What characterises volatile markets? What challenges do volatile markets pose for business development? What strategies for action are successful when dealing with volatile markets? These and further questions on the topic of business development were discussed by 15 Indian entrepreneurs and executives at the follow-up in Delhi.
Delhi. Volatile markets pose a high degree of uncertainty. Strongly fluctuating prices and exchange rates are just one example. Depending on the local markets, their severity can vary considerably. Stock markets, whose fluctuations often directly affect the economic performance of a country, have a strong influence. The higher the volatility of a market is, the higher the risk of doing business there. Coupled with the latest financial crisis and the strong fluctuations in exchange rates, it became clear that particularly the emerging markets are very volatile. These turbulent markets remind one of a boxing match: the boxer who can cope with unexpected hard blows from different directions and manages to avoid possible knockouts is successful.
Now, what factors influence the volatile market of India? According to Ajay Bondwal, nobody can say how India will grow in the future. There are very many volatile factors such as policy, trade barriers, corruption, economic and social framework conditions. Gautam Malhotra explained that in India 60 per cent of gross domestic product comes from agriculture. This means that the annual economic development depends decisively on the monsoon. If there is sufficient rain, the crops grow well, and the economic development is high, too. If the monsoon is poor, causing problems in the agricultural sector, economic performance is also poor. Or, putting it differently: Good monsoon = good farming = good business. Thus, the weather is another volatile factor for the Indian market. Sarabdeep Singh Sikka remarked that 60 per cent of the population were younger than 35 years old. He said that these young people strived for prosperity, were very flexible and adapted very quickly to changing framework conditions – which he considered to be an important point for dealing successfully with volatile factors.
Competencies in dealing with volatile markets
The above mentioned characteristics of volatile markets face managers with the challenge of collecting and analysing the various market and country factors and developing suitable strategies for action. Together with partners in industry, Export-Akademie developed the IMLead® Integrated Management & Leadership management concept in order to support executives in the management of complex challenges.
The concept (Fig. 1) consists of seven fields, with the manager in the centre (Field 1). To plan the most effective strategies for action in volatile markets, the manager has to steer employees and customers (Field 2: The individual) and to collect and analyse company and market information in volatile markets (Field 3: The information). On the basis of this information and the strategic alignment of the company, the manager takes decisions regarding the adaptation of products, new products, new services and the entry into new market segments (Field 4: Safeguarding the future). The optimisation of production and business processes as well as the supply chain takes place in Field 5: Optimum functionality.
The two aspects “Flexibility” (Field 6) and the “The holistic view” (Field 7) are particularly important for the success of activities in volatile markets. The result of a spot poll among workshop participants, in which these two fields were most often named, confirms this.
Strategies for action when dealing with volatile markets
From the Indian managers’ point of view, “Don’t panic – keep calm“ is the most important basis for possible strategies for action in volatile markets. In their opinion, it is necessary to gain a “feel” for developments in the markets in order to be successful in the long term. Moreover, continuous market observation creates the preconditions for developing flexible, individual and “effective” strategies for action.
The holistic view is needed in order to utilise potential that is not recognisable at first sight (see Iceberg principle, Fig. 2). In practice, the reaction to volatile market changes is often to adjust sales prices, which reduces the profit margin. To avoid this, all areas and processes in a company should be examined for cost savings and hidden performance potential (see Fig. 2: “Hidden opportunities”). The following strategies for action were drawn up at the workshop:
• Take advantage of cost savings potential: Costs can be reduced through the purchase of parts at lower prices (global sourcing), optimisation in production and in business processes, and changes in the supply chain, without narrowing the profit margin when reducing prices.This is especially possible in the case of long-standing business relationships (catchword: strategic management of supplies).
• Strategic management of supplies: Long-term cooperation with Indian business partners is a good precondition for serving this volatile market successfully. Together, cost savings can be identified and further services positioned in the market. Furthermore, if the degree of innovation is reduced, the products are better suited to needs in the local market.
• Adapt terms of payment: Terms of payment can be negotiated and adapted accordingly in the case of changeable economic situations. Business partners are often willing to prolong periods allowed for payment or to extend credit to tide over temporary fluctuations in the markets.
• Invest: It is possible to purchase machinery at reasonable prices in phases of recession or in the case of declining exchange rates. Many manufacturers are then prepared to negotiate over price reductions. Amit Patil, for example, was able to modernise his production by taking advantage of the situation and the poor exchange rate of the Indian rupee to the euro last year and buying machinery at a price reduction of 35 per cent.
• Diversification: Tapping new markets and segments is a further option. At the workshop, the Indian managers pointed out that they were perfectly familiar with the Indian market and the neighbouring volatile markets. They would therefore be able to successfully support German companies in expanding into additional markets and market segments.
Indian business people have gained extensive experience in dealing with the volatile Indian market in the past 50 years. For them, a flexible way of thinking and acting is an important core competency for dealing with volatile factors. In contrast, planning and long-term action is not so pronounced in Indian managers as in German managers. “Due to the lack of flexibility, it is difficult for German managers to deal with volatile markets”, Amrithakasi Parthasarathi is convinced. Indian managers, on the other hand, know their market very well and, with their long-standing experience, can support their German colleagues in tapping other volatile markets such as Africa or South America.
Both sides benefit from cooperation between German and Indian companies. The Indian companies contribute their experience in dealing with volatile markets to the partnership, while the German companies are able to sell their innovative and high-quality products and services successfully in India and other volatile markets.
Dr Bertram Lohmüller
Dr Bertram Lohmüller is Director of the Steinbeis Global Institute of Steinbeis University Berlin (SHB) and CEO of Export-Akademie Baden-Württemberg. He is Professor of Innovation Management and Leader-ship and completed his doctoral thesis on this topic at Cranfield School of Management (UK).