New Delhi: Rising costs and rickety infrastructure put India at risk of losing its attractiveness as a favourable location of businesses, according to Michael E. Porter, professor at Harvard Business School and the leading global expert on company strategy and the competitiveness of nations and regions.
“Business environment in India is not progressing fast enough,” he said. “There is still a lot of complexity, a lot of dysfunction, lack of power and infrastructure, which we here want to see moving faster.”
Porter was speaking at the launch of the Porter Prize awards on Friday, organized by the Institute for Competitiveness (IFC), which is affiliated with the Institute for Strategy and Competitiveness at the Harvard Business School.
Mint is a partner of the awards.
“We also see that the costs of operating in India are rising very rapidly, for example, labour costs, labour retention costs, extra costs to be paid to higher level,” Porter said. “However, we believe that ultimately India will get there. The country has a complex political system and a complex society, but we would love to see India work on these things a little faster.”
He said all these issues could make India less of a value proposition as a favoured business location.
The United Progressive Alliance government, led by Prime Minister Manmohan Singh, in September announced a slew of reform measures that included easing restrictions on overseas investment in retail, aviation and broadcasting.
To tackle bottlenecks in infrastructure, finance minister P. Chidambaram has suggested creating a National Investment Board chaired by Singh that will fast-track clearances to big infrastructure projects.
Porter said that for India to prosper further, the companies also have to evolve continuously. “Lower labour costs, a large home market may have been historically beneficial, but for sustained improvement in standard of living, we need companies in the Indian economy to think strategically and create unique value,” he said.
SHIFT IN STRATEGY
Strategy is also about what not to do, participants at a session on strategy and industrial architecture shift said.
Addressing structural bottlenecks and regulatory inconsistencies is important to expand India’s competitiveness when the economy is beset with pessimism, they said.
How enterprises should respond to “seismic changes in the economy” and strategize effectively in the face of competition and policy changes was the theme discussed at the session moderated by Anurag Batra, editor-in-chief of website Exchange4Media. The session’s panellists included entrepreneurs as well as consultants.
The strategies that have led Indian enterprises to deal with competition, slowdowns, working in smaller towns and dealing with fast-changing technologies were discussed in the session.
Building a high-quality team in a small town is a challenge but there are opportunities to be tapped, said Ashwin Naik, founder of Vaatsalya, a chain of small-town hospitals, who won the Porter Prize for value-based healthcare in India.
“Managing change was one of the biggest challenge for small enterprises,” said Christopher Doyle, managing director of consulting firm Dynamic Results.
SOLVING SOCIAL PROBLEMS
Another session at the awards event discussed ways in which businesses can bring about social change without necessarily resorting to philanthropy.
To share value, companies must first create it, according to Bhaskar Chatterjee, chief executive of the Indian Institute of Corporate Affairs. “The marginalized should be helped not just through philanthropy or charity but by making them a part of the business model,” Chatterjee said.
The other panellists, which included Siva Nagarajan, managing director of Mother Dairy, Niren Chaudhary, president of Yum India that runs the Pizza Hut and KFC fast-food restaurants in India, and Shreekant Javalgekar, managing director and chief executive of Multi Commodity Exchange of India Ltd (MCX) talked about how their businesses are creating value in different ways.
Companies should have a “portfolio approach” and should “blend in” the concepts of philanthropy and shared value for maximum benefit, said Melissa Scott, managing director of FSG Inc., a non-profit consulting firm specializing in strategy, evaluation, and research.
The awards event also hosted a discussion session on leveraging unique activities and how it defines competitive advantage.
The panellists included Anoop Prakash, managing director, Harley-Davidson, Vipul Shah, chairman, chief executive and president, Dow Chemicals International Pvt. Ltd, Ashwani Singla, managing director and chief executive, Penn Schoen Berland, Ganesh Natrajan, vice chairman and chief executive, Zensar Technologies, and Karl Ahrendt, managing director of SPERA.
“Delivering customers unique experiences is our unique value proposition (UVP),” said Prakash. “Under our UVP, we have three things—accessibility, that is why we bought four product ranges from day one, assembly, for which we invested in India, and tie-ups with industry’s leading financial institutions.”
“We don’t believe in UVP,” said Singla. “Our theme is about a relevant proposition and how you make your product relevant for customers. It is about understanding what is changing in your customers’ worlds, and how to respond to those changes.”
“Sometimes, not doing something is as important as doing,” said Ahrendt. “Our company believes in never violating core values.”
“When you are a late entrant in a market with established players, you do not have the liberty to make choices. You let go of something to earn bigger rewards,” said Sandip Das, director, Aircel, at a panel discussion on trade-offs and choices made by enterprises.
With the panel comprising executives of HDFC Life, Ingersoll Rand, and Alstom as participants, and Mint’s editor Sukumar Ranganathan as moderator, his comment was a response to some panellists preferring to use the term choices over trade-offs to define their strategic decisions.
While this choice of the term may seem purely a matter of preference and appropriate description, it reflects and underlines the importance, and, perhaps, the unfavourable aura trade-offs have acquired in the recent times.
The Supreme Court’s opinion on the presidential reference on cancellation of second generation, or 2G, telecom licences lent a heightened topicality to the discussion.
For Aircel, Das told the audience, the trade-off was between capturing the small, untapped market for voice customers and trying to capture the huge, untapped market for mobile data consumers.
Amitabh Chaudhary, chief executive of HDFC Life, had a similar predicament. He had a behemoth in the form of Life Insurance Corp. of India (LIC) to compete with and a reputation of malpractices to fight off.
“The choice we made was to sell for the long-term, which comes with huge pains in the short-term,” Chaudhary said. Rapid experimentation with products and services, instead of adhering to existing biases and standards, was another key strategy adopted by the insurer, Chaudhary said.
Alstom, the French multinational conglomerate, faced challenges in the Indian market that were not much different from those faced by HDFC Life: a giant that sets the rules, Bharat Heavy Electricals Ltd.
Sunand Sharma, country president for Alstom, recounted how the firm had made strategic choices to enter markets that were closed to it earlier, such as India, to facing aggressive expansion from Chinese firms.
Ingersoll Rand, being an industrial products company situated at the core of manufacturing activity, does not enjoy the same attention as those on the periphery, Sukumar said. Venkatesh Valluri, president and chairman of Ingersoll Rand, outlined their strategy of expanding by greater convergence through the development of competencies. “We decided that to follow our strategy, instead of hiring entrepreneurs, we need to create entrepreneurs who can create new markets for us through partnering and participation,” Valluri said.
The panellists concurred that no trade-off could be made on the values of the brand that their respective companies represent.