India Needs Mega Corporations
The past two decades have been good for ‘big’ businesses. While the size of the private sector as a percentage of OECD economies has remained relatively steady since the mid-1990s, the share of companies with more than $1bn in annual revenue has grown by 60 % since 1995. While companies on average contribute to 72% of GDP, they underpin 85 percent of technology investment and 85 percent of labor productivity growth since 1995, a larger proportion than their GDP contribution.
Big companies have become bigger across the world. A new McKinsey Global Institute white paper divides corporations into eight archetypes: discoverers (for example, biotech firms, which push scientific frontiers), technologists (including the platforms that build the digital economy), experts (such as professional services, hospitals and universities), deliverers (which distribute and sell products), makers (mainly manufacturers), builders (utility, telecom and transport companies), fuellers (fuel marketers) and financiers (banks and insurers).
Large companies, particularly in the US and China, have been the biggest economic winners of the past quarter of a century. This was due to globalization, source and flow of investments and the rise of the platform giants in technology. With every passing decade, there are more and more companies globally that command market valuations of more than $100 Billion. In 2000, 2010 and 2020 there were 43, 51 and 106 corporations that met the benchmark. However, this value concentration is not equitably distributed in terms of country of origin. In the year 2000, out of the 43 mega corporations of 100 Billion+ value, 21 were American. In 2020, we see the US dominating even more - 60 of the 106 companies are American! By 2020, the world saw the bar raised to a trillion-dollars of market value. There are five of these trillion-dollar behemoths viz. Apple, Microsoft, Amazon, Alphabet and Google from America’s tech sector.
China and India were nowhere on the value map in 2000 but China has managed to enlist 14 companies in this elite group by 2020.
India has merely 2 in the Star rankings - Reliance and TCS. India must do everything to change this. It begins with a need to celebrate big business entities. We need mammoth corporations that create value by being bolder, aiming to be bigger and embracing growth. Today’s world allows for asset light, idea-rich disruptors to rapidly build value. Robinhood, a US based commission free brokerage service for retail investors that listed on the NASDAQ recently got at an eye-popping valuation of $35B. It is not alone. India is seeing continuous churn but our value growth is relatively tepid. Half of all Nifty constituents in 2000 were replaced by 2010 and then another 50% of Nifty entities faced churn between 2010 and 2020.
I would point to TCS, the crown jewel of the Tata Group as an ideal. It has become one of the largest wealth creators not only in India but also across the world. In its sphere of activity it is a global leader. This is one case of a truly focused, enterprising Indian company that competed in the global market and won. Enormous tenacity, growth-minded focus and a bias for action were required for this to materialize. Market forces tested the resilience of the company when the world went bust right after Y2K, then again with the financial meltdown of 2008 and again in 2020 with Covid. TCS had positioned itself as a global company right from the beginning and then continued to deliver in this totally new sector without any form of government support.
The credit for this goes to the visionary and disciplined leadership of Mr. N. Chandrasekaran, now the Chairman of Tata Sons. Mr. Chandrasekaran led multiple full-scale transformations as opportunities and challenges presented themselves. He focused on developing scale, cost advantage, intellectual capital and a global delivery system. The Tata Group - founded by Jamsetji Tata in 1868 - has been led by visionary, statesmen leaders ever since. It is a global enterprise and operates in more than 100 countries across six continents. It is indisputable that they are focused on long-term stakeholder value creation based on ‘leadership with trust’ . We really do need to make Indian companies learn from the Tata example.
Reliance Industries, India’s largest company, continues to be vastly profitable and successful in the old world businesses of oil and petrochemicals. Reliance chose to make a quantum shift and, through internal accruals, is fast pivoting to a tech and consumer focused organization. Their commitment towards connected networks, renewable energy, software and enterprise solutions and new age businesses shows vision, risk appetite, appreciation of scale and a leadership mindset. Very rarely has such a large company - so quickly and so comprehensively - pivoted itself completely towards future focused growth streams.
So, we don’t need to look farther than these two Indian examples that embraced technology and generated wealth for all stakeholders and the community at large. In both these cases, the private enterprise has raised resources and painstakingly crafted their own unique growth story without much external help and both defined success in their respective sectors through Indian talent going global in ambition. If these two companies could do it, so can others.
We need to ensure small and big firms flourish. It cannot be a one or the other option. On virtually every meaningful indicator, including wages, productivity, environmental protection, exports, innovation, employment diversity and tax compliance, large firms as a group significantly outperform small firms.
India definitely needs more of this mindset. India has strong fundamentals, a growing consumer economy and a young workforce and all these need to be channeled into value through the private corporations of the country. The pursuit of value is a never ending process and the government and private companies should work together with a growth and forward mindset in order to make India the biggest growth engine the planet has seen.
India’s appreciation for small business is rooted in socialistic ideals passed down from the nation’s pre-industrial context. We have to appreciate their vital role in the future of India’s economic success. As employers, big businesses can create more jobs with better pay, offer paid leaves, and employ a greater share of women and minorities than small firms do.
Despite the much storied individual entrepreneur’s triumph, the largest source of wealth creation - the tech revolution- owes far more to teams of scientists and engineers working in well-funded corporate labs than individuals dabbling with do it yourself kits. Big corporations can invest more in R&D and get more innovation output per dollar invested.
As far as the corruption of politics by mega corporations is concerned, there is no denying the influence big companies gain, but there are more trade associations and pressure groups representing small businesses and professionals. Political parties tend to focus on SME and MSME as they represent a more numerous constituency. In all cases of compliances, declarations, scrutiny and audits – big corporations are more on the radar than small entities.
To flourish in the 21st century and make India realize its economic potential , we must learn that big is beautiful.
