Organising to grow in business
Choosing the right business that has growth potential is essential for companies in developing countries. According to Anil Zainulbhai, a Director from the Indian Practice of McKinsey and Company, a management consulting firm advising leading companies on issues of strategy, organization, technology and operations, successful companies which have had the ability to choose the right business which makes a fundamental difference in growth consistently outperform the market over a sustained period of time.
Speaking at a meeting organized by the Association of Chartered Certified Accountants (ACCA) this week, Zailnulbhai said that research shows the majority of growth in companies is attributed to portfolio momentum and mergers and acquisitions, a trend see in both developed and developing countries. Research also shows that companies find it very difficult to get growth solely from share gain.
Zainulbhai said growth matters because it increases the chances of companies surviving over time and it also increases the chances that they will survive over the period of a single business cycle which is anywhere from seven to 10 years. Companies that survive over an extended period of time spanning three business cycles systematically outperform the market.
From 1984 to 1994 in the United States, there were 29 companies out of a sample of 100 which were considered to be 'growth giants' and outperformed the GDP. Over two business cycles, a third of those 29 companies continued with their strong growth. In the United States, Zainulbhai said the focus is on how to get companies to speed up their growth from performing at GDP growth rates to GDP +3 or higher. However, he did say that each point of growth is extremely tough in competitive markets.
In India, companies record growth anywhere from 30 to 50 percent a year. Zailnulbhai said the level of energy and talent in the country is 'phenomenal.' Even in India, the survival rate for companies that grow faster than the GDP is commendable. However, companies that have slow growth are six times more likely to fail in the long run. There is a 92 percent probability of outperforming the market if companies have aggressive growth without margin decline and a 70 percent probability of outperforming the market if companies have steady growth coupled with an improving performance.
Using India as an example of how local companies become major players in the international market, Zainulbhai said it is essential to go global on the basis of a strong local position such as Tata Motors, Tata Steel and GMR Group, one of the fastest growing infrastructure organizations in the country. Zainulbhai said GMR may not currently be a well known name but added that in a few years time, it will dominate the market. He also said Indian companies such as Tata Motors think globally from the start and have 'outrageous ambition.' Lastly, it is also vital to get people acclimatized to working internationally through proper training on cultural sensitivity, the way people in different countries work and small cultural nuances.