Adventures in capitalism

Indian businesses are rewriting the rules of capitalism in a distinctive and unexpected way, says Patrick Foulis
Oct 22nd 2011

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www.hedgehogger.com Oct 21st 2011, 09:16 I like 'capindalism'- what choice does India have but to invent it's own form of capitalism? Look at Europe- growing fat and complacement- turning into a comfortable old lady while the East remains hungry, lean and fiercely competitive is simply the successful end result of the capitalist model the West has chosen to follow. They borrow and spend what they dont have, in contrast to poorer ones like India that are famous for their tight monetary policies and high savings rate. If, as it increasingly seems, the Wests way of life was only ever an unsustainable illusion, what choice do developing countries have than to aspire to new goals and ways of doing things? UzMarketer Oct 21st 2011, 17:00 Thanks too much to "Standard Chartered" for giving a chance to download "Business in India" Special Report.

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guest-iwwlsje Oct 24th 2011, 15:41 There are a lot of porblmes facing India, before it can make any claims of being a world economy: health, poverty, illiteracy, lack of infra structure, negligible R&D and extreme corruption. The reason the west is so dominant is the incredible investments in science, technology and infrastructure. Without that, there is nothing. I am sorry, but Infosys will never be truly successful in the long run if they dont start innovating and stop doing junk US joobs for low cost. I was a former Infosys employee before I quit in disgust over the apathetic work I had to do. Now I am near PhD graduate in bioengg at GeorgiaTech, one of the top institutions in the country. Here, every citizen is given importance. 77% of my countrymen cannot afford a meal a day! What a joke, when people make claims about India's economy. If the govt. actually started investing in health, infrastructure and r&D, govt. expenditures will grow so much that our GDP ratio will drop. Nobody talks about these things, nobody has any vision! For my part, I plan to come back in a few years and become a professor at IIT/IISc, and impac eductaion and R&D. Someone has to fight and improve basic stuff. Till then, it is all a mirage for me...

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Alton_Ego Oct 23rd 2011, 19:39 One of the likely reasons for dominance of family owned businesses in India is that it is nearly impossible for someone without money, muscle or political connections to get into businesses other than those in services such as IT, BPOs etc. Though the License Raj is gone, Inspector Raj is pretty much there. It is not uncommon for manufacturing plants/factories having to pay bribes to local factory (or whatever) inspectors.

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Edward C DD Ingram Oct 21st 2011, 14:45 The Western Model suffers from wobbles that cannot be avoided which get magnified into booms and busts. This is a structural problem that I explain on my websites under the heading of Macro-economic Design. Macro-economic Design is a fledgling new science that 'looks at the structure of debt and other structures within an economy to discover what makes for instability in wealth and spending patterns that in turn upset the equilibrium. Other than that, I prefer the Western Model - at least it is not allowing caste politics whereby according to today's report on Al Jazeera, almost all the men in some villages have been taken away and the remaining population left to starve.

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indica Oct 26th 2011, 12:11 'nkab' Notice that you are singing one of your old songs - Hindu caste system - irrelevant to the topic here. Green eyes? But what to you say to China inventing a new caste / class system of 'Hu Kao immigrant serfs' to sustain its cheap human robotic labour. How many of them commit suicide in those factories, year after year? We don't know. Unlike India, information is hard to come by in your country. The Indian government cannot control flow of information in and of India. In your country, the CCP and their many spies and police can carefully filter ALL information. They can bury a whole train - with dead bodies inside - to black out the truth. Thank God, that cannot happen in India. Never mind, if her economy is behind China's.

