28th T. A. Pai Memorial Lecture

India's Decade of Destination T. A. PAI MANAGEMENT INSTITUTE Post Bag No. 9, Manipal - 576 104, Karnataka, E-mail: [email protected] Delivered by Web: www.tapmi.edu.in Dr. Jagdish N. Sheth Professor of Marketing, Goizueta Business School,

January 2011

Organised by T. A. PAI MANAGEMENT INSTITUTE Manipal - 576 104, Karnataka, India India's Decade of Destination Dr. Jagdish N. Sheth Emory University Introduction including Tata and Birla and many public sector units (PSU) including Coal India, While India's political freedom is more than Maruti, SBI and LIC. The combined market 60 years old, its economic freedom is only caps of these enterprises since 1991 is 20 years old. In 1991, the government nothing short of spectacular. Finally, India's abandoned the planned social economy economy has been increasingly and model manifested in what was labeled as steadily getting globally integrated both the “license Raj” in favor of capitalist economically and politically. market economy. What has been achieved in such a short Impact of Economic Reforms span of 20 years is impressive. First, it has So what has been the impact of this become one of the fastest growing transformation of India's economy? First economies in the world (8-9% annually and foremost, it has created a new Image with moderate inflation) compared to the of India: India's image worldwide has Hindu rate of growth (2% or less) prior to dramatically changed from a country of its second independence. Second, it has roaming cows and snake charmers to one accumulated more than 500 billion dollars of an emerging superpower with talented in reserves both through export growth people in all walks of life from especially in services sectors such as IT and contemporary literature and art, to science ITES as well as by attracting all types of and engineering, to business and finance. investment (stock market, private equity Second, it has also generated new self and foreign direct investment) in India. confidence and “can do” attitude among This is destined to cross a trillion dollars its educated class as well as illiterate within this decade. masses. In fact, nothing seems to be Third, India's stock market has performed impossible if you are an Indian or in India. extremely well creating significant wealth Third, it has produced altogether new large for all types of investors which include global enterprises such as Mittal, DLF, main street investors through mutual Reliance, Bharti, Dr. Reddy's, Ranbaxy, funds, foreign institutional investors (FII) Infosys and many more. and especially for entrepreneurs and Finally, it has also created a new middle promoters. Fourth, it has also produced class; I call it the call center couple: both several large new enterprises such as husband and wife are college educated, Reliance, Infosys and Bharati as well as re- both have to work, and neither wants their energized traditional business groups parents to live with them because they like

1 and enjoy their privacy and freedom. The appliances, garments, motorcycles, India's Resource Advantage where they have settled. Many are second call center couple does not want to shop scooters, beverages, prepared foods, and or third generation but still identify with The key reason why this possibility will from the traditional merchant or the agriculture products such as fruits, their original roots in India. Finally, and become a reality is India's resource neighborhood provision store owner who vegetables and grains as well as dairy most importantly, Indian Diaspora has advantage. India has six key comparative home delivers daily groceries and toiletries products including milk, cheese and butter. accumulated enormous wealth through resource advantages. First and foremost is with a monthly account settlement. As the second largest market in the world, hard work, savings and entrepreneurship its demographics. India's population will Instead, the call center couple wants to it will attract global enterprises from in all types of industries including cut have the largest pool of young educated shop at a modern organized retailer such around the world to make and market diamonds, gas stations, hospitality (hotels workforce in the world by 2025. In as Big Bazaar and Metro, which offer locally. This will also be true of global IT and motels), and of course, the Silicon contrast, it is expected that China's branded, quality products (both domestic industry including IBM, Accenture, Valley. This Indian Diaspora is increasingly historical one child policy over two and imported) with fixed prices and Microsoft, Google, Cisco Systems and becoming interested and committed to generations as well as its rapid affluence checkout counters that accept credit cards Intel. India for at least two reasons: India offers will make it the largest aging nation much as payment. as good and often better career and sooner than expected. In other words, by Third, India will partner with strange bed business opportunities; and contributing India in 2025 2025, China will look like Japan, South fellows in search of industrial, agricultural, back to motherland is made easier by Korea, Singapore and other advanced Where will India be in 2025? Here are some energy and talent resources around the changes in government attitude and economies of the world as its population predictions based on accelerated world. Think of its investment and business behavior toward its NRIs. More and more, ages and ages rapidly. China's growth is projections of past impressive record. First, partnering with Bolivia, Peru, Venezuela, they are recognized as a great asset for the likely to slow down to less than five percent some of the largest global enterprises will Iran, Malaysia, Kazakhstan, Myanmar, ascendancy of India as a globally beyond 2025 while growth of Indian be of Indian origin especially in basic Egypt and several resource rich African integrated economic superpower. industries such as copper, steel, aluminum countries. In other words, India's global economy will continue at a higher rate. A fourth key resource advantage is its and cement. India Inc. will transform into alignment will be less on ideology (non- Second, India is also blessed with natural diversity. It is more diverse than the truly global enterprises not through alignment movement) and more on resources. It has a large fertile land European Union. However, unlike the exports but through large global markets and resources including human capable of crops (cotton, wheat, rice), European Union, it has achieved a national acquisitions of world class companies with resources. fruits and vegetables suitable for different identity above and beyond its subcultures. strong technical, manufacturing or climates. It has a vast coastal area of It is hard to imagine in the foreseeable branding assets. Recent acquisitions by Finally, India will gain significant marine life. It is blessed with industrial raw future that a German, French and Italian Arcelor Mittal, Hindalco, Tata (across many geopolitical clout by 2025. It is already a materials including coal and iron ore. And will think of themselves as Europeans first of its companies), Wipro, Marico, member of G20 nations along with China; finally, it is the home of largest livestock. It and Germans, French or Italian second. Crompton & Greaves, Essar and Avantha it will be given a permanent seat at the UN produces and consumes more milk than And this is a functioning diversity across Group will be replicated by Reliance Security Council, and will be asked to any other nation, for example. languages, cultures, geography and to a Industries, ONGC, and SBI. provide leadership talent to world bodies large extent, across religions. This is such as the ILO, WHO, World Bank and IMF. A third major resource advantage is its Second, India will become the second (and Diaspora of more than twenty million Non complimented by a functioning in some instances the first), largest Indeed, some economic experts and Resident Indians (NRI). It is not only the size democracy. It has demonstrated over sixty consumer market in many products and advisors believe that by 2025 India will of the Indian Diaspora but it is also spread years that changes in political leadership services surpassing the United States, catch up with China and will start to across the globe. Indian Diaspora is highly take place peacefully and smoothly. This Japan and Germany. This will include outdistance both the US and China like a educated and increasingly in the functioning democracy and rule of law mobile phones, consumer electronics, good marathon runner. leadership role in the respective countries makes India even more attractive to the

