A summary of the Inaugural Address delivered by Mr R Seshasayee, Managing Director, Ashok Leyland Ltd at MMA Annual Cnvention held on 15 & 16 Feb 08 at Taj Coromandel Hotel, Chennai.

I would like to read the beautiful musical score that has been put together by the Convention Committee in the context of this topic of global challenges from India Inc MNC. Please pardon me for being a little musically inclined today after having heard this beautiful invocation song. I think the base note of this challenge called the ‘adharasruthi’ is the economic landscape within which India Inc will have to function. But I believe there are certain strategic discontinuities in the future global economic scenario, as the Convention paper says. I must say that it sounds rather awesome but it is an awesome change that awaits us. There was a reference earlier about the fact that India Inc has to now get used to working with an appreciating Rupee. The issue I am afraid is much more than the appreciating Rupee. At the global landscape level, the major techtonic shift that could begin to have happened is the one relating to the depreciation of the dollar. Lest Athuro said that there are likely to be some major techtonic shifts in the global economic scenario and one of the techtonic plates that he identified was a potential loss of value in the USD and therefore, a major change in the pattern of reserved currencies in the world. This he predicted about 8 to 10 years ago on the basis of the fact that US was accumulating trade deficits, was not being sufficiently innovative, innovation has been the major engine of growth in the US and the fact that the Americans were beginning to be more profligate.

For nearly twenty years after the ceasing of the Cold War, we had a uni-polar world; a world in which you had only one major economic and political power. I believe that we are perhaps beginning to see a cusp, an influx point where the uni-polar world might probably be undergoing a change towards the multi-polar world. The US is probably beginning to face an unholy triad, one in terms of the depreciating value of its currency, the slow down in its economic growth arising as a result of its lack of sufficient bouts of innovation and politically the reverses that it has suffered, particularly in the Iraqi war. Remember that every American citizen today with a depreciating dollar has to pay more for a military intervention in the world. And that itself is a deterrent for the US to be operating the role of a single major power; a political economic power. It is also equally true today, in the last few years, that geo-economics is now even overwhelmingly more important than geo politics. The two are getting completely intermingled. You can see the evidence of that in the fact that the Indian High Commissions today talk a lot more about trade and business than they talked about politics. In that context, you don’t have another alternate power which can step into this and it is not something which is going to happen in a very abrupt manner. The world cannot afford to see US go down and nobody can afford to see the USD lose its value as a reserve currency. It is often said that if you are a very large borrower in a bank, you don’t worry, it is the bank that has to worry. And US continues to be one of the largest borrowers in the world. And the fact that sovereign assets are being held in dollar denominated securities. It is therefore not very likely that dollar will lose abruptly its status as a reserve currency. But we are perhaps beginning to see the start of a process where the position held by one single power is now going to get distributed to different powers. We might be beginning to move from a uni-polar world to a multi-polar world. And that might accelerate as and when China choses to be a market economy and China choses to float its currency. It might happen as and when Britain adopts Euro as a currency. But it is quite clear that in this emerging scenario where you are going to have multi-polar distribution of power, India has to assert itself to take a position. It is rather like a business. If you are not building the capacity, if you are not getting the products in time, somebody else is going to take that space in the market place. India simply cannot afford to do that. And if you really reflect on this and ask who is going to be doing this, it is going to be the private enterprise which contributes over 60% of the GDP today, which is going to drive this agenda for India to take a position as an economic power. It is the private enterprise which is going to make the Rupee a strong currency, a currency that is being respected by the world as a trade intermediation and it is that which is likely to give us a seat in terms of an emerging Asia currency model which probably could happen in the next couple of decades. But it is clear that India has a role, as an imperative to take on this position. That to my mind is one of the major strategic, techtonic plate change which India Inc will have to recognize and that to my mind becomes the ‘adharasruthi’ of this note.

