Financial Daily from THE HINDU group of publications
Tuesday, Aug 06, 2002
India Inc: Core (in)competence?
C. Bhaktavatsala Rao
INDIA has had nearly 55 years of industrialisation marked by a variety of technical collaborations and indigenous technology development efforts. Today, the country has a presence in virtually every area of the manufacturing and service sectors. Yet, the true core competence of India Inc is somewhat elusive in definition.
Judging core competence
Core competence is an intrinsic capability of a firm, industry or nation that competitors find difficult to emulate. Core competence can be uni-dimensional or multi-dimensional depending on the unique attributes. For example, Japan as a nation and Japanese firms as entities have core competencies in, among other things, miniature design, integration of electronics and mechanical engineering, manufacturing productivity and quality management. The US' core competencies, on the other hand, are in its advanced universities, space-age materials, computer hardware and software, biotechnology and venture capital management.
At the heart of core competence is the capability to engineer and execute a completely integrated value chain in an industrial system through internal skills. Internal skills are those that are developed and regenerated in a firm, industry or a nation, through an organic infrastructure. Unfortunately, when the above criterion of competence is applied to India Inc, crucial missing links surface.
In the automobile sector, for instance, the capability to manufacture a range of vehicles no doubt exists. But when more sophisticated automobiles are sought to be produced, technology and key components such as engine and gearbox are often required to be sourced from abroad. Even assuming that a new technology engine is indigenised, the fuel injection equipment, which is the core of an engine, would remain an imported item. And in the event the fuel injection equipment too is indigenised, the governor the heart of the fuel injection system would have to be imported.
In the components sector, India has the capability to make axles, but gears are often imported as they are technologically superior.
At another level, we may be able to manufacture cars, yet the design and dies are sourced from abroad. We may be the world leader in the manufacture of passenger buses, but when it comes to offering CNG or low-floor buses, overseas technology is still required.
Such examples abound in other industries as well. Any laboratory across any industry has only Japanese, American or German precision instruments. India may be producing pharmaceuticals of the highest standard but the clean rooms and sterile manufacturing lines are mostly imported.
As the products and services produced or offered indigenously are de-layered, it can be seen that the most exacting and precise aspects of the technologies are produced outside India. It could be a piece of conceptual engineering, a material specification, a constituent aggregate or a manufacturing sub-facility. Nevertheless, the fact remains that core technology is driven from inputs outside India. In the quest towards making the country an economic powerhouse in the new millennium, India Inc must ask itself whether its core competence is to the true core.
The answer to this paradox lies in our marketplace and marketeers who interpret the marketplace. Essentially, the marketplace and marketeers need to be passionate about innovation if a nation is to be at the leading edge of competencies. As long as technological innovation is a matter of periodic discontinuity and the market is willing to live with static and obsolete technologies, without aspiring for radical technologies, the pressures on firms to seek new competencies would be low. The problem is further accentuated if the marketeers as a community are indifferent to technology and willing to fight their battles on the basis of price and familiarity.
These may seem to be a negative hypothesis given that India has accepted globalisation. But one has to only see the fast-paced developments in multi-functional mobile phones, computer-compatible micro video-cameras, multi-movement domestic robots and new generation of personal computers in the world markets to understand that India is not even in the periphery of the new age `mechatronics'-led inventions.
India Inc can take two fundamental routes to build core competencies. First, expand and drive the markets with new-technology products a proactive risk-taking approach. And second, modify the "import-indigenise-market" model to "ally-develop-export" model a cooperative, risk-sharing approach. These routes determine the direction and pace of industrialisation and economic development for India in the future. If the former is adopted, India has to build true core competencies in research and innovation and fuse multiple technologies into products. Even in the latter approach, India needs to work harder than before in terms of improving competitiveness and quality, cutting cost levels and entering into international partnerships to avoid getting edged out by China or other tech-savvy countries.
The essence of this approach is in shortening product lifecycle on a continuous basis, eventually emerging on a par with the world's leading innovators. This innovation-based approach is undoubtedly investment-intensive and requires high level of technological and managerial bandwidth. South Korea is perhaps the best role model for this approach. This approach can be typically primed by large private sector conglomerates such as the Tatas, Birlas and the Reliances, and public sector behemoths such as BEL, BHEL and ONGC.
Though such an approach has been adopted by a few companies in the past, it has not yielded requisite results mainly because the competencies were not built up in a network of specialist industries where they ought to have been. Tata Engineering, for example, discovered decades ago the need for building core competencies. Tata Engineeing's model comprised development of machine-tool-making and die-making capability internally. The object was to secure sophisticated CNC machine tools and dies for achieving greater manufacturing competence in Tata Engineering. An internal organic competency-building model was chosen by Tata Engineering because specialist machine-tool making firms in India were not willing to invest in such an approach of technology upgradation. In hindsight, Tata Engineering's model would have succeeded for the country's overall good had the independent machine-tool and die-making firms such as FMT and GKW been proactive to build their core competencies in their respective specialist areas.
In today's context, Tata Engineering is striving to enrich its design capability with vehicle-simulation-cum-test facility and manufacturing capability with precision prototype building capability. These will build core competencies in a direct and relevant manner. Nevertheless, the need for ancillaries, forging and casting suppliers, machine-tool and die makers to enhance their competencies to international levels remains. In addition, contemporary developments abroad require new strides to be taken in `mechatronics', vehicle navigation systems and low-weight high-strength materials. If, in each industry, all constituent firms, from basic-material producers to end-product manufacturers, develop in an integrated fashion to upgrade their basic competencies, the industrial value-chain as a whole would be truly inventive and world-class.
In this approach, the corporate sector will have manufacturing competitiveness as its core competence as opposed to inventiveness under the proactive risk-taking approach.
In a sense, this is a model which China and a few other South-East Asian countries have adopted, based on technology assimilation, labour productivity and factor advantages. The
success of this model rests on industry generating alliances which are focussed on making India a part of the global manufacturing chain. The technical and financial collaborations, whatever be the sector, have so far focussed on meeting domestic market needs.
Automobile ancillaries, entertainment and industrial electronics, computer components and assemblies, telecommunications equipment and bio-medical components would be some of the sectors where India can pursue a new growth model based on competitiveness.
The benchmark in this approach would undoubtedly be China. India has to excel in terms of not only manufacturing competitiveness but also infrastructure support to compete for a share of the global manufacturing outsourcing market.
If this approach is combined with an aggressive development of the special economic zones, it is quite likely that India will make up for the lost time.
To be a preferred base for manufacturing outsourcing, India Inc has to hone its skills in alliance building. Indian firms need to understand the outsourcing needs of potential partners, address their concerns on intellectual property, ensure stability of quality and consistency of supplies and position themselves as value-adding intermediaries in the partners' global industrial chain.
The world is moving into a new phase of industrial evolution where inventiveness and competitiveness will be pursued by a much larger number of countries. Led by South Korea and China, a new club of industrial countries with remarkable core competencies will take shape aggressively in the coming years.
India Inc has to develop its own set of core competencies backed by appropriate research and manufacturing paradigms to be a member, if not a leader, in this club of countries.
(The author is a Chennai-based freelance writer.)
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