Prof.Ben L Kedia , shares his views on why he is optimistic about Indian Businesses and what companies including small ones should be doing to compete in the future in this Interview with Balaji Pasumarthy

Prof. Ben L Kedia is the Wang Chair Professor and Director, Wang Centre for International Business, Education and Research, The University of Memphis.

As a person observing International Business what are your views on India and the prospects for business in this country?

The economic progress that has happened in the last 10 years is a lot more than what happened in first 50 years of Independence. The changes which happened after 1991 have done a lot of good to the economy at large. I am personally very optimistic about the future of business in India. The next 5-10 years will give a tremendous boost and confidence to our psyphe and the way we do things, of course any thing can be spoiled by some bad policies.

When talking of India one just cannot escape the comparison with China, plus I am also very familiar with what is happening there. China is now the world's manufacturing hub and it does enjoy the benefit of being a low cost base for manufacturing. However; of late they are also beginning to get into the high end with good quality products. But it is still a controlled economy.

China used to be a country of "Equality of Poverty", everyone equal but everyone was poor. India was never in the same state. The growth that has happened in China has resulted in "Inequality of Wealth", there is unequal distribution of wealth, most of the economic development has happened in the Coastal regions. This will affect it in times to come. The 1989 Tinnamen Square upraising and the way it was put down, only goes to show the reassertion of authority and how no anarchy is tolerated in China, the government will just not allow it. If with 1.3Billion people there is disorder; the country can come to chaos. (In a lighter vein) In India we are comfortable living in chaos, we kind of excel in that.

As more and more Chinese become aware of what is happening in the country, there could be some serious problems. However there is no doubt that China will keep making progress. In China because of the communist rule and the command economy the population is subservient, the workforce is orderly and they follow instructions, their education system is also "dependent oriented". In India there might be some similarities but we still have some independence of thoughts and there are some outstanding Institutions like the IIMs and IITs which has provided some good leadership. Indian population is young and achievement oriented which will drive the economy in the future.

Earlier our own government and policies were not good for business. Business houses had to diversify into unrelated areas because they were not allowed to expand capacities in their core businesses (during the license Raj). Due to these factors Indian companies were not able to develop the expertise required to be a global business. Indian companies are very small compared to international companies. FedEx for instance is a $35 Billion company just focusing on the courier business. There is no such company in India, there is no group which has this size. Wall Mart is a $300Billion plus company. Focus on a business helps companies scale and develop expertise in one area. Unfortunately because of the kind of policies we had in India like the MRTP Act (Monopoly and Restrictive Trade Practices Act) etc. we developed a protected economy with inefficient organizations and companies. It is because of this reason that large Indian Business Houses like the Dalmias and the Ruias are struggling today - all of them did well in the protected economy. Now I believe as we are liberalizing we will see the emergence of world class companies. Take Tata Tea for example which is acquiring control of the Tea market just like Mittal has in the steel industry worldwide. A lot of rationalization and consolidation will happen; this is the natural order of things.

Even if you look at what happened world wide the trend is towards this, in the 70s the key word was conglomeration, in the 80s the buzz word was consolidation, in the 90s it was related diversification, and in 2000s it is stick to your knitting. Nike is a great example of this principle, it just owns and manages the brand and the marketing is outsourced.

Another aspect about India is that it is a huge domestic market not yet tapped so even if you are a little inefficient because you have some local advantages you can continue to survive. This is very different from companies from say Sweden and Germany, because their domestic markets are small they need to step outside their own geography and while they do that they have to compete with the best. They have to be globally competitive to survive and they need to build scale. So in India some inefficiency can be tolerated. Indian companies must however start thinking big, eliminate gross inefficiencies and become more professionally managed.

I have been meeting a lot of CEOs in Bangalore and I am inspired by the current generation of CEOs and managers. They have vision, excitement and the confidence that will take them places. Earlier they were more concerned with making immediate money. Now they are conscious of their market shares, building a company, being able to compete overseas, they are eager to expand and are trying to be the best, lot of them are conscious of quality, productivity and they are eager to get certifications on this front. All this is very inspiring. Today because the domestic market is growing, there will be opportunities across aviation, retail, finance, housing - all of these are bound to grow.

Even in the IT sector which started out as "IT Coolies" we can see definite signs of moving away from this mindset towards adding value. If you look at outsourcing there are three stages to it 1) Tactical or transactional 2) Strategic 3) Transformational Outsourcing. This is about analytics, mining the data and taking a look at how the business of the customer can be performed in a better and new way. This happens gradually as Indian companies prove their worth to their customers.

In China during Mao (between 1957-67) all the universities were closed down. Chairman Mao, believed that either people should be working with the Hammer as labour or as a farmer with a Sickle, there was no place for intellectuals. China suffered a great deal during those times. The Chinese government realized this mistake and now it has set itself a target of setting up 100 world class universities in the 21st century. Today is the knowledge economy and wealth is going to be created by sharp minds. For instance take Microsoft, the value it creates is in the programming and the software. We will see software in all industries whether it is automobiles or consumer electronics, and the software will have a lot of value. So India must not forget that and we need to invest heavily in education as well so that we can compete in this knowledge economy. The IITs and IIMs are just like show pieces there is a need for a lot more such quality institutions.

India has advantages in knowledge Industries, including Bio Medical, Pharma, IT/ITES maybe even automobile, especially as the world starts going towards owning a 2nd and a 3rd car. There is a lot of wealth in the knowledge industries, and Indians do value education, they are willing to beg, borrow or steal to get into higher education. Indians are good at abstraction, logic and extension of ideas. However our education system also needs to evolve to focus on knowledge creation.

However all these industries that I have mentioned require a lot of funding. In the US indirectly or directly a lot of knowledge based industries and research gets funded by the National Science Foundation. The basic research which happens because of this funding is the reason for the Aviation and Computer industry doing so well in the US. Since that amount of funding does not happen in India nor is conceivable in the future, the best option for Indian companies is to get into an alliance with foreign companies, they can bring in the funding and the research and we can provide the knowledge workers and this the model which we see working. Some might argue that this is not good since we do not own the IP (Intellectual Property) but according to me this is still good since the knowledge will stay in India since it is the Indian talent which is involved. US has a huge capacity of education and research and this partnership approach is a great way of going about business. US and India are natural partners. We might be different in terms of cultural values, however the economic values are very similar.

Small and Medium sized companies in India have limited resources, so the best thing for them to do is to focus on a niche and get into specialized services. Sundaram Fastners is an excellent example of this; they focused on just the Radiator Cap for General Motors. There is a good future for engineering services as well.

Outsourcing across is creating a lot of value. This happens because what might be considered as routine process becomes a core business for the company providing the outsourced service. Earlier companies used to think that the "Admin and Tech" workforce had to be located at the headquarters. With fiber being laid across the world, with Internet, there is a "death of distance" and work can migrate to where people are. So if you are starting a business ask yourself "what can I do from here that can serve people there."

Is there a danger of all this outsourcing work disappearing once the Rupee appreciates and the exchange rate coming closer to the value of the rupee on a purchasing power parity basis? The Rupee appreciating is not much of a problem today. Unlike China where they have a Trillion Dollar reserve, we have a lot lesser. There is a long way to go before the Rupee will have to be re-evaluated. Rupee might appreciate but this will not be so much as to affect the outsourcing business. The other aspect is that our big population makes this a scalable business.

Issue BG70 Jan07

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