Over the years, the world of strategic management has been sharply divided by the debate of diversification versus core competence. So far, the evidence has weighed heavily in favour of the latter, a concept first articulated by C K Prahalad and Gary Hamel in 1990. A quick look down the list of Fortune 500 toppers, for instance, shows that barring General Electric, the world’s 10 largest businesses are single-focus, whether it is retail, banking, cars or oil. But run an eye down the list of India’s largest groups, and it becomes clear that the instinct for diversification, inherited from the managing agency days of old, remains strong. Only three of India’s Top 10 groups, ranked by market capitalization, are single-focus.
In that sense, Sunil Mittal’s race up these rankings to No. 2 marks a triumph of core competence over diversification in India. The Bharti group’s new ranking means it even supersedes the Tata group, which is about as diverse as a business house can get with interests in salt, telecom, power, hotels, software, automobiles, steel and chemicals, to name a few. The ranking also puts the Bharti group ahead of the Anil Dhirubhai Ambani Group (ADAG), which has no less an assortment of businesses — power, telecom, broadcasting, financial services, and so on. It is instructive that although Bharti saw its market cap erode 24.4 per cent in 2008, a terrible year for the markets, it was the only Top 20 group to outperform the Sensex (which fell 52.5 per cent); in contrast, Tata and ADAG fell 62 and 73 per cent, respectively, and even market cap topper Reliance Industries fell 57.7 per cent.
Though he admits to setting little store by market cap — which is admittedly a fluid metric by which to measure business success — Mr Mittal, the quintessential new generation Indian businessman, attributes his group’s growth to its business philosophy of “not getting into too many sectors too soon”, as he told Business Standard in a recent interview. Although he has started other businesses — like retailing and financial services — they have not noted for their success and it is telecom that accounts for the bulk of the group’s revenues and delivers growth. Where several other early telecom entrepreneurs (including some of India’s corporate czars as well as new-age businessmen like Rajeev Chandrasekhar and Analjit Singh) exited their businesses in short order, Mr Mittal stayed invested and his company has risen to become India’s largest private telecom player, and certainly the country’s largest mobile services player.
It could be argued that Mr Mittal’s 2008 ranking owes itself to the serendipitous circumstance of being “recession-proof” — sales growth in the last four quarters has remained high when car sales, for instance, have been falling. In a country in which 30 people out of every 100 own telephones, demand is unlikely to taper off any time soon — and it is no surprise that India’s is the world’s fastest-growing telecom market. In contrast, none of the major businesses owned by the Tata group are immune to the downturn — and its telecom business is too small and in a less popular technology (CDMA) to boot. Still, Mr Mittal is well aware that a pick-up in the economy (global and domestic) could see his ranking change significantly and the impending competition in his core business could challenge his domination. That is why he sensibly chooses to keep his eye on the less ephemeral gains of profitability and benchmark his group against global telecom rankings.
6 months ago