National Competence Consistency: Key for Global Leadership through “Make in India”

There is perhaps no nation that has as much history of pioneering knowledge, dating back to several centuries, in eclectic sciences and technologies as India has but has struggled so much to rediscover and fulfil the potential in recent past (despite some significant achievements in certain areas of industry and infrastructure). Prime Minister Narendra Modi’s clarion call to global investors and global industries to “Make in India” resonates well with India as a resurgent nation that believes in self-reliance and global leadership. Modiji has also rightly laid stress on skill development as the basis for building scale and scope in the manufacturing, research and other areas. Though the national goal and the enabling strategic direction are well understood, the need for an almost revolutionary transformation in the competency paradigm is perhaps not fully understood. Successful nations on global missions have achieved such status based on making the required competencies a national comparative advantage.

India’s industrial development has been on fragmented lines as is well known. It is characterized by a few big capable firms with national competitive posture and several mid and small scale firms with regional or sub-regional presence. The former are able to develop or access, and compete on technology while the latter struggle to access, let alone develop and compete on technologies. This does not mean that a firm has to be only big to be competent; as Japan and Korea illustrate it is possible for even small and medium companies to be technologically competent. Many times the lag of the latter in India is attributed to scale related investments and finance; on the other hand, the lag is due to a managerial and leadership approach that fails to utilize all factor sets optimally. This lacuna needs to be addressed because global leadership can come about only when competencies are pan-Industrial and reflect a national characteristic of consistency. That India has some distance to go on this aspect is illustrated by a just published survey on India’s travel experience.

Unreasonable spread

Key findings of a survey by the leading travel website TripAdvisor listing Indian airlines preferred and shunned by passengers, and the reasons thereof, have been published in The Economic Times Magazine, November 30-December 6, 2014, pp 10 and 11. While the study on a travel service may apparently seem to have no nexus with the Make in India hypothesis, relevance does exist. Clearly, all the airlines have invested in having a fleet of modern planes, and all the associated piloting, crew, ground handling, maintenance and ticketing infrastructure. Yet, the way the individual airlines utilize the respective infrastructure and organization to deliver the ultimate services is paradoxical, to say the least. The survey generated ratings on twelve performance parameters. These are on-time performance, value for money, in-flight entertainment, in-flight food/beverages, cabin crew, landing/take-off, check-in, baggage delivery, cabin maintenance, seat comfort/leg room, website, and overall experience. Given the sophisticated nature of the airline industry, one would expect the airlines to uniformly meet certain base metrics.

The results of the survey bring out a huge variation in performance as perceived by travellers. For example, with reference to on-time performance the approval ratings ranged from a measly 0.4% to a respectable 69.6%. Except two airlines (the second trailing at 16.3%), all the others had a very low range of 0.4% to 6.3% on this factor. In fact, on each of the other eleven parameters too, the spread has been inordinately high. In terms of overall experience, the pecking order has been 42.0%, 37.8%, 10.6%, 5.5%, 2.0%, 1.0% and 1.0%. Even more tellingly, on safety too, the approval ratings showed a dangerously wide range from 0.8% to 31.2%, with only 14.9% of the respondents deeming all the airlines to be equally safe. Clearly, same or similar assets and talent base has been resulting in radically different perceptions of performance. If the survey brings out one factor as a common theme, it is the lack of consistency in competence as reflected in performance delivery and user experience.

National consistency

If a nation has to qualify as the world’s destination for any competitive activity it must first qualify as a consistently competent for that activity. India has been able to do that in the field of information technology. From the established metro cities to the emerging urban regions, aptitude and skillsets for information technology became available, making computer coding and system architecture a nationally consistent competency. In respect of manufacturing, however, India has been able to develop at best certain regional clusters of competency. Notable among these are the clusters for automobiles, auto components, steel making, shipbuilding, defence equipment, heavy engineering, pharmaceuticals, jewels, watches, movies, collieries and a few other sectors. On the other hand, certain industries have been just firm-specific and not even region-specific. Modern and safe construction industry has been more a firm-specific phenomenon than even a regional competence. Probably, construction safety by its absence is an unfortunate national consistency.

National or regional consistency has, to-date, been a resultant of top down initiatives. The establishment of heavy engineering and steel companies in public sector and the other noted companies in public/private sectors has created a pull factor for the generation of competencies in the 1950s and 1960s. Initial training by overseas collaborators followed by indigenisation of skills has helped development of regional clusters. As India looks at a new wave of Make in India none of the previous strategies would be good enough for the task ahead. Consistent competency development has to be a simultaneous nation-wide effort. It is not impossible. The new waves of the Indian Institutes of Technology (IITs), Indian Institutes of Information Technology (IIITs) and the Indian Institutes of Management (IIMs) that have been so successfully set up in tier 2 cities and in the far flung regions of the nation indicate that Indian population is always game for creating new centres of excellence, whatever be the domain.

Make in Education

An effective Make in India initiative can happen not in India’s industries or firms but only through India’s schools and colleges. The Indian educational system needs uniformity of high standards, encouragement of creativity, openness of evaluation and continuous bridging of theory and application. In the current India, quality is heavily tiered in terms of classes of schools and colleges. While some differentiation across institutions is inevitable even in advanced nations (like between Ivy League and other institutions), the kinds of differentials that are allowed to perpetuate between different boards of education, different types of public and private educational institutions and institutes of national importance and several other tiers in India are so huge, and in many cases so discriminatory, that a uniform quality of education on a pan-India basis has been elusive. The educational system is in urgent need of reforms ground-up in terms of building national competencies.

As this would inevitably take time, there is an urgent need for some top-down reforms too. One way would be to dedicate the final semesters of each course to finishing courses which align the students to the industries of their choice rather than to desultory project assignments in which the randomly matched firms and students have no shared interest.  The finishing courses would comprise generic toolkit such as communication, collaboration, project management and networking skills and specific industry specific toolkit such as advanced computer languages in respect of information technology industry, international regulatory compliance in respect of pharmaceutical industry, mechatronics in respect of machine tool industry, genetics and epigenetics for biotechnology industry, and so on. The finishing courses should be nationally standardised and should be of such rigor that student of any institution should be on par or above the best of global educational standards. Availability of such skill optimization would make India a natural destination for Make in India realization.

Together we succeed

While India has many industry associations, almost all of them have agendas related to policy reforms. Macro-economic factors remain their paramount engagement. Skill upgradation is seen to be the task and responsibility, or even a unique competitive advantage, of each individual firm. Many firms are reluctant to open themselves to the pathways and success factors that determine competitiveness through intra-industry collaborative dialogue. Let us take the example of upgrading rail infrastructure to a level of bullet train network. This would require most modern track making and coach making technologies. If the existing railway wagon firms such as Integral Coach Factory, BEML, Kalindee Rail, Texmaco, Stone India and Titagarh Wagons (and 12 others) do not upgrade their capabilities together there is little chance of Make in India being successful in this sector.  Similar logic would apply to indigenous manufacture of new generation telecommunication gear, defence equipment or power plants.

The national psychology must change from one of exulting over the indigenously benchmarked relative superiority of the leading firms to one of demanding absolute superiority of global standards. When there are reports of certain indigenous cars failing safety tests or certain products lagging packaging requirements, the industries as a whole must collaborate to develop and validate templates that meet global customer standards.  Even granted that some of such global concerns tend to be subterfuge for non-tariff barriers, there is merit in industry-wide analysis of causes and development of solutions. Higher level of skills when pursued by individual firms may make individual firms competitive relative to other Indian firms but industry-wide actions make the entire industry competitive relative to global firms. This transformation would influence global industries as a whole to move into India as their preferred manufacturing destination. Consistency of competence across the industries as a national comparative advantage is key to the success of Make in India revolution.

Posted by Dr CB Rao on November 30, 2014

     

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

De-globalization and Re-localization: Towards One Economic World

The growth of all developed countries had been in a large measure due to such countries driving their industrial and economic growth based on not only strong internal consumption but also aggressive overseas exports. The exports from developed countries typically comprised technologies, capital goods, raw materials, components and finished goods to other countries. In recent years, the developed economies have started to support their faltering economies by outsourcing their production to low cost emerging economies while the emerging economies started adopting the developed countries' model of export led growth. In the meanwhile, the global financial volatility of the last several years continues unabated. In fact, it is spiked up by the growing public debt of several developed countries and collapse of domestic demand-supply bases in such countries coupled with unpredictability of exchange rate regimes. This has, in turn, cast a serious shadow on the relevance of export led growth models that are sought to be pursued by the emerging economies.

