Advantage India

Speech delivered at Confluence 2006 at IIM-Ahmedabad, 15/7/2007

For the last couple of years, we have truly been on a trip. At the beginning of 2006, the ‘India Everywhere’ campaign was launched in Davos. We took the campaign all around the world in the past few months. In Davos alone, there were more speakers from India than any other country. More time was spent on India than on any other country.

Truly, India is the flavour. There is no boardroom anywhere in the world where India is not being discussed. But, that said, I also think that, quite often we mistake qualifying for a race as winning a race. We have this penchant for making icons and idols of people who show promise. Not a bad thing, because they are potential winners. But to consider qualification as having actually won the race is a big mistake. Having qualified, how do we have the world look at India with interest and attention? How do we convert this opportunity into a winning proposition for India?

In his seminal work ‘Competing for the Future’, C K Prahalad says that if you are looking at corporate strategy, forget about strategy to align your goals with your resources, forget about “highest” returns on investments, forget about operating in the limited space that you are currently operating in the industry and your market share. Instead, he says, look at the strategy to design your future. And this strategy lies in going away from the confines of the existing industry that you are operating in and defining the market space that you want to operate in. It is about creating the architecture of the future for yourself, about the rules of the game that you design and others follow. It is about going away from the trappings of the current market, current customer requirements, and breaking through the fog of uncertainty of the future: What would be the customer’s preferences? What kind of products and services would sell? How do I create a market and dominate that segment because no one thought of a future in that?
If you look at some sustainable winners in the corporate world over several decades, they did not just re-engineer; they did not target just market share improvement; they were not aiming at incremental improvement in RoI. They designed the future market place for themselves.

Take the case of AT&T, Hewlett Packard and IBM. In the 1970s, there was no distinguishing feature between the three companies. But IBM somewhere lost touch with the future: they had the largest number of inventors creating world-class products; they won the largest number of patents, yet they failed to look at the embryos of future lurking in the present. Future is always in the present; it is lurking somewhere and has the tendency to show up in a manner that is not foreseen by everybody. But somewhere, somebody recognizes an opportunity that is likely to grow into a big business. HP did that. They started looking at engineering workstations; they started looking into RISC architecture. Whereas IBM thought that personal computer was an entry point for the main frame. They lost out on their ‘touch’ with the future. They lost out on understanding the design of the future.

Talking of design of the future, a classic example is the mobile phone. Today’s mobile phone is the result of people thinking of convergence way ahead of time. Of wondering, “how do I network with the other service providers to deliver this to the customer?”. They have designed the future, by not thinking of market share of today but by looking at market dominance of tomorrow.

If this strategy is applicable for a company in a competitive scenario, it must be equally applicable to a country in competition. As a country, India has to have a national strategy, quite different from a national plan. Japan’s strategy 20 years ago was “quit automobiles”. Because Japan realised that automobiles were fast becoming commodities and soon, there would be others to beat Japan in terms of low cost manufacturing.

On the other hand, Japan envisioned a larger duration of leisure for its citizens, because the government realized that the Japanese people were over-working. They drew up a plan, which I happened to see, that said: “we want higher leisure for our citizens. We need to improve the quality of life of our people”.

Take the case of Singapore - a marshy island, very much like India just about 25 to 30 years ago and now brushing shoulders with the best in the world. Once, when I met the previous Prime Minister of Singapore - one of the most remarkable minds I have come across - I asked him, “What is the national strategy for Singapore? Where do you position Singapore in the market place?” Without batting an eyelid, he said, “Infrastructure. I will give competitive infrastructure to those who come here.” That was their corporate strategy.

Similarly, what should be the strategy for India? How are we placed today? What are our current competencies? What are our core competencies that can be leveraged for building the future? How can we make ours a winning nation? Not a nation that merely qualifies but a nation that wins …

That brings me to three core competencies that we have as a country. And you, as individuals possess. These are: (1) The power of youth (2) The power to gain knowledge (3) The power of enterprise.

The Power of Youth

According to surveys, in the next ten years, there would be an overall shortage of skilled manpower globally to the extent of 120 million people. The developed world has no other go than turn to countries like India to overcome this shortage.

We are a 5000-year-old civilization. But, as a country, we are among the youngest. The average age in India today is 24 years. 60% of our population is below the age of 35. And that is a pretty young country! Particularly relevant because all the other developed nations are getting old.

In developed countries, there is what is called the ‘six-on-one’ principle. There is one earning member for six people in the family: the mother, the father and their respective parents. He may or may not earn to directly pay for them, he may or may not be directly supporting them, but the six people who are living on pensions or in old age homes are either paid by the State or by the company that charges the customer for their pension too. We all know that the Big Three of the auto industry in the US are in trouble in terms of cost competitiveness. Part of the problem at Chrysler, Ford and General Motors is that they have a huge pension liability. A worker in General Motors is earning also to pay for the past. The customer of a car from General Motors or Ford is paying not only for the person who has put the car together in the factory, but also for his predecessors who have long since retired. This is a huge demographic issue they currently face.