As we start to think what it does to India in terms of business, it is again something which has been a rather unique situation that has been developing. India’s growth model is a unique growth model. It is a maverick growth model. Unlike China and the East Asian countries which predicated their growth on the basis of manufacturing, we went ahead and did it on the basis of services. Unlike China and the other developing countries which looked at exports, we developed our growth on the basis of domestic. Unlike countries which wrote their growth stories on the basis of investment, we wrote our growth story on the basis of consumption. It is a completely different model of growth that India has been scripting, not necessarily by design, it may be quite by accident. We often find that we are surprised by what we are doing. So it is quite possible that we have really moved into this position rather unconsciously but it is nevertheless a fact that we have had some discontinuance again, in terms of the manner in which India has moved into the center of the world. It is even more surprising that India has really shown some audacious entrepreneurship in the manner in which the inorganic growth stories of India Inc has been scripted. The fact that a much smaller company can take on a large company like Korus, the fact that somebody could think of windmills as a means of building global wealth, we have been completely maverick in the manner in which we have scripted this growth. Couple of days ago, I read this fantastic news about a boy called Chourasia, the son of a caddy who shot into fame playing golf. That completely disturbs all notions of the type of social straga that you expect to have golf players coming from. And that is India’s story. The world did not expect India to produce a master world champion because India was an Underdog. Then suddenly you see that India is laying claim for leadership. That is the strategic landscape within which India Inc has now to script its story.

When we look at what has been the driver for this, the first wave that we had was the IT wave, which took us to global stage and the second was the BPO wave. Both have been developed on the basis of human capital. Human capital that we took for granted which India was not even conscious about. That is the same human capital which is also driving acquisition. The audacious entrepreneurship that I referred to earlier is also based on human capital. Remember the fact that the money for acquisition is not coming from Indian capital. It is coming from Wall Street, the western banks. The object of acquisition is in the western developed world; Money is coming from Wall Street; and why does it then bank a leverage buy-out? Because of the human capital and the entrepreneurship that you have in Indian management.

The second note in this musical composition is the issue relating to transformational impact of human capital. That is session two. It is that human capital which has made these transformational changes in India Inc. At the same time it is very curious that is again where we have the biggest challenge facing us. We are all today in a spree on acquisition because it is something very exciting. As I often say you cannot meet your wife in the eye if you do not acquire at least one company in three months. But, if some investment banker thrusts a proposal on Monday morning saying that you have to put in your non-binding bid by Friday evening, you succumb to that and start looking at whatever comes your way for acquisition, we are soon going to find that the human capital which is the bedrock of this kind of growth could itself be so stretched and could itself lead to failure and we have to face this challenge. Every organization today is stretched very thin at the top. We have a tremendous kind of starvation for leadership. There are not enough business leaders, chief executives who have run a 1000 crore company enough to feed the growth appetite of the Indian Inc MNC. And you have anecdotal evidence that 60% of the acquisitions world over, have not achieved the projected sceneries. You really have to be looking at growth happening on the basis of inorganic growth of acquisitions and mergers, getting into the global challenges, global world on the basis of MNA and we really have to face the situation of the thinning talent that we have at the very top. I am not talking about skills at the bottom. I am talking about the managerial talent. They build a team to turn around a large company in a totally different kind of cultural setup.

