Active in airports, roads, and power, GMR Group, led by founder and chairman G.M. Rao, is right in the middle of India’s efforts to build up infrastructure. While
Rao expects the economy to remain vibrant, he worries that it can’t be developed fast enough to support current economic growth rates.
The chairman is also concerned that not enough has been done to strengthen the rural economy, which above all needs education, roads, and jobs to give villagers a chance to participate in the new-found prosperity.
GMR Group chairman G.M. Rao
GMR began almost 30 years ago as a single jute mill in the village of Rajam in the eastern part of Andhra Pradesh. “Our journey to today’s GMR happened just accidentally,” Rao says. “Whatever opportunity came up, we have taken that...” Along the way, GMR has been active in banking, insurance and breweries, but left these industries to consolidate around infrastructure.
A long with minority partner Fraport AG, which manages Germany’s Frankfurt airport, GMR is leading the effort to modernize New Delhi’s international airport. It is also building a new international airport in Hyderabad and expanding the Sabiha Gökçen International Airport in Istanbul.
Meeting in the GMR headquarters in Bangalore, Rao and Gautam Kumra, a director in McKinsey’s New Delhi office, discussed India’s economic prospects, GMR’s experience with public-private partnerships, and Rao’s passion for best-practice management of family businesses.
CCan India sustain its recent economic-growth rates?
In India the whole system is set up for 5-6% annual GDP growth. The sudden growth of more than 9% has surprised everyone, and sustainability is a very big question now. I have doubts we can sustain this type of growth if two areas—the rural economy and infrastructure—aren’t taken up more seriously.
Ours is an agrarian country, and a lot of things have to happen in the rural areas. In villages there is not much connectivity, proper infrastructure, or educational facilities. There is not an adequate supply of qualified teachers, and the infrastructure is not there. Many schools teach in local languages, and that’s not enough to move upward. People in the rural areas are, therefore, moving to the cities, which are already very crowded. Education is very, very poor. The government must do better at addressing the rural economy.
Growth will also be difficult to maintain without large improvements in infrastructure. The government is putting a lot of focus on that, but there are still a lot of challenges. For instance, getting skilled labour is a very big problem now for infrastructure projects. Because of this, most of the projects are being delayed. We should look at something like Singapore’s Building and Construction Authority Academy, which was set up by the government to ensure that there’s a continuous supply of skilled labour for all the projects.
At GMR, we’re also thinking about setting up our own training centre, with courses of 90 days or six months.
Has the government been effective in addressing these problems?
The government has initiated several positive changes, and private players are also more and more interested in participating in infrastructure development. However, we need increased momentum to maintain these high growth rates. For example, the demand for housing, cold storage and power outstrips supply—even considering planned capacity additions.
There are also problems with disbursing funds and implementing these improvement projects. The government is spending a lot of money to improve roads, but ultimately, a lot of that is not reaching the people. Unless you change this, that allocated money is not going to do much good.
Implementation is also a problem. The government is not organized for this kind of growth or for speedy implementation of projects. It has to strengthen the whole system. For example, the National Highways Authority (of India) has one system for the whole country, but it should be regionalized into four sectors: south, north, east, and west. They could each call for their own tenders and monitor their own projects, while reporting to New Delhi. Under the current system, we have so far only completed about 10% of the planned national road improvements.
What can the government do to improve the rural economy?
The government should encourage manufacturers to set up their factories in the villages. I read recently that a big multinational mobile-phone maker designs its phones here in India, but manufactures them in China. This company makes millions of pieces a year, and about 2,000 people have jobs there. Why can’t we have the manufacturing as well? One reason is the Labour Act. We cannot expand the manufacturing industry without the right to hire and fire. We have the capability to manufacture, but we have to change our labour policy.
We also need to expand microfinancing further into rural areas. So many people in villages fall into the debt trap. Their family land is subdivided among brothers into plots too small to cultivate effectively. Then they go to the moneylenders to get by. When they can’t make payments, the moneylenders take away their land. Families that were once respected landowners are now labourers, and they migrate to the cities.
What is GMR’s role in building India?
The government is targeting investment of more than $475 billion (Rs18.67 trillion) in infrastructure over the next five years, and I am sure GMR will contribute significantly to this nation-building programme. Today, we are present in both agribusiness and infrastructure.
We want to play a major role in all three infrastructure sectors that we’re in today—energy, highways and airports.
On the energy side, we generate 880MW of power using liquid fuel. But we also have coal and hydro projects under way. We are also looking to enter transmission and distribution, and whenever nuclear opens up, we want to move into it. On roads, today we have built 270 miles (about 435km) of roads, and we want to go more aggressively into this sector. But as I said, there is a problem getting skilled labour.
Our final core area is airports—not just the buildings, but also the facilities. At Hyderabad, we want to bring in international best practices for cargo, ground handling, and even the fuel farm there. And today, all Indian aircraft are going to other places—Singapore, Dubai—for maintenance and major repairs, so we’re setting up a maintenance hub in Hyderabad as well. In Delhi we want the airport to be like a city, an “aerotropolis”. Everything will be available around the airport: convention centres, residential complexes, a hospital, and entertainment facilities.
