GLOBAL ECONOMIC SCENARIO

In their famous book ‘Built to last,’ authors James C Collins and Jerry I Porras mention

that many visionary companies did not have a clear idea of what to do, when they started

their operations. Yet, they thought big, defined their corporate purpose in terms of a

broad overarching set of loosely defined objectives and set themselves Big, Hairy &

Audacious Goals (Bhags). Similarly, the evolution of many of today’s transnational or

truly global corporations has in more cases than not, been shaped by circumstances,

rather than deliberate strategies. However, these companies typically nurtured big

ambitions right from the start and had strong leaders to facilitate their global expansion.

The wave of liberalisation and globalisation sweeping across the world has opened many

national markets for international business. The twin forces of liberalisation and

globalisation have led to a remarkable surge in the volume of business in the last couple

of decades, highlighting the need for greater vigilance, scrutiny and transparency in the

working of business organisations. These forces have also led to unprecedented changes

in the corporate world and have been instrumental in creating innovative means for

communicating financial information to the market place. The field of information

technology too has witnessed remarkable advance resulting in dramatic changes in the

way business is being transacted all over the world. The wide expansion of global

markets has greatly influenced the movement of funds. Innovative financial instruments

have been evolved to deal with new global economic realities and a more complex

business environment. When the international business environment is undergoing rapid

transformation and new linkages are sought to be enforced through multilateral trade
negotiations, there is a need for restructuring the industry, agriculture and other sectors of

economy to meet new challenges in the changing global business scenario. As a result,

corporate reporting has also undergone a sea change, presenting newer challenges and

further opportunities.

For a company manager, globalisation is the process of managers assessing the impact of

international activities on the future of their company. Globalisation is a continuous

process; at the most basic level, a purely domestic company’s ability to compete is

influenced by changes in foreign exchange rates, technological advances, cultural

diversity, and international political and economic issues. An example of a high level

globalisation is a multinational enterprise whose production and sales locations span

multiple foreign locations from raw materials extraction to final product assembly and

sales.

One of the important events of the coming years for the world trade may be the entry of

China into the WTO regime. China signed an agreement with the US for its entry into the

WTO in November 1999. It has subsequently been negotiating such agreements with

other WTO members. The accession of China to the WTO and hence the MFN status that

it will receive from other WTO countries may have some implications for the

competitiveness of India's exports. This is because India and China compete in the

international market for a number of labour intensive and matured technology goods such

as textiles and garments, leather goods, light engineering products, chemicals and

pharmaceuticals, among others. China has already been giving tough competition to

Indian exports in many commodities and markets. There is a view that the accession to

WTO may further strengthen China’s competitiveness and hence may affect the Indian
exports adversely. There is another view that the accession of China to WTO would force

it to follow WTO norms and procedures, etc. and will bring their trade policy under

international surveillance. State subsidies will be regulated and hence it will make it

more difficult for the Chinese exporters to dump their products in the world market. The

exact impact of the accession of China to the WTO on the India's export prospects will

depend upon these counteracting effects. It is important to analyze the effects of Chinese

accession to WTO on the competitiveness of Indian exports.

The last decade and a half has seen the proliferation of regional trading arrangements in

different parts of the world. The major trading blocks that have emerged over the years

include the European Union, NAFTA, Mercosur, AFTA, COMESA, among others.

Besides, these free trade and common market agreements, a number of other countries

have become integrated with the trading blocks through a variety of preferential or free

trade arrangements. For instance, European Union has extended free trade agreement

treatment to a number of Central Eastern European Union and Mediterranean countries in

anticipation of full membership to these countries in the EU. These arrangements could

also act to divert trade away from India especially in the labour intensive goods, as

indicated earlier in the case of textiles and clothing.

The recent global financial meltdown is indeed an important wake up call for the world

economy. It is more than evident today that Economic Growth and Sustainable

Development is not necessarily the same thing. The last century and a half, since the

Industrial Revolution, has witnessed unparalleled material development. Unfortunately,

such material development has come at a significant cost.

The world economy is on the mend. After a sharp, broad and synchronized global

downturn in late 2008 and early 2009, an increasing number of countries have registered

positive quarterly growth of gross domestic product (GDP), along with a notable

recovery in international trade and global industrial production. World equity markets

have also rebounded and risk premiums on borrowing have fallen.

World gross product (WGP) is estimated to fall by 2.2 per cent for 2009, the first actual

contraction since the Second World War. Premised on a continued supportive policy

stance worldwide, a mild growth of 2.4 per cent is forecast in the baseline scenario for

2010. According to this scenario, the level of world economic activity will be 7 per cent

below where it might have been had pre-crisis growth continued.

The current global economic model is therefore clearly unsustainable.