Again, this is somewhat curious because we have a large population of 1 billion plus and we constantly keep talking about this problem of human talent. And this is again known to be the result of a situation where we have neglected our education for a long time. All of us are aware of the stark reality that 90% plus drop out of school, we are all aware that 150 million children are still out of school. The solution that is being pushed today, to increase enrollment in school which by the way also prescribes that you cannot fail a student for the first 5 standards, is also producing poor quality. The Sarva Shiksa Abhiyan is certainly achieving its objective in terms of pushing input quantity but is having an adverse effect on the output quality. I have taken presentations from NGOs, which say in their survey that 5th standard students cannot solve two digit additions. 35% of them cannot solve two digit additions. Worst still, 35% of 5th standard teachers cannot solve the sums of the 5th standard. If that is the quality of education, then we have a lot to worry about. And we have a lot to worry in terms of the lack of skills. We still have no more than 90 skills which we are imparting by way of training whereas the world has categorized over 900 skills and China is somewhere with 600 skills in terms of formalized training processes. So we have a huge issue in relation to human capital and that is resulting in not having enough army or supply of people with the right kind of education. And that again traces back to the situation that despite the growth over the last 5 or 6 years, we have not been able to distribute the benefits of this in terms of improving the competitiveness of the work force. Undoubtedly we have had this tremendous growth in the last few years. But it is equally a fact that this growth has been accompanied by the increase in inequality. This is exactly how it will be. Freeing of the market, linkage with the global market necessarily results in higher growth but also necessarily results in higher inequality. There is no other historical evidence to show that when this happens you have equality also coming along. Does that mean that we go back to the past where we talked about distributive justice and therefore muffled growth? The answer is no. We need growth. We invariably have to increase the size of the cake but we also need governmental intervention and this is a curious kind of an argument that we should be making. We said for several decades, ‘Government, please get off our backs’ and now we have to get the government to intervene to ensure that these benefits are ploughed back to make sure that a larger number of participants come into the marketplace, that the wealth is distributed in an even fashion such that there is going to be a larger supply of skilled people coming into the market, and that is what is going to expand the market, that is what is going to be able to preserve our human capital. If you merely take the per capita figure and this figure of 1000 USD in India and if you take an average per capita of 25,000 USD in the developed western world, we must have a 1 to 25 advantage in wage, but we don’t have that. We have 1 to 4 and at the very top, we don’t even have any advantage. At the very top to the business leaders and managers, we have paid the same as global salaries
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With China, if you go by the per capita in dollar terms, you must have 3 times the advantage in wage. We do not have that. We are just about the same or slightly higher and that happens simply because our distribution of this total is so skewed. That you have got very high levels of wage and salaries coming at the top with very poorly paid workers at the bottom, the average is so skewed, that our competitive advantage in terms of having a large pool of capital is not coming about and helping business grow because of the problems of distribution of wealth. That is precisely the note that you will be discussing later in session 3.

Now talking about human capital in the labour arbitrage, the cost advantage in labour is often confused as the advantage in terms of cost competitiveness. I am afraid they are two different things altogether. A cost advantage arising out of a factor advantage in terms of lower labour cost is not a sustainable advantage. It is not to be confused with cost competitiveness. Cost competitiveness comes as a result of eliminating waste, of doing things in a lean fashion, of running a shop floor on a lean production system, of having a design which is lean. And there is no end to the effort to eliminate waste, to eliminate unproductive effort, to eliminate what is non-value adding. Toyota which is really one of the reference point for efficient lean manufacturing systems still believes that there is a tremendous amount of value to be unearthed, cost to be controlled by cutting down on waste. Vaten Abbay, the Chief of Toyota, was addressing a press conference recently and in an interview he said, ‘No, we have not achieved anything like an optimal level of cost control. In this press conference itself, we have two PR managers. Why do we need two? We need only one’. The amazing amount of fat that we gather over a period of time does not make us lean and that takes away the competitiveness. This is what India inc has to fight for. I do believe in the last few years, India Inc has been lost in its own awe and we have been gathering fat. I keep saying quite often within my company that it is a good thing for us to go through a bad patch. Only then you realize that you have to cut fat. I’m very happy that we have a slow down. Because it enables to introspect and see where you can cut out what is not necessary. Clayton Christensen said that invariably, every income bent manufacturer has a tendency to add on cost without delivering value to the customer over a period of time. And then he said that then there comes one new kid in the block who discovers precisely what the value equation of the customer is and puts out a prize performance point which is so challenging that all income bent manufacturers are completely driven out of the market place. The nano is a classic example of this.

