An ageing populace in ‘developed' economies is funding its future pensions by investing in young, highgrowth ‘developing' economies
The transition India is experiencing today is just a glimpse of the dynamic revolution that awaits it in the next decade
In an increasingly globalized world, the economic challenges for India are in creating new industries by ensuring sustained capital inflow, acquiring new technology, expanding the workforce and by playing a more dominant role in global issues and negotiations
Driven by a robust financial system and articulate fiscal and monetary policies, India has steadily emerged as one of the most preferred destinations for global business. With the finance ministry projecting a 9% average GDP growth rate, the Indian government has set itself a timeline of the five years to become the world’s fastest growing economy. There is a general business consensus that the growth trajectory India is set to step into is an altogether different one from what it has witnessed so far.
At the level of industrial economic structure, the emerging business landscape is the result of a gradual shift in manufacturing / servicing capacities and, more recently, in engineering and innovation capability from Western to Asian economies. As these countries develop their internal markets with increased internal demand, the potential for growth is tremendous. In addition to the increase in production capacity and demand, there are several other factors that have led to the emergence of a new business landscape, foremost among them being the global economic crisis. The global recession has been a defining event in the rise of Asian economic leadership and in a public acknowledgement of demographic trends. As most import-heavy western Governments try to crank up dormant economies with increased money supply, investors in these economies have been piling into debt and equity investments in Asian markets. This trend mirrors a broader demographic reality – of an ageing populace in ‘developed’ economies funding its future pensions by investing in young, high-growth ‘developing’ economies. It also demonstrates how economies are more inter-twined today – not just in terms of trade, but also in terms of money flow and asset valuation.
Over the last decade, no issue has gripped the public consciousness as Global Warming. With the Kyoto protocol of 1997 and the subsequent Marrakesh accords, 186 member countries (sans the US) were involved in a legally binding agreement to enforce reduction of collective greenhouse gas emissions on ‘developed countries’. However, over the last few years (and not entirely unconnected with the economic slowdown), the debate about how to allocate joint responsibility into individual sovereign responsibilities has morphed into a complex, but dirty game between developed and developing nations. Developing nations (India, China, Brazil and South Africa) point to the high historical levels of industrialization and high per-capita-emission in western countries (and Japan) and thus negotiate to place greater responsibility on ‘developed’ economies. The developed economies, in turn, point to increasingly high overall level of emissions in India and China and argue that the burden has to be shared more equally. While the differences pose complex legal, ethical and economic issues, the debate has the potential to effect the worst possible outcome – a standstill, as was the case at the Copenhagen summit. Irrespective of the outcome, the issue is important to future generations and as individual consumers become more aware, companies will have to substantially take into account the dimension of climate change while devising business strategies.
Globalization is another catalyst that has pushed the Indian business landscape to an entirely new threshold. While hitherto the contrast in the functioning of MNCs and home-grown companies (primarily PSUs and family-run organizations) was evident, the last decade has seen stiff competition between home-grown companies and MNCs in terms of timely adoption of technology, heavy investment in market research, understanding changing consumer behavior and translating this knowledge into producing saleable goods and services and in attracting talent at hefty pay packages. Today, home-grown FMCG companies such as Dabur, Godrej, ITC are giving tough competition to P&G, Nestle and GSK, while Indian telecom service provider Bharti Airtel is the market leader followed by UK-based Vodafone. Finnish handset giant Nokia has been facing tremendous competition from a breed of affordable Indian handset manufacturers like Micromax and Spice Mobile. While the winner in this competition is the customer and the employee, what remains to be seen is how India’s increasingly young populace allocates this added wealth between consumption, savings and investment.
Another aspect that is compelling the emergence of a new business landscape is the increased activity at the M&A and JV front. Where on one hand, global giants are scouting for suitable Indian partners to begin operations in India, Indian multinationals too are quite upbeat about acquiring foreign companies. Given the frenzy of both inbound as well as outbound M&As, it is imperative that Indian companies (aided by the Government) create sufficient JVs in areas where India has massive growth potential, but a poor local manufacturing base like defence, telecom equipment and aviation. As Chinese companies managed to do two decades ago, Indian JV partners should be quick to ‘localize’ imported technology, create a local manufacturing base that can meet local demand and build an export-oriented industry over a longer horizon.
The corollary to spawning more industry is the development of local talent. Amongst the factors that threaten to derail the emerging business landscape is the deficit of talent and skills to sustain growth. There is a huge gap between the demand and supply of skills and capabilities required by companies. With intense competition for the consumer and for talent, it is imperative that companies invest in building competency among employees to prepare organizations for the next phase of growth. As employee aspirations change and the workforce gets younger, companies will have to adopt innovative techniques in terms of employee engagement and developing in-house expertise. Simultaneously there is an urgent need to improve the manufacturing and services base by bringing in more ‘skilled’ workers into the economy – a need that is being met by various public-private partnerships.
The transition India is experiencing today is just a glimpse of the dynamic revolution that awaits it in the next decade. It is, therefore imperative for organizations and Governments to act on these critical issues. In a world which is increasingly inter-twined by trade, porous borders, terrorism, capital flows, technology transfer and global warming, the economic challenges for India are in creating new industries by sustained capital inflow, acquiring new technologies, expanding the workforce and by playing a more dominant role in global issues and negotiations.