Indeed, the world has been living far beyond its means. And in the process, the future has

been seriously compromised. The global economic model has perpetuated a system of

rewards that focuses only on the generation of financial returns. In such an environment,

the source of competitiveness for business is derived from a relatively narrow purpose of

expanding consumer franchise and enhancing shareholder value. Conventional Balance

Sheets and Profit & Loss Statements also do not take into account the cost burden of

social inequities and ecological destruction. Unfortunately, such an approach has left a

deferred cost burden to be borne by society and future generations. And that cost is today

spiraling out of control, threatening future economic progress.

 INDIA IN THE WORLD ECONOMY

‘Be Indian Buy Indian’ is not glittered statement these days. Indian

economy is going through a transition phase where the restructuring of

industries and firms are taking place in the form of privatization,

globalization, and liberalization. The global integration needs to be

documented and there are many studies focusing on the same. We cannot

definitely say the time of entry of globalization in India. But one thing

every Indian would admit is - Not only Globalization has emerged as an

important driver of global economic growth, but greater openness and

stronger links with the world economy have imposed on domestic

producers everywhere the valuable discipline of international competition

and attracted much needed capital and expertise, thus enhancing the

prospects for growth through increased efficiency.

Alongside the quickening pace of global economic integration, there has

been a marked acceleration in the pace of technological and scientific

progress. Advances in information technology, in particular, have created

new opportunities for businesses against the background of an

increasingly complex global economy.

In today's tidal wave of global economic, technological, and social

change, the name of the game for you and your organization is survival.

We must understand how powerful forces are aggregating once-distinct

product and geographic markets, enhancing market-clearing efficiency,

and increasing specialization in the supply chain. We should respond by

adopting a new approach to strategy – one that combines speed, openness,

flexibility, and forward-focused thinking.

We are not going to survive in this new economy through technology

innovation alone. "Growing numbers at all levels believe that, to have a

better chance of success, organizations need to engage the energy,

creativity and intelligence of the whole workforce and involve other

stakeholders, like customers, suppliers, investors and community." If we

are going to withstand relentless and constantly growing global

competition, we need to be different and radically change the way of

doing business. We have to give up the old hierarchical, adversarial

approach which wastes individual talents and saps energy in unproductive

conflict. Instead we need to create a new management model, switch from

management to leadership, manage change, build trust, drive out fear of

failure and create productive partnerships in which everyone can offer

their unique knowledge and talents.

India is described as The Emerging Manufacturing Hub. With the Indian

economy on the upswing, the manufacturing industry is experiencing

vigorous growth. Manufacturing companies, both domestic and global,

are expanding their Indian production capacities and establishing new

plants. Indian companies are also becoming global, with manufactured

goods’ exports growing in excess of 20 percent annually in recent years.

The growth of manufacturing has resulted in India emerging as one of the

fastest growing markets for automation systems, enterprise solutions, and

integration service providers.

With so much happening in manufacturing in India, it is appropriate for

manufacturing companies to progress well beyond exploiting Indian

comparative advantages, such as low labor costs and abundant human

capital. Instead they need to evaluate available technological options to

overcome new challenges and become top performers. At the strategic

level, their main challenge is to become globally competitive by adopting

Collaborative Manufacturing Strategies.

Talking about globalization in different areas first we would like to take

the case of textile industry. Chandra Pankaj in his IIMA working paper

‘Competing through Capabilities Strategies for Global Competitiveness of

the Indian Textile Industry’ opined that the global textile trading regime is

going to change drastically from the year 2005 with the phase-out of the

MFA. Its implication on competition will be significant. Countries that

have already put competition policies in place and firms that have been

improving their capabilities are the ones that are going to face

domestically and abroad in a few years from now. We point towards some

of the characteristics of competitive firms that will emerge in the ensuing

period.

We argue that competitiveness of Indian firms would be contingent on

developing long term distinctive capabilities. We also present three key

strategies, namely Commitment, Coordination & Cooperation, for

developing distinctive capabilities and provide illustrations of initiatives

at the firm level, industry level & and the government level that would

form part of the implementation package for each strategy.

This as a matter of fact when applies to India, the nation seriously looks

into the transition from a protected economy to an open economy removal

of non tariff restrictions on trade such as exchange control, import

licensing, quotas etc., allowing Foreign Direct Investment (FDI) and

foreign portfolio investment (FPI) that gives leverage to Companies to

raise capital abroad and encourage domestic companies to grow beyond

national boundaries.

Globalization affects the world and the nation economically, politically,

culturally and in varied spheres. India and Indian firms have specialized

in outsourcing which proves to them very profitable. It is true

liberalization paved the way for Globalization and the real origin is not

traced out in India. We need to frame out competitive strategies for

making India globally competitive.

