Role of India and China in the Global Economy

Role of India and China in the Global Economy

By R.Kannan

International Conference on Asia - 14^th March 2014

The Asia’s role in Global Economic Development is becoming significant after the recent economic and banking crisis in the world. The global crisis had an impact on the economic performance of all the economies in the world but the countries from Asia were still able to report growth rates which were higher than the growth rates reported in other parts of the world. Asia contributes to more than 50% of incremental economic growth in the world.

Within Asia, India and China continue to have a major contribution to the economic growth. The sheer size of the population of both countries and the continued demand for products and services in two countries continue to sustain the economic growth today and this will be the trend in future.

India and China were playing a major role in the Global Economy before the rise of UK. After the dominance of UK, USA Started playing a major role in the global economic development. After the World War II, Japan was growing very fast and then we saw the rise of countries from ASEAN. From 1980 onwards, the economic growth in China started gaining momentum and the country is still able to sustain the high growth today. From 2001, we heard the concept of BRIC and terms like VISTA, CIVET, MENA and MINT and how they can contribute to the global growth.

India and China are in the process of regaining their prominence in the world and China is already leading the world in terms of Forex reserves with a forex reserves of more than 3.8 trillion dollars. The road to regaining the competitiveness is strewn with both opportunities and risks. To achieve the potential today, both countries have to carefully calibrate their movements in the Economic, Political, Social, Cultural, Technological, Security and Environmental aspects.

India and China have to work very closely in all these areas to realise the full potential of Asia.

Economy. Indian Economy after reporting a good growth for few years saw the rate of growth decline due to both internal and external factors. The potential for growth is still at 8% and the solutions are available to achieve  8% growth. What is required is the consensus building among the various stake holders in adoption of the policies for achieving the growth. The sectors like manufacturing and agriculture have to be given more importance, going forward. The proposed Industrial corridor projects in India will provide a momentum to the growth and there is an increased interest from various countries in the world to participate in these projects and FDI is likely to come through this route to support these projects. It should be possible to increase the contribution of industry to country’s GDP to 25% from the present level of 15% by increasing the alliances with countries like Japan, US, China, UK, etc in the world.

There were concerns regarding the fiscal deficit and current account deficit and it has been proven in the recent past that by adopting innovative policies it should be possible to bring down the deficit. India is inherently strong due to its large informal sector which was one of the main reasons for India weathering the storm during the crisis. This sector can play a major role in sustaining the growth rate and creating employment opportunities in the Indian Economy.

India has been recognized today as an IT Hub, Pharma Hub, R&D Hub, Automotive Hub, Diamond and Jewellery Hub, Leather Hub and global companies in these areas have increased their interest in India and new units are being set up in these areas. Global sourcing companies also have established their offices in India other than China. These sectors in India will continue to do well  going forward. 

China’s continued Economic growth has helped to gain the global leadership role today and the country has trade balance with many of the countries in the world.  The focus on creating large industries with government and bank financing support enabled Chinese companies to emerge as the largest companies in the world in the sectors , they operate today. So far the economic growth was driven by the strategy of exports as well as inflow of FDI . After the recent crisis and reduced demand for exports, there was a need for rebalancing the economy. The need to focus on creating internal demand had become paramount. In the recent past, there were also concerns about the rising inflation and interest rates.

China has to continue the engagement with other counties in the world and apart from focussing on exports , there is also a need to look at reducing the trade balance with other countries in the world. If Yuan , continues to rise, it will erode the competitiveness of exports. The Yuan level could be maintained only by reducing the trade balance with other countries. To ensure the continued availability of resources, the country already has acquired mines and industrial  production facilities  in many parts of the world. China is the largest foreign investor in US treasury bonds today and because of this reason, there is a need to ensure the stability and strength of the dollar. China’s efforts to make Yuan as one of the major currencies for trading will take shape in a few years and Dollar will continue to have its dominance for many more years to come.

China’s economic growth was mainly driven by focus on Industrial growth and it has emerged as the power house for manufacturing in the world today. Starting from a strategy of producing low cost goods , there is now a movement towards manufacturing of high quality , high value goods in the manufacturing sector. The country has to liberalise FDI and strengthen the Trade and Patent laws to ensure a benign environment for foreign investors. Going forward, there should be an increased focus on developing the domestic market and increasing the purchasing power of workers  in the country.

Society . India is a multicultural society and there is a lot of diversity in Customs, habits and Income levels. In the past few years, the society had gone through a big transformation and the consumers are able to exercise their choice for the products ,they prefer. The liberalisation of economy has created hyper competition in many industries. As per the latest classification, the Indian consumer is categorised into twelve income groups and there is a constant upward movement of people from one level to other level. There is a free movement of labour from one city to another city and there is a lot of internal migration whereby people from rural areas move to urban areas. The mobile technology revolution in the country has helped even Semi urban and rural areas to look at aspects relating to urbanisation and the government’s schemes on providing employment for minimum number of days work in rural areas have created employment opportunities for people. The services as a sector is  also developing well in rural areas . There is a movement away from Joint family system to nuclear family system. These trends create a huge demand for consumer products of various categories at different price points. This has attracted the attention of global marketers to India.

