Panel Discussion on Competitiveness: Triumph of Regions

Panelists: Siddhartha Rastogi, Professor, Economics, IIM Indore Kavinder Singh, CEO & MD, Club MahindraPrashant Jain, JMD & CEO, JSW EnergyYatindra Sharma, MD, KHS MachineryMeera Shenoy, Founder & CEO, Youth4Jobs Moderated by Amit Kapoor, Chair, Institute for Competitiveness Amit Kapoor: In your sector, where do you think the idea of regions and competitiveness comes from? Kavinder Singh: In our business, the key thing is the location. When we set up resorts, we are trying to see whether we can even create destinations. In fact, Mahindra Holidays is known to create destinations. We were the ones who went first to Munnar, to places like Coorg. The key driver for us is rather simple. The connectivity is critical if you expect people to land there. The kind of activities that you can organize for people to enjoy at the resort are also important. But I must give a slightly different perspective. We started our company from Chennai. Our company, Mahindra Group is based out of Mumbai, and the decision to start this business out of Chennai was determined by the fact that south of India has some amazing destinations, whether it is Kerala, Karnataka or Tamil Nadu. In fact, a large percentage of our total bouquet of 55 resorts actually exist in south of India and therefore, the entire management was in Chennai. It was only a few years ago that we moved our head office to Mumbai. We were driven by our need to create destinations and destinations happen to be in South. Therefore, we even started by setting up our office in south of India. One of the things that led us to move to Mumbai was the ability to attract talent. This leads to the next point, which is, why do certain regions triumph over others? The availability of talent is definitely superior in places like Mumbai in comparison to Chennai. These were the determining factors in our journey at the beginning. Amit Kapoor: Given that your business is probably in one of the most difficult terrains of the world that is difficult to get to, what is your idea of talent and how do you see a location? Prashant Jain: For the manufacturing sector, location is key, whether it is in from the point of view of the infrastructure, the availability of natural resource or the availability of skilled manpower. India is having a different set of challenges at this point of time. For the last 40 years, the manufacturing sector has been having a component of only 15-17% of GDP and it has not been growing, and the shrinkage in agriculture sector is being taken away in the services sector. It has happened primarily because of numerous challenges with respect to location and ease of doing business. Countries like China, Japan and Korea created special economic zones where everything from land and infrastructure to skilled manpower was made available, so that the manufacturing sector could strive. Hence, location is very important with respect to not only availability of these three things, but also in terms of the logistics cost and skilled manpower. For the manufacturing sector, location is key, whether it is in from the point of view of the infrastructure, the availability of natural resource or the availability of skilled manpower. Amit Kapoor: Within our country itself, we have many special economic zones, yet we see that manufacturing somehow has not taken the leap that we expected it to take. What do you think is the missing link here? Prashant Jain: There are the five key elements required in manufacturing sector. First is the location, which is the availability of the land and infrastructure. Second is cheap credit with a low cost of finance. The third element is lower logistics cost, fourth is ease of doing business and fifth element is currency stability. India has missed on all five counts, and it is reflected in the maximum amount of NPA that has been sitting in terms of the core sector. In every country, the transition happens from farm to factory to nonfarm or the services but India directly migrated from farm to the services. The factory piece was missing because there are a lot of impediments and challenges the sectors are facing. So, there are a lot of barriers, but there are a lot of opportunities as well. Now, it is the first time that the government is talking about increase the share of manufacturing in the GDP from 15% to 25% in the next seven-eight years’ timeframe. However, this is happening at a time when the globalization trade is getting over. From 1970 to 2020, we saw globalization being built, but now, every country is trying to work out a different strategy. Nevertheless, India needs 100 million jobs in next 10-year timeframe, and those 100 million jobs can only be created in a meaningful way by the manufacturing sector. We specifically need to take care of these five elements if we want to bring out or make manufacturing sector flourish in India. Amit Kapoor: As a first-generation entrepreneur who got into the manufacturing sector and became fairly successful, how did