Increasing productivity has to emerge as a new national priority, where

the efforts of all converge to accelerate the process of economic growth

and raise the standards of living of our people. Our business organizations

will have to improve their performance to ensure their survival and

growth in a fiercely completive world. This improvement will come about

only if we focus on production of quality goods, in a cost effective

manner and by generating enough surpluses to plough back into the

business to further improve productivity. And this must occur

continuously, to create an advantage in the market place, which is what

productivity is all about. Productivity, thus, will have to become a mass

movement and to be put on the national agenda. In his book ‘Competitive

Advantage of Nations’, Michael Porter observed. “The only meaningful

concept of competitiveness at the national level is Productivity.

Productivity is the prime determinant of a nation’s long-run standard of

living; it is the root cause of national per capita income. The productivity

of human resources determines employee wages. The productivity of

capital determines the return it earns for its holders”.

Consequent on the on-going process of economic reforms & liberalization

as well as coming in to force of the WTO regime, which is compelling

India to dismantle the lingering protective environment which have so far

sheltered Indian economy in general and industry in particular, the twin

concept of productivity and competitiveness have become more relevant

than ever before. One can even go to the extent of saying that these are

perhaps intractably linked to the country’s economic future and survival

as a viable entity in this era of globalized economy.

The India Brand Equity Foundation (earlier India Brand Equity Fund) was

founded under the aegis of the Ministry of Commerce of the Government

of India with the explicit purpose of developing a strong global identity

for India, by leveraging these emergent opportunities. The

IBEF aims to do this through a proactive effort to create a strong Nation

Brand for the country based on positive and relevant associations. The

entire effort is directed towards taking India beyond name recognition

(and distorted associations), by firmly establishing a relevant position for

the country on the world map. The immediate goal: build positive

economic perceptions of India in key global markets.

The IBEF moved to the CII to manage, in October 2002. It was decided

that a broad based branding exercise would best be facilitated through a

strong partnership between the government and industry. It is in this

context that the CII provides for the executive management and the

operational day-to-day functioning of the Foundation, under the

Chairmanship of the Commerce Secretary.

Brand India's Need Perspectives

• Need to move up the value chain- better R&D

• Need to project greater ROI on investment – better profitability

• Need to remove revenue dependence on any single resource such as

human capital

• Need to carve a niche – IPR and Licensing

• Need for technological prowess and market knowledge – focused

domain expertise

• Need to brand products and services – better marketing

Every organization has its own distinctive approach towards development.

Connecting these initiatives, there should be a commitment to enlarge the

scope of innovation and to create environment conducive to Productivity.

Productivity may be the outcome of techno-managerial practices, but

eventually is the result of a mindset. Basic to this approach is the

conviction that there is no limit to improvement. Even the best can be

improved. The crucial ingredient is the preparedness of the human mind

to change. Therefore, workers, managers, policy makers and others should

be ready to continuously and collectively work for productivity

improvement, not only in every economic activity, but also in every

human endeavour for the development of the society as well as the

country. Needless to mention, as we graduate further into knowledge era,

traditional methods and principles will become increasingly ineffective

and we will have to innovatively augment productivity both at micro as

well as macro level to realize a global competitive edge.

The point here is that Indian thought has been abstract, powerfully

abstract in terms of basic R&D kind of work. These Ideas were not meant

necessarily for immediate use. This is the big difference between Indian

thought and Chinese thought. Indians have always dealt with abstract

thought. The Chinese always did things that were concrete. They invented

paper, gunpowder, compass; all very useful things. This shows the

difference between Indian mind and the Chinese mind. We like

abstraction, they like concrete things, and the world is moving towards
abstractions. This is the one of the reason why we were able to do well in

computer science. Computer science is entirely an abstract concept. This

is reason one of the reason where I think we have sustainable competitive

advantage over Chinese .

 Why Indian should look for global presence?

The firm pursues a multidimensional approach and formulates different strategies for

different businesses, to combine global efficiencies, local responsiveness and sharing of

knowledge across different subsidiaries. A seamless network of subsidiaries across the

world emerges, and it is very difficult to make out where the home country or

headquarters is.

Reasons for looking global market:

 Saturated domestic market: When the domestic market becomes saturated,

attempts to increase market share become increasingly inefficient.

 Competitive factors: Sometimes, competition may be less intense in overseas

markets than in the domestic market. Overseas presence may also be needed to

compete more effectively with players having a stronger international presence.

 Excess capacity: When excess capacity exists, the firm comes under pressure for

increasing sales by entering new markets.

 Product life cycle: Typically, a product goes through four stages – Introduction,

Growth, Maturity and Decline. If a product has reached the decline stage in the

domestic market, a company could introduce it in another market.

 Diversification of risk: By having a presence in various markets, a firm can

insulate itself from the ups and downs in individual regions.

 Financial reasons: If attractive investment incentives or venture capital are

available, overseas expansion may make sense.