In China, the demand for high end products had seen a big rise in demand over the years. The purchasing power of people in urban areas has gone up significantly.  System of providing work  permits to workers to work in a city has restricted the movement of labour and depressed the wages in the manufacturing sector. Many of the workers at the lower level come to work from far away distances. But the recent trend in increase in wage levels, if it continues,  will create different income segments and create new class of customer segments for the products. This will also result in consumer boom, which would partly offset the reduced demand for products from exports. The government has taken measures to increase the population and now people are allowed to have more than one child in a family.

The trends witnessed above , will help to create new products for the local markets , which could be exported at a later stage. 

Political and Security issues. India being the largest democracy in the world, the decisions at the government level have to be  taken after taking the consensus of various stake holders in the Economy. There are forces which act against the pro economic growth policies because of which the economic momentum slows down. The country has an approach to keep  very cordial relations with others and by itself does not take initiatives which challenges the sovereignty of other nations. India is part of various Economic Alliance forums in the world and considering its contribution , there is an effort to  obtain a permanent  seat in the UN Security Council .

The country helps the adjacent countries in aspects relating to technology and training aspects. In the last few years, there were lot of internal issues relating to terrorism in various pockets of the country which are creating concerns on maintaining a peaceful atmosphere. There is an increased interest from most of the countries in the world to partner with India in all the growth initiatives and there is a foreign business delegation  visiting India every week to identify business  opportunities for doing business. India has moved  ahead in various reforms including passing of RTI act and empowering the Panchayat Institutions in the country. In line with the increase in economic prosperity, the country has also increased the defence budget. Multilateral institutions are also supportive of India’s growth initiatives and after the recent geo political issues in the Asian region, Japan and US had shown increased interest in enhancing the tie up with India. India has joined the nuclear club now and this should help to increase the power generation from this source. China has emerged as the leading partner for India in trade and  runs a huge trade surplus with India today.

The present government in China will last for 10 years and they had already drawn a plan to maintain the economic growth of China. Since China has gained leading economic status in the world today  , in line with the economic status, it is trying to match the political status by increasing its influence on many countries in the world. In terms of  its growth ambitions, it is trying to achieve this by acquiring the natural resources from regions like Africa and has allowed its leading companies to take over the ailing MNC’s from the developed world. Its economic engagement with many countries are helping China to maintain the growth rate. Since its objective is to increase its political influence, it is facing opposition from the entrenched players in the world. The present form of merit based Government system is likely to continue in China which is good to maintain its economic growth. To gain political influence, China is also giving military aid to countries, low interest loans for equipment purchase from China and various other incentives to obtain political support. But the recent moves on Territorial disputes , have created concerns among US and neighbouring countries.

Going forward, both the countries should use the political dispensation to increase the economic engagement with other countries in Asia including Myanmar , Vietnam, Malaysia , Singapore, etc. The disputes with the neighbouring countries  should be brought to an end by announcing ceasefire .  Both countries in alliance with Japan should engage in consultation on the matters to be addressed relating to  multilateral institutions as well as developing the Asia as the Economic Hub of the world. The political influence over other countries should be exercised through increased economic engagement rather than seeking territorial advances. The recent past indicates that as countries grow in economic might, the number of wars saw a decline. Most of the time, the countries take a posture to threaten other countries without intention to go for a war. Instead of this strategy, the best to way to achieve the political influence is through adopting a strategy of win win and identify action plans for mutual cooperation. There should also be consultations on addressing the internal  terrorism issues and sharing the best practices between the countries in addressing this issue.

Technology. The recent developments in communication and mobile technologies had a significant impact on most of the economies and how the business is being done. Both India and China have benefited a lot from the mobile technologies and the social / financial inclusion  could be achieved through adopting more applications of these technologies.

In  other areas, there is still  lot of gap in availability of technologies which is being bridged through creating strategic alliances with the leading players in the world. The leading companies in the world from various sectors are already present in both countries and all of them want to increase their engagement.

India has been  successful in many of the space initiatives and is in the process of developing a robust domestic Defence manufacturing base. China is already advanced in the technologies relating to warfare and it is in the process of manufacturing its own Air craft for  commercial purposes.  Both countries  have their own home grown labour intensive technologies which are in  use across both the countries. There is an increased need felt for creating patents for the local products and systems are being  put in place to create more patents.

The low cost labour intensive  technologies in both countries could be transferred to countries where there is a strategy to promote SME’s.

Environmental issues. There is a pressure on both countries to reduce the pollution levels but on  per capita basis, the levels are still low. Considering the need for further economic growth and increased level of manufacturing , it would be impossible to meet the global standards in the immediate future. Few more years are required for China and India to move towards to the global standards. In the meanwhile, we have to build a consensus on the need for pursuing the manufacturing strategy and this could be done with the help of emerging  environment friendly technologies.

In the coming years, opportunities and Challenges are many for the countries from Asia. India and China are well poised to capitalise on these opportunities. India and China have  to co-operate in all the endeavours as partners in progress and the focus of partnership should be based on economic fundamentals and the influence of political considerations should become secondary, while realising the opportunities. India, China and Japan can take a joint leadership in realising the full potential of Asia’s Economic Growth  and let us hope Economic collaboration will take precedence over all other collaborations between these countries.

Thank you.

