How to Beat the Dragon in Business

    11-Jul-2020   
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Now that the Dragon is beating a humiliating retreat from the icy mountains of Galwan Valley, it is the right time for India to take stock. Not only militarily but also economically. The post-Corona world offers an unprecedented business opportunity for India to grab. If we are not fast enough, we will miss the next economic bus.
Beat China in Business_1&
 
The recent series of events occurred at Line of Actual Control (LAC) in Eastern Ladakh between Indian, and PLA troops has caused huge outrage against the autocratic communist regime of China and its expansionist policies. People have started boycotting Chinese products as protests spread across the country. The government also banned 59 Chinese apps with a huge user base and popularity. But can we afford to boycott without quality alternatives? We should be realistic and sincerely work upon issues and challenges faced by our industrialists, entrepreneurs and the service industry. Manufacture in China and sell it in India is the new trend today as we had failed to build up our eco-system for Research & Development and innovation in the country. Investing in R&D was thought to be a waste. As a result, we could not develop a single indigenous app in the software industry with global brands such as Apple, Google, Facebook, and Twitter though we have the best IT companies and brains in the country. We need to understand the challenges and try to improvise and innovate at the earliest.
 
China emerged as a manufacturing superpower in the last decades. The world did not realise how it got enslaved by cheap and shoddy Chinese products. Unfortunately, they produce cheap items suited to each and every pocket. Today China controls many items sold by top brands such as Apple, Sony etc. Every electronic device manufactured in the world has a part manufactured in China. China’s cheap labour and speedy execution of projects made it the manufacturing hub of the world.
 
Investing in R&D was thought to be a waste. As a result, we could not develop a single indigenous app in the software industry with global brands such as Apple, Google, Facebook, and Twitter though we have the best IT companies and brains in the country. 
 
Post-COVID-19 the world is anti-China, thanks to the Wuhan virus. It has demonised China and its approach to human life, values, ethics and work culture. The world is searching for options where it can have quality products, competitive price and timely delivery. Over 300 foreign companies have decided to shutter their manufacturing plants in China and move to a safe and better place. Japan declared US$ 2.2 billion relief package for companies to shift from China.
 
India is well placed to address the situation and grab this opportunity. We have cheap labour compared to the rest of the world except China, Vietnam or Bangladesh. We have a better infrastructure now. We have a democratically elected Government committed for growth and welfare of the people, whereas what dictatorship can lead to can be witnessed in China. No human rights, no transparency, massive corruption, and dictatorial regime.
 
If we care to evaluate the pros and cons of the Indian business environment in an objective manner, our weaknesses and strong points as compared to China become clear. We already have a vibrant democracy, and our human right index is well above compared to China. Civil rights are enjoyed to the maximum, or we can say at times it’s been abused. Censorship on the media and other communication means there is almost no transparency. The recent novel Corona pandemic is evident how China risked humanity by hiding the truth on the Corona virus. There is no reliable information on the actual number of deaths in China. Had there been a free media, thousands of lives and huge resources could have been saved.
 
The areas which need to be addressed immediately: 
  • Policies are still not entirely business-friendly
  • Corruption is rampant in the middle and lower rungs of bureaucracy
  • Slow decision making, poor implementation and inadequate communication
  • Absence of long-term policies (a change of government may dump policies]
  • Political interference in business-related decisions
  • Specialised Banks for each sector 
Policies
 
We don’t have business-friendly policies which can inspire new entrepreneur and industrialist to venture in to large scale production facilities as few business houses still control the market. They kill each opportunity for the MSME to emerge big. The intensive focus needed to mitigate the challenges faced by the MSME industry. Draconian laws of British era still exist in the Indian regulatory system, Environmental laws, Land acquisition and conversion of land for industrial purpose is the biggest source of corruption and major roadblock in development. Files take months or years to clear despite capitation money being paid to officials at each Collectorate or revenue department. Digital Mapping of land and its conversion should be done online.
 
Over 300 foreign companies have decided to shutter their manufacturing plants in China and move to a safe and better place. Japan declared US$ two 2 billion relief package for companies to shift from China. India is well placed to address the situation and grab this opportunity. We have cheap labour compared to the rest of the world except China, Vietnam or Bangladesh. We have a better infrastructure now. 
 
Alternatively, Centre or State Governments themselves should identify land parcels in advance, purchase them from farmers or other sellers, obtain necessary clearances, build infrastructures like roads, power and water lines and keep them ready for sale. In any case for so many business-like electronics, IT, Argo products, environment and forest clearances are unnecessary. It takes years for approval and promoter starts losing interest on the project even before the project gets off the ground. This is because bank loan starts accumulating interest on it.
 
South Korean steel giant POSCO waited for so many years to set up its steel plant and has finally walked away because of such delays.
 
      
Beat China in Business_1&
German footwear brand, Von Wellx, has decided to move its factory operations from China to Agra, Uttar Pradesh. The company has more than 10 crore customers in more than 80 countries
 
Bureaucracy is the biggest hurdle in development as the decision taken at the highest level fails to get implemented at the ground. For example, in recent Corona pandemic, Government of India has decided to reduce performance security deposit up to remaining project cost. Still, it has not been passed on to agencies by departments; contractors are suffering severe financial crunches.
 
In short, policies should be well thought out and must be for the long term, should not be influenced by changes in the government or ministry or officials. Polices should be such that there are no scopes for corruption or delays.
 