There are, of course, significant differences in the characteristics of the developed and developing economies. The developed countries are characterized by flagging demand and low job creation, especially in the manufacturing sector, in a demographic shift towards the aged and an economic mix dominated by services. The developing countries are characterized by surging demand and high job creation, boosted by a demographic shift towards the young but constrained, however, by poor quality of infrastructure and huge urban-rural and rich-poor divides. The export led and foreign investment led models of growth of emerging markets are threatened by the economic uncertainties faced by the developed economies. This has depressed demand and increased the global financial volatility which has, in turn, affected investment flows. There, however, seems to be little appreciation by policy makers and industry leaders of the emerging markets on the risks to their growth models. The emerging markets seem to be chasing the overseas chimera while ignoring the domestic growth needs. There is a need for both developed and developed countries to re-prioritize the globalization and localization models.

Viability motive in developed countries

As the Eurozone crisis demonstrates, developed countries are committed to sustaining current living standards affected by lower incomes and lower savings with lower costs of products and services. Their emphasis is on searching globally for the least cost sources even while continuing the approaches to develop new products and new markets. While product development has no doubt accelerated in the last two decades in the developed economies the acceleration has not been a determinant of greater gross incomes. The impact of enhanced innovation is reduced by the shorter product life cycle. New products typically substitute the previous generation products rather than co-exist. With the consumption driven society facing incomes crisis, the strategic mindset of the developed markets is focused on sustaining viability through cost competitiveness rather than through value enhancement.

The strategic mindset of viability at any cost (actually at the lowest cost possible!) reduces the innovation levels due to reduced investments on research and asset modernization. At times, the unceasing quest for the lowest cost also impacts quality as demonstrated by the problems faced by certain product categories due to imports from certain countries. The financial orientation is compounded by an analyst and investor mindset which relentlessly focuses on quarterly results, especially corporate profitability and shareholder returns. This emphasis, no doubt, trains the managements to conserve resources and minimize waste but it also makes them risk, investment and innovation averse while driving them to globalize to outsource and reduce costs. It requires significant leadership strength to fight against the dominant trends and reinvest for growth. It is a moot point if the state of frozen growth faced by the developed countries needs to be thawed by government incentives, industry actions or firm level competitive moves. In all probability all are required in unison.

Growth motive in developing economies

The emerging markets, especially China and India, have been notching up high rates of economic growth for the last several years. In fact, it is said that the unrelenting infrastructure development and competitive manufacture have made China the most important partner for several developed economies. India has also been treading a similar path, albeit with a lag. However, global adversities and local inflation are slowing down growth in emerging economies. The impact has been two fold; reduced investments from developed countries serve to reduce new project formations in emerging markets while increased inflation in emerging economies affects the cost-competitiveness of products and services. There is, however, no predictable outcome of the changing equations given the unpredictable movement in exchange rates. As corporations in emerging markets are buffeted by these several adverse trends, export-led growth becomes a somewhat shaky model.

The emerging countries seek to bolster their competitive position in the changing scenario by opening up the economies even more. India, which has gained significantly from the opening up of the economy to foreign investments, has been facing some criticism for not opening up the economy even further to make India an even more favored destination for foreign investments. There is, however, equally a pushback from certain quarters based on concerns arising out of land use, import-led project creation, squeeze of small and micro enterprises, exploitation of indigent farmers, and so on. In the absence of an objective discussion, the subject of further economic reforms is tending to be more polemical than technical. Some examples such as the current foreign direct investment policy for pharmaceuticals, sale of Cairn oil business or new policy on foreign direct investments in multi-brand and single-brand retail are indicative of the controversies relating to quick policy fixes devised from time to time to keep the emerging economies growing at a fast clip.

Market-led or factor-led?

Emerging markets have to rethink their development and growth strategies. For India, in particular, although opening up of the economy brought in excellent benefits of outsourcing in the past, a similar strategy may not provide similar results in future, at least on the same scale. If the first phase of reforms brought to the fore the relevance of India’s factor inputs (technical and managerial talent; human and corporate side of free enterprise), the second phase could provide a much larger menu of options based on a switch to market based growth. This is because factor-led growth focuses on making global products cheaper using India’s low cost factor inputs and conversion economics. Many times this could be only for captive consumption through directed development. Depending on the standing of the sponsors, the factor suppliers or the conversion specialists would prosper. Even then, most production in the factor-led model enables viability to global developed markets rather than to the domestic markets.

Market-led growth on the other hand focuses on the huge domestic demand of the emerging economies that remains untapped. It would provide additional product scope and manufacturing scale to the base levels of the factor-led model. The domestic market would have additional products at appropriate value points, often developed through creative science and frugal engineering. The additional scale and scope thus obtained would also have collateral positive impact on the basic global products of the sponsor. The policy regime of India (whether of 100% EOUs or SEZs), however, provided incentives and tax breaks only to export production and sale. Any domestic sale by such companies would draw equalization of duties and taxes, hiking up the pricing of products for the domestic tariff area. In one sense, penalizing the domestic market with higher prices is inequitable, and deserves correction in the current phase of reforms.

De-globalization, re-localization

At the core of the new paradigm for balanced growth of the Indian economy must be a balanced emphasis on globalization and localization on a 50:50 ratio, as a general guidance. This means that every enterprise must seek to cater to global markets and local markets equally. The advantages of this mindset shift for the Indian enterprises and economy would be enormous. Those firms that are steeped in antiquated products and sheltered under low value points with 100% local market oriented production will start understanding and absorbing global technologies, in terms of products, processes and quality. Apart from achieving better revenue status through the newfound export orientation, such enterprises would also be integrating the new technologies for the local market, achieving better competitiveness in the local markets. The economy would obviously benefit through additional export revenues from the hitherto wholly domestic oriented units and the expansion of the local market with better products by such firms.

The 100% export oriented units would conversely dedicate 50% of their capacity for serving the local market. This would enable such firms access the vast and growing Indian market and achieve business stability, even if accompanied by a pricing compromise required for the domestic market. Such a move to allocate 50% of the capacity for the domestic market would benefit the enterprises in terms of a capability to develop and manufacturing products that suit the challenging Indian market. It would also enable the enterprises be better equipped to cater to other emerging markets. The economy would significantly benefit from the availability of global product range in the country without resort to costly imports. On an overall basis the 50-50 approach would also address the concerns of the developed world that outsourcing to emerging markets is all about low cost production; they would appreciate that the new approach secures market access too.

As a corollary to the 50:50 approach, emerging countries should also insist on at least 50% localization as a target, whatever be the product. This would enable the development of the industry even in high technology segments. For example, import of luxury cars on a completely built-up (CBU) basis would be modified to partial import and local assembly based on semi-knocked down unit (SKU) basis. While such approaches were there in the past, notably until the 1990s, they did not result in any significant gain as the demand did not exist for such high end products in India. The demand profile in the liberalized India is significantly different, and has its place for high end products. This would provide the requisite base for local component and manufacturing support for high end products too.

Policy regime, paradigm shift

The more balanced globalization-localization paradigm advocated herein offers multiple benefits as outlined. It brings economic development on to a more balanced platform globally, and provides stability to all economies. The emerging markets, however, need to put in place certain policy prescriptions to usher in this change on a sustainable basis. For example, the 100% EOU and SEZ policies may have to be modified to provide for allocation of 50% of capacity for the domestic markets as a target. Correspondingly, such production should not also be levied additional duties in the event of sale to domestic tariff areas. In order to ensure greater transparency and stability, a new 50-50 export-local policy regime should be brought in. The policy would help the Indian industry far more than individual sector reforms could help. There is also no need to be concerned that 100% EOUs and SEZs would have greater tariff advantage as a level playing field would be created for the hitherto wholly domestic units too.

Along with the intellectual property protection regime that is now in place in India, the new 50-50 policy regime should induce innovator firms in all industries to locate the production of their patented products also in India. This would enable the Indian public have access to patented products, especially in the healthcare sector and obviate the need for measures such as compulsory licensing. The innovator firms as well as the global consumers would have the benefit of lower cost development and production of generic as well as innovator products in India. While at first look the suggested 50-50 policy prescription may look threatening both to overseas firms and domestic enterprises, the principles of equality, technology and market access and level playing field that support the new policy prescription would provide tangible and sustainable benefits.

