GLOBALISATION & INDIAS COMPARATIVE ADVANTAGE

GLOBALISATION PERSPECTIVE

Transformation from national and regional markets into global market without national boundaries Free Flow envisaged among WTO member countries includes goods, services, technology, Foreign Direct Investment, human-capital and Intellectual property However, regional trade blocks like EU, ASEAN, NAFTA, GCC and MERCOSUR polarise world trade and commerce, limiting market access for India based companies, since India is not a member of any of these trade blocks

GLOBALISATION IMPACT

Globalisation is cutting across all product and service sectors worldwide forcing industries and corporations to re-structure and re-think their strategies in the face of shortening product and technology life cycles, increasing scale of operations required for global competitiveness while simultaneously requiring flexible manufacturing systems for quicker deliveries and customisation.

IMPACT OF TECHNOLOGY ON A GLOBAL SCALE

Efficient scale for production of colour TVs rose from 50,000 sets/ year in 1960 to 500,000 sets in early 1980s.

Meanwhile global scale economies in R&D & marketing (due to giant retail chains) were also increasing, raising breakeven volumes up further.

Breakeven volume now 2.5 to 3 million sets/ annum for global competitiveness I.e. increase of over 40 times volumes in 1960

Importance of Education & HRD in Globalisation

Globalisation needs to have not just a human face but also a conscience which recognises the responsibility and accountability to all fellow human beings. Focus therefore is necessary on education to sustain the benefits of globalisation and promote balanced growth for all at the national level At the corporate level focus on HRD is essential, in particular development of professionals for a global mindset, current generation skills & proficiency in technology and skills for achieving global levels of productivity in all operations, is essential

Importance of Education & HRD in Globalisation

It is now possible to deliver education electronically through distance learning, as has been shown in India by recent initiatives of certain universities in the U.S
This opportunity for continuing education through distance learning could help professionals in India & their organisations to gear up for the globalisation challenge

Drivers of Globalisation & the Emerging Trends

KEY DRIVERS

Increasing availability of capital seeking optimal long term returns across national boundaries & integration of capital markets worldwide WTO mandated liberalisation and phased reduction in trade & investment barriers among WTO member countries Advances in information & communications technology (ICT) enabling reliable & speedy information flow worldwide Technological advances revolutionising manufacturing & service sectors thereby necessitating global efficiency & productivity gains through global scale

Drivers of Globalisation & the Emerging Trends

EMERGING TRENDS

Increasing dominance of global brands Increasingly effective global supply chains of transnationals & other corporations

Greater focus on R&D & technology for development of globally adaptable world class products & flexibility for adapting to shorter life cycles
Greater use of flexible manufacturing systems for J.I.T deliveries & customisation

GLOBALISATION Opportunities & Threats

The WTO mandated global free trade from 1 January, 2005 is a significant opportunity for companies based in India to become global manufacturing hubs/ software development parks/ Business Process Outsourcing centers catering to global giants and customers worldwide.

While the annual global trade in merchandise and services is currently U.S $ 7.5 Trillion, the global opportunity for annual business open to global competition in products, services and assets, is estimated at over US $ 21 Trillion.
SURVIVAL OF THE FITTEST - Only globally competitive units/ companies will survive even in their domestic economies.
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Emerging Opportunities from Outsourcing Merchandise, Goods, Components for Indian Companies
Outsourcing annual opportunity in Europe alone is estimated at over US $ 250 Billion and in Asia US $ 300 Billion A) Computer Software & Solutions o A recent McKinsey & Co./ NASSCOM report has estimated Indias potential for exports of I.T services & software at US $ 31 Billion by 2008 B) Technology Services o India with its brainpower of engineers, technologists and other professionals is eminently poised to offer specialised technology services in high technology specialised areas like Contract Research

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Emerging Opportunities from Outsourcing Merchandise, Goods, Components for Indian Companies
C) IT Enabled Services
o

The recent McKinsey & Company/ NASSCOM survey on worldwide potential of IT Enabled Services at US $ 142 Billion by 2008

D) Hospitality Sector Services

o

Several service areas like reservations & Accounting Services could be outsourced to Indian Companies.

E) Medical Services
o

Hospitals are poised for opportunities in the areas of administration, nursing, pharmacy, physiotherapy, respiratory therapy & biomedical engineering services
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GLOBALISATION - Challenges for Indian Companies

Intense international competition in a borderless free market Need marketing/ customer support network & supply chain in major trade blocks like EU, NAFTA, ASEAN & MERCOSUR Attract & retain talented and competent professionals with global mindset Dominance of global brands/ global technology leaders and Transnationals with deep pockets Prohibitive entry cost for EU/ NAFTA (accounting for 70% of world trade)& uncertainties of MERCOSUR countries Innovation, R&D and core competence requires best minds and committed and competent hands"

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Prerequisites for Sustainable Competitive Advantage

In-depth knowledge and insight/ understanding of the relevant global markets including customers, competition and technology trends Contemporary product/ service design/ features for the global/ niche market segments chosen through market led R&D and consistently world class products/ service quality

Scale through selective manufacturing backed by global supply chain

Distribution and customer support/ service covering effectively all relevant countries/ market segments Information Technology (IT) capability for reliable and speedy information flow for tracking shipments/ service flows/ documentation and financial transactions worldwide
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STRATEGIC ALLIANCE with Global Leaders

