Posted on 10/15/2007 1:42:25 PM PDT by CarrotAndStick
LONDON: Arun Sarin has got more than he bargained for when he paid a bomb to acquire Hutchison Essar; he’s getting a taste of ‘how they do business in India’ and he sounds bowled over. Yes, Hutch Essar is adding 1.5 million to 2 million subscribers per month.
Yes, Vodafone’s India targets are 100 million in a few years, a market potential that boggles European minds. But that’s not what’s exciting the Vodafone CEO.He’s looking, in India, for the answers to put his high-cost, low-growth European business on the fast track; a reverse transfer of management technology, if you will.
At a time when the Indian market is agog to know what a ‘world-class’ Vodafone will bring to the Indian market, Vodafone is bringing back Hutch India’s world-class practices to Europe. “I’m putting plane loads of managers on flights to India, and I’m telling them ‘go get me the secret of their low-cost business model.’ When we did the deal, we only thought about what we would bring to the business; now we find there’s so much more we can learn from them,” says Mr Sarin.
Consider the numbers he rattles off. In the UK, an average call, in dollar terms, costs 15 cents a minute per call. On this, the telecom company makes a 40% margin. In India, it costs 2 cents; and the average margin is 40%. “We have costs of about 8-9 cents, they do it in 1 cent,” he says.
And it’s nothing to do with low labour costs in India. That, he says, would account for just one-third of the difference — “Two-thirds is just How They Do Business.” There’s more. “I should not have been, but I’m pleasantly surprised at the deep skill-sets and competencies of the managers, in marketing, in distribution... when I go to India, I have to resist the temptation to tell them to jump in the plane with me and bring them back to London for Vodafone’s global needs,” he says.
Mr Sarin was making a presentation to a select audience of 300-odd British industry movers and shakers, brought together by Britain’s apex trade body, the Confederation of British Industry. Among his compatriots, Mr Sarin sounds like an India evangelist – but he’s just being a canny businessman.So much so, he warns his business competitors that Vodafone’s India experience, will help it change the way it manages its business. “And I think our competitors, who do not have an interest in India, will find themselves at a disadvantage,” he says.
Right on Mr Sarin. It’s not surprising, given that the European mobile business model seems high-cost, high-priced and antiquated even to its own practitioners. In contrast, Indian telecoms companies are lean, mean and hugely cheaper, both in pricing and cost. It’s what Mr Sarin calls the “innovative approach to delivery, services, and distribution systems.” While European telecoms companies have in the past, built up huge technology and distribution infrastructures, Indian companies have outsourced most of it, Mr Sarin points out.
When the British businessmen reiterate the usual concerns about bureaucracies, policies, reforms, government stability and FDI in various sectors, Mr Sarin gently points out: “In telecoms, we find India is one of the more open economies for foreign investors; in China, we own just 3% of the telecom company we have there, the government owns 87%. Even in countries like the US, France, and many others are not so open to telecoms,” he says. And well, if his experience is any indicator, Indian companies are more than able to take on foreign competition on telecoms.
One of the premises the CBI opened this debate, more focused towards interested corporate managers than to a feel-good diplomatic audience was whether India is suffering from hubris — biting off more than it can chew. Mr Sarin and his fellow panellists would more than have put that doubt to rest.
Vijay Mallya took the questions on matters of policy, and pointed out India’s problem is not shortage of wealth, but that of accountability in governance, and Kris Wadia of Accenture postulated that the centre of corporate gravity may well be shifting to India. But it was Mr Sarin’s quiet numbers and obvious excitement that set the tone.
Trying to collect is a different issue. Many of the consultants I work with are from India. They say that India does not track an individual’s credit like is done in the US or Europe. They say that they will purchase things under false names, fake credit cards, sign up for apartments, etc. and when the bills come due, they just won’t pay. So paper profits might look good. Reality might be slightly different.
I am not sure if I should be impressed... I can sign up with Vitelity.com as a retail customer and pay 1.4 cents/minute on a pay as you go basis. Surely they are making some money on 1.4 cents/minute as well.
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