One economic world

Eventually, economic development would seek a global equilibrium. The developed world has seen limits to growth and profligacy. The emerging world which is tasting the first fruits of liberalization and prosperity would soon discover its limits to growth due to gradual erosion of competitive advantage. An ability to cater to domestic as well as overseas markets equally, and a capability to contribute at least 50% of local value addition would enable the Indian enterprise stay stable and competitive. The approach would enable the foreign enterprises be equal corporate citizens in the local markets providing global products competitively to local markets while benefiting from the talent and cost arbitrage that India offers. The de-globalization cum re-localization paradigm would lead to an equitable One Economic World, providing a rightful competitive position to emerging countries such as India.

Posted by Dr CB Rao on September 27, 2011

India Inc’s Globalization Challenge: Need for Cross-cultural Expertise

India Inc is at the cusp of an unprecedented globalization wave, which is an opportunity as well as a challenge. The key opportunity is that India is poised to be a 5 trillion economy by 2020, and become the third largest economy by 2030. As part of this economic transformation, India would be a manufacturing powerhouse as much as an information technology leader. India would see increased foreign direct investment in services, manufacturing and infrastructure as well as low-cost product development. Globalization for India Inc would take two forms: Indian companies would make more international buys to access technologies, resources and markets (outbound globalization) while being open to getting partially acquired to support expansion and diversification, or simply to unlock value for newer forays (inbound globalization). Globalization is an irreversible multilateral phenomenon with solid hypotheses.

Hypotheses of globalization

Overseas companies view India as an investment destination for several valid reasons. India offers a huge market for new products and services more particularly as social economics and demographics change in favor of a larger middle class and younger population. The already established perspective, of course, is of India being the world’s back-office, covering both information technology (IT) and IT enabled services (ITES) and business process outsourcing (BPO). From a manufacturing perspective, India offers a low cost manufacturing footprint, not merely of labor cost but also of materials and components. Not many, however, still appreciate that there is also a uniquely Indian way of conceptualizing and executing projects with lower investment costs and faster time to market. In terms of global supply chain management, the advantages are of low cost sourcing and supplier development for global optimization. The new opportunity is one of product development comprising design services as well as development of low cost products for global needs. Added to this, availability of high caliber firms with established competencies in the above areas and open for capital participation by overseas enterprises is a distinct advantage. Clearly, India offers a holistic opportunity for multinational corporations seeking further globalization.

Similarly, Indian companies have valid motivations for overseas forays. Overseas countries offer ready markets for India’s low cost, high quality goods, with appropriate value propositions for both developed and developing countries. Essentially, overseas markets offer scale and scope for India Inc. within the established IT base, Indian companies can diversify into less developed regions on one hand and expand into IT product development and knowledge outsourcing. From a manufacturing perspective, India Inc can look to selective overseas manufacturing presence to turn around acquired assets with Indian materials and component support, and also establish lower cost projects, the India Way. An optimized global footprint that brings manufacturing and markets closer could result. From a supply chain perspective, India could benefit from an ability to absorb the sophisticated supply chain technologies and systems of the developed world, and to offer products at multiple value points. In terms of product development, an entry into sunrise sectors and access to development areas which require global scale would be feasible.

Talent as an enabler, and a barrier

Globalization is dependent on talent. Indian companies seeking inward or inbound globalization (into India by overseas companies) need to realize that entry into India in future would not merely be for a market or cost opportunity but more for the India Way of conceptualizing and executing projects and operations. Plentiful availability of talent in India is given, but talent which is fully immersed in the Indian way and, worse still, talent that is able to articulate the Indian way is in short supply. Talent meeting such criteria is not cheap, thus reducing cost arbitrage. Also, such talent tends to be migratory impacting sustainable globalization. Indian companies seeking outward or outbound globalization (into overseas countries by Indian companies) need to realize that globalization is more than valuations, collaborations and contracts. The availability of technological and managerial bandwidth in Indian companies is essential for the companies to realize the envisaged objectives. Given the relatively nascent stage of outbound globalization, availability of true global talent is indeed an issue for Indian companies.

As discussed in the earlier two way hypotheses, globalization has an economic logic. Successful globalization, therefore, requires talent that can enable desired objectives in business, marketing, manufacturing, supply chain, product development and financing. Capability to achieve required synergies and competitiveness through fusion of Indian and global resources is necessary. Indian executives must hone their skills in due diligence studies, business negotiations, valuation studies, and transaction consummation. Ability to conceptualize globalization plans as well as plan and execute collaborations, alliances and joint ventures would be essential. These skills are particularly tested in mergers and acquisitions where post-transaction transition and integration requires special skills of handling people. Management of multiple cultures becomes as important a facet of talent as the technical and commercial competency profile that enables the realization of economic rationale.

Culture and complexity

Culture is multi-factorial and defies easy definition. Cultural diversity occurs across all nations and within nations too. Similarly, different entities have different cultures, and it is not unusual to have subunits of an entity sporting different cultural traits. Culture defines the personality of an organization as much as it defines the personality of an individual. Understanding the diverse cultural patterns and the cross-cultural interplays is crucial to successful globalization. This is easier said than done as culture gets partitioned in many ways: local culture versus overseas culture, western culture versus eastern culture, developed market culture versus emerging market culture, professional culture versus family culture and established corporate culture versus start-up entrepreneurial culture. Many times, culture camouflages or gets mixed up with managerial styles and systems. Addressing cultural issues without the accompanying organizational noise is a challenge.

Management of culture needs relational skills, on top of an understanding of cultural determinants. It often is impossible and also irrelevant to aim for cultural homogeneity. The key requirement is to identify the cultural parameters that reflect strongly a local nativity and accommodate or work on them. For example, in a culture which respects authority and hierarchy it would be inappropriate to attempt a flat organization structure or introduce multiple decision makers. The aim of global organization development should be to address the key cultural influencers of organizational effectiveness. The complexity of cross-cultural interactions emerges from the fact that thousands of individual to individual interactions that happen real time on a continuous basis between two interactive organizations aggregate to a dynamic cultural mosaic. It would indeed be difficult to regiment cultural behavior but it would be helpful to develop models of cross-cultural behavior that operate when executives of different cultures interact. As India Inc globalizes, it would need to be aware of the need to be sensitize its executives to cultural diversity that could confront them. Interactions between the executives of the East and the West could be a model of study.

East meets the West?

There are at least seven dimensions on which models of managerial behavior can be developed, with a cultural overlay. These are: communication style, working style, accountability, risk-taking, performance review, professional relationships and lifestyle. If one were to compare a typical US manager with a typical Indian manager on these dimensions the differences would be palpable. A US manager tends to be analytical and quantitative as well as direct and open in communication, emphasizing early communication of successes as well as failures. An Indian executive, in contrast tends to be experiential and emotional as well as indirect and deferential in his communication, with an inclination to report only end-stage results. The US working style tends to be process and metric-driven, with an elaborate stage gated decision making. The Indian working style tends to be end-goal driven, rather than sequential intermediate stage driven, with back-of-the-envelope quick decision making. In the US, job boundaries, and hence accountabilities are well understood while in India overlapping job responsibilities often result in a failure to pin accountabilities. In the US risk is taken in a measured manner based on risk authorization while India is open to take risks, without deep analysis, in pursuance of growth. Performance reviews in US are clinical and non-emotional while performance reviews in India tend to be as much relationship based as performance oriented. In addition, seniority carries weight in India. In US, professional work and personal life tend to be completely distinct while in India work is allowed to intrude into personal and family life. The US lifestyle emphasizes independence and nuclear families while the Indian lifestyle emphasizes dependence and joint families.

As a result of the two polarities of cultural behavior, initial interactions could be challenging for a globalizing India Inc. It takes time to build robust platforms and styles of shared communication. Both sides find the opposing methods of delivery management culturally different. The head oriented approach and the heart oriented approach are seen to be mutually exclusive. An Indian manager could see a US manager as being too process driven and micro-managing too much. On the other hand, a US manager could see an Indian manager to be too fatalistic, often hoping to overcome delays through good crisis management. Despite great strides in professionalization and management education, Indian corporations are driven by emotional themes while the US corporations are driven by economic realities. It is easy to appreciate that unless respective managers are culturally sensitive, both inbound globalization and outbound globalization could lead to cultural logjams for India Inc. Successful corporations tend to address this by separating cultural issues from systemic issues, prioritizing each stream and developing a hybrid model of professional and cultural synergy with open and transparent discussion. While the above East-West cultural model may be typical, It would be facile to assume that cultural divides occur only between the East and the West. The Corporate East itself is quite plural culturally.

