Towards Change

Learnings and Action Points
The National Competitiveness Forum 2014

Economic Geography and Competitiveness

Panel-1

Starting the session, the idea of economic geography as being something dependent on the development of individual nations, states, districts and cities was introduced. Points were made about the need to foster a conducive environment at lower levels of geography to understand the development process that is taking shape. Also asserted was the fact that competitiveness of a region is dependent on the competitiveness of its firms within that region.

With respect to the locations, it was pointed out that companies come to locations vis-a-vis countries and are the drivers of a national economy. Reference was made to ‘Jurisdictional Advantage’ that mostly leads to competitiveness. Pointed out was the need to shift from BRICS (Brazil, Russia, India, China and South Africa to DAMBs (Delhi, Ahmedabad, Mumbai, Bangalore). Focus was also made on the need to leverage Technology, foster Talent and have greater Tolerance and diversity leading to ‘innovation dividends’. Also Stressed was the link between diversity and economic prosperity.

Focus during the session was made on learnings at the regional level citing the example of water technologies that have to be adapted to different locations depending upon the water issues and conditions therein. Points were made with respect to companies coming to India, having to focus on products in light of the economic geography and cost sensitivity of the Indian consumers. Also noted were considerations in the mind of international companies while sending people. Some of these include educational infrastructure for kids, basic infrastructure etc.

Deliberations were also done providing reasons for people to travel for either business or leisure between locations. Need was mentioned for the states to focus on their inherent strengths. Also mentioned were some apprehensions with respect to the cost recovery in the domestic airline space that leads to exclusion of some levels of geography resulting in a

gap between the actual performance and the potential of India.

Among the deliberations, mentioned was how distributional business is based on tax aspects rather than market-based parameters. Deliberations were also done on how GST is going to change the tax based paradigm of looking at the distribution system. Mention was also made about the need to look from a supply-driven to a demand-driven model especially in the wake of increasing consumption. Also mentioned were factors like access to power and diversity as critical elements in making location choices.

Also stressed was the need for infrastructure reforms and the culture that defines locational decisions. Also stressed was the need to improve the power situation by focussing on grid and leveraging the enormous demographic dividend that the country has.

Key Learnings

  1. Need to look at competitiveness from a District/ state level vis-a-vis National level.
  2. Many factors like availability of good schooling for children of employees, tax aspects etc., go into making a location decision.
  3. Overall improvement in the business environment will lead to a positive impact in related industries.

Technology and Competitiveness

Panel-3

Starting with some fundamental questions were raised about the nature of technology and economic competitiveness? Pointed out was the belief that while competitiveness is something that keeps us ahead the curve technology presented a dilemma. The dilemma was put forth with companies like a call center having just ten employees as well others like GE and Lockheed Martin all supposedly believing as being operational in the technology business.

Mention was also made as to how digitization of processes does not necessarily lead to competitive advantages. It was pointed out that technology used along with redesigning of processes lead to a competitive advantage. Cited was an example within the insurance industry where claims management has now been redesigned in accordance with the technology shifts in the mobile industry. Also deliberated on were emerging opportunities in healthcare insurance to increasing technology usage.

Mention was made as to how technology radically affects each of us. Four points were made as to how technology is affecting us. First, it is forcing companies to become relevant to the times. Second, businesses are being redefined by the technology as a result of reduction of costs, improvement in time to reach markets, and an effective customer feedback. Third, it is radically reshaping consumer choices and his ability to redesign product and services according to his/her needs. Finally, technology has had an impact on people and workplaces and the way the collaborate for better product and services.

With respect to information technology (IT) revolution, it was mentioned that corporates in 2014 were forecasted to spend about 2.1 trillion dollars on technology globally. Pointed out was how IT has completely revolutionized the businesses of Banks, insurance companies, and telecom companies. The example of mobile user base was shown as a reflection of rapidly technology adoption. Mentioned was the fact that 77% of the mobile users are in developing countries vis-a-vis developed economies, up from 30 percent almost ten years back. Also discussed were technology leapfrogging in India and other emerging economies in Africa.

Some business models were also discussed and how these are being redesigned with technology becoming the lifeblood of any business. Mention was made how innovation and fundamental discovery are now happening at the intersection of technologies. The example of DNA code was cited that took ten years to unravel due to lack of computational power.

Mention was also made as to how some companies not only use technologies but develop them. The philosophy of these firms is technology leadership leading to market leadership and greater profitability. Mention was also made as to how technology leadership is dependent upon budgets for R&D and how these go hand in hand.

Key Learnings

  1. Technology is increasingly becoming the source of competitive advantage for organizations.
  2. Technology is altering business models in a fundamental way. Intersection of technology is the next frontier for innovation and growth.
  3. Technology leadership to an extent has to do with vision and financial commitment towards that end.