I shall come to the fourth note and that is going to be a very interesting story for us. The story of the nano is a story of a bunch of engineers who have looked at a very lean value mapping, precisely what delivers value to that customer and what does not and stripping that. That is what frugal engineering is all about. And that is a state of mind and that is the culture in an organization that I believe India Inc will have to cultivate. And very appropriately, this is the fourth note, cost competitiveness. And in the manner of speech, I have taken the metaphor of music scale and this fourth note, ‘madhyamam’ really separates the entire periodic table of raga into two notes. One is the ‘pradhimadhyamam’ and the other is the ‘suddhamadhyamam’ where one is cost competitive and the other is not. It is as stark as that. And that takes you to the next point. Can you work only on the basis of human capital availability? Can you oath to grow only on the basis of cost competitiveness? Still the answer is no. It is quite clear that there are many companies which have focused very well on lean management, on shop floor efficiencies, cost cutting, in fact quite often we have seen the senior management which has been obsessed with driving cost down, getting shop floor efficiencies but have missed strategic directions. They have missed to understand the need for innovation.
Internally, we have had many discussions on this issue. We had at one point of time discussed that we need to discover a prize performance point on the engine which is the heart of the vehicle through a route which would give us the ability to compete at a lower cost with higher performance with a formidable competition. And I like to think that focus on cost competitiveness gave us a certain advantage over a certain number of years. But it is very evident that something which is replicable does not give you durable advantage in terms of competitiveness. The only durable advantage that you get is through the process of innovation where a new product innovation or new process innovation builds an entry barrier for competition for a certain period of time. Innovation these days has been a major area of discussion within corporates. I like to think that innovation does not come about in an organization, because organizations by definition are conformist groupings. You have to have conformity. If everybody is rebellious in an organization then that organization ceases to exist. Like an army you have to have conformity. The challenge is when you have conformity how do you stimulate innovation? How do you get somebody to think in a tangent? How do you provide an ecosystem where people who have already burdened the experience say ‘No, this cannot work’? We had this huge challenge because we are a 60 year old organization. We created a forum called the YES Forum: The Young Executives Forum. And actually it came about by my having received a mail by mistake. And that mail was from one of our young executives. In his mail he says ‘I don’t think this company is ever going to listen to this bright idea that I have.’ Now that made me sit up and think that we cannot have young executives having bright ideas feeling that they cannot get the organization to listen to them. I am sure that all of you have had this experience. You come into a meeting and you sit around and you see these junior people sitting along the edge of the wall and the senior manager says something about a concept or a product. The junior guy is sitting there and nodding his head because he doesn’t believe it is going to work but he is too afraid to talk about it. How do you get them to come out and say that is not going to work but some bright new idea can work? We went through this process and we are still learning to get the organization to listen, nurture and to promote and we in fact have institutionalized this process. We have had nearly 160 odd people who have gone through process of innovation. We have created a platform called ‘The Mission Summit’ and this is a platform where anyone who has innovative ideas can come forward. We have revenue targets for them, we have bottom line targets for them, we have innovation, processes prescribed and we believe that it is very important to stroke this. I cannot claim to have fully understood on how to do this but what is clear to me is that we don’t have this innovation. Some of you would have read about this I-bus, which was exhibited in the auto exhibition. That is entirely conceived of, developed, executed and produced by a bunch of young executives.

I like to share this experience. I-bus has a lot of features, lot of gadgetries which normally would have been rejected as unnecessary or impossible to be done in a bus. Yet these young executives went ahead and developed this to prove to the company that this is possible. It is not so much that the I-bus itself is a major breakthrough which will have crores of turn-over coming in as a result of it. But what it did prove to the organization was that it is possible for people who are not burdened with experience of failure to think of something tangential and prove that it is possible in doing so. I think this concept of innovation is a key requirement in terms of accepting the challenges of growth and leadership in a global marketplace. And that takes you logically to the next note, the sixth note on leveraging on intellectual property.

