Author: Fred Hoyt

Our day began with a visit to the biggest slum in the world—the Dharvarti in Mumbai.  Over one million people live in an area that is 1.75 km; the businesses there total $1 b.  The tour there is itself one of the businesses of the slum—at $20 a person, it is pretty steep, especially when we were told that the starting salaries in one of the shops there is about 150-200 rupees a day—that is 3-4$, though that includes room (in the shop or above), and board (there are fully functioning bakeries and restaurants in the slum).  Slumdog Millionaire was (in part) filmed there, which is not a surprise given Bombay’s prominence in the film industry. If you’ve been anywhere near an Indian family, you know about Bollywood—which is even more prolific than Hollywood.  And it is partly the attraction of Bollywood that draws new people to Dharvarti—as the big cities in the United States drew immigrants, and for the same reason; it was an improvement over the countryside, with a dream chance of making it out of the slum.   Our guide, for example, grew up there (as did his father, when his grandfather moved there).

The businesses are, as you might imagine, labor intensive, and surprisingly, contribute to the “green movement “ in India.  We were astonished at the amount (and variety) of recycling there; the tins that contain cooking oil are cleaned of residue (grease becomes soap), the cans repainted, and reused.  Electronic goods get recycled, too, with copper stripped out and sold.    There were piles of straws, the kind of small packets for ketchup—you name it, and it was probably there.  One of the shops was a batik factory, making under contract for a larger firm. There was also a school, temples and mosques, and houses.

The challenge that the slum represents encompasses one of India’s many challenges.  The slum sits on some of the most valuable property in Mumbai (which is itself  one of the most expensive cities in the world). Trying to get locals to move requires, in this democracy, persuasion.  Our guide, who I mentioned grew up there,  pointed to the strong sense of community that one could not get in a high rise, and affirmed that if put to a vote, most of the residents would vote down a move to newer apartments.

Part of this trip has been in preparation for my May Term visit to India and China, and the conversation took me back to my early trips to the hutongs in China.  These century-old relics of the Manchu period (pre 1911) occupied major stretches of Beijing.   I thought (as a tourist) they were quaint—with a central courtyard and individual apartments surrounding it, housing, usually, several generations.  Unlike the Bombay slums, the hutongs usually had no private bathrooms, and sometimes neither central heat nor electricity.  The government provided the solution in China, moving residents into new housing elsewhere, turning the hutong areas into commercial districts, and leaving some for the tourist trade. One of my Chinese guides lamented many of the same changes as our guide here, but it happened in China because an autocratic government said it had to.  Indians are rightfully proud of their democracy, but this is one instance where more central authority (the Indians we’ve met are appalled at the inability of their government to effect change, although political paralysis does not seem to be confined to India!) might be an improvement.

Our guide (and our national guide, a very articulate man from Delhi, with whom I hope to travel in May—I called him “guru”, or teacher) said that part of the problem with the plans to eliminate the slums so far is not only the reluctance of the slum dwellers—but the patent greed on the part of the developers.  Hence, the current stalemate.

At our second visit on a rather busy day (several of our number left yesterday, and I had a car whisk me to the airport when we finished our second visit; I’m writing while waiting for the flight to Delhi at the Mumbai airport), we were at the Welspun group, a conglomerate like many Indian companies, in many industries.  This one started in textiles, which is still bread-and-butter, making towels for major retailers such as Wal-mart (a sign told employees they could purchase Wimbledon towels for $5), but has diversified into energy (it owns a coal mine in Australia!), infrastructure (roads, ports and airports), and pipelines.  It is a $3 b global company with 24,000 employees in foreign countries such as Arkansas, and is looking to undertake projects in the southern Sudan.

During his talk, another “aha” thought struck me about the comparison and contrasts with China.  One of the faculty had asked about corporate social responsibility, and his targets were familiar—education (supporting schools in the areas it has factories),and training the underprivileged—and providing education to employees’ wives.  In the other factories, and even in the slums, most of the workers we saw were men. Even the sewing shop in the slums.  Any comparable factory in China would most likely have young women from the countryside manning—as it were—the factories.  Another challenge for India—tapping the talent of the other half of the population!