Sectoral Developments in Indian Economy

National Research Seminar on

Sectoral  Developments  and their Impact on Indian Economy

UGC / K.P.B. Hinduja College of Commerce / Kirti M.Doongusree College of  Arts,Science and Commerce

Speech by R.Kannan

22^nd February 2014

I would like to thank the organisers for inviting me and   I have great pleasure in participating in the National Conference on Indian Economy , sharing some thoughts on the future options available for achieving a high economic growth going forward.

The topic taken for the two national conference is very appropriate at this moment and  I am happy to note that the deliberations in the last two days covered all the important sectors in the economy and the various issues relating to these important sectors and how they impact the growth rate of the Indian Economy.  I learnt that lot of new perspectives had emerged from the deliberations so far which will be useful for the  economic policy making in India.

The recent economic performance in India caused many concerns among various stake holders and the general sentiments toward new investments and growth moved towards a moderation.  After holding steady  for two years after the Economic crisis, the growth in the Economy had shown signs of tapering and reached  its decade low of 4.9% . Inflation in the recent past had shown a secular rising trend and recently started receding.  The lower economic growth in India was due to developments in the Global economy as well as issues relating to Regulation, Environment , increased competition  between political parties , increased social / Judicial activism and sensational reporting by media. In 2008, the potential for economic growth was at 10%. The conditions for higher economic growth were very favourable including  ; low interest rates, robust capital markets, good corporate performance,  consensus on national issues between political parties . Due to recent developments and the fast rise in inflation, the potential for economic growth is moderated to 8% now and there is a big gap between potential and the actual performance.

By taking a concerted actions in collaboration with various stake holder groups in the economy, it should be possible to achieve 8% growth within a year. The solutions for accelerating the economic growth are in place and what is required is cooperation of various stake holder groups in achieving this target. In India , even today many of the sectors are growing at more than 10% p.a. But before the economic slow down, many more sectors in the economy were growing at more than 10%. By adopting and implementing sector wise action plans the desired growth could be achieved.

Finance Sector. This is the sector which acts as a catalyst  to stimulate the economic growth since all the segments of the economy depend on external source of funding to pursue the growth objectives. Banking and Capital markets play a major role in the development of an economy. In India the value of Capital markets and bank credit are comparable but the number of IPO’s had seen a decline. Bank finance continues to play a major role. The issue of NCD’s by corporates is  likely to rise and private equity capital is available for investments in several sectors. The pension sector had been opened to new players and growth in this sector will generate long term funds which could be deployed in the infrastructure sectors

The issue of new licenses for banking will result in higher growth and penetration of banking . Adopting of new technologies including the mobile phone based technologies  will help in meeting the objectives of financial inclusion. Through these technologies , the availability of credit  could be increased in the rural areas.

The share of FII’s in total market capitalisation of the companies is at a high level.  The behaviour of FII investors , despite their investment is only through secondary markets, determine the stock market and index performance. As and when FII’s increase the investments, the boom in stock markets is witnessed and when there is a significant withdrawal, the markets take a beating. Considering the growth potential of India and the  future capital requirements in the economy ,  continued flow of funds through this route would enable corporates to meet a part of their requirement through this source ( through divestments and sale of shares through secondary market). Hence it is necessary to keep the sentiments of this investor class favourable and action plans could be drawn up to  sustain  the interest of this investor class through favourable conditions for investment.

FDI. After the Economic Crisis, only a few markets in the world continue to show a healthy growth. Despite India’s growth decelerating , the growth achieved this financial year was still one of the highest economic growth  in the world. There is an increased interest  from investors from all over the world to be associated with Indian market. Japanese companies are very bullish on India especially after the stellar performance by companies like Maruti, Honda.  Most of the companies from Japan had drawn up plans to increase their presence in India. The companies from US, Europe and Korea  have also shown keen interest to increase the investments in India. Last week, China expressed the desire to take a share of  30% in future infrastructure investments . The opening up of computer hardware industry for manufacturing including chip manufacturing augurs well for increasing the foreign investments in India. The creation of Industrial corridors will see more foreign collaborations in India and in future,  the FDI  inflows are likely to show a good rise from the present levels.

While addressing the economic growth issues, the foreign exchange movements had become one of the main issues and the robust risk management had become very important.  The imported products had contributed to higher inflation levels due to exchange depreciation. In the recent past, many new initiatives were taken by government to control both fiscal and current account deficit and there is a relief in the short term. For the long term, solutions are available to ensure a good fiscal position for the country and by strengthening the financial position, it should be possible to keep the exchange rates at competitive levels . Since the oil imports are increasing , there is a need to keep the currency at the present levels.

The increased Inflation in India in the last few years was due to both demand and supply factors and the supply factors had a major influence on the way the inflation behaved. The latest reported level of inflation had shown a favourable trend and we have to ensure inflation remains within 5% levels going forward to keep the economy growing at 8% growth. The government has to continuously monitor the developments in the economy and develop appropriate responses from time to time to ensure the inflation remains at healthy levels.

