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|April 9, 1999||
The Rediff Business Special/C K Prahalad
Emerging conglomerate discount in India
The dramatic change taking place in India since 1993 (and which is likely to accelerate during the next decade) is best described as morphing of the Indian social and economic landscape.
Change management, transformation management and other such notions do not describe the nature of the silent revolution in India.
Change in India is not top down, it is not orchestrated, and neither is it traumatic as in Russia. Change is bottom up, distributed, autonomous and spontaneous. While the direction is predictable, the events, location, and the leadership of activities are not.
The impact of these decentralised experiments is complex and unpredictable. It is a deep transformation from within. I use the term morphing to describe this dramatic change.
Weak signals and a strong message:
The evidence of these changes is everywhere. For example: The stock market and the individual investors are voting with their pocket books. Knowledge-based firms such as Infosys, Satyam Computers, Wipro and NIIT command a market capitalisation that is better than 10 times their revenue, or 10X.
Multi-nationals such as Hindustan Lever, Glaxo or Colgate Palmolive command a 5X.
Traditional blue-chip firms such as Telco, Tisco and Reliance command less than 1X. Why?
Groups of companies, such as Birlas, Modis, Essar, DCM and others command a less than 0.5X. Is there an emerging conglomerate discount in India?
Large, traditional businesses such as Hindalco, Telco and ACC have lost more than 50 per cent of their market value in four years. Does this reflect recognition among investors of the vulnerability of these firms if they do not transform themselves?
The market for talent is also changing. For example, very few Indian firms are on top of the list in the IIMs and the IITs. Is the best of talent in India giving Indian industry a clear signal?
The Indian consumer is experiencing choice for the first time and taking to it with gusto. Automotive products, two-wheelers, personal care products, appliances, TV entertainment and clothing -- areas where she/he has a choice, are becoming competitive. The Indian consumer is exercising choice and will do so with greater force.
The Internet is already having a major impact. It is possible to buy pizzas or movie tickets on the Internet. Is the Internet in combination with cellular phones and cable, creating a new level of consumer sophistication and the evolution of new channels? Are our retailers creating E-commerce solutions and database marketing without knowing these terms?
Rural wealth is growing faster than urban wealth and the wealthy are equally distributed. Will rural wealth challenge the assumptions about where the Indian market is headed?
The emergence of Tier#2 and #3 markets -- with income levels of Rs 15,000 and above is likely to create a new market for products -- but at price-performance levels that are new to the organised, corporate sector. For example, Citibank is experimenting with customers who can deposit just Rs 1,000 in Bangalore. What does this mean for the spread of banking and financial services to Tier #2, #3 and #4?
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