For example, the $ 6.3 billion Indian ITES (Information Technology enabled Services)

industry has come a long way in the past five years. Revenues, in the industry are

expected to grow to $8.3 billion next year. The industry has evolved through different

phases.

As the industry grows, it is also maturing. Bigger deal sizes, geographic spread and end-

to-end solutions are becoming increasingly common. Some of the deals reflect this trend.

TCS has bagged a $848 million deal from Pearl, the UK’s insurance and pensions group.

Genpact has signed a huge $220 million deal with Delphi, the US auto parts maker,

which was earlier a part of General Motors.

With deal sizes increasing and the importance of quality being increasingly felt,

geographic spread is also becoming important. Prospective customers from Europe, Japan

and the US are more comfortable with work being done near their countries. Infosys has

added Brno in the Czech Republic. And keeping in mind the escalation of costs in India,

the company is seriously looking at the Philippines and China

All these trends will pick up momentum as India’s BPOs move beyond voice, data and

analytical services to comprehensive end-to-end solutions that create a competitive

advantage for the customer.

Similarly, India’s pharma industry is not far behind the IT industry when it comes to

globalisation. The Indian pharma industry’s Big four, Ranbaxy, Dr Reddy’s, Wockhardt

and Cipla have all taken globalization seriously. Wockhardt generates over 50% of its

revenues from Europe. In recent years, the company has made major acquisitions in

Ireland, Germany and France. Now it is looking seriously at the US. Through mergers

and acquisitions, Wockhardt hopes to reach a turnover of $1 billion by the end of 2009.

Realising the risks involved Wockhardt looks for clear benefits when it makes an

overseas acquisition. The company’s takeover of Negma Lerads, the French pharma

company in October 2006, is a good example. Negama is a research based company with

172 patents. Wockhardt hopes to expand its presence in Europe and market its other

generic drugs through Negama. The French government is popularizing the use of

generics in the country. Negama’s strong distribution and selling network will stand

Wockhardt in good stead in the coming months.

Wockhardt has also taken over Pinewood, a highly respected Irish pharma company with

over 200 prescription and OTC products. A market leader in renal therapy products,

Pinewood has an exciting portfolio of products at various stages of development.

Pinewood will also enable Wockhardt to shift some operations from the UK and cut

costs.
In 2004, Wockhardt established a subsidiary in the US. By 2006, the subsidiary had filed

26 ANDAs (abbreviated new drug applications), eight of which were approved.

Wockhardt hopes to get more approvals in 2007 and strengthen its position in a market

where competition among generics players is rapidly intensifying.

Wockhardt is also taking seriously biogenerics, i.e., biotechnology products that have

gone off patent. By 2010, the global biogenerics market is expected to be worth $10

billion. Wockhardt is building comprehensive concept-to-market capabilities for

biogenerics for the international markets. The company has several applications pending

for approval in various parts of the world including Russia, South America, Central Asia,

Southeast Asia and North Africa.

The Indian enterprises should make aggressive use of overseas investments and

acquisitions (M&As) abroad as a part of their strategy to gain competitiveness, access to

markets, brand names and marketing networks. A few Indian companies have

strengthened their presence in respective overseas markets with acquisitions and overseas

investments successfully. These include Tata Tea that has taken over Tetley in the UK

and with it an instant access to globally recognized brand names, marketing networks and

world-wide presence. By integrating its Indian production activities with Tetley's

marketing network, Tata Tea will be able to realize the value addition in different phases

of value chain in the tea industry more completely. Companies like Ranbaxy in

pharmaceuticals and Titan Industries in brand name sensitive segment of watches have

adopted overseas investment route with significant success. More Indian companies need

to follow these channels for strengthening their presence abroad.

Again, Indian jewellers have been busy expanding globally in recent years. In late 2006,

Gitanjali Gems acquired Samuel Jewellers the ninth largest jewellery chain the US. In

March 2007, Shrenuj Diamonds acquired an 84% equity stake in SGS, a wholesale

jewellery distributor in the US. These acquisitions will help Shrenuj and Gitanjali gain

access to a large number of jewellery retailers in the US. Rajesh Exports, another leading

Indian jewellery maker is also planning acquisitions. Tanishq promoted by Titan, has

plans not only to acquire retail chains but also set up its own retail stores in the US.

These deals will help the Indian jewellery industry to strengthen their presence in the US,

one of the most important markets in the world. Meanwhile, the Indian jewellery firms

are also expanding their presence in the Middle East, Hong Kong, China and Malaysia.