Corruption
 
Though an autocratic regime is believed to be more corrupt, in China the corruption is limited to the top rungs of Chinese Communist Party only. Autocracy helps them in implementation of policies and projects in real-time. Fear of being severely punished works well with such a way of governance. Contrary to this India has seen a non-corrupt regime at the Centre in the last six years. But the mid and lower level is still the same, its big roadblock to policies and programs of the government.
 
For example, banks are told to lend to SME, MSME sectors to support it to revive. But banks are hell-bent on not doing it. They follow the same old Line of no work is better than to be held accountable. They fear of being booked by ED or CBI for any wrong lending. PSU bank and government enforcement agencies must understand that they are also doing business, and some cases resulting in NPA doesn’t necessarily mean corruption.
 
We don’t have business-friendly policies which can inspire new entrepreneur and industrialist to venture into large scale production facilities as few business houses still control the market. They kill each opportunity for the MSME to emerge big. 
 
One classic example is Dholera SIR, the brainchild and dream project of PM Modi. A huge 72 square kilometre area has been developed with world-class infrastructure near Ahmadabad out of the proposed total area of 920 Square kilometres. It was conceived when PM Modi was CM of Gujarat, over six years since he became Prime minister but not a single industry has moved in. A sum of over Rs 5,000 crore have already been spent on development so far. It’s time to invite those 300 companies moving out of China to Dholera SIR. They can start manufacturing within a year with ready to move infrastructure in place. Present Modi government has been talking about so-called “Plug and Play model” for new business. Dholera SIR is an ideal location to execute this model.
 
The lower and mid-segment of government must show accountability towards timely implementation of the government schemes from time to time. Technology can play a significant role to settle this issue. As the world is making new norms post COVID work culture, we should focus on online meetings for quick approvals, disbursements of disputes if any. Unnecessary movement of physical applications and paperwork should be avoided. The human interface only can reduce corruption and speed up the work.
 
Specialised Banks for Each Sector
 
The rapid growth of China is largely attributed to the planning of finances for new enterprises. China has a separate bank for each business sector, like Industrial Bank of China is for industry-specific. Agricultural Bank of China is for agro-business only. Infrastructure Bank of China is for infra projects lending. This makes the officials expert in their respective field and easy to understand customer needs. In India, all our private or public sector banks are doing all the businesses, and they don’t have expertise in any specific business.
 
They struggle to learn a new type of project or consumer demand comes to them. We have our own ILFS or NABARD or NBFCs, but they too are mired in red tape and corruption. We should improve and upgrade the work culture of these lending institutions to make them more business-friendly. Large PSBs should have “desks” or single widow systems for specific businesses.
 
But the mid and lower level is still the same, its big roadblock to policies and programs of the government. Banks are told to lend to SME, MSME sectors to support it to revive. But banks are hell-bent on not doing it. 
 
Presently our yearly imports from China are about Rs 5 lakh crores. The bulk of them comprise of following segments: Electronics, Telecom equipment, Organic & Inorganic chemicals, intermediates, bulk drugs, agrochemicals, dyes, Textiles (including man-made fibres and yarns), Air conditioners & Refrigeration equipment, Automobile batteries etc.
 
The government must approach concerned trade bodies for the above businesses to seek implementable solutions from them to replace these imports in time-bound manner. Most of the items mentioned above are already being made in India. Some of them can be imported from other countries for time being (Refer case of Hero Motor Cycles, they cancelled their orders worth Rs 700 crore from China for auto components and planning to buy with little higher price from Germany but will eventually make them in India).
 
In the short term, our objective should be to meet domestic demands for these products. While doing this, we can address issues of quality and prices. This will enable us to compete with China globally and should focus on “suppliers of first choice” because of the anti-China environment across the world.
 
We can produce the best of engineers and managers for global businesses. Time is ripe for us to harness this talent to counter this Chinese challenge.
 
Key Takeaways
 
· Encourage all government departments dealing in revenue, environment, and pollution control to go digital and online to speed up the process, transparency, avoid harassment to industrialists.
· MSME sector must get close attention of Top decision-makers. They are the backbone of economy and employment. About 50% of export earnings are from MSME sectors also employs 55% of our workforce. While political leadership has realised the importance of this sector, bureaucracy is yet to respond positively to this critical sector.
· One nation one tariff for electricity. It varies from Rs 2.5-7.00 per unit.
· The manufacturer is confused; by the time they start production with pre-existing benefits announced by the incumbent government, the government changes and new policies come to force. They should have a protection pact for a minimum of 25 years.
· People should be encouraged to establish units in their own locality/ state and must be given incentives for such initiatives.
· Consumption of goods made locally should be encouraged. Such products are bound to be cheaper as they don’t involve storage and transportation costs.
· Bank lending must be done easily with lower collateral security & rate of interest to encourage new entrepreneurs & should be on top priority.
 
Any business decision involving huge capital outlay will be taken with prime consideration for the risks involved in safeguarding the capital deployed. This can be assured only with consistent long-term policies, political stability, the rule of law, corruption-free administration, efficient funding institutions and availability of skilled manpower. All these areas need to be addressed by the political leadership. The beginning has already been made. China has provided us with the impetus to move ahead quickly in all these spheres.
 
(The writer is a Research Scholar)