Realigning the Institutions

Panel-2

During the introduction to the topic, mentioned was the belief that realigning the institutions will entail institutional reforms as opposed to just economic reforms. Also mentioned was how economic reforms have had a significant bearing on the rise of the middle class in India in the past two decade. However, pointed out was the fact that India continues to be a lagged in the governance reforms that a number of countries implemented in the 1990’s. Noted also was the fact that though there is much enthusiasm about the new government, but India will have to pursue institutional reforms to move out of the dampening reality of our present.

Mention during the discussion was made about three groups of people. Out of these two result in a loss of competitiveness while one leads to a gain in competitiveness. First of these is the bureaucracy that serves the political class, but not the people. Mentioned was the fact that the government is inherently economically inefficient. Secondly category of people are the entrenched businesses. Pointed out were some of the scandals that happened because of entrenched business and how norms for FDI at times are not relaxed to protect the entrenched business. Thirdly, mentioned were customers serving that leads to greater competitiveness.

Also mentioned was the need for checks and balances, the protection of basic property rights and the greater separation of executive from the judiciary. Pointed out was also a need for stronger legal system to reinforce the rule of law that reduces rent-seeking behavior and promotes expeditious judicial redressal. Mentioned also was the paradox about job seekers and employers and the need to move beyond short- term gains to look at long term strategic drivers of competitive advantage discussing the example of Bharat Forge.

Moving on, institutional infrastructure was described as a the set of laws, policies that drive and deliver governance.Focus was turned to building institutional

infrastructure. Mention was made of the need to support the ‘marginal man’ within institutions who is trying to set things right and help him. The session also alluded to how the bureaucratic system is designed for best practices but not for innovation. Need was also felt for moving from realignment to synergizing institutions.

During the session deliberations, points were raised to move from incremental change to radical change. Streamlining purchase processes, fostering skilled talent and setting higher benchmarks were seen as being critical for making India competitive.

Other factors discussed for improving institutions included the need to innovate by enabling educational institutions. Understand autonomy along Governance, Financial and Academic lines was seen as being critical for understanding competitiveness.

Key Learnings

  1. Need to go beyond just realigning to synergizing the institutions for greater collaboration.
  2. Understanding the fundamental or root causes of problems and understanding the group motivations behind the root causes of government functioning.
  3. Looking at the long term drivers of competitive advantage rather than the imminent benefits.

Enabling Industrial Development

Panel-4

Starting the session, pointed out was how the success of make in India will ultimately depend on foreign direct investment and the domestic historical investment that is channelized for capital formation. Fundamental questions were raised about what steps should be taken for enabling Industrial development? Also, the role of public and private sectors was discussed during the session.

Historical antecedents of the ‘Make in India’ campaign namely the National Manufacturing Policy was mentioned and that it had envisaged in 2012 to take manufacturing sector’s share from 16% to 25% of the GDP and create 100 million jobs till 2022. Stated was also the belief that this would require an enhancement in the labour productivity for driving growth and converting a demographic disaster into a dividend. Improvements in the ease of doing business front were also focussed on, like starting companies and removing bottlenecks for the manufacturing ecosystem to take off. Moving on, focus was shifted to problems that manufacturing ecosystem faces with respect to procurement of land. Also mentioned was how land acquisitions had become a significant problem for businesses who wanted to ‘Make in India’.

Anecdotal experiences were also shared during the session as to how a metro coach factory was to be set up in Chennai. Also told was the inability to do so amid land acquisition problems in the industrial area and thus the factory had shifted to an SEZ in Andhra Pradesh. The second example was in Gujarat where the factory was built, but a PIL (Public Interest Litigation) caused a disruption in starting operations. Also mentioned during the session was projects in power and rail where there were massive delays. Positive evidence within factories was given as a sign of hope in Indian manufacturing where India is competing with the best of the world. Mentioned was the need to have synergies between different departments and to do away with some officials if necessary. Reduction in the need to deal with

with different government agencies, was mentioned. A need was felt to have a well-defined redressal mechanism for dispute settlement in cases of discretionary power of the state. Mentioned also was how the education system (particularly in respect to ITI’s (Industrial Training Institutes) could be leveraged for enabling industrial development.

Pointed out was also the dismal land record system in India and how it is not regularly updated because of the fear of local bureaucracy. Mentioned was the fact that one needs to have social esteem even in low skill-based jobs.

With respect to skill development, also mentioned was the need to differentiate it from formal university degrees. A question was also put forth pertaining to skipping the industrial phase and moving to a service- based economy in post-industrial societies.

Key Learnings

  1. Success of campaigns like ‘make in India’ will depend on Industrial development that will again have a host of other factors like land acquisition, construction contracts, education, etc.
  2. Skilling is critical for manufacturing prowess.
  3. Easing the regulations for business to operate in manufacturing sector.

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