Domestic champions, global laggards: The road to global manufacturing power

The only way to be a globally competitive manufacturing power is to ensure that the domestic market is aligned to the cost and quality demanded by global markets

Though the Trump tariffs represent unilateral action by the United States and do not adhere to the global trade principles of the World Trade Organization, they have also spurred major soul-searching in India about what the country can do to become more globally competitive.

 

Industrial associations, corporate leaders, and senior economists have all called for major next-generation reforms in areas including land acquisition, power costs, taxes, compliance red tape, and labour laws — all of which would lead to a substantial improvement in the ease of doing business, while also enhancing the basic competitiveness of Indian companies.

 

Meanwhile, policymakers have their own views. Union Commerce Minister Piyush Goyal observed that India’s 1.4-billion-strong domestic market has become a cosy comfort zone, providing good profits to Indian businesses — and they do not feel the need to venture out in search of opportunities around the globe.

 

Mr Goyal’s observation should not be dismissed as mere pique. To a large extent, it is true that large Indian manufacturing-led business houses are more comfortable expanding into multiple industries and playing in the domestic market rather than seriously making a big export foray. While many Indian brands are well known, none can be called a true global champion.

 

In some ways, this has to do with business policies before economic reforms of 1991. Until then, the government, for all practical purposes, decided how much you could produce. At its worst, the government also decided which areas you could get into, how many players per sector, and even the prices at which you could sell the finished product. While there were periods of less government interference, big Indian business houses got accustomed to managing licenses and had no incentive to build competitive businesses. Anything they produced was lapped up by consumers because of a lack of options.

 

This partially explains why we have so many Indian conglomerates instead of huge corporations that specialise in one or two areas. General Motors or Ford grew big making cars and ancillaries — they rarely tried to get into multiple, unrelated areas. Sure, there were conglomerates even in the US, but they were soon found to be unsustainable in most cases.

 

On the other hand, India gave rise to big conglomerates — the Tatas, the Birlas, the Godrejs, the Mahindras and others. Even those who initially focused on one area to build size found comfort in expanding to new, unrelated sectors, and that seems to be the case even now. You can see this in the expansion plans of Reliance and the Adani group, though, to be fair, the latter is trying to be a global player in ports at least.

 

Even after 1991, while conditions began to improve for corporations, many pain points remained. Because of regulations and the difficulty of accessing capital at competitive costs, only a select few businesses that knew how to thrive under such conditions grew — while many other entrepreneurs remained small and uncompetitive. A few sectors bucked the trend — auto ancillaries and generic pharma are examples — but even here, globally renowned champions are rare.

 

There have been some honourable attempts in the past and even now. Royal Enfield, for example, is trying to build a global brand in classic motorcycles. While some blame can be placed on big Indian corporations, which preferred to manage the domestic system rather than aim to become global conquerors despite their size and resources, the government too needs to reflect on where its policies went wrong.

 

While a lot gets written about labour, compliance, land acquisition, and other problems — all of which are genuine — what is often brushed under the carpet is that successive Indian governments made no effort to increase competition and quality, or to reduce costs for consumers in the domestic market. Even where we export, the quality sold abroad is often higher, while the Indian consumer pays more for the same product — and settles for lower quality — at home. From steel to cement, automobiles to packaged food, Indian consumers get the short shrift. This creates perverse incentives. Even global companies operating in India often distinguish between the quality of what they sell abroad and what they offer in the domestic market.

 

Why didn’t China experience this problem when it was reforming its economy in the 1980s? One reason is that China promoted enormous domestic competition and also kept raising the quality bar. This was a survival of the fittest in a truly competitive market. This led to global levels of quality while focusing on reducing production costs. The government helped with some policies to protect and incentivise domestic players — but also forced them to be globally and domestically competitive.

 

Perhaps Indian policymakers should debate this too. Would an environment that focuses on consumers — irrespective of whether they are domestic or global — insists on high quality and low costs, and promotes a high degree of domestic competition work better than having a few national champions that dominate multiple sectors but are rarely recognised as global majors in their industries?

 

The author is former editor Business Today and Businessworld, and founder of Prosaic View, an editorial consultancy