    Agriculture sector in India continues to employ the maximum number of people in India today and year on year, the share of agriculture in our GDP is showing a declining trend. As per the predictions, in the next few years, agriculture will add the maximum number of employees among all the sectors in India, despite its Share in GDP will fall further , year on year basis.  The issues in agriculture include, the low productivity levels of crops compared to best in the world, the wastages at the farm / during transportation / storage , the reduced interest in Agriculture as a profession. Considering the recent developments, especially, the inflation fuelled by agri commodities at the retail level, this sector will become attractive and more corporate and individuals will look at this sector favourably to fulfil the growth ambitions. There is an immediate need to increase the crop productivity without losing much time . The reforms in distribution of agricultural commodities through amending the APMC act would help the farmers to obtain remunerative price for their produce and generate enough surplus to buy inputs at much higher prices ( without availing any subsidies )  and  invest in new technology to achieve the best productivity levels witnessed in other countries.

Services Sector. The loss of share of agriculture in GDP is taken by Services sector. Indian IT sector helped to create the India brand in the minds of investors from across the world and this sector continues to grow at a fast rate  , creating lot of employment opportunities. The prediction going forward for this sector is also very encouraging. This  sector’s contribution in GDP growth is very high , since value addition in this sector is one of the highest among all the sectors in the economy.  India has one of the  large education systems in the world producing large number of Engineers, Doctors and Graduates. Despite most of them are not job ready, the companies which recruit them give a good training. The government has drawn up a skill development plan with a target to train more than 500 mn by 2020 in various sectors / skills, where the demand supply gap is high and  likely to become higher. Government is taking steps to increase the enrolment ratio at higher education level and various action plans were in place to develop skilled personnel.

The future projections for media sector indicate that this sector would continue to grow at more than 10% and the technological developments in this sector will lead to many changes in the way we consume media offerings. The business models will undergo a major change. The health , tourism, aviation , banking and financial services will continue to grow at more than 10% going forward. The penetration of mobile communication in rural areas is going to change the customer preferences in rural areas and even in rural areas, the growth in services will be higher than the growth in other sectors. This sector will continue to support the higher economic growth going forward.

Manufacturing contribution to GDP is India is very low and the government has set a target to take this to 25% of GDP from the present level of 15%. This will happen through liberalisation of more sectors and entry of several MNC’s in India to set up their manufacturing operations. Achieving this target requires the basic condition of simplified procedures to do business and moving up the rank in ease of doing business.

To achieve higher economic growth, the continued investment in infrastructure is necessary.  Despite savings level is very high in India, not all savings is invested in financial assets . There is big demand supply gap in financing infrastructure and from the present resources available within India, it would not be possible to create an infrastructure which will support an economic growth of 8% p.a. There is a need to create new sources of funding and tap the foreign funds. Government has already created enabling conditions to attract funds and increased the limits of foreign investors to invest in various financial instruments. New instruments are being introduced to address this need. But in the last few years, the attractiveness of this sector reduced due to environmental concerns , profitability of projects and availability of funds. Apart from Traditional funding sources like multi lateral financial institutions and LOC, the scope for raising funds from Pension funds and  Sovereign Wealth funds is being explored. By increasing the investment in financial instruments from the domestic savings through innovative financial instruments, the required funds could be raised.

The present issues constraining our economic growth are short term. The solutions are available to achieve a higher growth. The starting point could be revival of mining in India through creating a mechanism to  sort out the issues which resulted in closing of many mines in India. Only through mining of Iron ore, Coal and other resources, the industrial growth could be revived. This has to be taken up on a priority basis and it is possible to bring solutions which is acceptable to all the stake holders.

Government procedures. Over the years, the procedures have become cumbersome, resulting in a huge delay in approval of projects. The creation of CCI at Centre and project monitoring group has helped to address the needs of projects having investments of above Rs.1000 cr. Similar system is being introduced in states to fast track projects. There is an immediate need to simplify the approval procedures and time bound targets for various procedures to be declared by government and they have to stick to this schedule for all the projects.

Capital  is one of the major inputs to doing business  and since the main source of funding in India today is bank funding, there is a need to reduce the interest rates.  This will help all segments including government, corporates and individuals and increase the purchasing power.

Land. After the recent high economic growth , the land has become scarce in both urban and rural areas. The cost has become prohibitive. There is a need to evolve policies, procedures by which land is made available for businesses at affordable rates.

Increased co-operation between all the stake holders. This is the need of the hour today. Part of the poor performance was due to increased activism by all the stake holders without realising the impact it has on the Economic Growth, Inflation, Interest rates and Unemployment. All the stake holders need to work towards the common target of 8% Economic growth.

Finally, it is very important for every sector to contribute to the economic growth of the nation. Despite , the potential for growth is different for different sectors, in India , there is still a huge gap between the potential and actual growth. Many more sectors in India can grow at more than 10% in the years to come. To achieve the desired growth, sector wise , policies and systems are to be introduced and implemented very effectively by the government and support of all the stake holders is necessary. Let us all strive towards achieving this growth potential through our initiatives and actions.

Thank you.

Business Excellence and Strategy

Speech delivered by R.Kannan

30^th January 2014 at National Stock Exchange

On the Business Excellence – Annual Day

I am very pleased to be here today and would like to thank you for inviting me to be part of this  Business Excellence day and annual celebrations.