If you look at the landscape in terms of the IPR gene, over 90% of IPRs are held by the developed countries. If you look at what India has been doing in relation to IPR, it is a pathetic story. We do not have enough research and development, expenditure being incurred as a nation. We do not have enough resources being set apart as a country for solving the problems of the future, for taking critical positions in developing technologies. As companies, our spend on R&D is pathetic and as educational institutes, we produce less than 1/10th , I don’t recall the exact number, but significantly lower number of PhDs and doctors as compared to China. But it is also clear that if we do not have innovation leading on to intellectual property rights and I am glad that this session has been called leveraging intellectual property. It is not merely the number of IPRs that you file, but the ability to leverage these IPRs for the purpose of growing your turnover and the bottom line. What the dotcom boom did was to underscore the fact that it is possible for you to have large returns on intellectual capital. If you look at the classic fact as a production and look at the returns in relation to the classic fact as a production, it is evident that the new factor of production which is the brainpower has a much higher return than the return that other conventional factors of production like land labour, etc have. That is what the dotcom boom did. It proved that if you had a bright idea, no matter where you are, it is possible for you to get capital to back that up and to get a very high return for your idea. And the return of the idea has to be protected through a process of intellectual property rights. We, as companies in India, are still not quite literate on the IPR legislation. There are many gray areas which still have not been fulfilled by judicial pronouncements within this country. And therefore it is necessary for us to understand where the opportunities lie and where we need to protect as well. In fact I came across very recently, an interesting group of people who said, ‘We will enable you to develop IPRs very legally by looking at what is available as filed IPRs and where the gaps are. You can close these gaps. It is perfectly legal, legitimate and you add value.’ There is a group functioning in India which enables you to file IPRs. It is the leveraging of your ability to add value by way of brain power that is going to be a sustainable advantage in terms of competing and growing in the market.

That is the sixth note which is leveraging intellectual property. But being a steadfast believer in classical music, I cannot stop at the sixth note. I have to go on to the seventh note. This note which completes the series of musical notes, relates to customers. In fact I am curious why when such a beautiful program has been put together, we haven’t heard much about the market and the customer in this. And I will tell you why it is very important. India Inc is getting used to exports and I remember many years ago when we had this colourful secretary Mr Abid Hussain who was the commerce secretary, and he once called a few of us aside and at that point of time we had this huge foreign exchange crisis. India was pushing India Inc to export somehow by giving incentives and all kind of freebies. He said, ‘We must get exports to go up otherwise we are going to be in trouble. We need to incentivise, we must push Indian industry to export. So what do we do? What kind of slogan can we suggest?’ Because those were the days of slogan. And people in Delhi believed that if you had a slogan, you achieve results. So, one meek joint secretary said, ‘Sir, what about “Export or Perish”? And then Mr Abid Hussain said, ‘Don’t ever give this choice to Indian industry because they will perish’. This was not very long ago, because we were at that point of time very obsessed with the largeness that we had in terms of the domestic market. Our own lack of confidence in going and competing in the global market and therefore there was this hesitation to commit oneself. We have recently been looking at every opportunity, but it takes a different kind of a mindset to be an international player, an MNC. An exporter mindset used to say, ‘I manufacture these products for my customers in India. Where can I go and get markets for these products?’ An MNC, an international mindset says ‘For the customers in the US, what products should I be delivering for value?’ I am afraid that India Inc has just moved from export mindset. We have to develop an international mindset. We have to understand the customer differentiation. I am a great fan of ice creams and I can tell you that the ice creams in Belgium are much too creamy for 5234+.3+ the consumer in Britain. The gelatino ice cream from Italy is much too sweet for the French and the French ice cream is much too flaky. Every customer has his own wants when it comes to taste. It is important for us to understand and be sensitive to the needs of every customer and every market. That is when you begin to deliver and begin to innovate. That is when you begin to get cost competitive and that is when you start looking at truly becoming an India Inc MNC.