The pygmy effect

Indian companies by global standards are small in size.... in terms of turnover, balance sheet and scale of operations. This has roots in history to the planned experiment with socialism, the licence raj which curtailed growth in its own way, the romantic notion of self sufficiency through small scale industries, the fabled piece of legislation the Monopolies Restrictive Trade Practices Act. But these would be immediate identifiable causes, slightly offbeat would be the late arrival of industrialization to India but during the rule under colonialism which anyways had perverse intentions to not let Indian companies grow large. I also think of two reasons why probably Indian entities never grew too big...

1. Lack of capital formation : India was and is still a rural driven agrarian economy. In such cases capital formation is closely linked to the productivity of the land, which in Indias case is led by the monsoons. Monsoon failure meant subsistence. Also the water tight compartments of castes around professions meant that the rich trading community and the artisan community were different, so while India gave birth to financing systems like Hundis, chit funds and micro entreprenuership, modern notions of shared ownership did not take off. Even when the modern company form took root , we had the relic which a lot of people wouldnt have heard of called the controller of capital issues.... so lack of capital meant, companies remained small...... financing expansion through internal accruals which anyways were suppressed to pay lower tax or thorough bank debt which came at phenomenal costs. Add the Indian aversion to debt and its a potent cocktail of capital deficiency which would kill large scale global ambitions.

2. The 200 cr barrier - The Indian entrepreneur is hands on (I have great respect for them - more about it in a later post) and likes to be in control. So usually the organization is an extension of his/her personality. Also since most Indian promoters never diversify their personal balance sheets from that of the company, maintaining control becomes essential to ensure safety of personal wealth and family standard of living (again a perverse tax incentive means a posh bungalow, a swanky super car and the summer getaway are all financed by the company as a perk!!). A very easy way of exercising control is through filling up the company with family members - bottomline your ability to procreate is the barrier to growth and since blood is thicker than water, professionals never succeed in such companies, so every small decision ends up with papaji/lalaji/chairman/ founder or whoever is the head.....growth gets squeezed. I usually ask a question to ascertain if this is a problem with companies when i first start working with them - do you know which debtors you wrote off last year? if the answer is names of debtors i have an issue, if the answer is something like we had a review / we have a policy - then yes, systems have taken over.... and why do i call it the 200 cr barrier - most Indian companies cant seem to get out of this vicious cycle and get stuck around that number - if you broke through that, then according to me you have built a middle management which runs the company.....All you then need is a visionary!!!

If Indian companies have to dominate the world stage, grow large and enhance their reach globally, I think somewhere they will need to address these 2 issues.

(and before you start commenting - I know there are well run professional companies in India - L&T et al, but if you remove the family conglomerates, I can count such companies with ease....)