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India has chance to shift to better business climate

India has chance to shift to better business climate
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First Published: Tue, Jun 16 2009. 09 24 PM IST

Valuable experience: Diamond Management and Technology Consultants chief executive Adam J. Gutstein.  Ashesh Shah / Mint
Valuable experience: Diamond Management and Technology Consultants chief executive Adam J. Gutstein. Ashesh Shah / Mint
Updated: Tue, Jun 16 2009. 09 24 PM IST
Mumbai: A few days after 26/11, Adam J. Gutstein, CEO of US-based Diamond Management and Technology Consultants Inc., a leading management and advisory firm, visited Mumbai on an unscheduled visit. “We have our clients and our office here, I needed to be here,” Gutstein said in an interview, about six months after the episode. “The city and the hotel, (were) virtually empty then.”
Last week, he was in India again, and found that “the city hasn’t missed a beat”.
Valuable experience: Diamond Management and Technology Consultants chief executive Adam J. Gutstein. Ashesh Shah / Mint
For this listed consulting firm, an anomaly in itself given that most consulting firms pride themselves on confidentiality, India is a relatively late start and contributes no more than 2% of its global revenues, but the work from India is so useful that the experience and inputs from here are used for their other clients elsewhere. And already, it has done some work or the other for most of India’s leading telecom companies. Edited excerpts:
How often do you visit India? Have businesses and the government evolved in the way they do business since your first visit?
I’ve been visiting India since the late 1990s. India has a chance to make some real progress. With the new government having won by such a substantial margin, it now gives them a chance to invest in some key issues such as investment in infrastructure.
Now, India is expressed in the same breath as China. The Hindu growth rate, where the notion is that you can only grow so much, is no longer the case. Businesses, as a rule, were not doing a spectacular job because they were hindered by the government. Now, what people outside India are saying is that India has a great political system, in the sense that it has a stable democratic government that is run by the rule of law for a long period of time. The government now has the impetus to change things to a more productive business climate. I think the attitude from countries and businesses outside India is that India is a good place to do business. I think the last time I was here was just a few days after 26/11. I came to Bombay, because we have clients and our office here. I care for my people and our clients needed to be here. So when I came here, the city was virtually empty and the hotel was virtually empty. Now that I am back, it seems as if the city hasn’t missed a beat. India is (in) a class of its own. Many people still look at India as only a market for cheap labour and great talent. What they forget is that India is a market. The balance between consumption and savings in the aggregate is going to shift over time. India’s middle class is only going to get larger.
While people are bullish, Stephen Roach recently commented that green shoots could soon turn brown?
That’s funny. I love Stephen Roach. He’s a very interesting guy, I’ve heard him speak. He’s a very good writer. But he’s also a very conservative and, at times, pessimistic person. When you are in business, and specially when you are in a leadership position, you are required to at least have some balanced optimism. If all you see are brown shoots and good stuff turning into bad, then you drive yourself nuts. The way I look at the world is I think its possible that everything is going to turn out good and wonderful. I can’t plan on that. What I can do is have balanced optimism. I look at it this way: “Call me at the end of December, the world is going to turn around.” There are others who see it the other way.
(The) US is a proxy to the world. Business investment was down over 30%, which is the greatest downturn in annualized basis of business investment since it was recorded. That is since the 1950s. That’s staggering. This is because consumption in the US and around the world has reduced dramatically. Eventually, that pent up demand has to surface. So, as Stephen Roach says, we have to see a balance of savings and investment. But it doesn’t have to be dramatic. I don’t think it has to be balanced and sustained as Stephen Roach believes it to be.
Consultancies do well during uptrends and downtrends, and in that sense, you guys are insulated from the vagaries of business...
We are in the middle. Middle is the most difficult time to manage. When you are going down it is easy to manage. You will cut costs, live conservatively, clean up the balance sheet and focus on retaining people and clients. All these are important. When businesses are going up, (it) is also easy. They are busy hiring and training people and marketing the heck out of things and finding new clients.
But when you are in the middle, it is tough. We have to be careful in any business. You don’t give any ground to customers because...then somebody else takes that position. And we all know it is harder to find new customers. If businesses don’t grow in this period, then they lose their best people. So, this is the most dangerous time to manage for any business. What we do is focus on costs, invest more in research and marketing. We invest more in intellectual capital and in people, and we continue to fight hard to keep our clients. We hire more because you build for the future. There is still high risk to invest prematurely, but there is higher risk to not invest and be caught when there is a turnaround. Because then you’ll lose time.
Where does a consulting group such as Diamond see more business? During downtrends?
Every consulting firm is different. We are in a great position in that we are able to work on both the growth side and the costs side. There was a time in our history when we were only known as growth guys. In the mid-1990s, the only thing we used to do was growth. Unfortunately, times get tough. Clients need help with costs. We can now work on both sides. Having said that, where clients appreciate and value our work more is clearly on the growth side. It is easier in many ways to manage costs. The first thing you do is restructure the organization, including your debt. It doesn’t need a lot of genius to do that.
Diamond is a listed entity, unlike other consultants who pride themselves on client confidentiality. How does that work?
Being a listed firm has helped us in many ways. No doubt there are downsides. Virtually all our clients are listed firms. When I sit across the table with another listed firm, we tell our clients that we emphathize. We tell them we know what it means to have quarterly targets and we know what it means to plan for the long term and the responsibility towards investors.
When did you set up an outpost in India?
We came to India some three years ago. India is relatively a small part of our business. Revenue from India is about 2% of our overall business. But those figures severely understate the contribution of our Indian office. For example, we recently completed an assignment with a life insurance company in India. It is a joint venture (JV) with a company from the West and a group based in India. We did some cutting edge work for them. The life insurance JV is looking at outsourcing to a third party in India. The board, when they considered our proposals, had representatives from other regions. They were taken in by our project and mentioned that this is exactly the work we need in other regions, including the US. So, we’ll export the learnings we got in India to our other offices.
If you can make money here (in India), then you can make money anywhere. Most businesses that have diversified out of their core competence haven’t been successful. It is different (that) Virgin Group and Kingfisher Airlines (of the UB Group) in India have diversified businesses. Most businesses that have diversified out of their core competence haven’t been successful. Stay close to what you know.
So, do you think some of them will have to divest their airline business eventually?
The airline business is a very tough business. Why do most of the businessmen get into airlines? Most of them get into it for hubris. Businesses are supposed to make money at the end of the day. Airline business has huge variations in cost. It is very hard to hedge in the right way and at the right time. Even Southwest Airlines struggled in this downturn. Over a course of time, they did well in hedging. One quarter was difficult, but now they are back on track.
On telecom companies. Diamond has done work with all the major telecom companies in India. Do you see the game changing?
We had some role with all the big guys. The game is still on the consumer side, putting together a package that is a combination of (the) right price, features and packaging, and going after the right segment. Everybody knows on the product side (that) SMEs (small and medium enterprises) are a big opportunity that hasn’t been addressed yet. Folks haven’t figured out (how) to address SMEs. Telecom, for a long time, has been a growth industry in India. I started using SMS in India much before I started using SMS in the US. India innovated. It’s a different market. I often use my BlackBerry more often than I use computer. It is much cheaper than (a) computer and broadband.
What’s the next trigger in India for retail?
I think the deregulation of the sector is inevitable. The current protectionist point of view of protecting small retailers doesn’t really help. The small retailer has to protect him or herself. The cost competencies that the bigger retailer brings is enormous.
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First Published: Tue, Jun 16 2009. 09 24 PM IST