And this is true of China too. The ‘one-child’ policy of China, which has been successful for the last few decades, has produced a country that is ageing very fast. Why, take a city like Tokyo. Be it on the pedestrian pathway or in the ‘tube’, you will find very few young people. Clearly, there is a dearth of workforce in the rest of the world while India has immense youth power. What does this mean? Right away, jobs. But, in actuality, it is more than that.

The power of youth refers to a certain potential to change and challenge, which I believe is a very valuable asset. Youngsters have the power of changing a paradigm, whereas the experienced do not have the energy and the conviction to change a paradigm they have lived with. I remember seeing a compilation of sketches some years ago. The author had got 50 children under the age of 12 to sketch a dog-exercising machine. It is a marvelous book … the sketches are simply amazing in terms of their creativity. And there is only one sentence given as preface: “You will notice that none of the sketches will work … but the kids did not know it”. The message is: if 50 adults were given the same job, it is very likely that he would have been left with blank sheets of paper!

The power of youth therefore is something very significant that we possess. Particularly when we need to position our country strategically in order to win. And why do we need to do that? Because the world and the economy are going through a major transition and change. We are going through a paradigm shift. And it is very important for each of you to catch on to that change and be winners in that change.

I would like to cite an instance from Ashok Leyland, the organization I come from. We are a 58-year-old company and therefore, have a certain tradition and culture. I was beginning to feel that this ‘tradition’ was probably stifling our young people. We found that 40% of people were below the age of 35. Reason enough to start an exclusive ‘Young Executives’ forum. During the launch, I told our young executives that they would not be told what to do; instead they must tell us what the company should be doing. Recently, they put together a programme for the Management Plan & Budget for the next year. And I was thrilled because they do not suffer some of the shibboleths that we suffer from. And therefore they set a target for the company, which we would not have set for ourselves. And that, I believe is the power of youth. And that is what we need to unleash in this country.

Each of you here should retain this power of questioning the status quo and looking for an alternative. Otherwise, you have lost the power of youth. As a young person, I was greatly drawn by a reformer in the South called E.V.Ramaswamy Periyar. He was an iconoclast; a rebel and he questioned everything. His power of questioning was so appealing to the young people in the State of Tamilnadu that it gave birth to the Dravidian movement. It is youth power that makes revolutions happen.

The power to gain knowledge

Why are we positioned as a country with ‘knowledge’ as a core competence? As a civilization, we have always put a premium on knowledge. Whilst India’s caste system is a curse upon our country, what do you think was the underpinning of the caste system? It rated ‘knowledge’ superior to other manual jobs and therefore established a particular order in society. So, right from those days, there has been a premium on knowledge.
With the Industrial revolution, ‘labour’ had to be given the pride of place. We lost out on that. Because, our society has never considered manual labour as a vocation of dignity. When I was with a group of workers a few months ago, I asked them, “How many of you would like to see your children working on the shop-floor?” Just a few hands went up. They would rather see their kids working in the IT sector or in office set-ups. It is in our psyche. And suddenly, today when the world has moved towards the knowledge economy, we seem to be placed very well. In his incredible book The Future of America, Robert Atkinson argues that ‘knowledge economy’ is an altogether different paradigm: at a macro level, knowledge is increasingly becoming an ‘affordable’ commodity. Sample this: the Intel processor was about 1.2 dollars for a transistor and it has actually come down to .00002. Which literally means that a trillion bits of information for which you spent about 150 dollars now costs less than 17 cents! Knowledge storage has become extremely cheap; knowledge transfer has become extremely cheap; therefore ‘knowledge’ by itself has become cheap.

Therefore, when I say ‘power of knowledge’, I am not talking of information per se. I am talking about the power of ‘creative’ knowledge; using the power of knowledge and information to create. The premium you possess in a knowledge economy is your creative ability. Though the dotcom bubble burst, it showed that if you have a powerful business idea, there are people to back you up with capital. The return on intellectual capital is several times more than the return on physical or financial investments. Therefore, knowledge is the fourth factor of production that is much more valuable. The new economy is about this creative power that has no geographical boundaries and operates on a networking basis. Therefore, you cannot talk about national economy’s demand and supply anymore; you have to talk about ‘knowledge flows’ and the ‘creative elements’ in a country.

In India, though we have a sound knowledge base, we are very poor in ‘creative’ knowledge. The overall profile of wealth in this country is not proportionate to our intellectual property. In fact, 96% of patents in the world are held only by developed countries. Unless we find a way of creating ‘creative’ capital, we are not going to be a winner. It need not necessarily be high technology, though I believe we need to mount missions on high technology. It can be small creative ideas: be it dry toilets that use no water or a fountain of safe drinking water. Creative power is what is needed to tap huge potential markets. And when we do that, we unleash the power of the economy.

