The challenge of change
In the light of the dramatic transformation of the economic and business environment, Mr. Aditya Birla examines its impact on Indian industry and suggests ways in which companies can meet the challenge of change.
Thoughts shared by Mr. Aditya Birla at the Rotary Club of Bombay on 13 September 1994.
Dramatic, sweeping and far-reaching changes have taken place over the past three years, not just in India but across countries. Three years back, it would have been hard to believe that such a metamorphosis would take place in the economic scenario of the country — which is leading to changes, not just in business and industry, but in our very psyche, in our attitudes, in our way of thinking and even in our daily lives.
Let me take you through this changing economic scenario, to give you a feel of the extent of the transformation, its magnitude, its sweep and the depth of the reforms, and how Indian industry is globalising, in terms of size, ownership, trade and attitudes.
Size
Let us first talk about size. Globalisation and size are almost inextricably linked. As all of you know, Indian industry, for far too long, has lived under a draconian regime of controlled and officially prescribed capacities, guided by politics and not economics, which has resulted in fragmented and sub-optimal capacities that are uneconomic.
Amazingly, in the past, producing more was a crime. I was once almost served a notice of prosecution for producing more! Such madness could exist only in India of the not too distant past.
It is sometimes difficult to comprehend the quantum leap that has taken place in plant sizes. From fragmented and small plants, today, we have reached a position where we can take pride in having world-scale plants in several industries.
Let me give you some examples from our own Group because that is what I know best. Today, our Group is the world's largest producer of viscose staple fibre. We operate the world's largest palm oil refinery, with a staggering 3500 tonnes per day capacity. Our Group is the world's third largest producer of insulators and the sixth largest producer of carbon black.
This is when we are only three years into the liberalisation process. Imagine what our achievements in globalisation will be ten years down the line if we continue on today's virtuous road of liberalisation. Indian industry has a key role to play in the prosperity of our country. Its full potential needs to be unleashed if the business of India is to be in business.
Ownership
Moving on from size, I now come to the aspect of global ownership of Indian equities. Less than five years ago, in 1990-91, Indian companies mobilised Rs. 9700 crores from the primary market in India at that time, the funds raised from foreign institutional investors — by the way of GDRs, or Euro Bond or investment in secondary markets —- were all a dismal, resounding zero.
Globalisation has opened the floodgates for the Indian industry of the vast reservoir of international capital. From being closeted in a shell, we are now becoming global in ownership.
Trade and exports
Now I come to another essential dimension of globalisation — trade. Industry and trade go hand in hand. Indian industry cannot globalise without global trade.
Not too long ago, India was an anachronism. In an open world — an inward looking, restricted, protected, insulated and a dead market, almost a non-entity. We could not have mattered less. The world hardly took notice of this large and talented country.
But now Indian industry is coming of age and our competitors can take us lightly only at their own peril. In our Group, we are competing effectively in the international markets, in several product areas. We are meeting competition head on, without any government support, without any subsidies standing on our own feet.
Psyche and planning globally
Globalisation is not just a change of numbers. It means also a profound change in our psyche and in our planning. The change in attitude is reflected in the factthat whilst, in the past, we put up plants with sub-optimal capacities, today we put up industries which have a minimum world economic size. We consider, not just the Indian market, but we consider the world as our market. From an inward attitude, we have also started looking outward.
We now calculate the profitability of new projects not on the basis of current customs duty, but the expected lower duties in the times to come. Earlier, we used to just seek protection, at home, through tariff barriers, because the home market was all that we knew.
Today, we are aggressive, not so much about protecting tariff barriers at home, but also in seeking to demolish trade barriers in developed countries, so that we can have greater access to their markets. My firm conviction is that India will be a global economic force to reckon with, in the not too distant future.
Sometimes, some of our friends are apprehensive about the slow pace of reforms and industrialisation. I tell them: it takes nine months for a baby to be born. Be patient. Three years of reforms, is just the beginning of the fireworks. We will together see, in the coming decade, India emerge as one of the great economic success stories.