2 3 rest of the world. It is not just the cell phone operators, too many cement consolidation and by reforming the and especially the United States. This is language advantage. Its legal, accounting producers and so on. Industry becomes unorganized sector into organized modern already happening in textiles, for example. and financial systems are comparable to efficient through shakeouts and mergers SMEs. It will also happen in automotive other commonwealth nations and are and ultimately results in three large scale components and pharmaceuticals. In my A second major obstacle to the rise of India getting organized to be compatible with suppliers. The only place in India one sees estimation, investment in modern is, of course, lack of modern infrastructure European and American systems. scale advantage is in the public sector infrastructure will generate additional throughout the value chain from industries. 1.5% GDP growth without inflation. A f i f t h r e s o u r c e a d v a n t a g e i s production to consumption. This includes entrepreneurship and innovation. The third obstacle is lack of enforcement. This fragmentation is compounded by two modern seaports, cargo airports, logistics Entrepreneurship is universal and Despite all of the faults of communism, it additional factors. First, most businesses and high speed roads. It also includes did lay the foundation for three transcends literacy, gender, age and financing, warehousing and retailing. The are family owned and managed even advantages to ex-Communist nations as religion. The most literate as well as the transition from the agriculture to services though they are publicly listed companies. they embraced capitalism and market most illiterate people can be equally economy, resulted in investing in the ICT The family businesses tend to be reluctant reforms. They enforced discipline on their entrepreneurial, and both men and (information communication technology) to sell to each other because of the people whether in going to school or going women can be equal entrepreneurs. India infrastructure especially the mobile expectation and desire to provide a career to work. They also invested heavily in high has learned to innovate despite, and often, phones. Today, it is possible to reach for their children and grand children. In school and technical education; and finally, because of its poor infrastructure, practically anywhere in India by digital other words, competitive forces which they created gender equality which frustrating red tape and acute shortage of mobile phones and wireless computing. resources. The multiplier effect of e n c o u r a g e s c a l e e f f i c i e n c y a r e provided them twice the human capital However, what we need is modern innovation and entrepreneurship is much counterbalanced for family reasons. compared to most non-Communist infrastructure for manufacturing. Just as greater in India because of the rise of the Second, and most importantly, it is simply nations. India needs governance and it the government through policy reforms, new middle class. As a consequence, it is staggering to know how large percentage needs it urgently and badly. Without the permitted the private sector to participate destined to become the largest or second of Indian economy is served by the governance and civic mindset, it has the in the ITC industry, it needs to encourage largest consumer economy in the world. unorganized sector. For example, it is still potential to disintegrate into a society of private investment in the manufacturing more than half of the total capacity in powerful mafia groups who extort wealth infrastructure. Without a strong Legacy Obstacles m o l d e d l u g g a g e , i n g a r m e n t from the economy. Without governance manufacturing base, a nation does not Despite these great resource advantages, manufacturing as well as in most services. and civic mindset, it is easy to regress to become a global sourcing destination India also possesses significant legacy The inherent advantages of the lawlessness as witnessed in many despite its large domestic market. weaknesses (some of them critical enough unorganized sector companies (lack of transition economies. to become major liabilities for the nation). compliance, cash transactions, tax India is a great resource rich nation and A fourth major weakness is lack of avoidance, and low wage workforce with m u s t r e f o c u s o n v a l u e a d d e d investment in education and health. There The first and foremost weakness of Indian no employee rights) provides no incentives manufacturing rather than export its raw is no better resource than a healthy, economy is that it is highly fragmented. It to sell to others. materials. To attract manufacturing, it educated population. Unfortunately, India lacks scale advantage. This is due to need modern infrastructure. This is very is one of the poorest nations in the world several reasons. First, the government's The evolutionary market process is simply strategic as the world is looking for a dual on a per capita basis in its investment in historical policy to limit the production too slow to achieve scale efficiency. It will sourcing strategy from China and India. In education and health. The only way to capacity by licenses resulted in require active government policy to fact, due to their large domestic markets, attract resources to health and education is fragmentation of the industry. There are, increase the domestic scale of Indian both nations are becoming de facto to reform existing rules and regulations for example, too many banks, too many enterprises by encouraging industry sourcing destinations for world markets related to education and health

