cost car. This was a part of Gujarat's larger vision of being India's automobile hub akin to Detroit in the US. And close on the heels of Tata Motors, automakers have been making a beeline to set up manufacturing bases in Gujarat. And interest is being shown not just by the Indian auto manufacturers but also by foreign players. Peugeot Citroen SA, General Motors, Maruti Suzuki, Bajaj Auto, Ceat, Apollo Tyres and the likes are all looking to catch a slice of the Gujarat pie and make investments. Indeed, what has brought this Indian state to the forefront is its investor-friendly government, transparency, good infrastructure, easy connectivity to ports and an efficient rail and road network. Hence, it would hardly be surprising if Gujarat becomes a global automobile hub in the years to come.

03:20
 
If you borrow few hundred dollars from a bank, it is your problem. But if the borrowings snowball to millions of dollars, then it is the bank's problem! Certainly, there isn't a better description of the dilemma faced by the Chinese currently. Dilly-dallying on debt ceiling is not just making US policymakers jittery. It is also sending shivers down the spine of the Chinese. This is because at last count, the Chinese had north of US$ 1 trillion invested in US treasuries. Thus, any significant decline in price of the same will erode the value of Chinese foreign exchange reserves significantly. What makes matters worse is the fact that even if they decide to invest elsewhere, their ability to do so is severely constrained. There is simply no other market that could match the depth and liquidity of the US treasury market. Therefore, all that they can do is pray and hope that some fiscal sense is drilled into the minds that govern the US.

04:00
 
That we have seen high inflation is not really news. A part of this was caused by higher food inflation. So it would come as a relief to know that the food inflation has actually started to ease off. This week, the food inflation rate stood at 7.33%, which is a 29 month low. A major reason for this is the higher base effect of last year. But nonetheless, food prices have actually started to ease off as per the government's calculations at least. A large part of this decline is attributable to the decline in prices for proteins and fruits. However, the prices of vegetables still continue to remain high and rose to 10.55% as compared to 4.2% in the previous week. As a result there is little cause to cheer.

04:30
 
In the meanwhile, the Indian stock market is trading in the red, having come off its earlier highs. The BSE Sensex was trading lower by around 10 points at the time of writing. Maruti Suzuki and ITC were trading in the green. All other major Asian indices were also trading in the red with stock markets in Taiwan and South Korea leading the pack of losers. Europe opened on a negative note as well.

04:50  Today's investing mantra
"The average man doesn't wish to be told that it is a bull or a bear market. What he desires is to be told specifically which particular stock to buy or sell. He wants to get something for nothing. He does not wish to work. He doesn't even wish to have to think." - Jesse Livermore
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13 Responses to "Why do global companies prefer Indian CEOs?"

Chandrasekar

Aug 1, 2011

Ability to perform excellent even under extreme pressure,multi tasking. Naturally SMART ASS. Added attraction highly knowldgeable,Excellent communication, last but not the least Cheap , Dead Cheap. Minus Point Great politicians, sticky on Food matters.

Like 

Mansoor Mohamed A

Jul 31, 2011

I think one of the reason Indians are successful abroad is the cutting edge advantage they have due the completion they face in India from childhood. To be successful in India you have to compete with the best of best from over a billion people. You have to work really hard to come up. "Survival of the fittest". But to a westerner, in his country things are much relaxed and easy, so they don’t have to put much effort to come up. That training makes a difference in later stages of life.
Another quality Indians have, especially who come from a middle class/working class family is the financial/resource management what they have learned from their joint family or from the society. Managing with too little for too many. We are forced to do with little resources managing for the needs of a huge population. Where ever you go - villages or towns or cities, you can quote numerous examples for this. This way of life or way of thinking makes another advantage globally where especially now a days the efficient resource management and as a result, becoming more sustainable makes a big difference. That is why probably an Indian or an Asian brought up in similar situation can resolve financial / resource management issues better and successfully than a westerner, who never faces such tough situations in his life. "Smooth seas never make good sailors".
But to conclude, let me make a counter argument, If Indians are that smart, why we are not successful as a country globally? Also we are almost one fifth of the total global population. In that ratio, every fifth CEO should be an Indian. Do we represent in that ratio? I welcome comments on this.

Like 

dilip chakraborty

Jul 31, 2011

Because
1. Indian CEOs are no patriots, received this culture from history
2. their servile attitude. They can go up to any point to serve from the perspective of history.
3. They are highly flexible, without any qualms & morality.

Like 

uday

Jul 30, 2011

Slavery, best exhibited by Lord Macaulay's subjects
and also

Like 

Manish

Jul 30, 2011

When I read this update that "Increasingly Indians are leading global corporates" I did not felt happy, instead I felt that we have increasing no of excellent brains, which do not want to work for India. They may be having whatever skills, or edge over other international counterparts but surely they lake the passion and true national spirit, Which we saw at the time of Freedom fight between 1857 to 1947. We all know that India is a great country from centuries, and generations from the global area have always wanted to rob the indian wealth (if not possible to get the share from partnership or any other mode). And now we have these increasing no of global corporates who are simply buying these brains to work for their interest. This is a matter of grave concern. What we need today is few minds like Anna hazare , who has the genuine leadership skills and has the passion of working for mother country (even if she is poor, or she is covered and controlled with whole bunch of ugly politicians who never see the national interest). Let us forget these names who have sold their talent to others, They may be excellent leaders or most successful people but I do not want to give them the applaud for their achievement.

Like 

Kiran Kulkarni

Jul 30, 2011

Indians are extreme critics of their own traits, which is essential to think fresh and succeed in competitive environment.
Also majority Indians belive in polytheism, multiple paths to achieve salvation, which is necessary in business scenarios too.

Like 

virendra kochar

Jul 29, 2011

It is interesting to note that more & more Indians are heading global companies. I think the answer should be fairly obvious. It is the very nature of Indian society which consists of a rich & diverse culture with various religious and multilingual groups living together in a stable & successful democratic system. Moreover, Indians grow up in fairly challenging environments, inherent in such a system, which make them better equipped to face the fast changing, challenging, and geographically spread out business environment of today.

Like 

ChandrasekaranR

Jul 29, 2011

Around the world all professionals are same in their skills and knowledge but most of them are lacking their knowledge of tackling fraudulence, scams and scandals, because its very much less in their country so they never have the chance of getting trained in that area, here its not so.So The Indian leader can not be cheated.

Like 

mohan

Jul 29, 2011

This is exactly your top down approach. You have selected the few names of people in top companies and their origin and reason out them. If u look at the other way around from 1.2 billions - how many have we produced and look at the ratios elsewhere - u will know the starking reality. More than 95% of our population will be considered illeterate.

Like 

dpm

Jul 29, 2011

The article is simply a rip off of the Time story. While giving credit in the first line, there is no indication that the rest of the story or views/opinions are not your own but simply ripped off from Time and therefore Time's author's views. Such stories get multiplied and circulated on internet very very fast. Why a respectable name like EM doing plagiarism?

Also your next story of Rupee being highly undervalued- you give the full chart and title the story that Rupee is most undervalued. You go on explaining that PPP gives the right indication of exchange rate and extol the virtues of BigMac index. Then suddenly you chicken out and take shelter saying one needs to consider other factors like per capita GDP etc. Then why do give misleading titles and run useless stories? You are also joining the 'misinforamtion' bandwagon. You could have better given your estimates of 'undervalutation'.

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