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The Rediff Business Special/ C K Prahalad

Message for India: forget the past, compete for the future

C K Prahalad, is one of the world's bestknown management gurus. He spoke to Indian industry in Madras last week. This is what he said:

As we look at the next millennium, it becomes clear that Indian industry will be buffeted by the trends in the global marketplace. Difficult as the situation may be today, I expect it to get worse. Slowing down or reversing the policy of liberalisation is not the answer. It will be a disservice to the country.

India has hardly felt the impact of the South-East Asian crisis. While many think it is good news, actually it is not. It means that after five years of active liberalisation, India is still not part of the global economy. It is at best a marginal global player.

Indian industry and Indian politics are still insular. In politics, the discussion is about a common minimum economic programme without any reference to the trends and drives that are influencing industry evolution and change worldwide. The economic agenda is lower in the list of priorities, even though most of the social ills have significant economic dimension to them.

Also, the business leaders do not appear to have a view on how India may participate in shaping the 21^st century global economy. All discussion is focused on a here-and-now view of the situation. We are still fighting the ghost of the past and not preparing to compete for the future and shape it.

India has the potential to become one of the largest markets in the world in a wide variety of industries such as power, telecom, financial services, personal care products, packaged food, pharmaceuticals and cement. This creates world-scale domestic markets. It can also develop world-class competitors from India. These two characteristics define India's potential -- to be one of the five or six major economies in the world. Only three countries -- the USA, Japan, and Germany -- currently posses these twin characteristics. China, India, Brazil, and Mexico have the potential to belong to this exclusive club.

India cannot see its opportunities from being insular and inward looking. The agenda for Indian managers must start by looking outside, by examining the trends and discontinuities in the global economy and extracting opportunities for India. We need to look Outside In not, as we often do, Inside Out.

I believe that Indian managers must ask themselves four basic questions:

• Do I feel the obligation and see the opportunity to shape the emerging global economic system that will prevail over the next five decades?
• Do I recognise the need to involve and engage the 500 million, tier 2, 3 and 4 consumers in India in the debate about economic strategy? Is strategy becoming a very elitist preoccupation in India?
• How do Indian firms become nodal players in key industries around the world?
• How do I create the capacity, in our firms, to compete globally?

These questions, I believe, lie at the heart of the new opportunity as well as the new vulnerability.

The new global economy is driven by the following trends and discontinuities:

Deregulation and privatization: This is a global trend. Deregulation kills local monopolies and leaves behind excess and obsolete capacity. Often, on the trail of deregulation, there is a significant amount of merger acquisition activity as entrepreneurs use the opportunity to consolidate and extract the inefficiencies in the industry. Relieved from a geographical focus, these industries are becoming national and global. The power industry is a good example. This industry used to be a local monopoly in most of the world, including the United States, just 10 years ago. Today many of the utilities are becoming global (for example, Enron). The same is true in financial services, telecom and water. Incumbency is not a basis for profit any more.

Globalisation: Globalisation is not just about new competitors in domestic markets but new opportunities for domestic firms. Traditional domestic firms need to dramatically alter their management processes to cope with new standards of quality and speed of new product development. They need to get the scale to compete effectively.

Open standards: Given the emerging trend towards open standards, it is predictable that during the next decade, the source of competitive advantage will not be just technology, patents and size. Competitive advantage will be derived from the capability to continuously challenge the price-performance standards in the industry (eg PCs) through better logistics, response time and quality. The opportunity exists for India to effectively participate in the growing industries such as PCs. The role China plays in conjunction with Hong Kong and Taiwan in becoming a significant part of the manufacturing and assembly center in electronics and PCs is worth emulating.

Digitalisation: This is likely to be the major engine of change during the next millennium. Digitalisation leads to three major trends.

• Convergence of technologies and markets (eg chemical and electronic imaging)
• Disintermediation, where the distance and levels between the end users and producers are narrowing
• Indeterminate industry boundaries, where because of dramatic shifts, the traditional boundaries between industries are becoming irrelevant (eg consumer electronics and computing)

Volatility: All businesses are experiencing the effects of fashion, technological change, and seasonality in purchasing patterns. The combination leads to significant volatility. Firms have to master the demands of scaling up and scaling down manufacturing loads in very short periods of time. This is a new demand on firms and especially on assemblers and suppliers of core components.

Focused competitors: Around the world, conglomerate diversifiers are facing financial crisis. BTR, Hanson, ICI, Westinghouse, United Technologies, ITT, South Korean chaebols, are all in the same boat. Focused competitors such as Microsoft Intel, Compaq, Dell, Levis, Coke, are on the upswing. Focused diversifiers (diversification around core competencies) are also doing well such as HP, 3M, Cargil, Citicorp, Canon and Sony. There is message here. Conglomerate diversification is very suspect as the value added of corporate managers is suspect. Global standards and competition is forcing managers to be focused.

Eco-sensitivity: Increasingly, industries will move from a compliance mentality to an orientation of recognising the Eco and Green movements as big business opportunities. For instance, the need for reducing pollution will have an impact on systems such as choice of technology for power generation.

Transparency and accountability: There is a growing pressure of accountability -- to customers, to employees, and to small and large investors. This trend will force business to be more accountable for their performance. CEOs will be targeted for action by shareholders, as in the USA, and increasingly in Europe and Japan.

These trends, taken one at a time, do not mean much. But taken collectively, the implications of these global trends will have significant implication for Indian industry during the next decade. The message is clear:

Indian industry cannot dig itself out of the current malaise by fine tuning the existing system. It needs to rethink and change dramatically.

The implications are:

• Deep change or slow death
• Change is not about efficiency but becoming different
• Significant competition for talent, capital and consumers
• New rules of governance
• Greater accountability
• Global orientation
• New priorities.

Top managers must reflect on the these issues and be ahead of the impending crisis.

The challenge for Indian mangers is very clear -- they need to seek answers within themselves as individuals to a simple question:

Do I want to participate in shaping the nature of the global economy as it copes with the major discontinuities during the next two decades? Do I want India to have a significant role in shaping that global economy?

I believe that this is the basic question. Indian managers must come to terms with the fact that they represent about 20 per cent of humanity and that they should have a say in how the global economy evolves. (On the political front, during the 1960s, India was instrumental in creating the Non-Aligned Movement, a major force that shaped global politics for two decades). Managers can start with some clear To Dos:

• Accept liberalisation as given; focus on opportunities
• Create a global orientation; exports is a must for growth (not 5-6 per cent, but a commitment to 50 to 60 per cent exports)
• Performance orientation
• Focused firms; growth through global scale and world class, not by conglomeration in the domestic market
• Accountability and transparency
• Separating the role of investors (owners, families) from management
• Competition for talent

Management as a profession is one characterised by optimism and future orientation. It is one of overcoming odds, not wishing them away. That is what India needs now -- a can-do attitude, a message of hope, and a willingness to forget the past and compete for the future.

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