| Towards a bigger scale
Theodore Levitt, who invented the concept of market 'segmentation', had said that companies could benefit by marketing uniform products around the world. There is today an integration of national economies into the international economy through trade, direct foreign investment, short-term capital flows, international flows of workers and humanity, and flows of technology. People, money, technology, products and services, flow freely into India. Local manufacturers must change radically to compete successfully with these new entrants.
Radical change in organizations and people requires changing human behaviour. The organization must understand the context of the society, economy, market and its own internal dynamics. It must develop alternative scenarios like Burmah Shell when it anticipated the oil shock of 1973 and was the only oil company to benefit. Similarly, companies that did not anticipate that India would move from a command, control and 'contact' regime soon died or declined. Hindustan Lever had a plan ready for taking over other companies in lines of businesses in which it saw opportunities. (It is another story that the company was unable to manage these acquisitions.)
The best way to introduce change is not gradually, to minimize the pain of adjustment, but in large measures. A complex large group might take a few years in implementing its policies but has a time-scaled action plan. Thus the Aditya Birla Group, which was a highly diversified conglomerate when Kumaramangalam Birla inherited it, has now, after some years of major changes, developed a definite shape. Birla's vision of the ultimate shape of his group required a series of bold steps. He brought in a new generation of managers, hived off some businesses, amalgamated others, developed an acquisitions plan that included Larsen & Toubro's cement unit, Madura Garments, Colour Plus and so on, and persisted despite serious bottlenecks and opposition.
Radical change requires a fundamental change in mindsets. Thus, state electricity boards, having functioned as departments of government, had administrative, not commercial or enterprise, cultures. They separated generation, transmission and distribution into separate companies but retained their inherited cultures. People, their attitudes, the structure and systems were unchanged. SEBs remain inefficient and unprofitable.
India in 2005 is almost entirely open to products, services, funds and technology. It is the second-fastest growing economy in the world, with a young, hard-working population and many skilled professionals. It is among the largest producers of engineers, managers, computer software specialists, doctors, nurses, science graduates and others. It has a sophisticated 'software' for industry, of economic researchers, market researchers, advertising agencies, chartered accountants, cost accountants, com-pany secretaries, merchant bankers, stockbrokers and exchanges and a strong regulatory environment for financial markets. This 'software' is growing in numbers and quality. There is no longer a moral crusade against consumption or against making profits. There are no limitations on investment in terms of capacity or location. Interest rates are comparable to the world and overseas funds are easily available.
India has also become a major 'outsourcing' destination, not as in China for manufacturing, but for advanced 'brain' skills. Many of the world's most research-oriented companies have establishments for research, design and engineering in India. Many of them are in collaboration with universities and research institutions.
But India is still far behind in manufacturing, with hardly 15 per cent of the gross domestic product. The quality of many of the products of small and medium enterprises is abysmal. There is massive copying and faking of products. For example, in pharmaceuticals, 'fake' medicines are estimated at 40 per cent of the total.
Nor are manufacturing processes improving rapidly. A study in Vikalpa of the Indian Institute of Management Ahmedabad sometime ago sees very slow improvement in manufacturing parameters in most companies, such as productivity, quality, on-time delivery, manufacturing cycle time, procurement lead times, raw materials inventory, raw materials defect rates, on-time completion of new production projects, average unit production costs and so on. Of course, there are some that match the best in the world. TISCO is the lowest-cost steel producer; Sundaram Fasteners is rated the best supplier, some TVS companies have been awarded the Deming Award for quality; many companies have applied Six Sigma successfully. But manufacturing has yet to receive the attention and prestige it demands, in a country where there is scope for vast increases in consumption of manufactured goods.
The 'new' economy of information technology, telecommunications and video can help improve efficiencies in manufacturing because of better monitoring, catching defects before they arise, mentoring at the workplace and so on. It can help customized production at no additional cost, thus making products more unique to the consumer. It can enable speedier innovation by cutting the time from getting an idea to getting it converted into a product in the market. By making it possible for each individual to update his learning it improves the quality of the workforce continuously.
Indian industry has been satisfied with acquiring technology from overseas for a fee. There has been little investment in developing technology. Few attempts at cooperative research or even to contract premier institutions like the Indian Institutes of Technology are in place. Research and development expenditures are still very low at around 0.70 per cent of sales.
Another major lacuna is the inability to organize the many smallscale and cottage producers to get standard products from them and market them on a centralized basis. That is done very effectively by China, which explains its dominance in world markets in labour-intensive products like garments, toys, leather goods and so on.
Indian industry has done little to build brands. The best measure of this is the spending on advertising as a percentage to sales turnover. It has remained static over the years at 1.50 per cent in 2000-1, 1.41 per cent in 2002-3, 1.36 per cent in 2003-4 and 1.26 per cent in 2004-5. Total advertising expenditures have been rising by 9.01 per cent in 2002-3 and 9.45 per cent in 2004-5. The increase has come mainly from new spenders like banks, automobiles, white goods and entertainment electronics. Most others have been static or have declined. If Indian companies are to fight the world, they must build their own brands, not manufacture for others who put their brands on them (as happens for example with most garment exports). These brands must then achieve visibility in overseas markets.
Marketing must watch the macro economy for new opportunities and threats to existing products. For example, Lever was not ready for the erosion of margins and the loss of brand values as nimble local manufacturers in India found new ways of cutting costs and improving quality. Marketing must also study how the consumer is changing. No one expected consumers to buy cheaper products, to be able to repay the loans taken for buying durable consumer products. Premium personal care products lost out. Indian marketers must understand the unlimited potential of the Indian market. The concept of the Indian market as a pyramid, first enunciated in my book, Indian Consumer Market Demographics, highlighted the vast numbers of 'destitutes', 'aspirants' and 'climbers' in India's markets who want to consume but for whom products have to be designed and priced according to their abilities to pay.
While corporate governance and professional management have become mantras for some companies, the transparency of Indian companies has yet to improve sufficiently in many cases. Family members, not always of the best competence, dominate the top echelons of many companies.
Indian companies must reward people's competence, hard work and innovativeness, not their chromosomes or connections. A clearly articulated set of corporate values common to all in the organization, with no compromise for any reason or individual, is essential. This is a feature of strong and growing companies in this competitive and globalizing world.
Becoming competitive on a global scale requires not just good management, but visionary leadership and motivated people. Leaders have to build organizations that share a common purpose and a set of core values. Competing globally demands people who have been selected carefully, oriented to the organization so that wherever they work, they do so towards common purposes and values. It demands empowerment of people and technologies for unobtrusive monitoring.