All these moves come at a time when India’s share of global diamond processing is

declining. By acquiring retail chains, Indian jewelers hope to move up the value chain

and improve their margins. Indeed, many of these moves essentially represent a strategy

of forward integration from diamond manufacturing into jewellery retailing. At the same

time, Indian jewelers continue to provide commodity jewellery to retail chains abroad

and also develop private labels for overseas retailers. The idea is to occupy a position

across the spectrum from designing and manufacturing to branding and sales.
 CHANGES IN ECONOMIC CONDITION AND

STRATEGIES

The World is changing fast and the world of business is changing faster. In the new

millennium, business corporations will have to deal with entirely new challenges to meet

customer demands, move from competition to collaborative reconfiguration, dovetail

supplier and subcontractor processes to the corporate goals and empower employees to be

able to meet and surpass customer expectations.

In the relentless competitive search for new business, the customer today is seen by

breathless marketers as a fickle and mercenary shopper, who respects no brand, has no

loyalty and demands higher value for money with every transaction. They also expect

new products and services to be available every day.

New paradigms are also emerging in the organization’s relationships with its suppliers

and subcontractors. They are now seen as key partners in the new virtual corporation,

providing the ability for the entire supply chain to be fine tuned towards changing market

needs.

A truly global firm not only has unique resources that can be leveraged in markets across

the world, but also continues to develop new capabilities in response to changes in the

environment. Global companies strike a balance between capability leverage and

capacity building. Capability leverage involves making full use of existing capabilities in

the market place. These capabilities may exist anywhere in the system, not necessarily at

headquarters or in the home country. But a global firm cannot live only on its existing

capabilities. It must also build new capabilities.

How Indian corporates can encounter these changes to maintain its sustainable

competitive advantage?

Transnational companies, have the capability to combine global efficiencies, local

responsiveness and the ability to leverage knowledge across the worldwide system. They

go well beyond a unidimensional approach which focuses exclusively on global

efficiencies or local responsiveness or which considers all businesses to be alike. A

flexible, multidimensional approach is the essence of a transnational corporation. Such a

capability is typically built up over a period of time as the company evolves and learns to

deal with various types of business problems in different overseas locations.

Integration vs Responsiveness

High

Global Strategy Transnational Strategy

Pressures for global
integration

Domestic Strategy Multinational Strategy

Low

Low High
Pressures for local
responsiveness
Value chain configuration

A transnational company configures its value chain across different countries to ensure

that activities are located in those countries where they can be performed most efficiently
and effectively. Consider Li & Fung, Hong Kong’s largest export trading company. It

deals in items ranging from clothing and fashion accessories to toys and luggage. In case

of toys, Li & Fung has located high value adding activities such as design and fabrication

of molds in Hong Kong. On the other hand, labour intensive activities such as injection of

plastic, painting and manufacture of the doll’s clothing are carried out in China.

The company uses Hong Kong’s well-developed banking and transportation

infrastructure to market its products around the world. As Chairman Victor Fung puts it,

the labor intensive middle portion of the value chain is still done in southern China while

Hong Kong does the front and back ends. Many of the leading Indian software companies

having successfully established themselves in markets like the US and Europe are now

attempting to make China an integral part of their delivery value chain. In particular,

China is becoming a key location while serving customers in Japan. IBM is increasingly

doing much of its Research and Development in India, where the company is also

strengthening its delivery capabilities.

Transnational companies develop the capability to demarcate activities that need to be

tightly controlled by the headquarters and those which can be decentralised and delegated

to national subsidiaries. The Swiss food giant, Nestle gives a lot of freedom to its country

subsidiaries, to take decisions on adapting products to suit local tastes. Yet, there are

some functions, which the company has chosen to control tightly. These include basic

research, branding, financing decisions and many human resources policies. Peter

Brabeck Letmathe, Nestlé’s CEO, once remarked, “The R&D function is one of the few

things we haven’t decentralised, although over 18 R&D centers are physically located all

over the world. All our research centres, wherever they are, are financed and controlled
by headquarters and receives the necessary input mainly from the strategic business units,

based upon requests from the markets.”

Contestability

A global company needs to have the capability to compete in any overseas market. While

it can be selective about the markets it wants to enter (based on their structural

attractiveness,) it should have the ability to compete in any market if global

considerations demand this. To put it another way, a global company's decision not to

have a presence in a particular country, is by choice, not due to lack of resources.

Similarly, a global company might even make a strategic retreat from a market. This

would, however, be a part of a global game plan rather than because it does not have the

staying power. Transnational constantly look around the world for market openings,

process information on a global basis and always constitute a potential threat to existing

players even in countries they have not yet entered.

Market spread

A global company earns a significant portion of its revenues in overseas markets. Yet, as

mentioned earlier, this is not a sufficient condition for a company to be called global.

Some Indian software companies, for example, typically generate a sizeable chunk of

their revenues in the US, but cannot be considered global, because they have an

insignificant presence in other overseas markets. For a truly global company, geographic

spread is important. In the ideal case, a company with a global market presence would

generate the same market share in each country. Assume the company operates in 100

countries. If it has a market share of say 30% in each of these countries, it would be more
global than another company which operates in fewer countries but has, say, a 40%

global market share because of its dominance in a few individual markets.

