In a dynamic globalising world, companies are evaluating business risks more closely before formulating a business model and finalising investments. Richard Fenning, chief executive officer of Control Risks, a 37-year-old risk consultant took time out to share his views on the changing global scenario, the risks of investing in India and how Indian companies are viewing risk, in an interaction with Baiju Kalesh and Debabrata Das. Excerpts:
Is there a shift where political decisions are determining economic decisions?
Yes, this trend is emerging in certain parts of the world. China is scaling down growth to maintain political stability. The eurozone crisis is essentially a political crisis. It is about what role Germany wants to play in Europe and the decision about whether Greece and Italy can stay in the eurozone. Politics in Europe is dominating now because nobody can understand what the economics there is, it is all about politics. India has always been unpredictable. When you have coalition politics, it is difficult to move ahead with economic reforms. There has been an extraordinary transformation of the country without a blueprint which makes it so unpredictable. But yes, India has become very complex with the resurgence of the coalition partners. But the pattern here is that reform proposals get floated, they get slapped down and then later they happen.
What are the kinds of risks that people come to you with before investing in India and how do you tackle each of these risks?
In India, people don?t come to us for the sovereign political risk. They come to us for political risk on a regional basis. One of the things that concern our clients is the misreading of the local political situations. If you are new to India, that is very confusing. That is where the political risk lies in India. Not necessarily in the Centre but in the states. People need help in tackling local situations.
From a security point of view, India is reasonably safe apart from certain pockets.
The pitfalls of corruption have to be avoided in any country. It is not just India, corruption is a common thread across all dynamic and growing countries which are mostly overregulated. Consequences of overregulation gives opportunities for corrupt practices and that is one thing people have to be mindful of when investing in India.
What are the biggest concerns of firms coming into India?
The biggest concerns are relating to the best location to do business. That is a key concern of investors as there are a lot more of risks when going into the tier-II or tier-III cities. We do a lot of location mapping for our clients to help them in this regard.
The other concern is finding the right partner. This is absolutely essential. If companies don?t find the right partner it sets them back years on their business model. Starbucks is only coming now, the 2G scam has raised a lot of questions about Indian partners. We provide a lot of background information to the foreign companies so that they can decide whether to partner the local companies or not.
How can foreign companies find the right partner in India?
We maximise the amount of information we can provide about the Indian companies that multi-national companies would want to partner. But ultimately it is their decision and they have to make the mature seasoned decision about choosing the partner. But people tend to rush things when entering India.
There?s a lot of pressure in international boardrooms about being present in growing markets like India and that?s the kind of environment in which people operate. They often know that the partner might not be entirely right but just because it is doable in a quick time frame it will meet the pressures back home, people make wrong decisions. But what we tell people is that in India if you rush now you will regret it at your leisure in the future. So we can?t formulate the deal but just provide the information and give an ideal time frame.
Where can companies go wrong in selecting a right partner?
They can and do go wrong in many number of ways. Sometimes they don?t adapt and cater to the Indian market. McDonalds is a famous example. When they entered, their menu was very Western and not successful and then they adapted to the Indian palates and became successful. Similar mistakes can be applied to other sectors. Also, having unrealistic expectations is another area where companies can go wrong. We have always said that India is a long-term growth market. We always advise our clients to look at the long-term growth potential of the country rather than short-term growth. Also, a company may not disclose all the commercial interests.
Business must be gaining momentum in India. How are Indian companies viewing risk?
The major change that we have seen is that now we work with a lot of Indian companies as they grow and reach more of a global stage. We need to help them negotiate with some tricky markets, a tier lower than the BRIC countries, like Vietnam, Thailand and African countries.
Earlier, we worked primarily with companies coming into India. We now do nearly as much business for Indian companies outbound as we do for inbound. The ratio of business is about 60:40.
For the top-tier Indian companies who have been operating internationally, risk is already a part of their corporate governance sector. As the mid-sized Indian companies look to enhance globally, they would need help in how to instil a risk-based approach to forming their business strategies. Definitely, risk is being heard much more in the boardrooms. A few years ago, risk would be mostly insurance and currency hedging. But now it is becoming a more broadbased term. Risk is not just a negative term, it?s more of an opportunity. Indian companies are now dealing with the term risk in a much more mature way.