Reimagining India: Unlocking the Potential of Asia’s Next Superpower (17 page)
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Authors: McKinsey,Company Inc.
mind the gaps
India is not short of ideas. Nor is it short of resources. The real gap is in governance and execution. Our five ideas would put India on the right track and build momentum toward creating the kind of country its people deserve. We acknowledge that entrenched interests and weak government capacity make it difficult to implement good ideas rapidly, and in a big way. But there are enough examples of things that work well, at reasonable cost, that make us believe that these ideas are not impossible, either.
There are at least 800 million reasons why India must do better.
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Howard Schultz
Howard Schultz is the chairman, president, and chief executive officer of Starbucks.
Since the establishment of our first coffee shop in Seattle’s Pike Place Market back in 1971, Starbucks has opened a lot of new stores—more than eighteen thousand of them, in fact, across sixty-two different international markets. Each store is special in its own way. But in all my years at Starbucks, we’ve never had an opening like the October 2012 launch of our India flagship store in Mumbai.
The Mumbai store’s location, on the ground floor of the historic Elphinstone Building in south Mumbai, is ideal. Customers pass under the building’s glorious Venetian Gothic arches into a five-hundred-square-meter space that is a shrine to great coffee and India’s rich heritage. The store interior was designed by local craftsmen and artists. We furnished it with Indian teakwood, vintage trunks, leather-bound books, hand-carved wooden screens, and old-fashioned milk cans like the ones used by Mumbai milkmen. It’s elegant but also comfortable and homey. I think it’s our most beautiful store.
The opening of the Mumbai store was the most successful launch we’ve ever had. That first night we hosted a celebratory reception with the Tata Group, our Indian business partner. It felt almost like the Oscars. Tata’s then chairman, Ratan Tata, one of India’s most revered business leaders, invited what looked to me like the entire who’s
who of India. There must have been a hundred reporters and photographers, with flashbulbs popping everywhere. They had to close the whole block. As we listened to Ratan tell the crowd of his enthusiasm for our partnership, my wife leaned over and whispered to me that old line from the
Wizard of Oz
: “Howard, I don’t think we’re in Kansas anymore.”
We’ve since opened more stores in India—five more in Mumbai, and five in New Delhi. Eventually, we hope to have thousands of stores in India. I look forward to a day in the not-too-distant future when India takes its place alongside China as one of our two largest markets outside North America.
Of course, getting there won’t be easy. And our successful beginning in India has not been without hurdles; on the contrary, it has been a complicated six-year journey. Along the way, though, we’ve discovered a lot about India and ourselves.
We’d watched the Indian market develop for many years. We could see that all the important prerequisites for success were falling into place: the emergence of a growing middle class with strong aspirations and an enthusiasm for Western culture and brands, the gradual development of the nation’s infrastructure, and what seemed to be healthy changes in the regulatory framework for foreign investment. Lately India’s coffee market has been growing at a rate of 15 percent a year. We tried a number of times to enter India, but we kept running into obstacles. Finally, in October 2010, I came to India to narrow our list of potential business partners.
Naturally, the Tata Group was a leading candidate. But before our meeting with Ratan Tata, his people asked if I would pay a visit to Karnataka, where Tata has its coffee farms. I didn’t know what we were going to see. We drove for hours. It turned out that our destination was a school for children with special needs. We toured the school, met the headmaster, met the teachers. And we met the kids, many of whose parents were migrant laborers working on the coffee farms. The kids put on a play for us. It was very emotional.
I was impressed. The Tata name didn’t appear anywhere on that school. They weren’t running it for public recognition. They were doing
it for the kids. They were doing it because those are Tata’s values; that’s who they are. And it struck me that building a school was exactly the kind of thing that we would do at Starbucks—and that feeling of a responsibility to give back was what I’d want a new business partner to understand about us before committing to a joint venture. I think I knew, right then, that Tata was the right partner for us.
We’ve developed an incredible relationship with the Tata organization. We have learned about their culture of benevolence and seen how they communicate to employees in all the Tata companies a sense that the group has responsibilities beyond just making a profit. We spent a lot of time with Ratan Tata and R. K. Krishna Kumar, vice chairman of Tata Global Beverages. I could sit and listen to Ratan for days on end. He has so much wisdom and insight, not only about India but about the world.
We announced our joint venture with Tata in January 2012. Ten months later the government loosened restrictions on foreign investment in the retail industry. From a legal standpoint, we could have tried to set up shop in India on our own. But I can’t imagine bringing Starbucks to India without the assistance we’ve received from Tata.
They helped us find great locations for our stores (the Elphinstone Building, for example, is one of Tata’s). They helped us with store design and in getting the food menu right (
tandoori paneer
rolls and cardamom-flavored croissants!). They helped us overcome the many logistical and infrastructure obstacles to make sure everything on our India menu is fresh.
