Mumbai: At a time when the overall mood is glum, Hans-Paul Burkner continues to be optimistic about the future. The president and chief executive officer (CEO) of global consulting firm Boston Consulting Group (BCG) studied the economies of India and China when he was a student. He says the two countries have progressed a great deal since then, and India will continue to do well despite temporary setbacks.
Though he never visited India back then, he has been a regular visitor in recent years. In an interview, Burkner says he can see the transformation of India each time he comes here, even as he points out that he is yet to visit the countryside. Edited excerpts:
The world is clearly worried about the European crisis. There are problems cropping up elsewhere as well. Jeff Immelt, CEO of General Electric Co., was in India a few weeks ago, and he said business was better than the mood. Do you agree with him?
There are undoubtedly many reasons to be concerned, not only the debt problems in Europe, the US and Japan, but also emerging issues in some of the developing markets. But the prospects look better in the long term. There are 150-200 million new consumers each year. Good companies will have opportunities to expand. New companies are coming up. It will take courage, ambition and persistence to make it work. But I think that when we look back 10 years later, the second decade of this century will be seen as a decade when prosperity grew.
Extreme effects: Hans-Paul Burkner says capitalism has provided higher standards of living than the socialist system could, but it has also been prone to waves of exaggeration. Photo: Abhijit Bhatlekar/Mint
Do you fear a backlash against business because of the current troubles?
We have to take what is happening seriously. It was said in 1989 that communism is dead. Some people have been saying since 2009 that capitalism is now dead. It’s not that capitalism has not worked. It has provided higher standards of living than the socialist system could. But capitalism has also been prone to waves of exaggeration, be it the dotcom boom or what happened later.
Watch Hans-Paul Burkner talk about the current business climate and what firms need to do to cope in a two-speed economy.
I suppose the main anger is directed against the banks.
People are angry about the way profits have been privatized while losses have been socialized. A lot of banks continue to do a good job, giving credit to retail customers and small businesses. Without them, people would have to resort to expensive credit from the grey market. But, as I said before, we have seen waves of exaggeration. People were sold complex products they did not understand. The combination of investment banking and commercial banking led to huge losses. Banks will also have to learn to live with lower returns of equity. And then balance sheets will also have to be cleaned up, a process that will take a decade in Europe.
We are in a two-speed world, with different rates of growth in the developed and developing markets. What does this mean for companies?
It’s not just two speeds, but also two mindsets. The developed world is seeing slow growth. Europe and Japan are also ageing rapidly. People in these parts of the world have a strong sense of entitlements. The population does not look at the future with optimism. They do not believe that their children will have a better standard of living than them. There is a fear of the future. In such a situation, the tendency is to protect the status quo.
It’s very different in the emerging markets. I recently met a poor Indian woman. She wants her four children to go to school. She wants her husband to go to work on a motorcycle. Aspiration levels are high. And what is true to her is also true for companies here. They want to grow quickly.
We need an emerging markets mindset across the world. As far as companies go, they will have to deal with all this in a schizophrenic manner, by restructuring in developed countries and investment in the emerging markets. They will be marginalized if they do not build a strong presence in the emerging markets.
One popular belief in India is that while China has a better government, India has better entrepreneurs. Do you agree?
First, I am very impressed with Indian companies. They are entrepreneurial through and through. You meet a $5 billion company and it wants to grow to $30 billion in sales by 2020. It’s not just the big groups like the Tatas and Birlas, but also smaller companies such as Bharat Forge (Ltd) and Suzlon (Energy Ltd). What I also see here is that many Indian companies are also self-critical; they do not pretend to be perfect.
The public sector has a relatively stronger presence in China, but there are very strong entrepreneurs there as well. Do not underestimate the Chinese entrepreneur.
The world is changing rapidly. What will the future organization look like?
There are several challenges. Most large firms have global operations, but their management is domestic. The Germans run German companies, the Koreans run Korean companies, the Indians run Indian companies. We could see more nationalities being represented in senior positions in the next 10 years. Companies will need a global mindset, but they also need to understand local culture.
Decision-making will also have to become more flexible and adaptive. Business models need to be tweaked in different parts of the world. The corporate centre is too far away to understand changes on the ground; or if they do, it is often too late to react.
The third big change will come from new technology and transparency. Companies will have to be more open and respond faster. But there are no clear models evolving as yet.
We have already talked about the risks of a backlash against business. How should businesses react to larger social issues such as climate change, unemployment and inclusive growth?
A company has to be fully integrated into the operations of society. You are failing if your corporate social responsibility (CSR) activities amount to nothing more than a glossy brochure. It makes business sense as well. Take the sustainability issue. If companies can use less energy and raw materials, they also save costs. So, they can become more responsible and more profitable. Or take the issue of unemployment, which is especially acute for unskilled workers. There is already a scarcity of skilled people and top talent. Some 50 million people will retire in Europe in the next 20 years, while only 10 million will enter the job market. There will not be a lack of work, but a lack of employable people. Companies need to provide skills.