Building long-term value: Debiasing corporate #Australia's engagement with #India through data-driven decision-making

CONTEXT

“There is no market over the next 20 years, which offers more growth opportunities for Australian business than India. Today the risk is that we are not moving fast enough, and Australia might fall behind as other countries accord India a higher priority.” - Australian Government’s India Economic Strategy to 2035

In 2018, only 0.6 percent of Australian outbound investment was allocated to India, less than that allocated to countries such as Luxembourg, the Netherlands, Bermuda, and Papua New Guinea. China’s belligerence and the onslaught of COVID have subjected Australia to re-evaluate its bilateral economic relationship with India. The focus is to diversify, de-risk critical supply chains, and strengthen its trading and investment partnership.

Despite the significant opportunities presented by India's growth story, Australian businesses have yet to fully capitalise on them. Asia Society Briefing survey from last year suggests that, though over 60 percent of people accord bilateral engagement as the best diplomatic resource to foster greater engagement, over 34 percent of Australian businesses consider China, and 28 percent consider Indonesia as their biggest opportunity against 19 percent for India. ?Key reasons for India not being proactively considered by Australian companies, as an ‘Opportunity and Go-to-Market’ , reinforces a range of cognitive biases –

• India market has too many barriers (Confirmation bias)
• Cultural diversity is difficult to comprehend (False analogies - fear of the unknown in culture, politics, language, and traditions)
• No compelling reason for goods and services to grow in other markets (Status quo, loss aversion, and narrow framing bias)
• Immediate transactions and quick returns are difficult (short-termism, overconfidence in the present/home-market growth prospects, planning fallacy underestimating the time required in a patience-led market like India)
• Success is not like other geographies and operations (Victim of anchoring and insufficient adjustment bias)
• Institutional memory of failure (Lack of evidence, updated data, and knowledge)
• India market, not a strategic choice (Groupthink bias, lack of India literacy on boards and management teams affects strategic choices)

ANZ Bank and Telstra’s early entry, investment, and later withdrawal in quick succession from the Indian market in the late 1990s are often quoted as examples by Australian corporates that ‘Doing Business in India’ is tough. However, it did much harm to Australia's reputation, that the “Australian companies were only in it for easy profits; the short haul ”. In 1984, ANZ Bank purchased India's iconic Grindlays Bank and secured a valuable stake in the Indian financial sector. It then sold Grindlays subsidiary to UK company Standard Chartered in 2000 out of fear of economic uncertainty and the risk of emerging markets. Standard Chartered is now India's largest international bank (in terms of branch network) with 100 branches in 42 cities and one of the most successful foreign banks operating in India today. Similarly, despite securing the first domestic telecom service license in India in the early 1990s, Telstra sold its stake and missed out on India’s massive mobile boom and reaping benefits from telecom reforms. India today has 1.18 billion mobile connections, 700 million Internet users, and 600 million smartphones, which is increasing by 25 million per quarter.

Bias can be costly, as it is refraining Australian companies from engaging, exploring, and expanding with/in a market that’s emerging as the world’s new growth engine. How can Australian companies de-bias, be willing to raise their risk appetite, and consider long-term investments in the India market?

SOLUTIONS

Addressing cognitive biases requires a concerted approach, with a decision-making framework including perspectives on outcomes, options, people, processes, evidence, and risk. Key practical steps to challenge cognitive biases include –

