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Shereen Bhan (SB): India is one of the most vibrant democracies, albeit a chaotic one. It is one of the world’s fastest growing markets, you have Ajit Jain in Berkshire Hathaway, yet it has taken you till 2011 to put India on the Berkshire Hathaway map. What has convinced you or rather who has convinced you to do so now?
Warren Buffett (WB): I have some pretty convincing associates, including Eitan Wertheimer of Iscar Metalworking and Ajit Jain. Bill Gates too joined in and said he would like to meet me over here. But the reason I am here is because of TaeguTec.

SB: Can you give us some sense of how soon we could see Berkshire Hathway making a significant investment into India? Will you be looking at majority control on whichever company that you do decide to invest in?
WB: Just within the last 10 days or so, we began an insurance operation here in India. I do not know where the next opportunity is going to come from. It was almost five and a half years ago that I received a letter from Eitan Wertheimer of Iscar Metalworking. I didn’t know I was going to get that letter, it just came in and we are ready to go. The same thing will happen in India, I will hear from somebody, I will be meeting a lot of people in the next few days and maybe from the next week or a year from now, one of those people may contact me. That is the way.

SB: Are you certain that you will make an investment in India in this financial year?
WB: Our checks were clear, I can promise you that.

SB: The average group of people present here is about 40. So, what was Warren Buffett’s dream when he was 40?
WB: I have always been doing what I love; so it’s never been that if I want to get there—to some next plateau — then I will be happy. I have been happy as I go along and it’s been a work in progress. It will never end. Berkshire is an organization that will grow beyond my lifetime. It is not like I have any specific goals for next year or the year after. I just know that if I keep showing up, good things will keep happening.

SB: Recently, you made an investment in BYD which is new as well as in clean technologies and electric vehicles. Comment.
WB: Fortunately, I have a partner who is a lot smarter than I am. My partner Charlie Munger, who is 87 and going very strong, understands most aspects of technology. So, BYD was his idea and I have never made a mistake following Charlie. I am not good at tech matters. I don’t have to be smart about everything; I didn’t deliver my wife’s baby! So, I believe in using people who are smarter than I am. I am reasonably good at spotting the people who have those abilities which I lack. We do not want to do anything that curbs the enthusiasm and the innovativeness of the people who work with us. We get the best people and when you get the best people and let them be, you get the best result.

SB: The auto sector in India is one of the fastest growing in the world. Would it be a focus area for you?
WB: It is unlikely that I would go into that myself. The ownerships are pretty well established in that field. If one of the families that controlled an auto company, for some reason, thought that being a part of Berkshire Hathaway would help their company grow over time, I am just a phone call away.

SB: Do you see new challenges for cross-border businesses?
WB: There will always be people in all countries that resist change. There will be an element in United States or in other countries that resist the idea of more trade between countries. I am in exactly the opposite camp and believe that we will prosper as we do more and more business with each other. Various countries have various advantages and no country can do all things by itself.

As world trade expands, it will mean a better life for people around the world. I have seen more of it in my own lifetime. World trade has expanded during my lifetime significantly, including in the United States where there is some resistance to trading with the rest of the world. Our exports—since 1970—have gone from 5 percent of the GDP to 12 percent and our imports have also gone from about 5 percent to around 16 percent.

We are benefiting more and more from what the rest of the world does. There will be people who will fight that. However, over a time, good ideas prevail and the world 20 years from now and 50 years from now will see far more trade between countries and will be more prosperous because of it.

SB: How real is the threat of protectionism at this point in time? How worried are you?
WB: There will always be people pushing for protectionism. If you have 309 million people in a country, it is human for a number of them that think that the rest of the world is a threat. There will be more people who will understand and look at the benefits we have obtained from just these last 40 years. We are living better now in the United States because we are importing 16 percent of our GDP than when we were importing 5 percent. So, I believe that logic will prevail over time though there will be plenty of resistance and Congress will, from time to time, bow to protectionist type sentiment. In the end, the right thing works out.

SB: When there are so many other fields that are more challenging, why choose metal?
WB: I received a letter in the fall of 2005 from Eitan. I did not know him or about this company but I recognized it in this page and a half that I was hearing from an extraordinary individual about an extraordinary company. It didn’t mean that I knew anything about metalworking myself. I invited Eitan and his associates to come over and they attempted to educate me. They made a lot of progress; they made even more progress with my partner Munger who picks up on things better than I do. It is a very important business. Everything we do in life would not be done as efficiently or as effectively, if companies like TaeguTec were not turning out extraordinary products and thinking about products of tomorrow working with the end user. Hence, I regard it as a very exciting industry and I am happy being a part of it.