Today, it is beginning to happen in the industry. R&D spend is becoming larger. Nearly 100 companies in the BSE index have increased their R&D expenditure by 600% in the last 7/ 8 years. In our Company, we tripled our R&D expenditure in four years and would triple it again in another four years’ time. All this is not highbrow R&D; it is about backing small, creative ideas.
Let me cite a brainstorming session among my colleagues in Ashok Leyland who are into vehicular electronics. We are doing a project in the Chennai Metropolitan Bus Terminus (CMBT) – the largest such terminal in India. With thousands of buses arriving by the hour, it requires a system by which the bus driver knows exactly where to dock on arrival. We developed a telematic solution to the problem – a chip fitted on to the vehicle. As the bus approaches the stand, it will get ‘instructions’ to dock. And when this is displayed on the screen, waiting passengers know where to go. When we were wondering what else can be done with the ‘chip’, one of the team members suggested: “ Why not use it for transmitting lunch orders to the nearest hotel, so that the lunch is hot and ready when passengers arrive?”. This is one example of creative use of knowledge.

My prescription to you would be:

(1) You ought to have a hunger for knowledge in your chosen area. Knowledge is available on the web, it is available to all; but you have to intensely pursue and possess knowledge in the area where you want to excel.

(2) Use that knowledge creatively to produce market solutions.

Whether you work in a company or on your own, you need intense knowledge and the creative ability to use that knowledge.

The Power of Enterprise

The global entrepreneurship survey talks about the entrepreneur level in India being much higher than many other countries including China. We have 107 million entrepreneurs as against 96 million in China. 18% of Indians in the 18-64 age group are self-employed.

I think the entrepreneur spirit has been innate. We have historically been great global traders. Don’t forget the fact that during the First World War, India did one-third of the global trade. But for 40-50 years, we have lost touch with global trade. We have started looking inwards. But essentially, we have the spirit in us. And that probably comes out of a lot of adversity. Somebody recorded that we have had 147 invasions in the last 700 years. I think every time you have an invasion, one generation gets completely wiped out, all the assets get wiped out. I have a theory explaining why people from Gujarat, Punjab and Sindh are very entrepreneurial. Punjab and Sindh have seen overseas invasion; foreign invaders have come and destroyed all their assets. Therefore, they start afresh. They learn to live with high levels of risk. Therefore risk-taking ability was high. Why does Gujarat produce such good entrepreneurs? Because it did not have much natural bounty. Not enough rainfall. So, they did not have the luxury of having two crops. I am from Tamilnadu and my forefathers had a place in the Cauvery Delta, where if you sow the seed, you had three crops. So who is bothered about taking risks? So we spent time in music and dance. Entrepreneurial spirit is very often because of adversity.

I remember a very interesting incident. When I was working with Levers in Mumbai, one day I was traveling from Andheri to Churchgate. At that time, there was a cricket match going on in the Brabourne stadium. As I was coming out of the station, there were two little boys, street urchins who were selling sun-caps at 10 paise to all those who were getting off the train and doing brisk business. Only when you crossed over the footbridge you saw three other boys collecting these caps free of cost from the stadium - because some advertiser was handing it out - and then running to make the sale at 10 paise - all boys under the age of 10 or 12. This is knowledge arbitrage; an opportunity to do business, an enterprise. This has always been a tremendous message to me.

This entrepreneurial spirit is somehow very much within us. At a country level, it was only after the entrepreneurial spirit was let free in the last 10 or 15 years that we have begun to see these high rates of growth. Remember that we still have a very large part of private consumption and private enterprise fueling this growth – in fact, 60% of it. And we have not even begun our journey. We still have only 2% of the worldwide IT business. We have a huge opportunity in textiles. We own one-third of the spinning and weaving capacities. Huge opportunities are still available; we can add another 12 million jobs there.

We have just begun our enterprise journey in this country. And yet you can see the power of, what the Prime Minister calls, “unleashing the animal spirit of the entrepreneur”. Everyday you see in the papers, people acquiring new businesses. This year, the amount of Foreign Direct Investment by India elsewhere will be higher than the Foreign Direct Investment into India. Recently, while I was in the UK, I was surprised to find out that our investments in UK were higher than UK’s investments in India. Ditto is the story in China. We invest more in China than China invests here. Why is this happening? You know about the middle class tourist who goes into the Mohammad Mustafa store in Singapore. To buy what, you ask and he says: “How will I know? Only when I see I will know”. It means that you don’t have a shopping list. You just go there and buy. You might think that Indian industry is going around like this middle-class tourist in Mohammad Mustafa buying whatever is available, wherever. I do think that the first flush of takeovers in Japan and Korea in the sixties and seventies did result in some disasters. But the underpinning is that you have an entrepreneurial spirit, which is willing to take risks, willing to dare the world. We might make mistakes, we might fail in a few things, but the entrepreneurial spirit is unleashed. And that’s what will help in the game of winning.

Finally at your level, as an individual, if you have the power of youth and access to creative knowledge, you have to look with an entrepreneurial perspective. The highest value addition comes to you when you are an entrepreneur. That does not mean you should not take up a job. I would immensely like to take some of you into my organization. What I mean is, when you work in any place, what you do by way of entrepreneurial value addition is going to make a difference to you as an individual and to the organization competing in the industry.

So, on the whole, we are in a terrific position now with some very timely core competencies, which connect very well to the world that is changing rapidly. If we use these ‘powers’, we truly can win the race and not merely get qualified. And I know that that is the dream of the youth in this country.