A divergent East

Japan, Korea, China and India are the four major countries which have strong and emerging industrial and business relationships. India Inc has the task of deepening and broadening relationships with the three Eastern countries as it seeks to globalize. When analyzed on the seven dimensions of cultural model as above, the four countries display significant diversity. In terms of communication style, for example, Japanese managers are extremely polite and often inscrutable while Koreans are pointed and direct. Chinese communication tends to be complex while Indian communication is highly spontaneous. In terms of working style, Japan tends to be highly systematic and consensual while Korea tends to be competitively opportunistic. China focuses on sustainable mass delivery while India tends to be hungry for growth. All countries except Japan emphasize speed in decision making while Korea and China back it up with speed in execution too. In terms of accountability, seniors assume accountability in Japan while in Korea the middle level leader gets to be empowered and accountable. Accountability in China is hierarchy-bound while in India accountability is often difficult to quantify due to diffused job definitions as well as an accepted practice of moving up accountability by juniors. Japanese managers evaluate risk carefully through geo-political and socio-economic lenses while Koreans are open to experiment with promising external markets in pursuit of growth. Chinese managers are willing to pioneer first entry into even difficult markets while Indian managers prefer to be fast followers.

In terms of performance review, Japanese emphasize collective performance while Koreans gravitate towards individualism. China believes in performance as a mandated mass commitment while India lets relationships overarch performance. In terms of working relationships the ethos in all the four Eastern countries emphasize long and extended working hours, with India not even following the mandated vacation cycle as Japan, Korea or China follow. In terms of life style, Japan respects seniors, independent of either nuclear or joint family system while Korea is relatively more westernized. Chinese executives tend to be migratory while Indians tend to root for nativity. Had India Inc addressed its globalization in cross-cultural context, India would have garnered a much greater share of Japanese investments and would have forged greater collaborative industrial relationships between themselves. With Korea aggressively optimistic on India greater cross-cultural collaboration could have placed Indo-Korean globalization on a more equitable partnership mode. The emerging lesson is one of India Inc needing to follow multiple cross-cultural approaches for a more comprehensive globalization, both within its historical cultural constituency of the East and the historical business constituency of the West.

Global strategy under a cultural umbrella

Established wisdom is that strategy determines the structure. In a globalizing economy, both strategy and structure are influenced by culture. There is a need for India Inc to understand local cultures and work in alignment, and through, local cultures to achieve strategic objectives. Tata Motors did culturally appropriate moves prior to and post acquisition of Daewoo Commercial Vehicle in Korea and Jaguar- Land Rover assets from Ford, and reaped successes. Not only that, it appointed an experienced automotive expatriate leader for its global business to reflect the international culture. M&M appears to follow an Indian talent driven approach in its management of Korean SsangYong Motor. In mergers and acquisitions particularly, there is a need to understand how local culture responds to challenges of consolidation and opportunities of growth. Employees of developing economies like India despite plentiful job opportunities appear to be concerned with stagnation and job losses upon acquisitions of Indian entities while employees of developed countries appear to be taking the challenge and opportunity of getting acquired without much churn. In any case, it would be incorrect to treat cross-cultural management as a solely human resources functional issue. While HR leadership could drive the change or acceptance management all the initiatives should be owned and managed by operations and business leaders. Cultural sensitization must be set in the context of day to day job experiences for effectiveness.

Strategy and structure would be impacted by several cultural variations that could occur during the implementation of globalization initiatives. Some of these variances relate to leadership and talent surpluses or shortages as well as misalignments. These arise mostly due to non-involvement of human resources function in due diligence studies, pre-acquisition and in integration exercises, post-acquisition. In some cases, urgent considerations of business continuity force skews in or place restraints on green field or brown field organization development. From a strategy and structure point of view, therefore, several questions need to be addressed a priori to make head quarters and regions work in a seamless fashion. Adoption of the right organization structure - product, geographic, SBU, matrix - could be one option to guide global governance and managerial processes in a manner appropriate to both business and cultural contexts. Globalization succeeds when the processes of managing the relationships and communications between head quarters and subsidiaries as well as between subsidiaries are well defined. Organizational structures, cultural factors and communication channels, therefore, constitute a triad for successful globalization.

One global firm, several local entities

Globally successful organizations operate as one firm, despite being several entities. They sport a common set of vision and values while providing for locally customized strategies and structures. Cross-functional and cross-border mobility enables unity in diversity. In India, despite the heterogeneity of States, cultures and languages, Indian Administrative Service and Indian Railway Service each emerged as one singular service. In international scene, McKinsey, the leading management consulting firm is a perfect example of the One Firm concept, with shared vision and values, common high standards in talent, respect for uniquely local cultures, pursuit of economic logic, knowledge sharing with client firewalls, and so on. Virtually all large multinational corporations seek to institutionalize the One Firm concept in a number of ways. Several global companies make knowledge sharing and best practice integration across global locations as a means for the one firm experience. Automotive, engineering and electronics companies have taken strides in knowledge sharing portals as a tool of successful globalization.

As India Inc with its limited technical and managerial bandwidth, and the largely domestic market orientation seeks to globalize at a more aggressive pace, it needs to evolve its own paradigm of One Firm. The first need is to build a talent pool for globalization. The new breed of Indian managers bestowed with high quality engineering and management education in reputed institutes such as the Indian Institutes of Technology (IITs) and the Indian Institutes of Management (IIMs), yet integrating the uniquely Indian emotional ethos, reflect a unique combination of head, heart and gut management, so essential to meet the multiple needs of diverse countries and cultures. To enhance the talent pool, India Inc must depute its managers of the previous generations to long refresher courses by such institutes to realign their skills to the new globalization needs. Strategies of globalization must be based on validated hypotheses of inbound and outbound globalization with appropriate structures and processes that deliver efficiency and effectiveness across the global network. Case studies of successful globalization by the Indian conglomerate groups such as the Tatas and Birlas offer several insights for India Inc as a whole. It is perhaps time for the leading industry associations such as the CII, FICCI and Assocham as well as the IIMs to diffuse the knowhow of globalization amongst their constituent firms.

Posted by Dr CB Rao on March 13, 2011

The Universal Corporation: India Inc’s Defining Goal

This blog post, the seventy-fifth post in my series of Strategy Musings, is a sequel to my earlier post titled “The Firm’s Next Frontier: The Universal Corporation” which concluded that the firm’s next frontier is a transformation into a universal corporation. This post analyses the concept of a universal corporation in terms of a strategy, structure and competency paradigm, and hypothesizes that the universal corporation is a defining goal for India Inc.

A clear practical path

It is tempting to define a universal corporation as one which manufactures virtually every product or one which is present in every territory of the globe. Apart from the fact that there is no firm that has ever attained that capability covering a total product spectrum and geographic canvas it is clear that any journey towards that goal would face not only challenging technical and economic hurdles but also insurmountable policy barriers. That said, a truly universal corporation is not an impossible option; rather, it would be a result of a journey that could span several generations that would need to be travelled by founders and chief executives with a completely open mind. Early successes in core technologies and core markets provide the competencies and cash for capable companies to cover total value chains, product-wise and/or market-wise.

There are certain Japanese and Korean corporations which come close to the concept of a universal corporation, demonstrating the feasibility of the goal. Japanese conglomerates such as Sumitomo and Mitsubishi have a formidable reputation for manufacturing anything from pins and pens to metals and medicines. Hyundai, the Korean conglomerate has the enviable reputation of manufacturing everything from chips to ships. The capabilities of such behemoths cover a whole range of technologies from electronics to automobiles, and consumer goods to industrial products. Their presence is also significantly global. Developing countries such as China and India have also been home to several diversified groups. The development of these large conglomerates has been spurred by several disconnected aspirations rather than by a planned strategy of universal coverage. Today, however, there is validity and feasibility for large conglomerates or large specialized organizations in India to pursue the strategy of a universal corporation.

Defining universality

A universal corporation is not necessarily only an integrated company or a diversified company, or even both. Neither is it a geographically dispersed company. As the previous blog considered, a universal corporation is more than a multinational corporation. To achieve conceptual integrity, a universal corporation may be defined as one which achieves total dominance in one technological domain, straddling complete product portfolio and providing global market coverage. If Sony decides that it would operate in any product that incorporates electronics and provides such range across the globe it would fit this definition; given the ubiquitous spread of electronics it is a moot question if it would ever be possible on a total basis. If Toyota decides that it would operate in every conceivable type of automobile from a two wheeler to earthmoving vehicle, serving every terrain in the world it would be a universal corporation; a journey which Toyota is entirely capable of but has not carried out because of its own volition. If Google decides that it would offer any and every product that deals with Internet, and would customize its products to all global languages Google would become a truly universal corporation; probably something a journey on which it is already set.

