THE COMPULSION TO GROW GLOBAL
We have seen that in the open regime, Indian business firms are compelled to take to exports. Let us examine how this has become a major challenge for them.
Todayâ€™s world is a technology-driven world. Technology has emerged as a vital resource for business firms. With globalization, technology has emerged as a vital factor for Indian firms too. While, for firms operating in frontier fields such as telecom, computers, pharmaceuticals, biotechnology, and space technology, the challenge on the technology front is particularly formidable, even in industries that are not so hi-tech , technology is emerging as an important factor as it has a big impact on product profiles and consumers perception regarding products. In addition to the opportunity dimension, technology encompasses a threat dimension as well. Technological change makes products and business suddenly obsolete.
New Trade Policy and Globalization of the Economy
The new trade policy enjoined on Indian business firms to earn foreign exchange required for importing whatever raw materials, spares, and components they needed of keeping their production lines going. In the earlier era, they did not have to do so. Once an import license was obtained, foreign exchange was made available from the Reserve Bank of India at the government-determines exchange rates. In the new dispensation, imports had to be financed by foreign exchange bought from the markets at the market rate. Firm, which are not spenders of foreign exchange, now suffered a big erosion of their profits. The only long-term and viable solution lay in building up oneâ€™s own export base. Exports naturally became a priority for everyone.
Once the new policy came into effect, practically every company started knocking at the export markets. Reliance Europe, Essar World Trade, Ceat and Fairgrowth Exim were among the newcomers. Companies like Videocon, BFL, Eicher, MRF, and SRF, which have entered the global market a little earlier, were now trying to consolidate the foothold they had gained. As the average import intensity for Indian manufacturing is more than 30%, it was little wonder that in this new regime, exports became a new compulsion for the Indian industry as a whole. Companies like TISCO, for instance, which need a great deal of foreign exchange for importing raw materials, spares and components, now had to give a new thrust to exports.
Heat of Competition at Home
Indian business firms all along were under the impression that they would never be required to go beyond their home market. With the growth in entrepreneurial freedom, capacity expansion by existing as well as new players became a regular feature in many industries. We have seen how these developments led to an intensification of the competition in the Indian market. The interesting point is that while capacity additions were envisaged as a tool for gaining a cost advantage for fighting competition the very enlargement of capacity created new competition. The import liberalization has also contributed to this situation by enhancing the availability of products. With the heat of competition in the domestic market enhanced, firms had to naturally turn to the overseas markets.
Many firms like Reliance Ind, Reliance Info, MRF, DCM Data and WS Industries turned to exports due to the domestic competition. MRF, the leader in tire industry, had to turn to exports as it could not sell its entire production within the country. Its subsidiary, MRF International Ltd, has the specific mission of accelerating exports. DCM Data Products too turned to exports on similar grounds. When the company found the going tough in the domestic computer market, it started exporting printed circuit boards. DCM has now plans for exporting entire computer system under its own brand name. WS Industries, manufacturers of electrical equipment for power transmission and distribution, also took seriously to exports for countering the heat of competition in the domestic market.
Technology has the Competitive Advantage and Core Competence
For competing successfully, firms need competitive advantages and core competencies. The technology strength can make firms enjoy sustainable competitive advantage and core competencies, the latter in particular. MNC were scoring over the Indian firms largely because of their product and brand clout. However, behind their product and brand clout was their core competence. In the new context, Indian firms too have to acquire such core competence and that rests on technology strength.
The inference is Indian firms if they have to compete in Global Markets has to equip themselves with core competencies and technological strength. The challenge on the technology front for Indian firms is actually two fold. First, they now have a compulsion to acquire parity with global firms. It means a great deal of catching up, as the gap to be bridged is wide. The second is that as the Indian firms begin this endeavor, a new development is compounding the task. In recent times, technology has started changing very rapidly, becoming too intense and rapid to cope with. But, the firms have no escape; they have to cope with the change in order to survive. And, this really is the crux of the new challenge they face on the technology front.