The population of India — 1.3 billion — is so large that even breaking it down demographically yields staggeringly high numbers. Take the country’s semiurban and rural population, which totals a massive 751.2 million — more than double the number of residents of the United States.
HDFC Bank, India’s largest financial institution as measured by market capitalization, hopes to transform as many of these rural denizens into customers as possible, with the goal of growing that share of its business from roughly 15 percent to 40 percent over the next three to five years, according to Aditya Puri, chief executive officer of the Mumbai-headquartered institution. He maintains that technology is the key to success — and many market observers believe he is right.
Puri is the best CEO and HDFC the best firm in the Banks sector of Asia ex-Japan, according to participants in the 2016 All-Asia Executive Team, Institutional Investor’s annual ranking of the region’s most highly regarded CEOs, CFOs, investor relations professionals and IR companies. This year’s results reflect the opinions of 1,394 investment professionals at 582 financial institutions. Respondents from the buy side work at firms that collectively manage an estimated $963 billion in Asia ex-Japan equities.
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People who live in semiurban and rural areas of India, Puri says, lack organized banking services. “They have the finance companies and they have the moneylenders, but they don’t have somebody that has the brand and the latest range of financial products,” he notes. Targeting these areas required HDFC to change its communications, marketing and operations because “the customer [base] is more widespread and connectivity is not as good as in urban India — which is bad enough as it is.”
Already, half of HDFC’s distribution network is outside India’s cities, and the growth rate in these regions is twice that of the expansion in urban areas. Puri, 65, says digital outreach has been the key to growth. “There’s a major logistical problem in semiurban and rural India in getting from one place to the other, being able to access the right prices, being able to have the information, having the totality of products,” he explains.
A digital offering can help solve that problem, even if most people in these areas have low-end mobile phones with Internet access, known as feature phones, rather than high-end smartphones. “Most of our products are now available on a feature phone, so a customer doesn’t have to hop onto a bus or a motorbike or whatever and go from his village to the town where the branch is,” Puri reports. “He can get his balance. He can know whether his check is honored or not. He can apply for a loan. He can come to the shopping portal we have on our site, called SmartBuy, and access the prices that are available to urban India with home delivery.”
This accessibility is possible only because HDFC took the initiative to ramp up its technology over the past two years, after Puri traveled to California’s Silicon Valley in 2014 to see how banking would change in the wake of the movement from physical networks to information networks that place the customer at the center.
He and his team decided to “challenge ourselves and then become the fastest provider of loans, have a wallet that is just as convenient as Apple Pay and have a system where we could have mobile-to-mobile payments as well as deal with the smaller merchants like [Alibaba Group Holding’s] Alipay,” he attests. “Analytics is also very important, so I can offer you products that would suit your particular lifestyle and your position in society.”
HDFC’s high-tech outreach to new markets is already reaping rewards. The bank’s net profit surged more than 20 percent year over year in the fiscal year that ended in March, to nearly 123 billion rupees ($1.8 billion), while net income jumped upwards of 22 percent, to 383.4 billion rupees.
Appealing to the underserved is also an important theme at MGM China Holdings, according to Grant Bowie, the Gaming & Lodging sector’s highest-rated CEO. Macau, the world’s largest gaming center and the only place in greater China where gambling is legal, has long relied on a junket system that caters to high rollers. VIPs, primarily from the mainland, are treated to free travel and accommodation, among other perks, for agreeing to spend some time in Macau’s casinos. However, the industry has suffered from the Chinese government’s anticorruption drive and a decelerating domestic economy, with revenue from this group plunging by roughly 25 percentage points over the past five years, to about 50 percent of the market.
As a result, casino operators have turned their attention to the mass market — people who are interested in activities such as dining out, shopping and attending shows, as well as gaming experiences. “That market is much, much bigger,” Bowie says. And it’s one that MGM China has been serving since long before the recent thinning of the junket herd. Today it accounts for approximately 80 percent of the company’s earnings before interest, taxes, depreciation and amortization — up from 70 percent just a few years ago.
“We run our business here as a portfolio. Just because something is not sexy today doesn’t mean it’s not going to be the darling of tomorrow,” he says. “The key is about looking into the future — where is the market going, what is the market going to do, how do we build options?”
Gaming will always be a significant source of revenue, the 58-year-old adds, but it’s even more important to determine other pursuits that visitors to the former Portuguese colony are willing to pay for. The shift “may have an impact on the gaming stream, but it’s going to attract a whole lot of new customers who, instead of spending 80 percent of their bankroll on gambling, will bring exactly the same bankroll and maybe gaming is only 50 percent of their spend. But they’re still going to spend 50 percent on nongaming and, as long as you can get margin on that, as long as you can provide possible experiences, do you really care?” Bowie asks.
Part of his plan to attract leisure gamers is the MGM property in Cotai, a section of Macau built on reclaimed land that’s the site of several new casino developments. MGM’s Cotai, which is slated to open by the end of the first quarter of 2017, “has a level of modernity that is tapping into this emerging middle-class, wealth-aware Chinese consumer. It must be more contemporary. It must be more technology-driven. It just needs to have a real swank about it,” he believes.
For example, he cites the theater under construction that will have nine different configurations, including a flat floor, a raised floor, a stage with a proscenium arch and a stage in the round — all of which can be changed during a single show. “In everything we’ve tried to do, we want to make technology not the show but simply a medium to create some amazing experiences for you to participate in either by watching it or being part of it,” he stresses.
Technological superiority is also the linchpin of China Unicom (Hong Kong)’s strategy, especially when it comes to fourth-generation networks. The telecommunications operator had been losing ground to its larger rival, China Mobile. In September, when Xiaochu Wang became CEO of China Unicom after holding the same post at yet another competitor, China Telecom Corp., the 57-year-old “adjusted operating priorities by focusing resources on 4G to fuel mobile business momentum,” the Beijing-based executive explains. That included accelerating mobile network deployment, opening China Unicom’s 4G network to all subscribers and expediting the migration of subscribers to 4G.
Also aiding the company’s quest to roll out 4G in a timely fashion was the transfer last year of telecom towers to China Tower Corp., an infrastructure joint venture formed by the three aforementioned service providers that allows them to share towers and save on capital expenditures.
These efforts combined are already producing positive results. China Unicom — the Telecommunications sector’s top-ranked company — saw a net addition of 6.6 million mobile billing subscribers in the first three months of this year, compared with a net loss of 12.4 million in the same quarter last year, and mobile service revenue rose 9.3 percent quarter over quarter, to 36.2 billion yuan ($5.4 billion).
Wang, the category’s No. 1 CEO, says the goal is to drive a gradual turnaround as the Internet of Things, cloud computing and Internet finance present opportunities for his company, the second-largest mobile carrier in China and fourth largest in the world, as measured by number of subscribers.
MGM China’s Bowie shares a similar philosophy. “I’m not a risk-taker, I’m an option creator — because if I have more options than my competitors, then I’m taking less risk,” he explains. “What I think is really important is that we’re constantly looking for new opportunities.”
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