The concept of universality is best pursued by focusing first on a product-market dimension, and then expanding on either the technological dimension or the user dimension, or both. To take an example, one could start a foods business by opening a restaurant. Normal strategy aims at scale and scope in terms of chain of restaurants and multiple culinary tastes respectively, within the overarching umbrella of geographic coverage. Universal strategy, on the other hand, aims at leveraging the core technology of food preparation and service to extend the footprint to cover fast food restaurants, coffee cafes and tea kiosks on one hand, and processed food ingredients, processed foods and ready to have foods and beverages. Does the universal strategy militate against Porter’s concept of defining tightly the industry boundary, and developing a relevant competitive strategy? Does it also militate against Prahalad’s concept of defining core competencies in a focused manner, and building a business strategy around them? Certainly not, as universal strategy is an inevitable transformational journey in strategy formulation for a highly networked world, with multiple convergence points.

Formulating a universal strategy

Amongst all competitive strategies, formulation of universal strategy is the most challenging. Firstly, the company should have a basic critical mass to be able to enable, support and sustain a universal strategy. Secondly, the firm should be in possession of a core proprietary platform to be able to universalize itself. Thirdly, strategists should have a flair for identifying the multiple dimensions in which a firm can universalize itself and then prioritize the sequence. Taking the restaurant example given above, should the company move from restaurant to fast foods business first, and next to the processed foods, or vice versa? Or, within the processed foods side, which should come first: ingredients, foods or readymade foods? The decisions depend as much on the core competencies that are in possession of the company as on the market opportunities that become available. Many times, pursuit of parallel dimensions in one go could be an ideal strategy.

Technology determines a core competence but the manner in which it is deployed could provide a disincentive or incentive to universal growth. Without doubt Apple products are universal in appeal, backed by unique technologies of feel and function, and enablement of applications. Yet, by linking up with a personal computer and/or iTunes being mandatory and by not allowing a standard USB drive, by limiting the range to a few iconic models, and/or by ignoring certain countries in its pecking order, Apple is not really tuning itself to a universal strategy. On the other hand, Samsung which embraces multiple operating systems, including its proprietary Bada OS and developing products for multiple market cubes with value pricing is clearly set for a universal strategy. Such differences in strategy are quite understandable as universal strategy need not be the only compelling necessity for growth or profitability. However, one may appreciate that had Apple chosen to adopt a universal strategy, possibly the industry would have seen better consolidation and profitability in the overall.

Structuring a universal strategy

Universal strategy can rarely be one hundred percent organic. Though in a classic sense, structure follows strategy, in respect of a universal strategy structure is an integral part of strategy. However big a corporation or a conglomerate is, universal growth relative to the existing base is a challenge. Companies need to adopt a variety of strategies including equity owned relationships, joint ventures and franchising to expand the footprint. India has shown how simplest of ventures could achieve a national and even a global footprint by adopting appropriate structures. Apollo Hospitals, established as a Chennai based hospital in the 1970s by a physician as a business enterprise rapidly grew to become the leading corporate hospital chain of India and one of the largest healthcare groups of Asia, comprising 50 hospitals and 60 clinics, all of them largely in India, by appropriate structuring strategies. Its pharmacy chain, Apollo Pharmacy became the largest branded pharmacy chain of 740 plus round-the-clock outlets in India by adopting an aggressive franchising strategy. Innovative and aggressive corporate structuring arrangements enable companies leapfrog on the universality dimension.

Flexible structuring is based on the premise that the firm attaches greater value to achieving a universal brand presence than to absolute ownership capitalization. Flexible structuring also helps express global aspirations through local needs. As the firm gets universal, supply chain becomes simplified. It is, for example, inefficient for Marks & Spencer to market in its Indian stores garments designed in Sao Paulo, Brazil and stitched in Honduras when capable garment manufacturers of Tirupur in India can produce to a fusion of national tastes and global designs. Universal strategy which is based on leveraged structures builds speed and efficiency in localization.

Universalizing through local competencies

A review of the relatively more global corporations throws light on core competencies required for a universal corporation. An understanding of local needs and development of designs to suit such local requirements is a key factor for an MNC to emerge as a universal corporation. Japanese automobile companies have been successful in India because they have been able to appreciate the need for high ground clearance, short turning radius and large seating capacity and develop suitable designs. Having introduced products meeting the needs of multiple user cubes, developed a keen understanding of the tough operating conditions and appreciated the increasingly discerning selection criteria of users, the Japanese automobile users have started trending designs and manufacturing products exclusively for, out of India (Toyota Etios car, for example). GE has developed medical devices for India, and for other low cost countries out of India. As a universal corporation integrates local competencies, hybrid technologies develop at a faster clip.

An ability to express global capabilities through localization is a fundamental platform on which a typical MNC and a futuristic universal corporation differentiate themselves. The former would place a premium on global standardization in form and components as well as in overt and latent characteristics. The latter would keep the key drivers of excellence non-negotiable but be keen to enhance performance through local creative practices. Carlos Ghosn, the CEO of Renault-Nissan stated while inaugurating the Chennai plant of Nissan in 2010 that he chose to enter into Indian manufacture not because of labor cost arbitrage but because of the ability of Indian production engineers to design and establish facilities at costs that are fractional to the developed world costs. Japanese automobile makers found India’s ability to find economics in small batch manufacture to be synergistic to their own approach of lean manufacture (Indianized Toyota Production System, for example). The universal corporation bets naturally on hybrid state-of-the-art for its versatility and effectiveness.

Barriers and bridges

Any, or all, of the Fortune 1000 global corporations could have become universal corporations. Several of them, in reality, have not even become multinational. The reasons relate to the barriers that exist in cross-border evolution of companies, some of them external and some internal. Homogeneity of culture, market, skills and common law make it easy for a company to scale up in one country while heterogeneity of the very same factors make it difficult for firms to seek cross-border growth. The challenge is also one of dealing with multiple host country governments, each with its own plethora of complex laws and investment regulations. Internally, lack of a managerial bandwidth to cope with the multiple challenges of cross-border growth is a major self-constraining barrier. However, firms which have explored cross-border operations early have been at home as much as local companies themselves. Several fast moving consumer goods (FMCG) companies such as Unilever, Colgate, Nestle, Proctor & Gamble have discovered this decades ago. The balance Fortune 1000 companies who saw barriers where opportunities beckoned continue to remain anchored in flat, mature developed country markets. For several such companies, inability to foresee future competition from developing nations, unwillingness to dilute corporate policies to suit local laws, diffidence to localize to achieve competitiveness, and reluctance to share management with local partners have been great barriers to cross-border exploration.

It has taken a complete meltdown in developed economies and a visible climb up in developing economies for some of the Fortune 1000 companies to reassess their strategies. The bridges to developing economies clearly are local professionals, who are today as well qualified and experienced as the MNC professionals, and local corporations, which have today achieved requisite local scale and brand power. While Wal-Mart has been a slow collaborator with Bharti in the retail space, Pizza Hut has scored fast fame in the fast foods domain in collaboration with Jubilant Food Works, with Dunkin Donuts in tow to repeat the successful experiment. Starbucks’s recent collaboration with Tata Coffee is another example of complementary capabilities being harnessed for cross-border growth. The bridges such as these, however, require dismantling of barriers and delineation of opportunities in the backdrop of right perspectives, in the collaborating companies. Developing countries require massive investments in infrastructure, energy, education and healthcare. Fortune 1000 companies which see value in participating in this space will reap superior returns in future if they attempt to evolve as universal companies. However, there is no discernable evidence that more firms have appreciated the broader value of transforming themselves into universal corporations. Such continued hesitancy provides a great opportunity for aggressive Indian companies and conglomerates to be proactive.

Indian universal corporations?

The 2000s have seen a few Indian companies and conglomerates taking measured steps to acquire overseas brands, assets and companies, with partial or full equity ownership to emerge as Indian MNCs in their own right. Over the last ten years, India’s companies have made overseas acquisitions worth nearly USD 70 billion. Tata Group’s acquisition of Tetley tea, Corus steel and Jaguar-Land Rover assets, Bharti’s acquisition of Zain group’s telecom operations, Vijay Mallya’s snapping up of White and Mackay and Taiitinger spirits, Hindalco’s acquisition of Novelis, and moves by Indian oil and steel companies to secure oil and coke resources are but a few examples. Certain non-resident Indian groups, on the other hand, won abroad prior to entering India. Hinduja Group carried out flourishing international trade and global financial investment and banking services for decades before it made their first major investments in India in the 1980s. Laxmi Mittal’s Arcelor-Mittal, the world's largest steelmaker, has been a truly global powerhouse with only a marginal presence in India.