Is it realistic for the government to expect the private sector to participate heavily in building the country’s infrastructure?
I don’t think the government is asking too much. Today we are involved in two public-private partnerships with the airports in Delhi and Hyderabad, and our experience has been very positive. The public side has the capabilities—the technical capabilities—but the speed is not there. We are bringing the speed, as well as the best technology, the best financial engineering, and the best talent in the world.
Take the Delhi (International) Airport as an example. Building that type of airport—5 million sq. ft—with high standards would take a minimum of six or seven years anywhere in the world. But we’re helping to expedite the project, and we’ll build it within three-and-a-half years by implementing global best practice. The government is giving us its full support. It’s helping to get us all the clearances that are needed, such as utilities, power, evacuating the land.
What has made the partnership so successful?
You must be transparent and communicate with the government properly about any issue that comes up. I’m not facing any major problems now. One has to regularly communicate. Every month we have meetings with people from the ministry of civil aviation, with the state government, with the lieutenant governor, or with cabinet secretaries, and we discuss what is happening on the project. But if what you say and what you’re doing are different, then the authorities in the government will become sceptical. If you’re honest and transparent, then you’ll get the clearances you need.
But the private side also has to do a little more than just communicate clearly. One has to be perseverant to get things done. Once the officers or bureaucrats are back in their offices, their time is not their own. They get preoccupied with meetings with internal and external constituencies. You’ll no longer have their attention. It’s up to you to keep things moving. I might need A, B, or C, but once an official is back in the office and is distracted by meetings and appointments, it could take five, 10, 15 days—a month—to get what you need. So, somebody has to follow up. You cannot have a passive relationship; you have to be very actively engaged.
In July, GMR and two partners won the bid to build a new terminal at Sabiha Gökçen International Airport, in Istanbul. What made you expand abroad?
With India’s government and the Left opposing further privatization of airports, it will take a lot of time before new opportunities come up in India. We already had a good airport business-development team and we had good skills. We had very little time to prepare for the opportunity in Turkey, but we geared up and won the bid.
We are open to other opportunities abroad in any of our sectors. We’re not going to go after all the tenders, though. We would prefer to be selective, ensuring that we deliver what we promise.
How have you been so successful in these highly competitive tenders?
With the Delhi airport, it was really the opportunity of a lifetime. We worked for two years on the Delhi airport proposal, focusing on the ultimate goal of winning the bid. We concentrated on improving the financials, evaluating various options to combat the challenges. We visited different airports, set up a separate business-development team in Delhi, and examined all the parameters. We followed the same process for Istanbul.
What organizational changes have you made as GMR grew?
I started business all alone. Then in the course of time, some friends joined me. It has been a long journey since those days, and we’ve taken advantage of opportunities as they came along; for example, when the government opened the power sector to private investments, we made the strategic decision to enter energy. Starting from a single jute mill in 1978, we now have more than 2,000 employees, a radically different focus, and annual revenues of almost Rs2,000 crore.
Two recent changes are worth noting. First, we’ve launched a detailed performance-management system throughout the group and have introduced variable pay linked to performance as part of the process. Until now we’ve just had fixed compensation at all levels. Regular performance appraisals with clear-cut goals and talent-pipeline management have been introduced in a new human resources management system. This was very difficult to initiate. People were treating the appraisals as rituals they had to go through. Then we included performance targets, and people started taking them seriously.
Next, about two years ago we formalized our strategic-planning process. And after identifying high-priority areas, we implemented a balanced-scorecard system to keep track of our progress. These scorecards are deployed down to the manager level and are reviewed at least twice a year.
Can you tell us what you’ve done to ensure GMR’s health as a family-owned business?
When I was a director at Vysya Bank, one of my tasks was to talk to people with nonperforming assets, who were about to default. I saw a lot of family businesses in trouble. I remember one well-respected family with two brothers. The younger would never sit down before the older one did, as a mark of true respect. Three years later the same brothers were fighting in the streets with knives. Once family members start fighting, their energy is diverted. They are no longer focused on the business, but on the fight. That was a big lesson for me.
Later, I went to a conference on family businesses and heard M.V. Subbaiah of the Murugappa Group speak. That was a real eye-opener for me. I started attending international family business summits, and I brought in top experts to look at my business. Then I called a meeting of my family and, very reluctantly, all eight members came. We had a lot of differences, and everyone was allowed to talk freely. We all started talking very animatedly, emotionally—arguing and what not. It took time to get everyone to reach consensus. I put it all on video so that the next generation gets to see how we executed it.
In the end we agreed to a family constitution model that outlines succession, conflict resolution, our values and our mission. It says what qualifications are needed to enter the business, as well as our media and political policy. It even talks about what happens in case of a divorce. All these things needed to be addressed in detail to protect and delink the business from the family.
What would you like to see GMR become?
We want to be a good player in infrastructure and a great institution. All of my family members share this idea. We want to be a value-driven institution. That is the type of brand that we want to create. I’ll know we’ve reached this point when something happens in the business and no one bothers me. Other people will take care of it, so I can go on a long vacation and nothing happens.
Reprinted with permission, ©/McKinsey & Co. The article was originally published in The McKinsey Quarterly and can be found on its website, www.mckinseyquarterly.com