One very entrepreneurial business our guide did point out reminded me that I’d been equally intrigued 15 years ago.  It seems a local village realized that, as the industry dispersed, and men spent a long time commuting to a job, they could not have a “home cooked meal.” The village developed a logistic system (I wish  the airlines would let them arrange airline schedules) where they picked up a cooked meal at 9:30 or so, and delivered all the meals to the right workplace at 1 o’clock, then pick up the used dishes at 2, and return them to the employee’s house.  Think of the advantages; mom could sleep in; dad could survive the train ride (he’d have at least one hand to grab onto a pole or strap, a lifesaver from what I’ve seen on the Mumbai commuter trains); and he’d get a hot meal made by his favorite cook.  The distribution channel goes down to bicycles for the last mile, ending the delivery process.   Our guide noted that it’s mostly the older generation.  Young people, he noted, prefer (or are willing to accept) McDonald’s.

Give me a roti anytime.  But I’ll have to come back to resolve at least one puzzle: if I eat something Indian and different every day for breakfast, how many years would it take before I had to repeat.  On the other hand, maybe I’ll just stick to my dosa masala.  Go get one (a rice pancake with a spicy potato filling), and you’ll understand why I’ll miss India.

Now if only the departure time would be sooner!

See you soon.

When we got to Siemens for our first site visit, I asked the managing director, “What does it mean to be a German-based company in India, as opposed to an American-based one?”  He assured me that in the next two hours, he’d answer the question.

And he did.  As it turned out, I had asked the wrong question.  The right question, I think, was one I should have been asking everywhere we went—because it has been the one our host companies have been answering—“what does it mean to be a world class company operating in India?”  The short answer, for those of you who might not have the patience to labor to the end, is simple: world class quality at affordable prices.  In fact, Siemens has an acronym that summed up much of what we had heard: SMART.  S stands for simple, basic; m for maintenance free; a for affordable; r for robust; and t for timely.  Much of the acronym comes from what he believes are the lessons of the Indian market, where the effort to reach the top 2% has not been a sustainable strategy for most companies.  The goal is now to reach the bottom of the pyramid, the 70% of the Indian population (and at least that in emerging countries) that are not yet middle class (defined in India as making more than $6,000, which, he assured us, buys a lot more than $6,000 would in the United States).

He took as an example of the SMART philosophy the Tata Nano, the car designed to cost under $2,000.  The goal was not cost reduction as much as it was cost management—the Tata company identified a niche between the cheapest 4 wheeler ($4,000) and the average  2 wheeler ($1,700), and worked backward from the target price to design the car.  When the director talked with VW executives on a trip to Siemens headquarters in Germany, the VW executives said they would never build a car without airbags; the Siemens manager pointed out that studies indicated Indians felt they did not need airbags.  There’s been a lot of discussion in the press about the Nano, because the car show is going on in Delhi right now.   The problem has been low sales (you need volume to keep the costs low) partly because of the politics of a democracy.  The farmers in the original factory site blocked Tata from building the plant; the state of Gujarat has a pro-business governor who welcomed the company.  In addition, Ratan Tata admitted that the company’s marketing had positioned the car as a car for the poor, rather than as an affordable car. I saw one today, and it is a reasonably attractive model;  a version is being upgraded to meet US standards for export to the United States.  My own jaundiced guess is that you can put more people on a two wheeler than in a small car, but the principle of basic, affordable and quality is a theme not just from Tata and Siemens and Caterpillar, but from consumer goods companies as well.  There’s an advertisement for a $35 dollar tablet.  It has not yet debuted in retail, but you can preorder online, which we discovered when we went to a store to try to buy one.

We learned a lot about the Indian economy and Siemens.  Salaries are 1/3 those of China for skilled labor, and 1/24^th those in the United States, for instance, and engineer salaries a third those in China and 1/12^th those in the United States.  Siemens has designed its Indian strategy around 4 perceived market megatrends: infrastructure in cities (logistics and transportation), aging demographics plus longer life expectancy (healthcare), climate change (an environmental portfolio to reduce carbon footprint—20 of the company’s 85 billion in revenue is from renewable resources; Siemens wants to double that in 4 years ), and globalization (moving production closer to customers).