With the slowdown in mature economies and consequent availability of value buys on one hand, and the openness of other emerging economies to welcome overseas partnerships, even from other leading emerging nations such as India and China, India has a great opportunity to go beyond mimicking the MNC strategies. By adopting a whole new strategy aimed at universal growth, creating innovative structures to extend Indian corporate presence, developing a core competency of competitive collaboration, and building value propositions across product lines in a universal manner, Indian corporations can become truly universal. Tata Motors is a defining icon for universality in technological value chain (from Nano micro car to Jaguar luxury car, from Sumo SUV to Land Rover SUV and from 2 tonne Ace LCV to 60 tonne HCV) and in geographical value chain (with the largest automotive base covering cars and commercial vehicles in India, and its ownership of JLR luxury car assets in the UK and Daewoo heavy vehicle assets in Korea as well as exports to most countries). There is no reason why a whole multitude of Indian companies and conglomerates cannot become universal corporations sooner than later.

Posted by Dr CB Rao on February 28, 2011.

The Firm’s Next Frontier: The Universal Corporation?

There is no evidence in industrial chronology as to when the first firm came into being in this world. It may, however, be hypothesized that the concept of the firm got established when the first trade took place in the world, probably simultaneous with the origin of human being. The firm as an institution got rooted in different countries and communities as the concept of capitalism got ingrained in the human mind (probably from 1300 AD). Capitalism being creation of more wealth from available wealth, human beings found the need for collaborate as well as compete to gain access for resources, convert the resources into products and/or services and sell them. In this process, the firm emerged as the appropriate forum to conduct all such activities. There is, however, enough evidence when the first joint stock company was established in the world (Muscovy Company in Britain, circa 1555) and when the first international venture originated (East India Company of Britain, circa 1600). The Dutch East India Company was probably an earlier multinational corporation in the world, but it was the East India Company of Britain that was aggressively multinational, also gaining infamy as the Trojan Horse that brought the British conquest of India. Today’s firm has, of course, come a long, long way from the historical version of the firm. Keeping that in view, we also need to conceptualize how the firm of the future would look like. India, like China, offers an excellent backdrop to analyze the past evolution and forecast the future transformation of the firm.

MNCs in India, and of India

Over the centuries, the firm has taken various hues. From a strictly own country boundary to export to other countries had been the first evolution for the firm. An export-oriented firm thus took shape. In due course, the multinational firm took shape as the firm started having headquarters and/or principal manufacturing complex in one country, mostly a developed country, and having production and/or sales in different countries, mostly developing nations. Also called transnational corporation, the multinational corporation (MNC) has been a major feature of industrial development in the whole of the twentieth century. The growth of MNCs has been like the flow of water; from developed economies to less developed economies, from high technology countries to low technology countries, and from saturated markets to virgin markets. Market and structural imperfections such as differentials in skill levels, access to resources, policy inducements, local partnerships, and tax treatments provided additional impetus to the growth of the MNCs. Typically the need of the host country for the MNCs proprietary technology and the need of the MNC for new markets provided a platform of quid pro quo for such development. The journey for the MNCs has rarely been smooth however across the world, more so in less developed countries. India offers an educative case example.

The growth of the MNCs during 1950s to 1990s in India has been marked by both pragmatic and dogmatic considerations. Industrial evolution in the pre-independence India had to bear the bias of foreign occupation. Industrial development in the post-independence followed a very distinct model governed by the socialistic dogmas of the successive governments. All technology and investment-intensive industries were, by and large, reserved for the government owned enterprises, called public sector undertakings (PSUs). PSUs typically grew based on technical collaborations with engineering and technology majors from advanced countries without any equity investments. However, the areas that the successive governments considered non-strategic were left open for MNCs to enter India as branch offices, listed companies, joint ventures and in exceptional cases as wholly owned enterprises. Almost all aspects of MNC enterprise operations were closely monitored and controlled while in some cases either takeover by the government (nationalization) as in the case of Shell, Exon or Caltex or demands for alignment with public policy made certain MNCs in a few sectors disappear from India (for eg., Coca Cola and IBM). Until economic liberalization of the 1990s and beyond, most MNCs stayed on as bystanders than as active participants of economic development. The liberalization of economic policy and dismantling of licensing has seen a host of MNCs reenter India in 1900s and 2000s to benefit not only from India’s huge market base that could absorb MNC products and services but also from India’s educated workforce which could provide cost-competitive software and manufacturing solutions.

As one reviews the tryst between India and the MNCs, the need for public policy and private initiative to be aligned with each other becomes clear. Clearly, the MNCs in the initial days of Indian independence were reluctant to offer any more than low technology items (eg., oils and soaps) or dated technologies in otherwise high technology industries (eg., automobiles and electronics). MNCs in certain sectors such as pharmaceuticals were totally reluctant to participate in India due to lack of patent protection. The government, on its part, was perhaps justified in insisting that the MNCs should do better than offering cigarettes and aerated beverages to India. The government, in addition, had its own strange diffidence towards the Indian private sector, which could have been the natural ally for the MNCs in India on a much larger spectrum. Today, the history of India’s industrial development, despite the warp, offers two lessons: firstly, Indian government’s protectionist policies have given strength to a fledgling indigenous private sector (as was the case with several other emerging economies) as well as established a robust public sector, operating in technology and investment intensive sectors (a feature unique to India). Secondly, market imperfections being what they are, the market and the MNCs had to find workarounds to facilitate MNC growth in India. From re-jigging product and manufacturing strategies through a national lens (for eg., Lever and Colgate) to collaborating on a low-risk technical collaboration and minority equity route (for eg., auto components) MNCs and India had been moderately successful in retaining a relationship if not a tryst. As MNCs and a host of rapidly developing economies, including India and China, view the future the question to ask is whether the MNC as seen today would morph into a new avatar!

MNCs and societies under transformation

Some scholars believe that rapid economic growth around the world has reduced market imperfections, and as a result the MNCs and the nations now face a climate of mutual trust and dependency, in the background of market maturity. Some others believe that most MNCs are already becoming global corporations in the sense that the research, manufacturing and commercial operations are more widely dispersed across several countries than ever. They also believe that the sheer need for investible resources from the MNCs would keep the nations on the path of pragmatism. Both the schools inevitably come to the conclusion that the emergence of a global corporation, already underway, would make the classic MNC an even more relevant institution for the future. While these views have their merit, the fact is that both MNCs and societies are under such transformation that even the concept of a global corporation would fall short of the transformational change that would dictate new trends. There are two market and skill related facets of the transformation that the MNCs and nations must take note of even as they participate in the transformation, by design or default.

Markets as 3D Matrices

Just how effective the firm would in future be would in turn be dependent on how the firm is aligned to the markets, and how well the skills are aligned to the needs so that the firm could develop the products the markets would need. Hitherto, it has been assumed that the MNCs by virtue of their scale, scope and technologies are well positioned to address the needs of the markets and access the skills well. In doing so, it is also assumed that the markets can be segmented to accept products at different points, essentially specification-price driven, often depending on the purchasing power of economies and their citizens while countries and skills can be uniquely identified with each other to arrive at the most efficient means of development and manufacture. This finely honed model of the MNC, it is felt by them, would meet all foreseeable needs for the future. The classic MNC model, which ordains that certain economies need only certain types of products misses out the crucial point that more than the corporation, the consumer is global today. The citizen as the consumer has, in fact, transformed more than the citizen as the producer. This has important implications as below.

With information display and information flow reaching new highs through the Internet and all of global media systems the consumer is exposed to multiple technologies and functionalities. The consumer no longer views product differentiation merely in terms of a few features or price levels. Neither is the consumer interested in receiving products with generational lag depending on the development status of the country he or she belongs to. Under the transformation currently underway, the traditional one-dimensional layering of the market or two-dimensional market segmentation is yielding place to a more sophisticated three dimensional market cubing, the key dimensions being technological feel, functional performance and value pricing, irrespective of the development status of the country. These three dimensions are of transformational impact. Technological feel is the tactile, sensual and emotional experience that a device or equipment provides. Functional performance is the efficiency and effectiveness with which the device or equipment meets the performance needs of different market cubes. Value pricing is cost competitiveness enhanced by perceived superior value of the product in its market cube.