A good example is Ranbaxy Laboratories, one of India’s leading pharma companies. For

many years, Ranbaxy operated in a unique patent regime that encouraged Indian

companies to replicate patent-protected drugs through a different process and offer them

at affordable prices to the country's vast population. Ranbaxy took full advantage of this

process patent regime. In essence, Indian companies could produce any drug in the world

as long as they used a manufacturing process which differed from the one that the

original manufacturer used.

Ranbaxy strengthened its competitive position by setting up sophisticated laboratories,

hiring hundreds of world-class chemists and by investing heavily in state-of-the-art

factories that could scale up the manufacture of a drug quickly. The company rapidly

developed new processes for synthesizing patented drugs and to scale up manufacturing

quickly thereafter.

By the early 1990s, Ranbaxy realized that it could exploit these strengths by quickly

synthesizing drugs that were going off patent in developed markets and selling them

there. The company acquired Ohm Laboratories in the United States in 1994 and entered

the US generics market. Subsequently, Ranbaxy rapidly expanded its business in other

international markets. Currently the company ranks among the world's top ten generics

manufacturers.

To succeed, companies must align strategy and structure. Well known business historian

Alfred Chandler emphasized this point several years ago. To provide autonomy to local

managers without losing the crucial glue that keeps business processes functioning
efficiently, successful global companies usually organize their operations on a three-

dimensional matrix: businesses, geographies, or functions. Such structures help

companies to transfer and leverage their distinctive capabilities seamlessly, to control

global operations, to capture economies of scale across functions, and to develop global

managers.

Why is a multidimensional approach so critical in today’s global business

environment?

As markets become more competitive and customers become more demanding,

efficiency becomes important. Without efficiency, costs can go out of control; products

can easily become overpriced and go out of the reach of customers. Global companies,

even when serving diverse markets, look out for opportunities to standardize products to

the extent possible. Standardization yields obvious benefits in the form of economies of

scale, in activities such as product development, manufacturing and procurement. But

standardisation and scale efficiency alone cannot generate a sustainable competitive

advantage. Indeed, standardisation if carried too far would mean loss of responsiveness to

local markets. The trick is to standardise those aspects which customers do not perceive

differently across the world and customise those which they do.

This point is well illustrated by the automobile industry. In the 1970s and 1980s, a

proliferation of models led to ballooning development costs. So automobile companies

started focusing on a few platforms around which cars of different shapes could be

designed. Since then, companies such as Ford, Honda and Toyota have mastered the art

of standardising the ‘core product’ while retaining the flexibility to customise and offer

features to suit customer tastes in individual markets. Similarly, fast moving consumer
goods companies have standardised some of the elements of the marketing mix while

customising others for local markets. Nestle, Coke and Unilever have exploited

opportunities to extend expensive advertising campaigns developed in one country,

across countries, with a bit of customisation wherever required.

A truly global company also does not treat its subsidiaries on a stand-alone basis. Such a

company can take full advantage of its entire worldwide capabilities when it makes a

competitive move. It has the required degree of organisational integration to transport

capabilities across borders whenever needed. In other words, exchange of ideas, best

practices and resources across subsidiaries is a key requirement in a transnational

corporation.
 HOW THESE CHANGES HAVE CREATED PROBLEM

FOR INDIAN CORPORATE?

Sustainable competitive advantage is limited to a small number of competitive

advantages. Thus we can not take our competitive advantage as guaranteed if we have

our competitive advantages on the basis of following factors:

Having a cost advantage based on superior technology, which cannot be patented?

A business with superior technology, which cannot be patented, does not have a

sustainable competitive advantage. This is because the technology will usually be either

rudimentary, which its competitors can easily reproduce, or technology developed by

specialist third parties (like Accenture or IBM), which is likely to be sold to its

competitors.

The inability to make this superior technology a sustainable competitive advantage is a

major problem for businesses in the services sector.

Having a cost advantage based on lower labour costs

A business with lower labour costs (for example it uses cheap labour in China or India)

does not have a sustainable competitive advantage because its competitors can, and

usually will, source the same cheap labour.

Having a cost advantage based on lower capital costs

This usually means getting cheap capital from a Government. Having access to cheap

capital from a Government is not a competitive advantage. It is a subsidy.

Having product differentiation

Product differentiation is not a sustainable competitive advantage because if a business

has a high ROIC, due to product differentiation, competitors can, and will, enter that

market and sell their own differentiated product. This will cause the business’s sales

volume to fall and, because its fixed costs remain the same, the lower volume will mean

its profit margin also falls. Its profit margin and sales volume will continue to fall until its

high ROIC disappears.