The answer to what is a German company came when he described the slow process of decision-making and the conversion to a SMART philosophy.  Part of the challenge of this company is the size of its German component and the nature of German unions.  115,000 employees in Germany; 100,000 in the rest of Europe (some of them in factories ”outsourced” from Germany to the lower cost Eastern European countries, over the strenuous objections of German unions, which sit on the board of directors of Siemens); 81,000 in the U.S. and 60,000 in Asia.

It is an interesting company in its emphasis on research as well, spending 5.3% of its revenue on R&D, with almost 28,000 researchers in 30 countries.  It holds over 50,000 patents, the most in Europe, third most in Germany, and ninth most in the United States. As the director pointed out, though, if you can survive in India—with its variety of language, ethnic groups, chaotic democracy, religions, languages, size, poor infrastructure, etc.–you can survive anywhere.   It is certainly a different challenge than China, but part of the challenges in India, as Indians remind you, are from the inefficiency of democracy!

The other company we visited was GlaxoSmithKlein, another company with a long history in India (Siemens helped build the London-Calcutta telegraph line in 1867); its headquarters are in London, but one form or another entered India in 1919, and began manufacturing in 1947.  The managing director had things to say that resembled most of what we’d heard elsewhere: the opportunity in India (in the pharmaceutical industry), and the challenges—advertising is illegal for drugs (wonder who sponsors the evening news), 67% of the population lives in villages or rural areas with less than 10,000 people, with only .59 doctors per thousand people, versus the 2.25 world average, and only 60% of India’s population having access to modern medicine.  Indian companies are competitive in branded generics—with 89 variants of the Lipitor model, and with price less than 5% of the costs in the United States.  He described the market as value driven (i.e., price).  The Indian subsidiary manufactures about half of its own, and outsources the rest.  It does no R&D, with width (185 products) rather than depth, “selling” to doctors (getting them to prescribe) rather than to the ultimate customers.  Ethically, the company follows either the GSK code, or local codes, whichever is the more stringent.  What I found most interesting (and it is part of the India Way, I believe), the company plows 20% of profits to build local health care facilities!

And to think, I’d spent all these years marveling at China’s growth, which is indeed a sight to behold.  But I do agree Western corporations can learn from South Asia, as well as East Asia—especially if they want to maintain status as world class.

Incidentally, I discovered one of those connections between China and India at the Prince of Wales museum.  In the Bombay dockyards, the British built the HMS Minden, which in 1842 received the Chinese plenipotentiaries who negotiated the end of the Opium War in the Treaty of Nanking.  That treaty, which opened five treaty ports to British economic penetration, including Shanghai, has been denounced by the Chinese as the beginning of the “century of humiliation.”  It was one of Bombay’s famous sons, Mr. Sassoon, who went through that open door to build an empire based on opium.  One monument to his wealth is known today as the Peace Hotel, but in the glory days of the Foreign Settlement in Shanghai, it was the Sassoon Hotel on the Bund.

Our touring today demonstrated in several ways main themes in Indian history.

The contrast between the old and the new:  In Bangalore, we passed Dr. Jain’s Cow Urine Medical Shop.  That was the old.  It is now an Ayurvedic Clinic (maybe using the old herbal formulation, but substantially updated).

Major parts of its European colonial history:  We took a one-hour boat ride to an island, and on the way, got an abbreviated history of the island.  It houses what was once (2^nd century AD) a Hindu temple dedicated to the Lord Shiva, one of the trinity of major gods (there are supposedly 3,000 or more, a total magnified by the different forms a god can take; Shiva, for example, is the Destroyer of Evil, but in one incarnation, is a yogi, and in another is a master dancer).  The one-time temple has major sculpted stones depicting stories about Shiva, and picturing his well-known son, Ganesha, the god with the elephant head.  By the time the Portuguese reached Bombay, the temple had been abandoned, so the Portuguese used the cave, in part, for target practice. The Portuguese connection was part of Portugal’s quest for spices under Henry the Navigator, which for a time created far-flung trading ports that included Goa in India and Macau in China.  Claiming what was then seven islands, the Portuguese claim became part of a dowry of the Portuguese princess who married Charles II of England; hence, Bombay passed into the arms of the British East India Trading Company.