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indica Oct 26th 2011, 12:01

Government of India uses a mountain of regulations to control business - even now. Before 1990, India was a case of 'crony capitalism' or, better termed, 'bribe-bought capitalism'. After 1991, it is disappearing only slowly, because of the increasing exposure of India to the world's gaze. Currently, the ruling Congress Party continues to get the most 'anonymous donations' of any political party in India. No business, large or small, can afford to antagonise the Congress Party or the government officials they have to deal with. GOVERNMENT IS THE PROBLEM WHY INDIAN BUSINESSES / INDIAN ECONOMY IS SLOWING DOWN. Indian government's inefficiencies and mis-use of power should be exposed more and more in the international media. I agree with TE's summing up, with the only addition from me of the world 'corruption': "...........the licence raj, a surreal mix of Soviet stupidity, British pedantry and Indian improvisation [corruption]. Firms responded by branching out into any activity where they could find room to breathe, while facing little serious competition in their main businesses. Many enjoyed close links with the Congress Party that formed Indias first post-independence government and dominates the ruling coalition today. By the time an economic crisis brought on liberalisation in 1991, though, most business folk were utterly fed up."

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guest-ieowome Oct 24th 2011, 20:26 capitalism is mostly found in communist countries like China, India and North Korea. While many of opinions about communism are so negative, they've got an excellent concept of governing the country. Communism is supposed to distribute the equalness to every single person in the country which might contribute the peace in a good side and laziness in a bad side. That is to say, let's say $200 is provided to every person per week to every person in the country, no one will try to work hard and feel competetive. However, most countries use the concept of communism so badly that World is worrying about it to reduce the risk of it. Therefore, if India is using the concept in a positive way, outcome of it has a big chance to be successful.

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alexag1 Oct 25th 2011, 18:50 In light of the recent global economic crisis, the Asian market economies can be recognized as having several favorable characteristics that the West could learn from. Strict lending policy and high savings are two key components. However, it seems that the form of capitalism India is pursuing will inevitably lead to a social crisis; impoverished Indians will turn back to Marxism to combat the growing corruption and corporate favoritism.

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EYK7RV5QPM Oct 28th 2011, 09:22

The Indians companies have done a good job in a tough global environment. I have worked with them over the past 15 years and am highly impressed with the quality of their managers and the dramatic improvement in the quality of their products. Both their products and their managers are now world class.

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nkab Oct 26th 2011, 15:07 @indicaOct 26th 2011 12:11 GMT 'nkab' Notice that you are singing one of your old songs - Hindu caste system - irrelevant to the topic here. Green eyes? --I was responding to poster mvrk71 remark that India has over 150 separatist and insurgent groups operating within its borders. How come you are arguing me instead of say, mvrk71, if you have a gripe there? You criticize: Indian government's inefficiencies and mis-use of power because I suppose you think they are detrimental to Indias progress. But I am of a different view, I believe Hindu caste practice is mostly responsible for impeding Indias progress, not the corruption or the inefficiency, as they are social ills that exist in all countries in various forms. As such I have never criticize any country (including India) for its corruption and all on these forums. (They should be dealt with of course but they are not unique shortcomings of a nation.) All this has nothing to do with your China/ India thing. China is certainly beyond reproach. If you think China is inventing a new caste / class system of 'Hu Kao immigrant serfs was really true and was sinful or immoral, then you should criticize China on that score, regardless if anything was said about Hindu caste system here. As I may have said before, almost all major ancient civilizations had some forms of caste way back, but they have had all cast it away ages ago in the path of human development, advancement and enlightenment, except India. Anybody can see that hereditary caste system today is backward, immoral (even criminal outside of India) and unbecoming of any country calling itself democracy, no matter how rich or poor you are.