• Creating a broad multi-sectoral reference class to facilitate a thorough ‘inside-outside view’ analysis , avoid falling into the confirmation trap, and address availability bias – A detailed reference class can broaden the realm of market-entry analysis by assessing similar decisions made in the past by other companies, preventing companies from confirming to available hypotheses readily. Learning from the success and failure of other companies can open new possibilities. India’s challenging logistics and transportation sector was capitalised as an early opportunity for Australian logistics giant Linfox , which today has 16 sites across the country, employs more than 2,500 people, with clients including the Tata Group,?Asian Paints,?and?Hindustan Unilever. Access to international education for Indian students in metros and far-flung tier-II and III cities has taken a new turn since ASX-listed IDP Education opened its first office in Delhi in 1995, it now has 67 offices spanning 60 cities in India. (Appendix 1) Newland Global Group, Australia India case studies compendium captures business wins in priority sectors of engagement across Australia and India, which creates cultural and business reference points for attitudes to shift and trust to be built.
• Choose to re-anchor, build a momentum case, and calibrate a forecasting model – The dynamic pace and scale of the India market asks for regular strategic reviews to understand the environment in which Indian consumers live, think, what they value, and how they are changing. Australia’s B2B EdTech aggregation platform Global Study Partners (GSP) was prompt to understand that attracting and on-boarding the right Channel Partners was complex in India, it quickly shifted from a direct consumer attraction strategy to a channel engagement strategy (Appendix 2), GSP embraced business intelligence tools to deploy data, insights to improve operations, building a momentum case for consideration alongside base-case and other forecasting scenarios, and testing the validity of false analogies .
• Circumvent bias by creating a formal challenger role – Bring in independent advisors to challenge decisions and propose strategies. Before entering the market, Australian med-tech company Connect2myDoctor chose to pilot study and receive independent advice from over 100 Indian doctors to make the virtual care platform clinically relevant.
• Be aware of competitive blind spots – Pernod Ricard’s understanding of the diverse regulatory structure and excise rules, and strategy to focus on building brand than margins or profits in the initial 2-5 years has kept them ahead of their competitors in the alcoholic beverages industry. In 2000, they launched Jacob’s Creek, four in every five bottles of Australian wine sold in India today, is Jacob’s Creek.
• Focus on a portfolio of outcomes and encourage novel approaches - Explore innovative ideas that are risky but have high potential returns, project plans should focus on both failure and dramatic success.

A good starting point is to not just reflect on the proposal, but how the proposal is arrived at. Examining different points of view and consideration of downside risks, placing responses in a decision matrix of decide, reach out, stress-test, and reconsider.

An open mind is the most important asset that Australian companies can bring to the India market. Companies have a bright future if they know where to look. (Appendix 3)

Appendix

Appendix 1

Macquarie Group has invested in India’s multiple infrastructure assets including toll roads, renewable, thermal, and hydropower plants for more than a decade to capitalise on India’s key sector of economic growth. AMP Capital has teamed up with Sterlite Power – a leading private power transmission company – to set up a $1 billion platform for the development of energy transmission projects in India. This is the first such investment in India by AMP Capital for its global infrastructure equity strategy. Australia’s leading software firm, Atlassian is keen to nurture India’s vibrant startup ecosystem and rich technical talent pool, and has also opened its research and development centre in Bengaluru.

Appendix 2

GSP’s approach shifted from a direct consumer attraction strategy to a channel engagement strategy underpinned by its broad ecosystem representation of over 350 institutional providers in the Australian education sector and over 1100 recruitment partners in India. It offered a comprehensive service delivery model that did not compete with but rather empowered the supply channel with improved access to institutional course stock.

Appendix 3

A case in point is also the rising number of foreign firms operating in India, with over 2,000 US companies, over 1,600 German companies, more than 600 Indo-German joint ventures, over 1,300 Japanese firms, and over 600 UK firms. India has the world’s third largest start-up ecosystem with over 100 unicorns (unlisted startups worth over $1bn), by 2027 India will be the world’s fifth-largest economy, with a GDP of $5trn. India’s stock market in terms of its size, is the fourth largest behind only America, China, and Japan. 44 percent of the 1,200 business leaders surveyed by consulting firm Deloitte last year are planning additional or first-time investments in India. India received foreign direct investment (FDI) worth $165 billion in the last two pandemic years. OECD Business Insights 2021 market report says: “From a macroeconomic perspective, an important shift happened over the last twenty years from 2000. During this time, emerging markets have overtaken advanced economies in terms of total gross domestic product (GDP) with emerging Asia, particularly China and India, leading the way. Approximately 15 percent of FDI was destined for emerging economies in 2000, but in 2019 this figure had increased to 46 percent. Currently, the majority of annual global GDP growth occurs in this part of the world.”