Much of what we saw today dated from the British period (which lasted until 1947) and is close to the area around the Taj Mahal Palace Hotel. The Victoria Train Terminal, built, like so many of the late 19^th century buildings, such as the High Court and the sumptuous University of Mumbai (the city was originally Mumbai, but the Portuguese gave it the name Bombay because, I believe, of a local god), are in the Indo-Saracen architectural style. The terminal was the biggest building project in 19^th century Asia.  Even today, it services 7 million riders a day (scale in the East, in China and India, is somewhat mind boggling for Americans.  Bombay has the population of Australia!).

The new and the old is reflected, as well, in the local dhobi ghat we visited.  A dhobi ghat (the name of a train station in Singapore) is an outdoor laundry (dhobi is a washerman; at least all the workers in the ghat, which is a riverbank, were men), and this one constitutes one of the largest slums in the city.  There are four of these areas, and I understand that workers in the slum earn about $200 a month, which is enough to send money home to families left behind.

Within sight of the dhobis, is Marine Drive and the Malabar Hill, which have the highest priced real estate in India.  There are a number of wealthy families who have made Mumbai home, including many businessmen. One of the newest homes is an 18 story edifice built for Mr. Ambani, whose story I just bought in the bookstore in the Taj (books are a real bargain in India—priced for sale only in India, Bangladesh, Bhutan, and Nepal); Mr. Ambani, the CEO of Reliance, one of India’s major conglomerates, has 400 servants for his family, which consists of him, his wife, and their child.  Who says the maharajahs are gone? Though most of the maharajas — the Indian rulers under the princely states which were subsumed in 1947 — had their political power stripped, some still have palaces.  Several of the palaces have been converted into hotels, so you can sleep in a palace, as Mrs. Hoyt and I did in Jaipur.

We saw the former home of the Tata family, India’s largest group, who also call Mumbai their headquarters.  They represent an interesting theme in Indian history, too, being Parsis—Persians who emigrated centuries ago and found a home in Bombay.  The Parsis worship fire, and you may know them as Zoroasters.  We were supposed to go to a Parsi temple, but it was closed; we did go to a Parsi restaurant for a “wedding feast.”  One memorable feature was eating the meal on a banana leaf.

The final place we visited brings us up to “modern India”.  Mahatma Gandhi, the father of modern India, lived here from 1917 until 1934, and the home where he stayed is one of a dozen Gandhi museums in India.  The story of his life, documented in Richard Attenborough’s film several years ago, was retold in the home: sent to London to become a barrister (promising his mum, as the British would say, he would have neither wine nor women), he eventually went to help the Indian community in South Africa.  He even got a medal in the Boer War for being part of a hospital corps. Evicted from his first class compartment because he was “colored,” Gandhi turned to non-violence and for the next almost fifty years, using a simple but powerful lifestyle, helped mobilize Indian and world opinion to get the British to leave India in 1947.

Tomorrow, we’ve visiting two more companies to learn how India has gone from 1947, and one of the world’s poorest countries, to one that still has 30% below the poverty line, yet has shown enough progress to merit the statue of progress that is on top of the Victoria Terminal (130 years later!), and the focus of the book I mentioned yesterday, the India Way, published by Harvard Business School press.

Namaste.

Good night.

I’m sitting in Mumbai (Bombay), about 500 miles north of Bangalore in a hotel that you may have heard of—the 1903 Taj Mahal, which was the subject of a terrorist attack in 2008 that made the news around the world.  The legacy of that attack was a complete renovation of the hotel.  When I was here in 1997 (around the same time of year), I remember the crowds as affluent (we were the only non-sheik or drug dealers, I commented at the time), and the rooms in the heritage wing as “dated” and spare at best.