Establishing industries in India by multinationals for local market and exports
Let us now look at another significant fallout of the globalisation of industry. Multinational corporations are migrating and flocking into India and creating a platform for local as well as export markets. There are some uncomfortable fallouts to this invasion. As is true of any change, the rose comes with the thorns attached. One of the negative fallouts has been that in several branded consumer goods, Indian manufacturers have virtually called it a day. This has already happened in products such as soft drinks, toiletries and others, and is likely to happen in other areas also. In consumer electronics like TV, as also in several other industries, foreign multinationals are taking and securing a stranglehold over equity ownership, thus subjugating the role of the Indian entrepreneur.
Whilst the consumers stand to gain, entrepreneurship, which also is a rare trait around the world, but which India is fortunate to have in abundance will certainly lose its vibrant character. Whether these shifts are good or bad, time alone will tell. But cataclysmic changes are certainly under way.
Everything cannot be hunky dory. We have to learn to live with the changes and to struggle and fight. No doubt, some Indian companies will fall. Some will regain lost ground and many will thrive and emerge as world-beaters.
India not an exception, reforms a worldwide phenomenon
Whilst we laud India's economic reforms, let me also frame India's move towards globalisation, in its broader, correct balanced perspective. India's reform efforts, whilst noteworthy, are driven by global compulsion. It is not something remarkable or extraordinary.
It had to be done. There were no options. It was a Hobson's choice. Without it, India would have been totally marginalised. As an economist remarked, ‘There is no force as powerful as an idea whose time has come.’
We should not delude ourselves, that we have been pioneers. The fact is, we have been swept up by the force of the wave and now we have no choice but to ride it if we are not to take a splashing. That said, it is certainly to the credit of our Prime Minister and Finance Minister, to have perceived the dominant currents, decisively made a break with the past and steered the country towards the global mainstream.
The wheels of commerce
What we are seeing is the shrinking of the globe, as the wheels of commerce make their inexorable rounds. The basic tenets of economics, suddenly, are reasserting themselves and overriding narrow and misguided political considerations, world over and at the same time industries are now being located and relocated where they are most cost effective. This realignment is going on worldwide. It is up to India to take advantage.
This gives developing countries a chance to industrialise on a global scale. Let me cite my own experience. Thailand used to import Carbon Black from Japan. Today, our plant in Thailand, whose size is 2nd only to the largest Japanese plant, exports carbon black to Japan — a breakthrough. Thailand used to import Epoxy Resin from Japan. Today, our plant in Thailand exports epoxy resins to our own collaborator in Japan —- a total reversal. Japan was a large exporter of viscose fibre to the world. Today, our plants have captured a large segment of the ASEAN market, forcing the Japanese to scrap 30% of their country's viscose fibre capacity.
In this changing kaleidoscope of world business, it is for India to capitalise on those emerging opportunities for industrialisation in the global context.
Indian companies look outward
I have talked, so far, of multinationals' entry into India. But this subject will not be complete, if we do not take note of the exciting and challenging opportunities that present themselves to us — to Indian groups, to become truly multinational, by venturing out.
Without sounding immodest, I would mention, that today, our own Group has more than 20 highly successful ventures outside India, encompassing a global spread of countries, including Egypt, Thailand, Indonesia, Philippines and Malaysia — with a combined turnover exceeding Rs. 3,500 crores. We have now targeted for Vietnam, Romania, Poland and Russia.
Hurdles to globalisation
I would also like to point out that the road to globalisation is strewn with hurdles. I will mention three major ones:
- The spectra of protectionism in developed countries
- The drag exerted by the public sector
- The noose of a dilapidated infrastructure
Protectionism in developed countries
I have maintained that ‘We are not afraid of competition - let competition be afraid of us.’ However, a new and real stumbling block for Indian industry is the fact that even as more than 20 developing countries reduced their tariff barriers, 12 developed countries have gone the opposite way, and raised tariffs. Apart from tariff barriers, there are unfair anti-dumping duties, and we also face quantitative barriers, such as quotas. To make matters worse, anti-dumping laws are framed, unfairly and blatantly, in favour of developed countries. These measures hamper globalisation of Indian industry.