Achieving & sustaining global competitiveness may need cooperation with a global leader with complementary skills and technology strength or marketing reach worldwide. Some Indian companies offer the global partner a low cost manufacturing base and a large Indian market. It would also enable the Indian companies have access to management practices of the global leader & some of its strategic information & knowledge base The combination of the global partners technology/ marketing strength & the Indian companys low cost manufacturing capability would enable the alliance to enter & sustain new markets worldwide.
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Building Global Competitiveness - Safeguards in International Business

Prudent choice of customers, suppliers, shipping agents & business associates Use of credit rating services for client evaluation

Risk cover for countries with political/ economic uncertainty

Total compliance with & documentation for all statutory requirements Forex Risk cover for exports & imports Watchdog like monitoring of each export/ import./ international business transaction till financial & statutory closure
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Major Challenges for Indian based Companies

A) GLOBAL UNCERTAINTIES & RISKS

A cost effective & comprehensive risk cover for :

o o o o

country risk in terms of political & economic risk currency risks the client risk distribution/ logistics risk for emerging markets

Impact of perils like theft, pilferage, accidents/ mishaps for cargo gets magnified in case of developing countries due to longer supply chain/ uncompetitive logistics and inadequate distribution and other infrastructure
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Major Challenges for Indian based Companies

B) LOGISTICS & INFRASTRUCTURE

Indias infrastructure in terms of roads, ports, airports, storage facilities at ports and airports including for inflammable cargo as also cold storages in transit and at shipment points is inadequate compared to Indias leading competitors like U.S, European countries, Singapore, Hong Kong, Japan, Taiwan & S. Korea. This results in higher freight costs and longer delivery.

C) R&D AND TECHNOLOGY NOT IN TUNE WITH GLOBAL TRENDS

Innovation and technology are key business drivers for long term success.
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Indias Economic & Industrial Perspective in the Fifties & the Sixties

India is a planned economy envisaging co-existence of public sector, private sector & co-operative sector
The focus immediately after our independence was on self-reliance through import substitution. Substantial investments were made by the Government in the public sector for basic industries like steel & fertilisers

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Indias Economic & Industrial Perspective in the Fifties & the Sixties, Contd

This focus on industrialisation was necessary then as India in 1947 was only an exporter of raw materials like iron ore & agrocommodities like cotton
The protected industrial environment of the fifties & sixties by way of industrial licensing and quantitative restrictions and tariffs on imports nurtured an inward looking private sector with fragmented capacities There was no necessity or incentive for exports in view of sufficient demand in the protected Indian market, which virtually shut out all but essential imports
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Indias Economic & Industrial Perspective in the Seventies & the Eighties

Industrial development & technology up gradation in India made significant strides including through transfer of technology from abroad by way of technical collaborations and joint ventures.

However, the capacities in the private sector continued to be fragmented due to the MRTP Act, which inhibited Indian corporate sector from planning global scale operations even in sectors with comparative advantage for India
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Indias Economic & Industrial Perspective in the Seventies & the Eighties, Contd

For the first time exports began to be recognised by the Government as important in view of the foreign exchange requirement for Indias essential imports like petroleum products, fertilisers, edible oil and high tech engineering products & services Export house scheme introduced in early seventies followed by trading house scheme in1978 for the first time encouraged merchant exporters recognising their ability in effectively reaching foreign shores for promoting Indias exports
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Indias Liberalisation during early Nineties & the WTO Mandate

With the introduction of economic reforms in India in 1991, Indian economy has opened up to the world economy, thereby changing significantly industrial and competition scenario in India

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Indias Liberalisation during early Nineties & the WTO Mandate, Contd

Competition within India increased significantly due to inflow of foreign investments & technology and creation of additional capacities with current generation technology from abroad during the late nineties The Indian industry & commerce recognised at the turn of the millenium that WTO mandated free trade by 1/1/2005 means survival of the fittest & gearing up for global competition a necessity
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BUSINESS ENVIRONMENT IN INDIA TODAY

Ongoing Economic Reforms Services Sector opening up India proactively seeking Regional and Bilateral trade agreements

Continuing encouragement for international trade and investments

Higher disposable income leading to rising consumer expectations

Industry buoyant

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SOURCES OF INDIAS COMPARATIVE ADVANTAGE

Strategic location Long coastline Climate Rich in natural resources Large tracts of agricultural and forest lands Large and diverse livestock population Strong Human Resources base
o o o

Large and rising middle class Large pool of qualified and competent English speaking professionals Inexpensive Human Resources

Cultural diversity and heritage Scenic beauty

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Opportunities For Improvements - INDIA

Infrastructure Commercial Services Industrial Culture R&D/Technology below the level of global leaders
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In Todays Global Environment, young professionals like you need

A global mindset & global perspective Fluency in one or more foreign languages like French, German, Arabic, Chinese, Spanish Familiarity with cultures of important markets Familiarity & in-depth understanding of international standards like UL for U.S & BS for U.K & Commonwealth countries & certifications like ISO In case of Accounts/ Finance professionals, in-depth understanding of GAAP & international accounting norms & trends Above all, be a lifelong learner & continuously upgrade your skills & knowledge through continuing education
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THANK YOU
C. P. JOSHI

11 August, 2007
MUMBAI, INDIA

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