The corporation of tomorrow has to therefore develop a broad range of products, satisfying all of the market cubes, if it needs to achieve scale. The corporation has to master the ability to first start with the best of the three dimensions, and then downsize or vary the dimensions to meet various market cubes. This approach is antithetical to the wisdom that new products should be introduced at the lower end first to get as large a market toehold as possible and then upgrade to cover higher grounds. The transformation of the consumer from a price-sensitive persona to a value-conscious personality drives this need to stay at the top of the three dimensional axis. This hypothesis also upturns the established notion that different countries could be seen on the three dimensions of technology, performance and value depending on stage of their economic and social development. Nike, Rolex and iPhone are today seen as much in any interior habitat of Asia and Africa as they are seen in the upscale neighborhoods of New York Manhattan and Tokyo Ginza. The corporation of tomorrow has no option other than transform itself into a universal marketer, and consequently a universal developer and manufacturer as well.

Equilibrium of skills

A world leader implied in a recent exhortation to the developed industry that technology should flow to where markets are, and production should occur right in the midst of such needy markets. This, he argued, would create more jobs in developed countries as well, because as core technologies and components would continue to be developed out of developed countries. This, in fact, has been the theory and practice of the classic MNC. Unfortunately, the universalized market structure no longer deems the classic MNC model to be adequate. Sophisticated designs and products would need to be made in as many countries as possible to achieve universal appeal with country-specific value pricing. Fortune at the bottom of the pyramid applies to countries in economic pyramid as much as to economic strata in each country. This again requires as much universalized development and production across the globe as possible. There is a concomitant need therefore for several countries to ensure the availability of leading skills as an essential requirement for supporting universal production.

Not many would still endorse the proposition that there could eventually be better skill-sets emerging out of developing nations, leading eventually to equilibrium of skills across nations, developed and developing. That is probably a myopic view. None had, for example, hypothesized two decades ago that India would have leading edge automobile design and manufacturing skills. The fact, however, is that India over these two decades not only commenced design and manufacture of vehicles indigenously but could also create the world’s smallest but spacious Nano car as an innovative first in the world. Two decades into the future it is quite conceivable that India could be a hub of global innovation and manufacture in a wide range of industries, developing products truly for the first time in the world. Similar could be the opportunity for other innovation-aspiring countries. Technological leapfrogging could occur in respect of select rapidly developing countries on a much larger scale in future.

The essential requirement for the transformation would, however, be the availability of requisite intellectual capital in universities, laboratories and industries. Here again, the view could be that India or any other developing country would never reach the intellectual level of advanced countries, given the fact that thousands of Indian graduates still flock to the US universities for higher order education and research. That again would be a myopic view. There are clearly two waves of educational transformation sweeping India and China, whether or not attributable to tiger parents in these countries. The only inhibitor to a total global domination by the educational value chain of these two countries relates to certain major disconnects.

For example, aggressive private sector investments in secondary schooling have led to mathematical and scientific brilliance at school finishing levels in India. This is taken forward at graduation level by the Indian Institutes of Technology and Indian Institutes of Management which are among the top institutions globally already on their own. However, major failure in high quality primary education at the lower end, and significant inadequacies in cutting edge research in sunrise sectors are two major disconnects that constrains the educational value chain of these countries. As these countries recognize the need for fundamental investments in education at both the ends of the spectrum, the capabilities of their educational systems would increase manifold. Also, as more educational institutions and laboratories become multinational the intellectual transformation would be stoked further by their participation in the rapidly developing economies. In addition, the corporation that desires to cater to all the multidimensional cubes of the markets across the world has to make special efforts to advance the skill levels in the host countries. As skill levels reach equilibrium the intellectual markets would turn perfect providing flexibility to adopt multiple modes of development and manufacture in multiple countries.

The universal corporation

The age of the universal corporation is ready to dawn, primed by growth of new age economies such as India and China and the consequent diversification in development, manufacturing and marketing bases across the world. As customers become well informed and highly discerning, apparently homogenous markets would support heterogeneous products and services. The classic concept of a multinational corporation headquartered in an advanced country and having manufacturing bases in low cost countries, and accepting generations of products, and their manufacturing lines, sequentially would be a thing of the past in the next decade or two. The concept of a universal corporation which constantly seeks value arbitrage rather than mere cost arbitrage would simultaneously take root. The scale and scope of the markets in the rapidly developing economies combined with the accumulating and unstoppable intellectual power of youthful demographics in such economies would make the universal corporation a reality. What would be the strategies, structures and competencies of such universal corporations is, of course, a distinct area of research by itself.

Posted by Dr CB Rao on February 25, 2011

From Planet to Person: The Third Wave of Technology

The history of mankind and industrialization helps us to understand how technology has, over the years, impacted human life, of course overwhelmingly in a positive manner. The first wave of technological revolutions comprised electricity, telephony, printing, radio transmission, transportation, imaging and curative medicine, as well as sadly nuclear detonation, to name a few. The second wave of technological revolutions comprised computerization, television, internet, cellular telephony, software and diagnostic and surgical medicine, again to name a few.

If the first wave was supported by mechanical and electro-magnetic devices, the second wave was primed by electronic devices and the ubiquitous chip. In the first wave, devices were designed to perform as per laws of science. In the second wave, devices were instructed to perform as per human needs. If the first wave of technology was characterized by fundamental enablement, the second wave was characterized by transformational enhancement. How will the third wave of technology be different from the previous ones? What will support the third wave and how will it be characterized?

The third wave of technology would in all probability be a combination of the first two waves. It will be both fundamental and transformational simultaneously. The devices – mechanical, electro-mechanical and electronic – will be all there, made more powerful and friendly by more versatile and more capable embedded hardware and software. The devices will incorporate hitherto unchartered laws of science and will feature software that mimics human need fulfillment to a greater degree. Combining the two waves, the third wave of technology will probably rewrite human and industrial paradigms, covering both the planet and person in a holistic sense.

Food security

Topping the agenda would be technological levers for ensuring global food security. With land being increasingly utilized for industrialization and urbanization, especially in emerging countries, the need to use technology for ensuring affordable food for all is a major imperative. The unpredictability and harshness of climate change accentuates the need for better technology markers for agriculture. As opposed to the second wave which sought to propagate factory style farming, the third wave would address the need for sustainable agriculture.

According to United Nations, by 2025 the global population would cross 8 billion. Of this 6.7 billion (84 percent) would live in the less developed or emerging countries. A vast proportion of this population currently lives without even one square meal a day. The need to ensure food security to this huge population would be the most impactful technological challenge. The advanced sections of the global society would simultaneously need to reassess and moderate its approach towards dietary habits, including the dependence on meat consumption. Several studies have pointed out the adverse impact of current approaches on global farming and climate warming on one hand and the direct adverse linkages with animal ethics and human health on the other (reference, Eating Animals by Jonathan Safran Foer, The End of Overeating: Taking Control of our Insatiable Appetite by David A Kessler, and An Edible History of Humanity by Tom Standage, FT Bookshop).

Drought-tolerant seeds, perennial grains, non-toxic fertilizers, titrated plant nutrition, weather-timed sowing, sensor-driven irrigation, clinically validated GM foods, meat-mimicking vegetarian food options, drip irrigation, soil fertility strategies, no-loss harvesting, nutrition-driven grain processing, multiple crop patterns, recyclable agriculture and customized farm equipment could combine to trigger huge spikes in farm productivity with sustainability. Biotechnology, nanotechnology and information technology should drive new technological innovations in agriculture. An emerging country such as India can take the lead by establishing a string of Institutes for agricultural technology on the lines of the famous Indian Institutes of Technology.

Energy security

Energy is the fuel of growth; unfortunately, however, it is also the greatest contributor for loss of natural resources, increase of carbon emissions, and worsening of climate change. From around 500 quadrillion BTU in 2010, the world energy consumption is forecast to increase to 532 quadrillion BTU in 2015 and 678 quadrillion BTU in 2030, representing an increase of 44 percent. China and India, the emerging economic powers, are the two largest consumers of energy. Their share in world energy consumption which was 10 percent in 1990 has increased to 20 percent currently and is forecast to increase to 30 percent by 2030. While advanced nations may be accusative of this trend, the growing share of China and India, as the world’s largest people base (around 40 percent of global population), is an inevitable and logical corollary of their emergence as global hubs of research and manufacture as well as outsourcing.