4 5 comparable to economic reforms it infrastructure has been the foundation of efforts of enabling entrepreneur among political strange bedfellows. This results in undertook (out of necessity) in 1991. In economic growth and prosperity. the illiterate and the less educated by such constant shuffle of union ministers and my view, urgency about education and Fo u r t h , I n d i a m u s t r e f o c u s o n methods as micro businesses and political leaders resulting in political health cannot afford to wait for political manufacturing anchored to its resource successful cooperatives of farmers, for gridlocks and arbitrary changes without a dialogs and gridlocks. advantages. Its transition from agriculture example, AMUL in dairy products. vision for the nation. Finally, the government at all levels still has Finally and probably most importantly, to service economy has resulted in A third initiative is computerization of the the culture of license Raj and a India needs massive political reforms to enormous and ever widening disparity government and governance; it is the fundamental mistrust of capitalism and achieve full potential of its economic between the rich and the poor. Fortunately, fastest way to reduce corruption. It will competitive market economy despite what reforms. It is a virtuous cycle. Political I believe India's manufacturing will be speed up enforcement of rules and has been achieved in the last fifteen years. reforms led to economic boom. Now, the revitalized due to its inherent resource regulations, and mandate compliance for Rather than act as enabler for its citizens, economic boom needs to trigger more advantages. Unlike China (which began better and equitable governance. Finally, I consumers, entrepreneurs and businesses political reforms. The most pressing are with low end consumer electronics, toys, strongly believe we need to shift focus on to realize their potential, it still acts as a reforms with respect to political shoes and appliances), its manufacturing those who corrupt the system and not just gatekeeper, especially in attracting foreign contributions from vested parties or can be at high end of technology such as the corrupted. A strong enforcement of direct investment (FDI). interested individuals. Making these aerospace, military and industrial existing laws on people who corrupt the contributions transparent and legal is far Call for Action technologies. This is already happening in system is equally necessary. superior to the present system. In this So what should be done to maximize its pharmaceuticals, petrochemicals, instance, it may be best to emulate and resource strengths and minimize its legacy automotive parts and high-end Conclusion adapt the American system of fund raising weaknesses? First, India needs a sense of electronics. by political candidates and parties. A Despite these obstacles of India, I am urgency and purpose. Its “chaltahai” Fifth, India must embrace inclusive growth second area of reforms is to reduce the optimistic about the future of India for a culture, especially in the government and reduce the expanding gap between fragmentation of political parties. This may very simple reason: It will not be India or bureaucracy and political leadership, the rich and the poor. Most political become increasingly necessary as the Indians, but the rest of the world who needs to change to a mission driven revolutions against incumbents have mutations and fragmentation of parties will deliver its destiny. This is because the deployment of its abundant resources. invariably occurred by the revolt of the multiply. The current fragmentation forces world, including China, needs India more Second, we all have to ask ourselves what masses and the oppressed whether it is the unholy alliances and coalitions among than ever today for global growth. we can do for the nation rather than what Czars of Russia, dynasties in China or the nation can do for us, to paraphrase democratic elections. Reducing poverty President John Kennedy. In other words, among the Base of the Pyramid population Dr. Jagdish (Jag) N. Sheth collective self interest does not necessarily earning two dollars/day or less will require result in public interest as advocated by a totally fresh perspective as the traditional capitalism unless it is guided by purpose. approaches of subsidies, paternalism and T h i r d , m a s s i v e i n v e s t m e n t i n platitudes all have failed in the past. Unless infrastructure, as mentioned earlier, is a the nation democratizes wealth (and not must. If you analyze the rise of all super just income) among its masses, poverty will economic powers whether England, invariably persist. While the rise of the Germany, Japan, America and most manufacturing sector will provide some recently China, investment in public relief in that direction, it needs massive

