Prof Theodore Levitt coined the concept of market “segmentation”. He said that companies could benefit by marketing uniform products to different groups of customers. However, technology today enables products to be customised to suit individual and market tastes and preferences and makes competition fiercer. This is accentuated by integration of national economies into the international economy through trade, direct foreign investment, short-term capital flows, international flows of workers and humanity, and flows of technology.
Competition in India is from locally made products and services and from overseas which are sometimes cheaper. For instance Chinese products ranging from power equipment to toys are much cheaper. As we sign more free trade area agreements, this competitive pressure will increase. The rising rupee makes foreign products even cheaper.
Indian companies must change for their survival and growth in this environment. Many require radical change in their organisations and people, in the changing context of our society, economy, market and each company's own internal dynamics. To compete effectively some companies constantly build alternate scenarios and revise them, identifying actions they must take if one or the other of “what if” scenarios comes about.
For example, in the early 90’s, most Indian companies had not anticipated that India would move from a command, control and “contact” economic regime to an “open” and deregulated economy. Many of them died or declined. Others like Hindustan Lever had anticipated this radical change with plans to enter many businesses and took over companies that became available. (These acquisitions underperformed because Lever had a scenario, plan and the money, but not a plan to integrate these companies).
The Aditya Birla Group, a highly diversified conglomerate when Kumaramangalam Birla inherited it, has after deliberate and major changes, developed definite shape as a dominant group in commodities and services. It brought in a new generation of managers, hived off some businesses, amalgamated others, entered new lines (like telecom),developed an acquisitions plan that included Larsen & Toubro's cement unit, Madura Garments, Colour Plus, etc, and persisted despite serious bottlenecks and opposition.
Other business groups like UB, Essar, Parry’s, Bombay Dyeing, Tatas, etc, took more time to develop a grand vision for their business, but are now transforming them. Many others have in recent months begun to take similar action.
The required fundamental change in mindsets has not entered state owned enterprises. They continue to suffer bureaucratic and political interference in investment decisions, top level appointments, business strategies, and autonomy. The disastrous handling of Air India and Indian Airlines has lost them market shares, image, trained staff, and to delayed investment decisions that will only make them an easier acquisition target in future years.
State electricity boards who have been departments of government, with administrative, not commercial or enterprise cultures are another example of government (as owner) inertia. State ownership does not allow state enterprises to change their inherited cultures even after corporatisation, or change top management and other staff, their attitudes, and organisational structures, systems. They remain slow, inefficient and relatively unprofitable.
India is among the largest producers of engineers, managers, computer software specialists, doctors, nurses, science graduates and others. (There are complaints that most are of poor quality). Our sophisticated “software” for industry, of economic and social researchers, market researchers, advertising agencies, chartered accountants, cost accountants, company secretaries, merchant bankers, stock brokers and exchanges and a strong regulatory environment for financial markets makes us superior to China.
We are no longer against consumption, consumer borrowing for consumption, and making profits. As a major “outsourcing” destination for advanced “brain” skills, many of the world’s most research oriented companies have establishments for research, design and engineering in India. These will lead to the spread of advanced technology over time and get disseminated around the country.
I expect that over the next five years, our low ranking in world manufacturing, at hardly 15 per cent of GDP, will rise sharply. It will get even better if as in China or Bangladesh, India’s restrictive labour legislation is amended to encourage organised industry in entering labour intensive manufacturing (garments, toys, leather products, etc).
There is huge potential for output and employment if companies can lay off labour or shut down if business declines. Organised industry would offer superior and standard quality, improve manufacturing processes and technologies while providing employment. We need such industries to be like TISCO, lowest cost producers, or Sundaram Fasteners, world leaders in quality, implementing modern systems like Six Sigma successfully.
Becoming competitive on a global scale requires not merely good management intentions, but hard-nosed visionary leadership, alive to the changing context, and motivated people. Competing globally demands employees who have been selected carefully, oriented to the organisation so that wherever they are working, they do so to common purposes and values. It also requires an enabling legislative environment.
