Sunday, September 9, 2012

India’s Global Industries: Three Horizons of Growth

There has been a time when India was unlikely to be a global player in any industry or service. From the 1980s, thanks to software services and information technology, India came to be recognized as a global software powerhouse. Still, industry was seen as an unlikely arena for global play by India. The 1990s saw the first breakthrough with the pharmaceuticals sector, led first by bulk drugs and later by formulations, becoming the global generics powerhouse. Doubts remained, however, if India would ever be player in the broader industrial spectrum. The turn of the century, however, saw India become a major producer of components and finished products in a number of industries, including electronics and telecommunication products.

Quietly, India has been undertaking certain strides in multiple industrial horizons. But for that, several developments of Indian products being in global arena would not have been feasible. For example, Nokia has its Asha range of global mobile phones manufactured out of India. Toyota, the world leader in automobiles has recently announced that India would be a new hub for certain of its global component requirements. India has today launched its 100th space mission (the Polar Satellite Launch Vehicle, PSLV, C21), with satellites from the developed world to be put in orbits on a commercial basis. Tata Motors turned around Jaguar-Land Rover operations, and began making profits and adding jobs in the developed world. Impressive as these are, they are more a result of individual initiatives in private and public sectors. There is a need to identify a concerted strategy for globalization of the broader Indian industrial spectrum.

Public-private collaboration

Given that India is yet to attain global scales in research and development, manufacture or marketing, one of the fundamental planks of gaining better global competitiveness is through the pooling of public and private resources. This could be firm level and industry level collaboration or academic and research (largely public) collaboration with private and public sector firms, or even manufacture in private sector and marketplace in the public sector (and vice versa). The disallowance of private sector into defense production, for example, has been counterintuitive and counterproductive given the maturity the Indian automobile industry has achieved. Similarly, given the huge increase in the Indian civil aviation sector should Hindustan Aeronautics not have been tapped for manufacture of India’s own dream-liners?

Public-private collaboration could take a systems approach as well. In the airports arena, the Airports Authority of India as the airports builder and maintainer, Air India as the cargo handler and various airlines including Air India (all of them except Air India being private) could view their interdependencies and mutual services in terms of enhancing user experience rather than their own transactional requirements. Academic and industrial collaboration also takes on a similar hue. Certain private sector undertakings with overseas infrastructure can help manufacturing enterprises, of both the private and public sectors. Competition need not act against collaboration. Mahindra Group, which has its own automobile franchise, for example, is the second largest financier of India’s largest automobile manufacturer, Maruti Suzuki.

Higher objectives

Diffidence needs to be replaced by optimism. It was probably never envisaged that India, given its investment constraints and poor pay scales in public sector, could have its own space program that can one day turn commercial. The truth is that the impossible has been made possible with the successful launch of PSLV today. Eventually, India would have its own missions to the Moon and Mars. The need, therefore, is for the broader industry to have higher objectives of attaining global scale and competitiveness, dreaming to make the impossible possible. The higher objectives must go beyond choice of certain firms or sectors for export competitiveness or setting up of Special Economic Zones (SEZs) or Export Oriented Units (EoUs) for export production. The objectives must be to ensure sustainability of global scale R&D, manufacture and marketing, without undue reliance on fiscal incentives.

India needs global scale and local prosperity in order to achieve the objective of economic growth with social equity. For this to happen, India needs to set up new institutional structures, turning some of the concepts borrowed from the West upside down. For example, the Planning Commission must be broad-based to provide equal participation and impetus to both public and private sectors. The Competition Commission needs to be supplemented by Collaboration Commission. Special agencies such as National Manufacturing Mission must be reinforced by new entities such as Global Competitiveness Mission. Industry bodies must transform themselves from being mere lobbying houses or advisory bodies to global policy developers and global competitiveness monitors. The industry as a whole must be responsive to indicators of adverse movements in global competitiveness for India. Against the background of such a perspective of globally oriented institutional enablers, the right horizons of growth need to be chosen.

