THE BLOG
11/12/2013 02:08 pm ET Updated Jan 23, 2014

Are Indian Companies Facing a Global Trust Deficit?

India's second quarter GDP statistics are due this month, and if the HSBC Manufacturing and Services Purchasing Manager's Index are any indication, with continued contraction the country's economic troubles persist. India, which for years was an economic success story, has been suffering from a slowdown since 2011. Its growth rate for the April-June quarter (Q1) slipped to 4.4 percent, the slowest in four years, and now World Bank has slashed India's growth forecast from 6.1 percent to 4.7 percent for the current fiscal year. The IMF and Asian Development Bank have already reduced their estimates also. However, in addition to a growth slowdown and a near currency crisis, India's latest economic worries also include an issue that has gotten little attention: a lack of trust in Indian firms among international markets.

The Edelman Trust Barometer's emerging market survey released in September revealed that Indian multinational corporations (MNCs) are trusted by just over one-third (34 percent) of the markets polled. More importantly, trust in Indian firms has declined over the past two years. While in 2010 and 2011 India was the most trusted emerging market country, in 2013 it has fallen even below the emerging market average.

The Trust Barometer, in its tenth year, is an annual survey measuring people's level of trust in leaders, institutions, and business sectors. This 26-country study surveys 31,800 respondents within developed and emerging markets. In addition to the annual survey, this year Edelman released the Emerging Markets Supplement: a nine-country study conducted in the third quarter of 2013 in four developed (US, UK, France and Germany) and five developing countries (China, India, Indonesia, Mexico and South Africa). The sample included 600 respondents per country classified as informed publics, i.e. college educated adults from the top 25 percent of household income consuming significant amount of news on business and public policy.

The survey finds that while Indian MNCs rank well below developed market (US and European) companies in trust, among emerging markets they outperform Chinese, Mexican and Indonesian firms, while still lagging behind Brazilian, South African and Russian companies. Furthermore, Indian firms are trusted much less abroad than at home. In the domestic market 83 percent trust them, whereas in other emerging markets just under half (48 percent) do. On average they are the least trusted of the BRICs companies among emerging markets. Indian companies perform the best in China, where three-fifths trust them, and the worst in South Africa, where less than one-third do. In Indonesia and Mexico they stand at 50 percent.

In the developed world Indian firms are trusted even less, by just 28 percent, performing the worst in Germany (21 percent). They do marginally better in the US (35 percent) while still struggling in France (28 percent). Nevertheless, they are still more trusted than Chinese and Russian firms.

Indian firms also face a tough road ahead when it comes to entering markets in the developed world. Only two-in-five of developed market respondents trust Indian MNCs in buying a minority share in a company or making a major investment in a plant or office. Only 38 percent would trust it to buy a company in their country. India fares much better in emerging markets where 63 percent would trust it in making a major investment, 62 percent in buying a minority share, and 60 percent in buying a domestic company.

Brand recognition is another challenge. For example, the Indian goliath Tata, known to almost all (99 percent) in the home market, is familiar to only a quarter of Americans. The brand does better in Europe, where a majority (54 percent) recognizes it. Nevertheless, there Indian brands face a tough competition from leading Chinese and other brands. CEO familiarity is similarly a problem, with only 19 percent of respondents recognizing Indian CEOs globally (emerging markets 14 percent, developed markets 5 percent).

On the bright side, only some people (16-26 percent) in developed markets see the state as having too much control in Indian companies, which is helpful given the high distrust the survey registers for state-owned enterprises there.

Trust is a fundamental necessity for doing business and effects companies in a multitude of ways, whether by impacting the value of their stocks or their risk profiles as they expand to new markets. For Indian firms specifically, trust abroad matters immensely given the centrality of exports in driving domestic growth. Therefore, at a time of economic slowdown and declining exports trust a crucial commodity, and declining global trust in Indian MNCs should be a cause of concern. India's business leaders must think of how to reverse this dangerous trend and to increase their familiarity, presence and trust abroad, in order to outperform other emerging market competitors and broaden their share in international markets.