Currently, oil, coal and natural gas together contribute to around 80 percent of total energy generation. The first challenge for technology is to increase the inter se share of natural gas within these three fuel sources and to make coal a super-clean source of energy. The second challenge is to make energy generation from renewable sources of energy, wind, ocean, solar and geo-thermal, intrinsically economically viable, weaning them away from government subsidies and incentives, and making them contribute a larger share to total energy generation. The third challenge is to make nuclear energy multi-atomic element and super-safe with terror, and accident proofing. The fourth challenge is to shift hydro-energy generation from stored river water dams to naturally flowing waterfalls, releasing river water to uses that are more critical, such as irrigation and domestic and industrial uses. The combined impact of the technology redefinition in energy sector should be to make oil, coal and natural gas (as a group), all renewable sources as a group, and nuclear sources contribute equally to energy generation, at around 33 percent each.

How would China and India, and their technologists cope with the challenges of the required tectonic shift in energy consumption and generation? Massive replacement of dated generating equipment, optimization of energy distribution and upgrades of machinery in user industries are the low hanging fruits which will serve to lower the cost of energy generation and consumption. It is, however, in establishing new infrastructure for renewable energy generation that technology needs to provide a new definition. Given that India is a hot, tropical, windy country with an enormously long coast line it is possible to make India a hub of renewable energy. Technologists, industrialists and bureaucrats need to collaborate to establish solar energy and wind energy cities across the length and breadth of the country, and ocean energy plants all along the coastal line. It is a technology challenge that could redefine the scale, scope and competitiveness of India’s economic and industrial growth in future for India.

Expanded convergence

The second wave of technology was characterized by a new principle of multi-function delivery, aptly called convergence. Devices began to be designed to perform more than one function; and in some cases the distinction between the primary function and the secondary functions got diffused. Cellular phone is a classic case that overrode the primary function of long distance speech communication with secondary functions such as camera, music player, organizer, multi-channel messaging, GPS navigation and social networking. Thousands of software applications have served to convert the mobile phone into a powerful daily aid and a virtual pocket computer.

In the third wave, the principle of convergence will test new frontiers even in mobile telephony, expanding to cover more functions, some of which could not be linked previously even in concept. Current email messages could be replaced by voice and video mail messages, making mobile phone interactions virtually face to face human interactions. From today’s finger touch banking the mobile phone could morph into tomorrow’s portfolio manager, making program-guided transactions. A hand held mobile phone could in future become a virtual health companion by diagnosing body health parameters real time through new sensor technologies.

Convergence could take multiple forms. As a hypothetical but potentially feasible proposition future televisions could come with video capture potential while set-top boxes could have reverse transmission capability enabling aspiring citizens participate in reality shows of the studios direct from their homes. Direct-to-home television transmission could also become direct-to-studio transmission. New power generation equipment could be designed to work equally effectively with all kinds of feedstock, from coal to oil, or from hydro to solar. Applications of convergence could be as many as human ingenuity could dream; the third wave of technology could make them possible.

Diversified concurrence

The automobile industry made a major contribution in the second wave by conceptualizing and implementing concurrent engineering. By involving all the domains of an automobile value chain, from market research and product development, through facility planning and manufacturing, to supply chain and marketing, the Japanese automobile industry created a paradigm that brought new products on time to market , with targeted quality and cost profiles. The third wave of convergence, which involves designs without walls, requires concurrence across businesses which were traditionally built around mono-function products.

Hitherto, convergence has been technology driven. Innovative technologists utilized adjacent usage spaces to develop design-driven products with multi-market segment capabilities. The third wave would require different business segments, and perhaps even different companies, to collaborate and define new product possibilities. For example, laptop makers and projection device makers could collaborate to develop a laptop which could also project the presentations. Flower vase makers could collaborate with organic farmers to develop readymade vases with green plants for homes. Food processing firms could collaborate with pharmaceutical firms to develop immune boosting functional foods. Possibilities could be many.

Concurrence may not be natural and collaborative either due to competitive business compulsions or due to an inability of firms to balance mutual contributions and rewards. Concurrence would have to be achieved in such conditions through creation of requisite technical capabilities, licensing arrangements or downright acquisitions. Organic or inorganic, an ability to combine multiple technologies to develop multi-functional products will be the new dimension of competitiveness. Google’s acquisition of YouTube was an example; so is HP’s acquisition of Palm. Valero’s acquisitive move into ethanol production and ExxonMobil’s multi-million dollar bet on in-house research into algae and synthetic genome technologies reflect the opposite, but equally relevant, approaches to merge businesses without borders.

Efficiency in form factor

A new found focus on form factor has been at the core of the new wave of miniaturization and the emergence of convergence devices. The third wave of technology, however, has to look beyond miniaturization to exploit the full potential of form factor, and to conserve resources. The fundamental premise for the third wave technologists is that at least 50 percent of any device is a wasted, non-usable or non-used space, partly due to the technological limitations and partly due to user habits. Take, for example, a television in which the back of the panel is a completely wasted space. It is possible to design televisions with back-to-back twin panels if only users are willing to use televisions as central pieces of entertainment rather than as corner pieces!

Laptops, notebooks, net-books and computer display screens are yet another device group that reflect an enormous waste of space. At a very simple level, with more robust display screens, the effective display screen size within the total screen can be increased from the current 85 percent to 95 percent. In addition, with the advent of touch screen technologies, there is no reason why both the internal sides of a laptop cannot be fully utilized to achieve total display or partitioned display; for example, the top of the opened laptop for typing in of information and the bottom for simultaneous browsing of the Internet. The front of a notebook can also feature an optional screen for two co-workers to simultaneously see, discuss and edit. Electronic readers and mobile phones can be released from the constraints of passive space design to active space design, with some ingenuity.

Form factor efficiency need not be confined only to electronic devices. Industrial machinery, farm equipment, automobiles and home interiors, to quote a few, could benefit from new dimensions in form factor efficiency. Machining centers were a great advancement in multi-machining of components, especially complex automobile parts such as cylinder head and cylinder block. Typically, the part to be machined is kept in the centre of the machining centre. The idle exterior of the machining centre can also be designed to perform other machining activities such as planning and shaping or to perform certain surface measurements. Farm equipment constitute yet another example of how the total surface area can be differentially designed and shaped to meet different soil conditions and tilling requirements. Automobiles can be designed for example to offer seat configurations that can be modified to suit the occupiers’ body profiles and driving preferences. Home interiors offer enormous potential for space-optimized and convergence-oriented designs.

Regenerative engineering

Technology has, so far, made life easier for the human being with the advances in science, engineering, information processing and medicine. Devices and equipment are continually upgraded to newer levels of efficiency and new devices and equipment are also continuously developed to offer new applications. Creation of robots and humanoids has been the crowning glory of this technological achievement. The next wave of technology could create robots which replicate human beings with thought processes and movements which are as close to those of human beings as possible. The third wave could see two different dimensions of medical technology.

The first is a chip-empowered human being. If a chip can power a computer or a device to the highest realms of performance, it would be equally feasible in future for a chip to power a handicapped person to overcome his or her handicaps. Physically challenged special persons can look forward to previously unforeseen contributions from third wave of technology. Technologists, physicians and surgeons, however, need to collaborate to establish connectivity between the human chip and neural networks of the human brain. Just as a pacemaker did wonders to cardiac performance, the new human chip would be the future brain maker, duly supported by a slew of bio-medical parts.

The second is creation of human organs through regenerative medicine. Stem cells are showing enormous promise to rebuild human capabilities, whether of weakened heart muscles or re-growing lost organs. While immortality is certainly antithetical to rules of life, enhanced span of life and improved quality of life are certainly possible through regenerative medicine. Technology would need to create appropriate environmentally conditioned laboratory suites and new generation equipment for cellular and molecular analysis. Aseptic cryogenic, genetic and incubating equipment with enhanced bioengineering capabilities are required for scientists to explore new vistas in regenerative medicine .

Summary

The world is in the throes of several challenges posed by depletion of resources, global warming, and increasingly volatile economic and social conditions. Technology has made life meaningful in the past bringing previously inconceivable things into the realms of life; there is no reason why technology would not usher in yet another transformation for a society that is being increasingly pressured not only by technology itself but also by the way technology is deployed.

The new third wave of technology will express itself in four essential dimensions. The first will be in terms of ensuring food and energy security for the planet, through new infrastructural technologies. The second will be in terms of growing businesses without borders through new convergence products and concurrence businesses. The third will be in terms of greater utilization of form factor design for each device and equipment to be spatially and functionally more utilitarian. The fourth will be in terms of integrating technological and human capabilities to regenerate and reinforce human capabilities.

The world would be a far better and rejuvenating place to live for the human race if the third wave of technology pans out as presented herein.

Posted by Dr CB Rao on May 2, 2010