Horizons of growth

Growth happens in horizons. The three horizons usually are the current growth makers, emerging growth drivers and future growth triggers. It is tempting to characterize the several industries in the three horizons and seek to maximize global competitiveness individually. For example, one of the more export-intensive sectors like pharmaceuticals could be placed in the current global horizon, a scale-friendly automobile industry in the emerging global horizon and a technology-intensive space industry in the future global horizon. Such an approach could have its merits and even support better globalization for the chosen industries. The disadvantage or limitation is that such classification is based on current factors of performance rather than on intrinsic enablers for the complete spectrum as a whole.

An alternate, and more systemic, approach would be to view the three horizons in terms of core competencies required. The first horizon could be one of cost-competitiveness, the second could be one of development-competitiveness and the third one could be one of innovation-competitiveness. Classifying in the three horizons enables global forays based on competencies that India possesses or can develop in a phased manner. That India could be cost-competitive in a number of industries is given; equally it is clear that India could undertake incremental developments as a matter of routine. What is not probably clear is how soon and how effectively India can transit to a paradigm of innovation; that obviously needs special focus and effort.

All industries, all horizons

The elegance of the cost-development-innovation horizon construct is that it enables a play for all the industries simultaneously in all the three horizons. For example, within the automobile industry sub-compacts, compacts and sedans may be placed in the cost horizon; luxury vehicles, sports utility vehicles, multi utility vehicles and crossovers in the development horizon; and hybrid and electric vehicles in the innovation horizon. This construct helps the automobile industry seek and achieve globalization without any lapse of time and also with utmost effectiveness. Similar examples would abound in terms of various industries. In the computer industry, desktops and laptops as well as tablets would figure in the cost horizon, supercomputers in the development horizon and the artificial intelligent computers and robots in the innovation horizon.

When the detailed paradigms of research, development, manufacture and marketing are drawn up for each industry across the three horizons, it would be evident how, rather than sector-specific tactical plans, horizon-specific strategies would be relevant and helpful for the industry as a whole for global competitive advantage. This construct has lessons for firm level strategy as well. Firms should not view globalization as a single product or convenience led effort. Rather, it should be seen as an overall competency reinforcing effort across the total product range. Although as of now clear examples do not exist of Indian firms having demonstrated the multi-horizon success organically, both Tata Motors and Mahindra & Mahindra effectively demonstrate how they could achieve multi-product, multi-horizon competencies through a fusion of organic and inorganic initiatives.

Horizons of competence

The three horizons of global competitiveness of cost, development and innovation correspond to three core competencies which successful global firms must possess. These correspondingly are operational excellence, development creativity and absolute innovation. Regardless of product differentiation, cost leadership is a good position to be in for all Indian global firms. This would be reinforced when product development capability enables the firm to also develop differentiated products. An Indian crossover vehicle is thus a first for an Indian car maker. Complete multi-horizon capability occurs when the firm makes innovation its passion and develops breakthrough products. Most Indian firms are yet to focus on the third horizon but the sunrise technologies such as nanotechnology and alternate energy provide potential for research institutions and industries to make common cause; this requires scientific and technological leadership as well as cutting edge laboratory infrastructure.

Indian experience suggests that induction of experienced professionals skilled in each of the horizons, whether from Indian industry or overseas helps the firms master the three horizons appropriately. In terms of operational excellence we have multiple examples of leadership from efficient Indian companies such as Reliance Industries. Development excellence in Tata Motors and Mahindra & Mahindra was catalyzed by Dr V Sumatran and Pawan Goenka respectively. Even in the mysterious and challenging domain of drug discovery, some Indian firms have relied on proven scientific leaders and state-of-the-art laboratories to achieve considerable traction. This is indicative of the fact that the base talent for all the three horizons is appropriately and abundantly available in India and catalytic leadership, and modern infrastructure, with the three horizon approach enunciated herein, is all that is required for India, Inc to deliver on the promise of globalization.

Posted by Dr CB Rao on September 9, 2012

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