They also helped with recruiting. At job fairs to hire staff for our first stores, the response was astonishing. Thousands of people applied to work for us as baristas. The lines snaked out the door. Attracting great people is crucial for us; as we keep getting larger and larger, we also have to figure out how to stay small—how to maintain a sense of intimacy with our own people and our customers. That’s the essence of Starbucks: to make that human connection—one person, one cup, one neighborhood at a time.
The other unique aspect of our alliance with Tata is the ability to source and roast coffee beans locally in India. India is the only major market in the world where we can do that, and it’s only because of our relationship with Tata, which is the largest coffee estate owner in all of Asia. They not only own farms but also operate their own roasting facilities. So we were able to work with them to develop an India-only espresso roast, designed specifically for India and every bit as good as the espresso we serve all over the world.
Of course, developing an Indian espresso required us to do some things differently. At Starbucks, the people in our coffee department, who source coffee beans and oversee the roasting process, are respected and enthroned like royalty. Within the company, they have enormous influence. So when I sat down with them and asked their support for doing something a little bit special in India, they weren’t exactly thrilled. They were more skeptical when I said, “We want to create a different blend of coffee for India.” And when I told them that the India blend was not going to be roasted by our team, they just looked at me incredulously. “Are you suggesting that we do something we haven’t done in the forty-two-year history of Starbucks? How can we guarantee quality?” It was a tense conversation.
I promised them they would have full decision rights on what the blend would be. But it was a real test of our trust in our new partner. To get the blend we wanted for India, we’d have to share with Tata some of the family jewels—roasting secrets we’ve perfected over four decades and guarded very closely.
Our coffee team from our support center in Seattle made a half dozen trips to India. There must have been at least one hundred tastings. And the result was well worth it. Our Indian Espresso Roast, sourced from and roasted by Tata, is a fantastic blend.
Teaming with Tata to come up with an Indian roast was a huge step for us. And we learned a lot about ourselves in that process: that not everything
needs to be invented in Seattle and that we can collaborate and coauthor, as long as there is a foundation of trust.
People always ask me to compare our prospects in India and China. In a way, that’s an unfair question. We have a big head start in China. We’ve been there for fourteen years and have more than eight hundred stores on the mainland. But I believe China and India offer Starbucks one of the greatest opportunities for growth. Our plan over time is that the number of our stores in India will rival the size and scale of what we have planned for China—thousands of stores. Our relationship with Tata makes that possible.
At the celebratory dinner the night of the Mumbai opening, Ratan Tata offered a toast that really moved me. He said in his dry, understated way, “You know, the Tata Group has done a few things over the years, and we’ve had a bit of success. We have partnered with some good global companies. But I’ve never had the kind of recognition I’ve received from this relationship with Starbucks. People I’ve never met stop me on the street just to congratulate me. And what I have learned from this relationship is that Starbucks is far more than just a company that sells coffee.”
It was perfect—and so heartfelt. This is a man with so much grace. A few weeks after returning from the opening of our Mumbai store, we held one of our big open forum meetings where we get the entire company together. And as I tried to describe that moment for everyone, something came over me. I started to cry. It just hit me emotionally. In India, we’d had a chance to do something extraordinary, something truly world class. And I’m excited that we have a chance to grow and give back in a land where so much opportunity lies ahead and to contribute to making it a little better place than the one we found.
Nitin Nohria
Nitin Nohria is dean of the Harvard Business School.
I graduated from the Indian Institute of Technology Bombay in 1984 and left immediately for the United States. More than two-thirds of my fellow graduates did the same; three decades later, most of us still live and work in America. Why? Because America was where the brightest researchers studied, where the boldest innovations were discovered, where the greatest companies were built. In America, if you had talent and were willing to work hard, anything was possible. To me and my classmates,
Time
publisher Henry Luce’s sweeping declaration that the twentieth century was the “American Century” seemed neither boastful nor profound—merely obvious.
When I started teaching at the Harvard Business School in 1988, America dominated the curriculum. Nine of every ten case studies focused on U.S. companies. I don’t recall a case about an Indian firm, nor do I remember thinking that unusual. Students came to Harvard from all over the world to learn from the best, about the best.
A quarter century later students still flock to HBS for the same reason. But more than half of the 250 cases we produced last year examined non-American companies. No one thinks that unusual either. HBS students now expect to learn about innovative companies from all over the world. We, in turn, expect them to graduate with a thorough understanding of companies, ways of working, and business opportunities everywhere from India to Brazil, Turkey to Nigeria.
If the twentieth century was an American Century, the twenty-first
century will be the Global Century—an era in which businesses and executives from many countries and regions shape the growth of the world economy.
As someone born in India more than a half century ago, I have been particularly gratified to watch Indian companies develop into global competitors. To understand how Indian firms emerged—and how they can sustain their competitiveness—one must first recognize how businesses in this new Global Century create value. Those who have done so most successfully have excelled at what my HBS colleagues Sumantra Ghoshal and Christopher Bartlett and I believe are the three keys to value creation in this new world: efficiency, local responsiveness, and innovation. Indian firms have demonstrated their ability to master the first two of these areas. If they can figure out the third, students all over the world may clamor to learn more about India just as eagerly as we once studied the United States.