NRIs Turbo Charge Indian Businesses
|At home and abroad, what value do non-resident Indians bring to multinational corporations?
In 1980, Vivek Paul left India to obtain his MBA in the U.S. and, after graduating, had the good fortune to be recruited by Jack Welch at GE. In 1999, he left his position as the global head of GE Medical Systems to join Wipro, the Bangalore-based IT services firm, which at the time had about $150 million in revenues. By the time Paul stepped down in 2005 as Wipro’s CEO and vice chairman, the company had become a leader in global outsourcing, with revenues reaching $1.4 billion.
Paul, who is now a partner with the U.S. private equity firm Texas Pacific Group, is a high-profile example of what some believe is a growing catalyst for the development of Indian business: non-resident Indians (NRIs) educated in the West, often in the United States, who participate in the overseas expansion of Indian companies or who help international firms expand their business in South Asia with a high degree of Indian “DNA.”
According to Jitendra Singh, a professor of management at Wharton and Ravi Ramamurti, professor of international business at Boston’s Northeastern University, émigrés can help their countries of origin in a variety of ways, providing economic capital that may be in short supply domestically, providing “hard” skills, like engineering training, and “soft” skills, such as a more intimate knowledge of global business culture.
In India, the contributions made by émigrés are not readily apparent in economic terms. “Overseas [expatriate] Chinese accounted for 80% or more of the inward FDI [foreign direct investment] into China in the 1980s and early 1990s, when that country opened up,” Ramamurti says. By contrast, “Non-resident Indians (NRIs) accounted for 10% or less of inward FDI after India opened up. Most of the capital sent to India by NRIs was personal transfers to family and friends, not FDI.”
Instead, NRIs bring a mixture of hard and soft skills, some of the latter quite subtle but still important. “The subtlest aspect can be a different set of aspirations and the confidence that they can be achieved, which can transform a firm’s culture, if leveraged well,” Singh notes.
“But in some industries, like pharma or biotech, or some other high tech industries,” he adds, “there can be hard factors as well like research or production processes, or the use of technologies like recombinant DNA or cell fusion in biotech.”
Two Generations of MNCs
“There are two types of Indian MNCs today,” Ramamurti says, “first-generation MNCs that were created when India was a closed economy, in the 1980s and beforem and second-generation MNCs that were born after India embraced globalization in the 1990s.”
At different political and economic stages, different skills were needed. “In theory, NRIs offered three potential advantages: cutting-edge expertise, a rich professional network in the West, and, in the case of high-net-worth individuals, capital,” Ramamurti notes. “But these advantages were of limited use in dealing with the central challenge facing first-generation MNCs, namely, organizational transformation of their domestic operations.”
“The most important contribution of NRIs to first-generation MNCs was probably indirect,” he adds. “Through their outstanding professional contributions in the U.S. and Europe, NRIs established the credibility of Indian talent and added luster to the India brand. This cleared the way for Indian companies to sell their products and services in the West. And through their annual remittances of $20 billion or more, NRIs helped strengthen the Indian rupee, making overseas acquisitions more affordable.”
In addition to capital, connections, and both hard and soft skills, non-resident Indians sometimes fill the role of “fulcrum,” or ambassadors between foreign MNCs and their Indian subsidiaries – and between Indian MNCs and their foreign subsidiaries or markets – shortcutting much of the need for cultural education. “Multinational corporations that are increasingly interested in India are hiring such non-resident Indians or sending senior NRIs already on their staffs back to India,” Singh says.
What Qualifies as ‘Indian’?
Recent mergers and acquisitions in the steel sector, such as Netherlands-based Arcelor Mittal, have put Indians and Indian companies at the forefront in that industry. But can such companies still be considered ‘Indian’?
“By a very loose definition,” Singh says, “Arcelor Mittal can be thought of as an Indian MNC, but I tend to think of it as an MNC led by Indians. It is quite different from India-based companies that have most of their revenues or profits coming from India, like Reliance or Bharti Airtel, or, for that matter, Infosys or TCS, which have most of their revenues and profits come from outside India but are based in India. Arcelor Mittal has relatively modest India exposure, but it is a truly global firm.”
“The nationality of MNCs has become a less meaningful concept as globalization has accelerated,” Ramamurti says. “At one time, firms were headquartered in their country of origin and raised most of their capital at home before slowly expanding abroad. Today, in a world where people and capital are highly mobile, entrepreneurs can optimize where they incorporate their firms, in the same way that they might optimize the global supply chain. Just as products today are made with inputs from many countries, the modern firm is created with inputs from several nations, and therefore it is less and less meaningful to speak of the ‘nationality’ of MNCs.”
Ramamurti points to a variety of different kinds of cross-pollination between NRIs and firms, both Indian and foreign. “NRIs in the U.S. venture capital or private equity businesses have helped fund start-ups in India. Other NRIs became entrepreneurs themselves, often creating ‘born-global’ firms that, from day one, had a front-end sales or design team in the U.S. and a back-end operations team in India, such as MindTree Consulting. Other firms did exactly the same thing but were headquartered in the U.S. and were therefore technically U.S. MNCs, not Indian MNCs, like 24/7 Customer, Cognizant and OfficeTiger.”
Singh cautions that it is important not to overstate the importance of NRIs to the current boom. “Most of the India-based firms, like Reliance, the Tata group, the Aditya Birla group, the IT companies and many others, were in large part not led by NRIs or expats, although they may have contributed to such firms. So if a case can be made [for the importance of NRIs], it has to be a rather circumscribed one.”
Indians vs. Indians
The outsourcing boom has highlighted growing competition between Indian workers, both in service industries like call centers and in higher-value areas like engineering, and workers in more advanced economies, like the U.S. This competition has deep political and cultural resonances and often has a sharp edge to it. The business success of NRIs often engenders some ambivalence, depending on where it takes place. The successes of Indians or Indian businesses abroad is most often cause for celebration and national pride; the success of NRIs, particularly those who either re-immigrate to India or split their time between several locations, is sometimes viewed as a bit of a mixed blessing.
“One problem I have seen on several occasions,” Singh notes, “is the animosity that can sometimes develop between the NRIs and the local executive talent.” He cites the hypothetical example of two graduates from one of the IIMs or IITs, who were classmates 25 years back, who meet again in an Indian firm which is starting to go global.
“One of them has spent the last 20 years in the U.S. or Europe and developed world-class capabilities, say, in the biotech world. The other has made steady progress up the ranks while remaining in India. The only way the Indian firm can hire the NRI is to pay him compensation comparable to his global market value, or else they will not get him. Clearly, they cannot pay the other guy the same. While he is capable, his market value is much lower. Needless to say, if he finds out that his former classmate is doing two or three times better than him in overall compensation, he is not going to be happy about it. He sees the other guy as a little bit different than him, but that does not give full credit to his colleague’s quite different human capital, which is recognized by the global marketplace. This will be a rather serious issue for Indian firms for the next few years.”
Ultimately, Singh believes, this is a management issue which Indian firms will have to work through. “I think the leadership of firms that bring in such people are responsible for helping them integrate better,” he says.