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nkab Oct 26th 2011, 10:38 The article says: Some 41% of India Inc, measured by the profits of the biggest 100 firms, sits in the hands of state-controlled companies If true, this suggests that India has tighter or more control of peoples business activities than that of most communism states. There is nothing necessarily wrong there I reckon, perhaps Capindalism stands for [capitalism of Indian characteristics]. == @mvrk71 Oct 26th 2011 9:11 GMT India has over 150 separatist and insurgent groups operating within its borders, so naturally, organized crime is critical to funding their operations

I dont know anything about so many separatist and insurgent groups in India. It does reflects the urgent need for India to dump its backward Hindu caste practice if India is to become a serious world power. In some ways (2010 GDP is $1.45 trillion, e.g.) India already is. But no nation can call itself a power if it is powerless to eradicate itself out of its age old apartheid caste mess. mvrk71 Oct 26th 2011, 09:11 People who assume that the corruption described in India is coming only from the powerful top interests, down, in an effort to manipulate the upper echelons of the bureaucracy are missing the real problem. India has over 150 separatist and insurgent groups operating within its borders, so naturally, organized crime is critical to funding their operations. This reality, plus the idiosyncrasy of the byzantine India democratic system and the autarkic manner in which it attempts to centrally plan and fund development gives many of these groups an opportunity to coerce funding out of local governments and/or businesses. So the corrupting forces are bidirectional, and create a chicken/egg development problem that will not be easily solved

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happyfish18 Oct 26th 2011, 10:10 Jai Hinduja. With more than half the newborns in the world, the business will do roaring business of more than just feeding and clothing the people.

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jferdy5 Oct 26th 2011, 08:25 I'm not sure if this is a fair appraisal of India. It can take years, if not decades, to grow a large private company. Since liberalization started in 1991 (and business rules started to change for the better only in the past 10 years) it's not surprising that there are few new guys on the block. As well, the conditions that make this possible are still evolving in India. I think in the next 5-10 years you'll see an explosion in capitalism in India, at least I hope so... but it's still too early to say. That being said, I think the arguments here are compelling, but I'd like to see some more statistics to back it up.

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mbassador Oct 26th 2011, 07:33 capindalism stands for extreme corruption and extreme poverty. if you can minimize the first the latter will go away by itself.

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nkab Oct 26th 2011, 15:12 Correction: In my immediately previous post: "China is certainly beyond reproach" should read: "China is certainly not beyond reproach". My apology.

Family firms
The Bollygarchs magic mix

Why Indias soft state encourages family-owned firms and conglomerates

Oct 22nd 2011

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No Mist Oct 21st 2011, 08:58

> { the licence raj, a surreal mix of Soviet stupidity, British pedantry and Indian improvisation. } ROFL !! The joke is upon you TE ! What really matters is not whether family or state or institutions control the firms, but whether there is enough competition in the market place. Capitalism is only a new name for competition. To christen a new "capindialism" based on something as frivolous as ownership structure is itself "British Pedantry". But then isn't TE a British bird ? Self commenting never was so delicious, eh ?

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Innovation and cost-cutting

The limits of frugality

Making things cheaper is not the same thing as making profits

Oct 22nd 2011

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skepticji Oct 21st 2011, 17:57

Are Indian companies then being irrational? Or is it that competition drives down prices and leads to commoditization? Bit premature to say Nano a flop. There may be a learning curve. Remember Hyundai? Or it cud be a Yugo? Either way perhaps a couple of years needs to elapse before making very definitive statements.

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Connect The Dots Oct 21st 2011, 07:28

Maybe the underlying truth is that Indian Products--whether cut-rate cheap, moderately priced or expensive--are not world class competitive when it comes to consumer expectations? Why buy a Tata when a slightly more expensive Toyota Corolla will last 2 decades and go 250,000 miles. Maybe consumer expectations prefer world class brands particularly imports. Indian companies have to overcome decades of incompetence...it will not happen overnight.

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ajaym55 Oct 21st 2011, 17:46

@ Connect the Dots. "Maybe consumer expectations prefer world class brands particularly imports." India is a very price conscious market. Value is expected at reasonable prices by most except some who want to be envied and revel in status symbols and would rather go for brands than functionality. Number of Corollas sold will be a small fraction of one percent of all cars sold in India despite its proven quality, because other models offer better value. Suzuki and Hyundai have learnt that and are making deep inroads in the Indian market. Recently, Nissan launched Sunny in India at Indian prices. In Dubai, Sunny is priced above Honda City and just below Toyota Corolla and Honda Civic. In India, Sunny starts about 30 percent below City and less than half the price of Corolla and Civic. Perhaps, Nissan is smart and tapping into a potentially large market appeals to its management.