Florida International’s CIBER trip at the time was the first group that was admitted to the reopened hotel, so the Taj welcomed us with peach lemonade in the “club lounge,” and garlands, and with the news that we had been upgraded to the heritage wing (there’s a rather spare new wing built in the 1970s).  I think I could get used to being upgraded, especially into the luxurious part of the hotel; it is world class, as I realized when Preejesh escorted me from the elevator, gave me his card (as the team leader for palace services).  I’m reading “The India Way,” which I picked up at the airport—it’s a new Harvard Press book which distills the interviews four Wharton professors had with the heads of major Indian firms to postulate an “India way” for Multinational Corporations to conduct business.  I think my students will be reading excerpts.

One of the companies, and one you have to discuss as a global powerhouse, is the Tata Group; the Tata group five years ago unveiled the Tata Nano, a real “Volkswagen” (people’s car) with a base price of under $2,000.  It also owns the Taj hotel chain, Jaguar and Landrover,  steel companies, etc.

I should note that the service at the hotel in Bangalore, also a Taj chain member, was also immaculate. Both hotels, however, have tighter security than most hotels.  My cab in Bangalore, when permitted into the parking lot, had to have the trunk and the underbody examined.  I guess it’s a measure of India’s neighbors….

Bombay is the commercial capital of India, with headquarters for most Indian companies (and Multinationals doing business here).  It’s on the ocean (the Arabian Sea) and I remember reading early Clancy novels involving the Indian Navy headquartered here.  It’s about 20 million population, but the traffic, while heavy, flows here.  We’re getting a tour tomorrow, so maybe I will have a report then.

It’s far different than Bangalore, where we toured earlier today.  Bangalore is a city of almost 9 million people, but less than a decade ago, it had 2 million people.  That may explain the congestion and the state of the infrastructure.  Interestingly, the city seems to be building monorails, rather than expressways, which has torn up the streets, but may be a more sensible first step toward controlling pollution.

Among the sites was a garden, which was a cross section of Bangalore’s history.  The founder of the city created the first part of the garden in 1537, along with a tower that marked the first boundary of the city.  Tipu Sultan, whose history I discussed in my blog post on Mysore, expanded it.  But it was the British who turned a 40-acre garden into a 240-acre one, and built a replica of the Crystal Palace, where there will be a flower show in a few weeks to celebrate one of the major national holidays.  The British, I should point out, recreated a lot of England in their far-flung empire, and it’s relatively easy to spot the old British military establishments in Bangalore.  They now house the Indian military establishment.  The colonial churches are also still in use, many of them in pastel colors. One of the names for Bangalore is “retirement city” because it had and has a relatively benign climate for India, without the extreme heat of Delhi or the cold of the foothills of the Himalayas.  It seems to have been an important center for the British for that reason.

The founder of the city started a Nandi temple—around the statue of the bull, which I believe is the carrier of Lord Shiva.  The huge bull, carved from a single block of granite, was one of our stops on the city tour as well.

Talk to you tomorrow.

Namaste.

From Bloomington-Normal, Caterpillar’s headquarters is about 45 miles away—and 45 minutes (unless, of course, you go faster than 60 miles an hour on the Interstate). Here, Caterpillar has a plant we visited that’s closer to 2 hours away—and probably not much further than 45 miles away. The difference is partly attributable to the state of infrastructure (i.e. inadequate roads, too many cars), and partly due to the existence of a whirlpool effect in the sea of commerce. To get to the Power Division of Caterpillar (which has become the global source for two engines that Cat moved to Hosur, the town it is in, from plants in Japan and Indiana, which needed the capacity to produce more) meant crossing state lines. There are 28 in India, sort of arranged along ethnic lines (remember those 14 or so official languages!), with chief ministers who seem to have more power than American governors, including the power to attract industry (which is why Cat is in Tamil Nadu, the next state over, rather than Karnataka, where sits Bangalore).

