The Hindu Business Line : Core incompetence?

COMPETITIVENESS is the key to success — for a company, a country or a state. Relative competitiveness is enhanced by focusing on "core competence," without deviating into other functions. The essence of Business Process Outsourcing is all about minding one's core business, leaving all administrative and connected functions to outside entities for whom these are the core activity. This raises efficiency and reduces costs.

A country's competitiveness depends on its `core competencies', which are decided by such factors as high productivity, labour availability (both in quantity and quality), efficient infrastructure, low transaction cost, business friendly regulatory and institutional framework, strong enforcement and so on. A country can achieve such core competence by focusing its resources in these areas, withdrawing from diversified ventures, which are best left to the private sector. India appears to suffer from core incompetence.

"How would India fare in textile/garment exports, in the light of the quota removal, I asked the CEO of a garment exporting firm. He answered: "The future looks good, but would be great, if only the business in India gets the necessary support from the Government on many things." He then elaborated that the country has enough globally comparable talent, but it is the government which is failing to give the needed support.

In a fiercely competitive world market, he says productivity is the key. For him, this means he needs `high quality' workers, who deliver quality output, on time. That is, one, workers need to be healthy. This cannot be achieved by merely contributing to Employee State Insurance Plans, which offer low quality health-care, but by offering them first-class medical facilities at or near the factory. This has forced him to invest in polyclinics, doctors and related facilities.

Two, timely output would mean that workers need to come to factory on time, which cannot happen if they have to depend on the public transport system. So he has also invested in transport. From the initial two buses, he runs 40, with their support infrastructure. The annual investment and the maintenance of the two facilities erode substantially the firm's already wafer-thin margins. But he has to do all this, as the government service is unreliable. His energies are also diverted from the core business of exporting garments to running the health-care and transport facilities. Worse, the recent Fringe Benefit Tax threatens an additional impost on all these. India's ports are less efficient than those in China, Hong Kong or Singapore. Power costs more. The procedural requirements are many and cumbersome, compounded by corruption. Compared to India, the Chinese government has demonstrated better efficiency on all these core competencies. Due to its relative competitiveness, China is expected to be the leader in textile exports, followed by India.

India has made slow progress in developing and sustaining its social and physical infrastructure. In spite of the liberalisation, the business in India still continues to be plagued by procedural bottlenecks, poor quality workers, and limited government support. This compels businesses to deviate from their core activities to fill for the lacuna in government-provided services, as in health-care, transport, social-security/welfare or in infrastructure such as roads, power, water, and ports. The Government must focus on its core competence and build its relative competitiveness that the business community can leverage effectively.

(The author is a Chennai-based practising chartered accountant and advocate.)

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