At a discussion with the President of the World Bank, I respectfully mentioned to him that we had reduced our tariff barriers, in response to the sermons of the World Bank.
Whilst we were doing this, the developed countries were raising their tariff barriers. In anguish I said, ‘Why can't you tell them also, to reduce their tariff barriers?’ After a prolonged argument, in which he defended the developed countries, the President finally gave in to reason and logic and said, ‘Well, Mr. Birla, the difference between your country and the developed ones are very simple — they are the lenders, and you are the borrowers. So, we cannot sermonise them.’
Therefore, friends, for further globalisation of industry, we need to fight, at every international forum, for open borders and much freer access to the developed markets.
Inefficient public sector undertakings
As far as the working of these undertakings is concerned, I would like to reiterate, what I have been pleading in Delhi - that if the industry is to become efficient, then the PSUs, which supply the inputs, such as petroleum products, coal, power, transportation, etc., have to become efficient, because these inputs, constitute a large part of our cost of production. To make public sector undertakings efficient, it is important, that the umbilical cord, between Delhi and the public sector be snapped, before both, the mother and the baby come to grief.
If the public sector becomes efficient, we become efficient; if they are inefficient, we, perforce, become inefficient. Therefore, my first suggestion is: let the Central Government sell 51 per cent of the shares of these public sector undertakings to the public.
A deficient and fractured infrastructure
Having rolled out the red carpet for one and all, we should yet restrain our euphoria. Industry needs infrastructure. The deficient infrastructure, which is creaking and bursting at the seams, is today the major, immediate bottleneck - one, which can choke economic activity.
Power, is chronically short throughout the country. Unfortunately, there is yet no clear policy on power. The Government admits to a case-by-case clearance of power projects. Liberalisation is yet to touch this sector, where there should be transparent guidelines. Further, the best and the most competent may not necessarily be the ones selected in subjective assessments, as opposed to objective and transparent criteria.
I will give you an example of transparency which ensures selection of the best. This could be a model for India. In Thailand, there were five parties who applied for putting up a carbon black plant, although there was need for only two plants. The Government was in a quandary and did not know how to tackle this situation, without giving the impression of favouring any one party. To solve this problem, they asked all the parties to give bank guarantees, which would be encashed for half the amount of the project if the party failed to implement the project. Two parties gave bank guarantees — we, our Group and another Thai party, while the others just dropped out. This is transparency for you.
Tasks for Indian industry: footsteps towards the 21st century
I have talked enough about the broad currents of globalisation. Let me now mention, in brief, what I believe Indian industry needs to do to become vibrant, dynamic and outward looking for entering the 21st century. I believe, there are certain basic precepts to be followed, and on these there can be no compromise:
When setting up a plant, don't only look at the Indian market. Look at the world market also, put up an economical world size plant. The days of fragmented capacities are over.
Secondly, get the best technology that is available worldwide. Do not compromise by getting the second best. Choose the most effective technology, which ensures, the best product quality and ensures cost effectiveness, to withstand, severe international competition.
Thirdly, institutionalise R&D and spend fruitfully on it. With our becoming stronger, we will find it hard to get technology. Today, no one gives to our Group technology for VSF, carbon black or insulators. They see in us a threat to their own dominance; we therefore need to develop our own technology through in-house R&D.
Fourthly, one lesson I would like to share with you is: one must never compromise on quality. Even though, in the short run, it is an expensive exercise, in the final analysis quality always pays and pays handsomely. I can say this, from my personal experience.
Last, but not the least, inculcate the philosophy of continuous improvement, in all spheres of management activity. This psyche, this philosophy, must be all pervasive, be it in quality improvement, cost cutting, labour and staff management, in-house R&D, assimilating the latest technology. Only such painstaking, constant and consistent attention to attaining excellence, will ensure, that Indian companies can remain cost and quality competitive, survive and come out ahead, in the chilly and ruthless winds of globalisation.
This then, is the unfolding drama of India's globalisation:
- Driven by the sheer winds of global change
- Driven by the hopes and aspirations of the people of India
- Driven by the partnership between the Government and private sector and above all
- Driven by the indomitable will of the Indian entrepreneur
