ONE LIFE TO LIVE

But there are other, more psychological, reasons why the best firms are not taking over India, Nigeria, or Mexico. Perhaps the owners like the idea of leaving their son a running business and prefer to avoid the risk of outside control that comes with outside financing; raising money on the stock market, for example, requires setting up an independent board of directors who might get in the way of the succession plans.

And perhaps ultimately the owners do not care enough about growth to put all they have behind that agenda. If no one else is growing fast, they are not at risk of being pushed out. They have a reasonable living and a place to work. Why make it more stressful by trying to grow? A very interesting recent study looks at management gaps in Indian firms.¹⁰⁶ By the norms of what the United States calls good management, firms in developing countries are terribly managed. One might dismiss this as prejudice against other ways of managing. Indians in particular are very proud of their way of doing business on a shoestring, what they call jugaad.¹⁰⁷ This requires being inventive in using what you have, and perhaps this is what the managers are doing. But managers are failing in ways that could not possibly make sense for them. For example, trash is allowed to accumulate on the shop floor, to the point that it becomes a fire hazard. Or unused materials are bagged and thrown into an inventory room, but nobody labels or lists them so it becomes virtually impossible to reuse them. When the researchers, one of them a former management consultant, sent (for free) a team of highly paid consultants to work for five months with the managers of a randomly chosen set of these firms, profits went up by $300,000 per firm, which even for these relatively large firms was not chicken feed. Moreover, most of the changes that made this happen were relatively simple things, like labeling inventories and removing trash. It is hard to see why the managers, if they wanted to raise profits, would need this rather expensive external help (the consulting would have cost them $250,000 had they paid for it). They undertake obvious changes if someone points them out and shames them into doing it, but not when left to themselves. It has to be that the owners ultimately don’t feel strongly about doing the best they can possibly do.