We are living in a VUCA world, where things are vague, uncertain, Complex and Ambiguous and the challenge for organistions today is to bring predictability to the performance from operations. This has become a major concern for Governments and corporates after the  2008 financial and economic crisis. Every thing  done well within a company is not a clear recipe for success since the developments in the environment have a major impact on performance of companies. Developments in the environment including the hyper competition,  challenge the proven business models and companies have to be agile and nimble to address the emerging challenges with fast response.   The businesses which were very attractive five years back had become unattractive today. The viability of many of the business models is being tested in this uncertain world and new models of doing business are emerging and in a continuous, evolution mode. To address these challenges , it is necessary to build a business excellence frame work spanning the entire organsiation.

The organisations which emerge as leaders in their field have Visionary leadership,Customer focus, robust strategy, appropriate organisation structure, scientific allocation of financial resources, sound HR policies,excellent business systems and good corporate governance practices. The combination of above factors will go a long way in creating and preserving the competitiveness of organisations.

Jack Welch Says . “A strategy is something like, an innovative new product; globalization, taking your products around the world; be the low-cost producer. A strategy is something you can touch; you can motivate people with; be number one and number two in every business. You can energize people around the message.” GE is a great organisation which introduced the latest management principles on Strategy and competitiveness and these models are being adopted by corporates and management consultants in strategy formulation across the world. GE as a company went through many business cycles and witnessed many economic crises during its existence of more than hundred years and it  continues to perform very well even today. The company is a good example for large corporates to adopt the best practices in strategy formulation and implementation.

Strategy development will be at two levels, one at the corporate level and other at the business level. In a corporate level, the decisions regarding What business to enter, what business to grow, what business to maintain and what business to divest are taken.

In Business level Strategy, it is the strategy to be adopted within a business and Strategy is all about positioning an enterprise in the minds of the target customers. The battle of companies and the leadership happens in the minds of the customers. Companies can adopt Strategies like Cost leadership, Differentiation or combination of both to achieve a competitive position in an industry. The strategy adopted by NSE is integrated and combination strategy. In any industry , there will be companies adopting one of the above strategies and the companies creating competitiveness do different things from others or adopt different methods to do the same thing. The best strategy which provides the long term competitiveness of an enterprise is the one, which is able to offer quality products and services at affordable and reasonable costs. The companies adopting these strategies emerge as market leaders and achieve margins which are much higher than the rivals, which is evident from the experience in many industries.

Earlier companies adopted one of the above strategies, competing in a few product market segments. The emerging trend is that  companies are trying to compete in all price points and cater to different customer segments . Starting point of successful strategy is right positioning of the product which will attract the targeted customers.

Strategic management has two phases. The first phase in which the formulation of strategy takes place ; the Vision, Mission and Objectives and overall direction are decided. In the implementation phase, allocation of resources, adapting the organisation structure  / systems and procedures in line with the change in strategy , performance monitoring and implementing course correction are adopted. The methods like Balanced score card are being utilised by many organisations today in the strategy formulation and strategy implementation stage. The same process is being adopted to evaluate the performance of employees at all levels to decide the  incentives, bonuses and promotions.

For effective strategy implementation, adoption of business excellence model goes a long way in achieving the intended goals of an organisation. Business excellence is one of the main pillars of good strategy implementation. The difference between organisations which succeed and fail is mainly determined by how well the formulated strategy has been executed and seamless execution depends on the excellent practices adopted across the enterprise in organisations.

Perfection is what every visionary leader wants to achieve. According to Aristotle, “Perfection is not attainable, but if we chase perfection we can catch excellence.
Excellence is an art won by training and habituation. We do not act rightly because we have virtue or excellence, but we rather have those because we have acted rightly. We are what we repeatedly do. Excellence, then, is not an act but a habit.”

The companies use business excellence framework to attain and maintain competitiveness. Business excellence process by itself is not  strategy but a process by which effective strategy implementation takes place. The framework covers the entire organisation .

Unlike in Strategy formulation wherein only a few in the organisation are involved, the strategy implementation involves every one in the organisation. In this respect, the business excellence framework has to be a company wide exercise and covering all the employees. Each employee has a role to play in bringing out the best in the organisation. It is a combined effort.

It had been empirically proven that the organisations which adopt business excellence frame work report much better performance than those who do not adopt this frame work. According to a Mckinsey study, internal processes in an organisation leads to variation in performance to the extent of 50% compared to the peers.

One tool that can help organizations strengthen their management systems and processes holistically, is the internationally-benchmarked Business Excellence framework. It provides standards for managing people, innovation and service, which are key enablers of business excellence.

 The BE framework helps organisations to assess their performance, identify gaps, and take action for improvement. It encourages a systems-based approach to management, with the adoption of a robust measurement system, to assess and monitor performance. Measurement allows organisations to compare and benchmark their performance against the best-in-class in their industry.

Employees play a key role in an organisation’s journey towards higher productivity and business excellence. The business excellence journey of every company is anchored by its employees. It is, therefore, important to align employees’ aspirations and efforts with the organisation’s goals.

