The Hindu Business Line : No `one-ways' in globalisation

Globalisation, as most countries have to come to finally comprehend and accept, is not only inexorable and inevitable but also largely beneficial despite short-term restructuring pain and suffering.

ON a recent trip from Mumbai to Chennai, I boarded a Jet Airways flight — actually, a Boeing aircraft manufactured in Seattle. In each seat was an invitation by Citibank to apply for a Jet-Citi credit card. One gets miles on the airline by spending on the credit card. Before take off, I retrieved a few phone numbers from my Palm PDA and made calls using a Motorola phone. The hostess served me Pepsi as I leafed through Indian magazines that advertised products or services such as MetLife, Levis, CNN and the TV show Friends. I then worked on my laptop that ran on a Microsoft operating system and applications. On landing, I picked up my Samsonite bags and took a cab, a Ford Ikon, to my apartment. I had breakfast the next morning with an old friend at the Sheraton before getting to my office that uses Otis elevators and Carrier air-conditioners.

Many Indians today consume American (and other) products, services and entertainment freely without noticing. This level of acceptance and integration has come about after decades of pressure and persuasion by the Western economies, led by the US, that globalisation, free trade, open markets, worldwide competition are virtues that engender widespread prosperity and progress. And they were mostly right.

Indian consumers today enjoy higher quality products and services — I cannot say the same about entertainment — at lower prices in part due to foreign competition. Several Indian soft-drink manufacturers buckled when Pepsi and Coke entered India; many Indian banks that can offer comparable financial services find some of their business taken away by foreign banks. No matter. Because, as the consensus in India holds, it is a small price to pay for the benefits. Interestingly enough, competition from the likes of Citi and HSBC has spurred the creation and spectacular growth of domestic banks such as HDFC and ICICI and Vysya.

Globalisation has led to the creation of numerous Indian companies that are truly global and compete head on with foreign heavyweights. Globalisation, as most countries have to come to finally comprehend and accept, is not only inexorable and inevitable but also largely beneficial despite short-term restructuring pain and suffering.

Business process outsourcing — the practice of purchasing services from a lower cost, typically foreign, source — that is causing an uproar in the US today is but an integral element of globalisation. Though service outsourcing has come into vogue recently due to increased telecommunications bandwidth at a lower cost, US companies have been outsourcing for decades in different ways, benefiting the American consumer in the process. For example, American car manufacturers build some of their cars in Mexico, bring them over and sell them in the US. This is outsourcing of manufacturing to another country.

Which is no different from an H&R Block having an income-tax statement prepared by an accountant in India and selling the finished tax filing to a consumer in the US. Or, American Airlines having a person in India or elsewhere to answer customer calls. This is outsourcing of services to another country where it can be done more cost-effectively.

When enabling technologies become available, companies look for cheaper and more effective ways to innovate, develop products, service customers and make more money. This relentless quest to extract increasingly higher value is in the DNA of all successful companies; companies that lack this gene will atrophy and die. This we all know. This endless pursuit — reduce costs, increase revenues, repeat — is what the capitalist system demands of its business managers. If a set of managers cannot extract the highest value and perform, shareholders will go find someone who can. Is not this the reason why the US is the most powerful country in the world today and why Americans enjoy such unprecedented prosperity?

Though enterprising companies might initially outsource to increase their margins, soon they will have no option because others have also discovered the same secret. In many cases, businesses just cannot survive and continue to hire people in the US unless they can get some of their work done elsewhere at a lower cost.

The calls to ban outsourcing are both untenable and unwise. To say an IBM or a Citibank must be able to make money by selling its products to Indians but cannot purchase services from Indians is both untenable and, perhaps, also unfair. Free trade cannot be selective or one-way. These new protectionist calls are also unwise because they will inevitably trigger retaliatory moves and lead to a trade war that nobody can afford. Can American companies succeed (and employ people in the US) if they cannot sell to 5.75 of the six billion humans living outside the US? Can America Inc. thrive in isolation?

In an amazingly interdependent global economy of growing complexity, the free flow of capital, goods and services is both inevitable and inexorable. The important task at hand is to anticipate and prepare for the fundamental restructuring and reallocation of capital that is underway.

(The author is CEO, Sulekha.com, a global Indian community.)

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