Strategies to create India’s MNCs

Select Key Businesses:

It is essential first to identify areas where India possesses or is in a position to develop and sustain competitive advantage rapidly on a global scale. Such advantage should have the potential to be sustainable in a low tariff environment and compete with the best companies and products in the world. The successes of both Japanese and Korean companies have their geneses in such industry identification and subsequent focused support by their respective Governments. Without such short-listing a focus, scarce resources would be spread thin and little would be achieved. India today has a competitive advantage in several areas such as textiles, agri-processing, software, jewelry crafting, leather, granite, tea, marine foods, engineering goods, two wheelers, tobacco, specialty steel, Aluminium construction and specialty chemicals to name a few.

India is the lowest cost producer in a number of these areas. True export potential has been barely tapped. The World market for textiles is $350 billion of which India has less than 2%; in leather our share is 4%, in marine products 2%; in processed foods 0.5%; and in tobacco 6%. An increase of even 1% in only these areas would generate additional exports out of India of $5 billion which would increase total exports by 25%. It is only in gems and jewelry that India has an appreciable share of 40% of world trade. Even here, our low cost advantage is not fully exploited. We should strategize to export our skills overseas and instead of merely being suppliers to the Cartier’s and the Tiffany’s of this world. We should target the premium value added need, develop expertise in jewelry design and open boutiques in the developed countries, multiplying value addition several times over. Similar value addition strategies can be applied to leather goods and garments, and a country strategy needs to be put into motion urgently in all such areas where India has the potential to develop competitive advantage.

For instance, only 12% of all tobacco users in India consume cigarettes. Pragmatic taxation policies in the last two years have helped market growth in what was a declining segment of the industry two years ago. The cigarette segment is now likely to grow 5-6% this year. If the States had not vitiated the single point taxation format, the growth could be even more rapid, improving Government revenues and making Indian industry even more competitive globally.

We are today the lowest cost quality producers in the world, yet our share in the $250 billion global market is still negligible. A growing and modernizing domestic base can give India a very strong position in this a business. Even a 1% share of the world market would mean a market size of $2.5 billion which is twice the present size of the domestic market.

Acquire Quality and cost Leadership:

The next step would be to identify companies could add quality and cost leadership and develop the capability world class quality products at a cost that is appreciably lower than the international cost. Such a capability would enable penetration into markets where there are barriers created by established brands. This would be a repetition of the Japanese strategy of the 1960s.

Capturing consumers franchise is the key to success. Strong international consumer brands have behind them decades of investment in product development and image creation. Recent events, however, indicate a possible discontinuity where people are willing to make purchase decisions purely on product attributes, quality, cost and service. The emergence of private labels’ in the West is an illustration off this trend. A sustained continuance of product, quality, cost and service might create space in the new era for new brands. Japan adopted this strategy in the 1960s not having brands of its own, and subsequently graduated to a high tech strategy. India is now in a position to adopt the early Japanese model and create companies which can now capture consumer franchise, both in India and abroad on the premise of product quality cost and service and gradually move up the value chain.