Your branding of this effort, ACE ( Attitude, Customer and Excellence  is very apt.) The business excellence initiative should start with a positive and favourable attitude from every employee. An effective implementation of identified strategies depends on the favourable attitude from all the employees. Every employee in the organisation has to understand the Vision , Mission and overall objectives of an organisation and align his /her personal objectives with the organisational objectives. Their activities should be channelised towards excellence in whatever they do. The attitude towards company’s vision,mission, objectives, colleagues and customers should be in alignment with the overall organisational efforts in achieving the overall objectives of an organisation.

Customers decide the future of an organisation . It is essential that companies understand the customer expectations well and develop products and services which meet their needs. Today customer awareness is very high and customers expect a fair deal from the companies and they support companies which are very fair to the customers delivering the expected value for the price paid.

In my career I had an opportunity to work in companies where new business excellence initiatives were undertaken. Especially after the  liberalisation the competition in industries increased and the need for developing formal strategic plans and excellent business processes became very important , to sustain the competitiveness.

1. Our Group is a family managed Enterprise. The group gives full independence to the Executives who are in charge of different businesses and the involvement in the group is more in Strategy formulation level and the budget finalisation is done at board level. Once the budget is decided and allocation of resources is decided,  there is a complete independence to the CEOs on operational matters and  the CEO’s have the freedom of choice to change their tactics according to the emerging market dynamics. There is an effective  performance measurement and management system which is in operation which contributes a lot to the value addition to the overall performance of companies. The best practices adopted by a company within the group is being shared with other companies and group companies encouraged to adopt the best practices in all their operations. Balanced score card frame work has been used for Strategy formulation, implementation and performance appraisal. Business excellence frame work had been introduced in a few companies in the group and it is being introduced in phases across the group companies.
2. ICICI bank redefined the paradigm of banking in India.The banking business in India  today is totally different from the way banking was done 20 years ago in India. Under the Visionary leadership of Shri.K.V.Kamath, intensive automation of processes and reduction of manual intervention in operations enabled the bank to scale up the growth very fast. Several new initiatives were taken under Operational Excellence Initiative and Sig Sigma initiative, which helped the bank to acquire customers faster than others and enabled cross selling of products. The importance of  fee income had become equally important as that of core income and existing branch and IT infrastructure was effectively used to sell more products and services to the existing and new customers. The diversification into new geographies helped the bank to gain leadership in remittances business and cross border mergers and acquisitions. The creation of trading platform under ICICI securities helped the company to gain the leadership in the retail stock trading business. All this was possible through involvement of all employees and eliciting the best ideas from employees. There was a   reward system for the innovative ideas given by the employees. It was enabled by establishment of an Intranet which helped in knowledge sharing, training and transfer of best practices .

3. Thai Airways in Bangkok ,benchmarked its performance , systems and processes with the Airlines like Qantas, Singapore Airlines and Cathay pacific and fine tuned the strategies to become  more competitive. It has started hedging its fuel requirements and monitoring the performance of each flight operation. This helped the company to prune some routes, increase flights to routes where there was more traffic and optimise the use of fuel. This has improved the overall performance of the company.

NSE is a world class organisation led by a Visionary and committed leadership. The Forbes had acknowledged this fact and the leader of your organisation has been ranked among the top 15 leaders in the world and among the top three leaders in India.  NSE had set the global bench marks and redefined the way the securities trading was happening in this country with high transparency, good governance, robust processes and high quality standards. It ranks among the top three in volume in all its activities in the world and continues to improve its performance and if the pace of the Indian Economic growth continues, NSE will become the leader in all its activities in the Global arena.  Despite achieving an invincible leadership in the near term and far ahead of the competitors in all the performance parameters, the business excellence process has been identified as a key enabler for sustaining the competitiveness of the enterprise in the long run. This is the articulation of desired outcomes by your leadership  and the focus was not just on immediate opportunities and challenges, but also on building capabilities for the future.     

Business Excellence is a Journey and am sure every one of you is working towards the excellence in your organisation.

I would like to congratulate this year’s award winners and all those who are here on the Excellence journey. You serve as an inspiration for all other colleagues to continue the journey of  business excellence. I wish you all the best and   and have an wonderful evening.

Thank you.

Maharashtra – The Economic Power House – Growth Strategies

The article released on 18th Feb

FICCI Progressive Maharashtra – Annual Conference 2013

The state plays a major role in Economic development of the country and it will continue to have a major role to play going forward in future. The leading  Banks, Insurance companies, Mutual Funds, Automobile Companies,Public Sector Companies and Private Industry Groups have their head quarters in Maharastra. Apart from emerging as a leading Financial Centre, Maharastra also has seen very good growth in Manufacturing , Services and the Government has drawn up a plan to improve the productivity in Manufacturing, Services and Agriculture.

In the 11^th Five year plan, the State has achieved a growth rate of 8.6% against the national average of 7.9%. The growth target set for the 12^th five year plan is at 10.5%. The target growth rate for Agriculture is 4%, Industry is 11% and Services is 11%. The government is planning to spend Rs.2,75,000 cr , which is 70.8% higher than the outlay for the 11^th five year plan. The state is able to generate lot of resources and the budget deficit so far was within the manageable levels. Achieving a growth of 10.5% p.a will help the government to generate more resources and manage the finances well.

The increased focus on agriculture can result in 6% growth , higher than the projected growth rate , if more area could be brought under irrigation going forward. The government is taking efforts to provide non agriculture based employment opportunities to those who are in the rural areas which will help to increase their income in line with their counter parts in urban areas. This will increase the purchasing power and bring many out of the poverty line.