6 7 Dr. Jagdish (Jag) N. Sheth is the Charles H. AWARDS: Dr.Sheth has been conferred with many awards like: Kellstadt Professor of Marketing in the 1989 Outstanding Marketing Educator award by the Academy of Marketing Science. 1991 & Goizueta Business School at Emory University. 1999 - Outstanding Educator Award by the Sales and Marketing Executives International Prior to his present position, he was at the (SMEI). University of Southern California (7 years); at 1992 P.D. Converse Award for his outstanding contributions to theory in marketing by the the University of Illinois (15 years), and on the American Marketing Association. faculty of (5 years), as well 1996 Selected as Distinguished Fellow of the Academy of Marketing Science. as the Massachusetts Institute of Technology 1997 Distinguished Fellow award from the International Engineering Consortium. Dr. Sheth is (2 years). Dr. Sheth is well known for his also a Fellow of the American Psychological Association (APA). scholarly contributions in consumer behavior, 2004 Richard D. Irwin Distinguished Marketing Educator and the Charles Coolidge Parlin Awards which are the two highest awards given by the American Marketing Association. relationship marketing, competitive strategy and geopolitical analysis. 2006 RHR International Award for Outstanding Consultant by the American Psychological Association (APA) Division 13 (Consulting Psychology) and the Elsivier Distinguished Professor Sheth is highly sought out as a Educator Award by Strategic Marketing Association. keynote speaker at many industry, academic 2007 Conferred an Honorary Doctorate by Thiel College in Pennsylvania. and public forums. He has worked for BOOKS PUBLISHED: Few of Dr.Sheth's recent publications numerous industries and companies in the CLIENTS FOR LIFE - Dr. Jagdish Sheth and Andrew Sobel (Simon & Schuster). United States, Europe and Asia, both as an THE RULE OF THREE (Free Press), Dr. Jagdish Sheth and Dr. Rajendra Sisodia, altered the current Dr. Jagdish (Jag) N. Sheth Advisor and as a Seminar Leader. His clients notions on competition in business. Translated into German, Italian, Polish, Russian, Portugese, 1549 Clairmont Road include AT&T, BellSouth, Cox Communications, Korean, Japanese and Chinese. It was the subject of a seven part television series by CNBC (India) Suite 203 Delta, Ernst & Young, Ford, GE, Lucent and was a finalist for the 2004 Best Marketing Book Award from the American Marketing Decatur, GA 30033 Technologies, Motorola, Nortel, Pillsbury, Association. [email protected] Sprint, Square D, 3M, Whirlpool, Wipro and FIRMS OF ENDEARMENT: Sisodia, Wolfe and Sheth (Wharton School Publishing) was selected as many more. Dr. Sheth is frequently quoted one of the top ten business books on Leadership. and interviewed by the Wall Street Journal, THE SELF-DESTRUCTIVE HABITS OF GOOD COMPANIES… And How to Break Them (Wharton New York Times, Fortune, Financial Times, School Press). Dr.Jagdish Sheth Both of these books have been translated into several languages as well. Economic Times and radio shows and CHINDIA RISING: How China and India Will Benefit Your Business (Tata McGraw Hill, India) which television networks such as CNN, CNBC (India) is sequel to his earlier book, TECHTONIC SHIFT (Sage, India) on the Geoeconomic realignment of and BBC. He is also on the Board of Directors nations. of several public companies including Wipro LEGENDS IN MARKETING Jagdish Sheth : Compilation of his Life time work in 8 ( eight ) volumes ( Limited (NYSE).Dr.Sheth is the Founder - Sage Publication ) Chairman of Academy Of Indian Marketing Recently popular business channel ET NOW has broadcasted a six part documentary titled “ (AIM). India's World with Jag Sheth” on the life and times of Dr.Jagdish Sheth.

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