Having a strong brand

Having a strong brand is not a sustainable competitive advantage. Brands are assets just

like property, plant, and equipment. A business must spend cash to build or buy the

brand, and cash each year to offset the depreciation of the brand. A competitor can easily

spend its own cash to create a brand. If a competitor has an equal opportunity to create its

own brand, the business with the brand has no competitive advantage. Brand investments

are, thus, no different from many other investments: they return the cost of capital and do

not provide any excess return to shareholders.

Being the first mover in an industry

Being the first mover in an industry is not a sustainable competitive advantage. Being the

first mover may give that business learning curve cost advantages. This means that as the

business moves down the learning curve it becomes more efficient and can produce the

product with lower variable costs than businesses just learning how to produce the

product. However, as the industry matures, and its competitors learn to be efficient, this

disadvantage usually disappears. The business may even find itself at a competitive
disadvantage because it now suffers from vintage effects. That is it has less efficient plant

and equipment than later entrants into the industry.

Being the latest entrant in an industry

Being the latest business to enter an industry and, therefore, usually having the latest

technology or the ‘hottest’ product design will not give the business a sustainable

competitive advantage because these advantages are, by their nature, only temporary.

Moreover, once the business enters the industry it becomes an incumbent. The same

advantages it enjoyed, when it first entered the industry, will now apply to any new

entrant.

Having lower variable costs from new capital expenditure

A business (in a commodity industry) which reduces its variable costs by undertaking

new capital expenditure has not created a sustainable competitive advantage because its

competitors can easily do the same thing.

Good operational efficiency

Good operational efficiency is usually only a temporary competitive advantage (there are

exceptions). It is usually only temporary because this operational efficiency can naturally

decline, or a competitor can reproduce it.

A business’s good operational efficiency can naturally decline because:

1. Management dies, or retires, or is poached by other businesses; or,

2. Management becomes sidetracked by some major internal or external issue (for

example they make a takeover offer, or are involved in a major lawsuit); or,
 3. Management simply loses its drive.

A competitor can reproduce another business’s good operational efficiency by copying

the successful business’s operational practices, or by recruiting better management.

The Indian export structure has been highly dominated by simple and un-differentiated

products where the main competitive advantage lies in cheap labour, low levels of skills

and simple technologies compared to that of China and South East Asian countries except

for recent growth of pharmaceuticals and software services (Lall, 1999). Not only these

products are slow moving, the export structure is highly vulnerable to competition.

India's competitiveness has also been adversely affected by the failure to diversify the

commodity composition of our exports. In fact the commodity concentration of India's

exports has increased with a 9 percent rise in the share of top six groups of exports in

total and exports between 1987-1988 to 1998-99 (Kumar, 2000a). In comparison to India,

Southeast and East Asian countries have rapidly diversified their export structure in

favour of technologically advanced goods. For instance, share of technologically

advanced goods (differentiated and science based goods) in India’s manufactured exports

rose marginally to about 8 per cent by the mid-1990s over 5.6 per cent in the mid-1970s;

in China, this proportion increased from 8.8 per cent to 23 per cent over the 1987-95

period, and for Malaysia from 12 per cent to 57 per cent over the 1980 to 1995 (Pigato et

al. 1997). The markets for low technology undifferentiated goods are highly price

competitive and margins are kept under pressure by constant competition by entry of new

low wage countries.

Furthermore, the importance of building indigenous brands and their following globally

through advertisement in the global media for international competitiveness can not be
over emphasized. The ability to market a product under own brand name alone allows

realization of value addition more fully. Otherwise, Indian companies will continue to

produce and export undifferentiated simple technology and standardized products that are

sold cheap and have low margins. Here again there is imperative for assisting the

industry in building their own indigenous brands. This could include funding of brand

promotion expenses and incentives given to products sold under indigenous brand names.
 CONCLUSION

A slogan which became very popular in the 1990s was ‘Think Global, Act Local.’ The

notion that global strategies have to be implemented locally seems to imply that

knowledge transfer is unidirectional from headquarters to the subsidiaries. A truly global

company, on the other hand, encourages local managers to share their best practices so

that they can be applied globally.

Globalization of the world economy offers both challenges as well as opportunities to the

Indian Companies. India has wasted a lot of time preparing for global competitiveness. A

higher level of world prices, continuing devaluation of our currency, and increase in our

imports adds new complexities to our international marketing efforts.

The rapid changes in the context of the process of economic reform, globalization and

liberalization have created greater compulsions for India to be productive and

competitive than ever before. With rapid advancement in technology as well as

Management Theory and Practice, the concept & techniques of productivity have

undergone a change over time, thereby creating a need for devising fresh approaches,

coining new message and adopting a new idiom to spread the message to the

stakeholders.