Maharastra’s urbanisation level is higher than the average for the country and development of Delhi Mumbai Corridor and approval for many new SEZ’s in the state will increase the urbanisation level further and create demand for Capital and industrial goods. Many new cities will be created.   Out of 386 SEZ’s in India, 88 are in Maharastra. There is a good scope exists for capitlalising the land bank available with the Government, State PSU’s and capitalising the land bank will generate more resources for development activities for the state.

The state attracted 4,630 projects, with a total investment of over Rs 6.5 lakh crore and employment potential of above 22 lakhs in 11^th Five year plan and this can witness a big increase in the 12^th Five year plan.

The state is well connected through all means of transport and there are initiatives to develop many new Airports and minor ports in the state which will increase the connectivity and free movement of people and goods . The PPP model of infrastructure development is a success in Maharastra and out of 888 projects in India, 88 are being implemented in Maharastra. The contribution of private sector is likely to increase going forward. Supported by investment friendly policies by the state and availability of power , a stretch target of 12% growth from Industry is possible. In the 11^th five year plan, Maharastra attracted the maximum FDI in India and this trend is likely to continue in the 12^th Five year plan.

Apart from Banking and Financial Services, the state has gained lot of prominence in development of IT and ITES sectors well supported by a good educational infrastructure in the State. The government has created a skill development corporation with a view to train 4.5 million people a year to be trained on various vocations. This will help to address the manpower needs of the industry and services. Training people on various vocations will also help to create many new entrepreneurs . The action plans identified by the State for the 12^th Five year plan supported by good implementation and good macro economic conditions, we can look forward to a stretch goal in growth of 11% in the coming plan period.

 

Think New Think Change

30 July 2012

Think New Think Change

The Speech Delivered by Mr.R.Kannan at SIES School of Management

On the Occasion of Induction of New Batch of MMS Students

Prof.Sengupta, Prof. Radhakrishnan , Prof. Bose , Dear faculty members and young friends, Good Morning to all of you. I would like to thank Dr.Sengupta  for the invitation extended to me to be part of this programme today in welcoming the new batch of students to this  prestigious programme on Management in SIES school of Management.

The environment we live today is very dynamic and ever changing. We are living in a world of constant change. There is a great level of uncertainty and volatility in all walks of life. The challenge for mangers of the Economy and the Businesses is to navigate these changes and develop a stable economy and business operations. The viable Economic models and Viable business models of today will become unviable in future. The systems which were viable in the past are no more viable in the changed circumstances. The economic models of development and business models are undergoing significant changes. We are living in a complex world , many new issues crop up every day for which there are no immediate solutions or remedies.

Economy. The effects of recent global crisis has made it necessary for new thinking in managing the present day world. There are many debates around the world on how to overcome the crisis in so called developed countries and bring back the economic growth.  The solutions are still eluding and no robust model for restoring the global economic stability has been found so far.  In all these years thinking was that the global growth has to be supported by growth in the so called developed economies like US, Europe and Japan. The growth in the developed countries had lost the momentum and the incremental growth in the global economy is mainly contributed by countries like China, India, Brazil and Russia. The future prospects of growth lies in less developed countries like Vietnam, Colombia, Indonesia, Turkey and Africa. Considering this fact, there is a need for change in Economic systems. The developed countries should be willing to share the future leadership with the emerging countries today. By encouraging the countries with potential for growth, the overall economic growth of the world could be restored.

Financial Architecture. To sustain the growth levels in the economies the developed countries kept very low interest rates. This has enabled the governments, corporates and individuals to borrow at affordable rates. But after a stage, the borrowing by them became unsustainable since they accumulated debt beyond the levels which could be supported by income streams. The accumulation of debt became a big burden which has resulted in the crises which are being witnessed today. The crises in earlier periods were not widespread in the world and the restoring the stability was easier. But at this point in history, the crisis has affected most of the countries in the world and there is no immediate solution in sight to restore the growth. The adoption of classical economic theories will not solve the problems. We have to think differently and implement the necessary changes in the Global financial architecture. The solutions to the present day problems lie beyond the concepts covered in the economic theories available so far. There is a big change required in how countries are managed and enterprises are financed. We are in an evolutionary stage to address these problems.

Politics. The traditional thinking and old models favour a large majority single party democratic rule to run a stable economy. In the recent past ,we had witnessed different political systems delivering excellent results of performance. India with a system of democracy and with coalition rule was able to achieve an economic growth which had reached its peak. But it could not be sustained due to global crisis and internal crisis. China was able to develop a robust economic system with the communist party ruling. We witnessed good performances from some of the Arab countries like Saudi Arabia. Then we witnessed the revolutions in some of the Arab countries in the world. But one good development in politics today is that the politicians understand the power of good corporate sector and before the global crisis many of the countries in Africa were planning to create stock exchanges. The politicians today are well educated and they are able to appreciate the contribution of corporate sector to the economic development. This appreciation is leading to emergence of new concepts like  Public Private Partnership and opening many more sectors of the economy for private sector and FDI. Today bilateral relations are built on the foundation of commerce. Earlier the relations were based on security and political aspects. The need for good governance has been felt even amongst politicians. Despite lot of improvement in political system, there is still a need for new ways of managing politics and change in the governance models.