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yBhJMLgQ9X Oct 21st 2011, 12:33

The competition in India is maturing at different speeds in different industries. Telecoms refused to collaborate on infrastructure (eg tower construction for cellphones) for a long time, with the "licence-permit" mind set. Banks have only recently pooled ATM resources on networks (20 years after it has been possible). Margins will dive given competition (hooray for the consumer, thats what capitalism is about), and competitors will have to learn a. to collaborate for cost efficiencies and b. differentiate based on quality (quality of calls on cell networks have generally been pathetic) to up consumer perception of values and hence pricing. There are TV sellers in markets in Delhi who make money on the daily volumes at wafer thin margins. Of course, you can't find them in nice air-conditioned shopping malls.

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sara2593 Oct 26th 2011, 01:28

India must have seen this coming...they couldn't have really expected to follow the trend they were going on forever. As they kept creating products for less and less, the quality of the products also diminished. It's great that poorer people can afford products, but the fact that their quality has gone down so much over the years makes it not as great. I'm not saying that they should just give up and go ahead and buy everything from China so that it would be cheaper and better quality, but they just need to stop focusing only on the prices and actually put more thought into the product itself.

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mollyb8@vt.edu Oct 26th 2011, 03:50

It is an admirable goal for companies to produce products that are affordable even for people in the lowest income brackets however it should be expected that these products will be of lower quality. If consumers are not willing to accept these shortcomings then these items must not be as necessary for lower income customers. Companies should realize that cutting costs on production is only useful to an extent. Eventually the product loses enough quality so that is not worth even the lowest price for consumers.

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saabs_saab Oct 24th 2011, 03:48

Why is it a problem for any one how indian business model their operations? No one has to operate as the western/american folks expect.

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mA9p4QT2e6 Oct 23rd 2011, 07:18

The marketing, pricing and competition models in developing economies are different from elsewhere and especially so in a country like India which has a flourishing huge captive internal market and manufacturing set up. I am supposing market share was the primary driver and therefore targeting all segments of the society. One good thing about Indian consumer is the penchant for quality. They rather pay more where they can afford than accept sub standard or play nationalistic on brand despite quality. This is a challenge for organisations both domestic and foreign to keep cost low and quality high. But in a falling price system, there is only so much you can milk keeping quality competitive. I guess the economist is talking about this point reached and hence segmentation on purchasing power and focus as the next strategy.

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dalurie2 Oct 26th 2011, 15:06

I think it is great that India targets the poorer classes with cheaply priced products, but that can only work for so long without a steep economic decline. India will soon have to raise prices and target the middle and upper classes in order to stabilize their economy. It will definitely take awhile to recover though, as frugality in India has clearly taken its toll.

state-controlled firms
The power and the glory

India has its own form of state-backed capitalism too

Oct 22nd 2011

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yBhJMLgQ9X Oct 21st 2011, 14:54

State owned enterprises such as BHEL have been competing successfully on their own in India and elsewhere. These are different from the monopolistic energy companies. Private management is of little use when the structural aspects of a competitive market are still stage-managed and manipulated by the govt. - eg telecom sector in the initial years, energy sector (prices are de facto determined by govt though claimed as market linked), and power supply (pointed out in this article). PPPs in monopolistic business e g airports, will necessarily be subject to controlled pricing and the limited returns entailed (they also receive protection from competition as part of the deal). The key issue is to provide management freedom to operate and introduce private players. Outfits such as State Bank of India have excellent human resources, many of whom have formed the backbone of private sector banking and profitability in India.