SB: The Parliament session is going on and it is marred by corruption and scams. How this will adversely affect your investment plans in India?
WB: Corruption is rampant in every country. It is important to us who we associate with and that is one of the decisions I make when we look at buying a business. As I point out to many of our managers, we have 260,000 people working for Berkshire Hathway companies, so there are going to be some things/situations that are wrong.

It is our job to find out quickly about these aspects. There is plenty of good and honest business to be done in this world and we are going to try and get every bit that we can.

SB: What’s happening as far as the global financial markets and global economies are concerned?
WB: The economy of America and other countries around the world are improving month-by-month. It might not be quite as fast as everybody would like but it is happening. And we do not need to flood the world with money in order to keep the expansion going.

SB: You don’t really see large doses of liquidity coming into the market?
WB: I hope it does not happen. The problem is not liquidity or the functioning of markets and capitals. The economic world is getting better day-by-day. The tragedy in Japan will set them for a while, but it won’t set them back for years; they will come back. And the rest of the world will be very slightly affected by that. I hope they respond to the needs of the Japanese people during this period.

SB: If India doesn’t enjoy the cost arbitrage advantage anymore, what are investors like you looking at in India?
WB: Many Indian companies will do well. You want to improve competitiveness in every place of the world. That is how our children will live better; when we learn to produce more goods and services with lesser things. The fact that productivity is improving in the U.S. is not bad for India; just like improvement in productivity in India is not bad for the U.S. People often react that way but what we want is a more productive world. We want more goods and services to spread among seven billion people. We are going in that direction.

SB: So, what attracts you to India now? Is it the size of the market?
WB: The market is growing, getting more prosperous by the day, businesses are flourishing. This is a dream market in a sense. The number of people, the buying power that they are gaining, the ability to produce things, everything is getting better everyday.

SB: What was holding you back all this while?
WB: You have to find the right time. Usually the businesses we would like to buy are not for sale.

SB: Will the regulatory changes in America post-2008 change the cozy Wall Street-Washington relationship that has existed so far?
WB: I think the markets will go excesses in the future just like they have in the past.

SB: You don’t believe that we have learned a lesson from the 2008 crisis?
WB: We learned a little bit of a lesson. People will occasionally go crazy in terms of optimism and pessimism but the world is progressing in spite of that.

SB: The former RBI governor in India Y.V. Reddy said we should not blindly believe in the efficiency of global financial markets because it does not exist. You agree with him?
WB: Yes, I agree but that does not mean that I don’t believe in the market and follow market signals. Market can get very inefficient. When people have favorable experiences in markets they tend to do things that eventually becomes stupid. Somebody said that there are the innovators, the imitators and then idiots; sometimes they follow in that order.

SB: You believe we are seeing a sustainable recovery and getting stronger everyday. What are you most worried about now?
WB: The world has to learn how to deal with the problem of weapons of mass destruction, nuclear and chemical, that is the threat to the world. We have weapons of almost incomprehensible strength. Humanity is going to make significant progress but there is this threat of the nuclear, chemical and biological capabilities of either world nations or groups of one sort that could cause enormous damage and disruption. It is a common enemy that they should work together to at least minimize.

SB: Many businesses in India are family-owned or family-promoted businesses. The priority still seems to be one of inheritance with wealth being squandered and destroyed on account of that. What would your advice be to family-owned businesses?
WB: There is nothing like a family putting together its resources and coming up trumps in business. On the other hand, sometimes the next generation does not have the same abilities as the previous ones. It is tough, at times, for people to recognize it. There is no one answer to this.

We are involved with some businesses where they are in the fourth generation and these are wonderful businesses.

I have seen other businesses fall apart when they get handed down to the next generation, so there is no one-size answer I can give.
You have to look at the capabilities of the next generation. Once it works, it is wonderful and your family business can be sustained.

SB: You are 80, with no plans to retire. Don’t you think a succession plans would make all your investors feel more comfortable?
WB: We have a succession plan. If I die at night, the board of directors has somebody. It is going to happen some night and the next morning they know who will be in charge.

Now, that may change five years from now because of age, or if somebody new joins us.

Hence, it would not make sense to name that person today. So, we have a clear succession plan, we have not just announced the successor.

SB: You are not going to be pushed into announcing that, either?
WB: You have almost got a lot of it.

©Entrepreneur April 2011

Tags:
Berkshire Hathaway, India, Shereen Bhan, Warren Buffett