There is an urgent need to redefine and re-structure the Productivity Movement in such a

way that it becomes a self perpetuating process, more so, because the general

environment earlier was not very congenial for the desired productivity growth as lots of

non-productive barriers & protective walls surrounded our economic system for a very

long time. All these protective walls have come crashing down and now competition is
the name of the game bending all our energies in order to be more competitive in order to

survive through all-round productivity enhancements.

This would require the opportunities that are opening for global marketing are further

dampened by rising protectionism, discriminatory government procurement policy, offset

requirements, forced technology transfers, local content requirements, and other

mechanism used, and growing trend towards bilateralism instead of multilateral

agreements.

The suggested areas of change in Indian Companies to gain dynamism and

competitiveness are:

 Developing executive leadership at three levels that is

1) top team,

2) the personal development of individual executives as leaders and

3) the Chief Executive Officer (CEO)

 Getting strategy to work

 Achieve learning through knowledge management

 Achieve supply chain excellence

 Develop branding strategy

With changing times, the productivity improvement process has evolved the world over.

Likewise, for a developing country like India, Keeping in view the stage at which it

stands on the road to economic progress, promotion of productivity, its awareness

creation and benefit able implementation should be the corner stone of productivity

movement. Productivity in its new manifestation, as a culture of accepting and bringing

about continuous change through teamwork having continued focus on the customer-need

is an inescapable imperative. These concepts have come to acquire greater significance in

the current context of changed economic environment.

The imperative need to align policies and regulations to encourage the conduct of

business in a manner that results in the achievement of a positive carbon footprint and

also supports the creation of societal capital.

If differentiated and preferential incentives, in the form of fiscal and financial benefits,

were to flow to companies with sustainable business practices, powerful market drivers

would emerge to support such endeavours of companies.

Besides this for companies, mobilizing and nurturing a diverse talent pool is a critical

success factor. They must be good at managing diversity, across various dimensions –

language, culture, education, race, gender, age, religion. A diverse workforce is necessary

to help the company cope effectively with different environments. Diversity implies

inclusion of people with different world views and experiences. By pooling diverse ideas

and insights, innovation can be enhanced. Commitment to diversity implies a

commitment to tapping the best talent across the world. However, while accommodating

people with different backgrounds and leveraging their unique skills is important,

diversity should not be taken too far. As Philip M Rosenzweig mentions, multinational

firms should not only push for diversity but also try to enforce some measure of

commonality and cohesion among disparate parts. Thus multinationals have to find ways

to benefit from diversity while also forging consistency “The challenge is not to promote
diversity alone, for that could suggest that ‘anything goes’ or that ‘all differences are

good.’ Nor is it to insist upon rigid conformity of behaviour around the world, which

would negate the benefits of diversity. Rather, it is to identify the key elements of

consistency needed to succeed and to make the most of diversity on other dimensions.”

The transnational corporation combines the best of all these paradigms. It does not pursue

efficiency or local responsiveness for the sake of achieving them. Rather, such a

company attempts to have the flexibility to do what is best given the competitive context.

Thus in some areas, the transnational may emphasise scale efficiencies while in others, it

may pursue a strategy of local responsiveness. And of course, the transnational

corporation is good at creating and sharing knowledge across the system, from

headquarters to subsidiaries, from subsidiaries to headquarters and across subsidiaries. In

short, the transnational aims for the optimal blend of centralization and decentralization

and standardization and customization. As Ghoshal and Bartlett mention, “The

transnational develops responsiveness by building multinational flexibility in many ways.

It designs some slack into its production facilities and adopts flexible automation to

respond to unforeseen shifts in demand and or in supply. It creates products with modular

structures so that features and styling can be differentiated by market while basic

components and the core design are standardized. Most important, the transnational

builds systematic differentiation of roles and responsibilities into different parts of its

organization.”

They must be good at managing diversity, across various dimensions – language, culture,

education, race, gender, age, religion. A diverse workforce is necessary to help the

company cope effectively with different environments. Diversity implies inclusion of

people with different world views and experiences. By pooling diverse ideas and insights,

innovation can be enhanced. Commitment to diversity implies a commitment to tapping

the best talent across the world. However, while accommodating people with different

backgrounds and leveraging their unique skills is important, diversity should not be taken

too far. As Philip M Rosenzweig mentions multinational firms should not only push for

diversity but also try to enforce some measure of commonality and cohesion among

disparate parts. Thus multinationals have to find ways to benefit from diversity while also

forging consistency “The challenge is not to promote diversity alone, for that could

suggest that ‘anything goes’ or that ‘all differences are good.’ Nor is it to insist upon rigid

conformity of behaviour around the world, which would negate the benefits of diversity.

Rather, it is to identify the key elements of consistency needed to succeed and to make

the most of diversity on other dimensions.”