Another power the states have is to set commerce standards, and that’s where the whirlpool in the commercial sea occurred that interrupted our journey and probably sinks a lot of business boats. We were pulled out, along with every commercial vehicle, to pay a tax on whatever goods (and that includes people) are moving from one state to another. The taxes vary greatly, our guide stated. It’s as though if you distributed goods from Illinois to Indiana, you would have to stop at the state line and pay a duty on those goods. The CAT managers we spoke to said the parliament is probably going to pass a general sales tax that will end the state taxation of commerce that seems to be, as I suggested earlier, one of the drawbacks to doing business in a sea of chaos.

When we turned off the main road to the entrance way to Caterpillar—through a small town—and into the campus, we were again in an Island of Excellence. Caterpillar is the biggest Illinois exporter, and over 60% of its revenue comes from overseas sales. As I wrote from Beijing in May, those sales in Asia have been problematic because Caterpillar has positioned itself on the dimensions of quality and durability, while Chinese buyers (and also Indian ones) are more concerned about price, and are willing to forego features that might be standard on equipment for Americans (such as air conditioning, the Cat managers noted). In shifting the manufacturing overseas, Cat has attempted to address its costliness while still keeping up its quality. The effort has resulted in a plant that for all intents and purposes could be in Mossville as easily as in Hosur—at a fraction of the cost. For example, the plant employs several hundred employees, but, though the shop is union, only about 30% belong to the union. The remainder are temporary help, and the pay differential is significant; a union employee with substantial experience can earn up to $8,000 a year, if I understood correctly, while temporaries earn $1,200 a year. The challenge to standardize the quality involves standardizing the quality of the work force, which has meant a cultural transformation; the trinity seems to be quality, safety, and conservation. Each employee (I would guess tenure track) will have to come up with 6 ideas for improvements (the Japanese pioneered this; it is called kaizen)—but the average is 30. In addition, the concepts of working in a safe environment have spread away from work and into the home; workers now wear seat belts we were assured, and the whole family is enlisted in the creating of safety slogans, for examples. The plant is run on Caterpillar production standards to obtain high performance (quality, safety, production—over 2,000 days with no time lost due to accident), and everywhere charts measuring the things Cat has established as critical, with input from the plant.

The other task, they told us, was to bring the suppliers onboard as well, because getting the cost of the units down depends not just on Cat’s employees, but its suppliers as well. The plant still uses a lot of foreign parts (I think he said 60%), but the goal is to shrink that to 20-40% eventually. The market leader is Cummings, which has 95% of its engine parts coming from Indian manufacturers. Ironically, I recall the reluctance of Cummings to outsource, but the Indiana-based company felt it had no choice—because its chief rival, Caterpillar, had done so! The main seaport for export is Chennai, still four hours away—but a few years ago, it was eight.

The common theme of the businesses we’ve visited is the importance of hiring and retaining qualified personnel. Cat says it hires a lot of vocational school graduates, who train for 8 weeks in the classroom, and then spend a day on a simulated assembly line. Apart from the free transportation and free meals Cat provides, we could have been in Peoria (and of course, the lower wages). The plant is an example of Cat’s response to the pressures of global competition, and how it is playing the quality/price game—in a division whose products mostly go to build other Caterpillar products. It was almost like visiting a Japanese company in the early 1990s, when the performance attracted both fear and emulation, and management gurus wrote books about Theory J on how to compete with the Japanese.

Ironically, we went to a Japanese company afterwards, or rather a Japanese-Indian joint venture that was a really small operation by comparison; the Japanese company has only 1,000 employees in its plants. It makes hydraulic machines, and while we saw labor-intensive operations, it resembled a small machine shop more than the kind of world-class operation we saw at Caterpillar. One takeaway, though, was the presence of a rain harvesting program, which is an effort the plant makes to reduce cost by capturing water during the monsoon season, storing it, and using it the rest of the year.

We’re leaving Bangalore for Bombay (Mumbai), with part of tomorrow being a tour of the important sights of the city, which was founded early in the 17th century. For business purposes, I’m glad we came here, and appreciate the variety of the businesses we’ve seen—first class Western and Indian companies. Interestingly, Harvard Business School thinks so too. In addition to a number of cases on companies here, including the not-for-profit we visited, Harvard Business School students are also in our hotel, visiting some of the same places we have.

Enjoy the weekend.

Namaste.