Society. There is a big transformation in the society. The rural areas are becoming semi urban , semi urban areas are becoming urban . There is a wide scarcity of municipal services in urban areas.  There is a movement away from joint family system to nuclear family system. Many in the family go to work and there are many multi income families. Jobs at entry level assure very high salaries.  The towns have people from various states and cultural backgrounds. The purchasing power of people is going up. There is a constant upward movement of people from lower income segment to higher income segments. More young people are waiting to join the ranks of the employed. Each country has its own issues. The average age of Japanese is very high and individuals in Japan, they have large savings. They do not want to spend the money. In USA, the savings of individuals are negligible , but they have huge borrowings and they want to spend. But they do not have the wherewithal to raise the resources to support the spending. India will have the largest number of people who will be very young in the working population but to make them productive a large scale vocational training is required to make them productive. In countries like Japan, crisis affected European countries and USA,  there is an immediate need for change in societal systems. The challenge today in US and Europe is to reduce the unemployment level and reduction of household debt. Lot of new ideas are required to implement the required changes.

Technology. The effect of technology in the last fifty years in our lives is profound and long lasting. Most of the changes we had witnessed in all these years in all spheres of life were catalysed by the changes in Technology. The latest to engage our attention is the communication technology which has become part and parcel of our life. In five years, we will witness a sea change in use of technology in our lives. There is a convergence of Technology, Media and Telecom which has impacted our lives the most. There is a widespread use of technology by government, corporates and individuals and it is difficult to think about our lives without use of technology. The change in technology has resulted in change in  business models of various industries.  The emergence of new communication technologies, bio technology and nano technology will redefine the way businesses are operated today. It has become necessary for companies to adopt the latest technologies to achieve a competitive advantage in their area of operations. The emergence of Digital media and social media are changing the paradigms of marketing.

Environment. The issue which engages most of the attention of Politicians and corporates is the preservation of environmental balance. When developed countries embarked on the journey of industrial development , the world had a good ecological balance and they were able to develop and run polluting industries. The effect of higher industrialisation had its toll on our environment. Now there is an organised movement across the world to preserve the environment. The new rules on emissions are acting as a constraint on countries like India where we are yet to realise the full potential of manufacturing. If we allow more industries , it is likely to increase the pollution levels and affect the ecological balance. If we do not develop industries, then we will lag behind in industrial and manufacturing development. Due to many environmental concerns the development of core industries like Coal, Power and mining are affected. There is a need to find immediate solutions so that the target set by government to achieve 25%  of GDP from  manufacturing could be met. New ideas are required to address these issues and management of these core sectors and environment requires  lot of changes.

Legal. India has one of the well defined legal systems in the world. The number of cases pending today in courts is very large  and  if average disposal of number of cases is taken into account, it would take twenty five years to clear these cases. The government has set a stretch target to dispose off many of these cases within five years. New ideas were discussed including , reduction of holidays for courts, working in double shifts, creating special purpose courts, etc. Many cases pending in Indian courts are trivial and these could be disposed off very fast. In the recent past, we witnessed some judgements on commercial matters which have made some of the profitable sectors in India unprofitable. In the last few years , few of the most profitable sectors have become unattractive today due to certain judgements. Few judgements resulted in discouraging the Foreign Direct Investment into India. Since the world has become more complex today, there is a need to develop simple and effective legal system to resolve cases in an expeditious manner. In commercial issues, there is also a need to take a techno-commercial-legal approach to solving the issues. 

There are many challenges as discussed and the present day challenges require new ideas , new thinking to address these issues. The change is required in many spheres of the economy. Many a times introducing change is difficult  and painful. Only by creation of innovative ideas the issues before hand could be addressed effectively. New thinking requires innovation and innovation has to be created as a culture and many organisations realised this need and in some of the developed countries , the departments are named as innovation departments and there is a position of  a Chief Innovation Officer.

Education institutions have a major role to play in fostering innovation and developing the attitudes for new thinking. Education holds the key to improving lives and reforming society. Education is a social process, and the most important process in determining the future of our country. The educational institutes should foster the culture of how to think. People must learn how to think well to achieve their dreams and to reach their potential.

Dear Students, while doing this course, you should develop your skills in thinking. I read recently that "the battle for control and leadership of the world has always been waged most effectively at the idea level. An idea, whether right or wrong, that captures the minds of a nation's youth will soon work its way into every area of society, especially in our multimedia age. Ideas determine consequences."

Your objective of doing this course should be to become great learners and great thinkers. Whatever new ideas come to your mind during an issue being discussed in the class room , please share your ideas in the class room. The starting point of developing your thinking skills is your class room. You can discuss the new ideas with your  Professors, Class mates and friends.

The country requires agents of change in all spheres. By developing the ability to think new, all of you can contribute to the development of a Viable economic system at the country level and development of viable business models at the business level. While doing that, you can create an opportunity for yourself for self development.

Dear Students, I have a great pleasure in wising you all , all the best for a productive time in SIES and encouraging you to learn more, think more and act to bring the required changes to  the benefit of every one in the society.

Thank you.