you look at the location factor? Was Gujarat a factor or was it something else when you were looking at making a location decision? Yatindra Sharma: It would be very interesting to analyze the Silicon Valley concept and how the ecology to create cutting edge technology projects in that area evolved. If you look at the entire composition of Silicon Valley, there are top of the line educational institutes, which are on the cutting edge of research and development and upward technology innovations. Another component which builds up this scale faster is the presence of defense sector because defense sector is always on an upward curve of technology, and that is where they use technology much before the industry gets it. Third point is that there has to be an industry participation into this ecology in a futuristic manner. In India, Bangalore had the presence of heavy earthmoving industry, electronic hardware industry and very good educational institutions. The missing element that was required was participation of industry. We started building up by Y2K, and the kind of composition which has come up in Bangalore now is admirable. It has created an ecology with the presence of IT, biotech, defense manufacturing and so on. Ahmedabad had some of the very specific skill sets that has never been analyzed by the industry in detail. Ahmedabad has got the highest presence of pharmaceutical industry. The first ever pharmaceutical educational institute in India, LM College of Pharmacy was set up in Ahmedabad, and is one of the leading pharmacy colleges of India. Besides IIM-A, there are many other institutions built in Ahmedabad that started somewhere in 60s and 70s. One of the alumni of L. D. Engineering College in Ahmedabad, Mr. Vyomesh Vyas went on to become the Senior Vice President of Hewlett and Packard and boss of printer division, the Cash-Cow of HP. Another skill set which is available in Ahmedabad belongs to a very specific community that has developed this capability right from Morbi, Surendranagar and Ahmedabad. It is the Panchal community, blacksmith community, who knows very well how to improvise on machines and manufacturing components. Today, plastic machinery, pharmaceutical machinery and our latest technology complement have a number of industries in Ahmedabad and that was a very clear choice for us. Amit Kapoor: There was a huge legacy in terms of how many of today’s leading institutions were created. It has taken them years to flourish, so how do you think we can take that step forward? Yatindra Sharma: There are three major components that the government has to work on. Health and education are the sectors where the government has to be absolutely honest and focused on deliverables. We have set up IITs and IIMs, but that is not the solution. We need to bring the best brains in each state and give them a set of components which are to be developed over 10 years, whether it is education, healthcare, or skill development. If these are given to various states with focused attention and demand for deliverables, we can begin to think of the scenario that is emerging, in order to make India a manufacturing hub for the world. Today, the biggest component of technology is automation. The heart of automation lies in electronic hardware, but even today, there is not even a single company in India that can claim credit for manufacturing such hardware locally. We talk about ‘Make in India’ but all automation solutions and electronic hardware is being imported. We have to look at these components in detail and work out our plan, and accordingly, we have to look at area-specific skill set, as certain areas have a certain skill set. For example, at least 90% of all jewelry makers in the country are from Bengal. So, the skill set availability in a specific sector also has to be added into. If we work out this kind of focused attempt, sky is the limit. Amit Kapoor: Would you agree that educational institutions end up taking a back seat because of the long gestation period? Siddharth Rastogi: Although we are in the middle of what we generally call a knowledge economy, we are more of a knowledge imitation economy rather than a knowledge creation economy. Hence, our educational institutes are also reflecting that. It does not mean that knowledge creation is not happening, but the percentage balance is more in favor of imitation rather than creation side. Our educational institutes have a lot more to do to move forward. There are various reasons why they are not the knowledge creators. They don't exist in isolation, so they are a smaller reflection of our larger society. As our industry is mostly imitator, so are our knowledge creating institutes and knowledge dissemination institutes, and we look at our institutions and industry that way too. Whatever comes from within India, whether it is ancient or modern or the latest innovation, we tend to value it a little less because it is just another brown guy saying something. Whereas if it comes from somewhere outside, even if it is Eastern Europe, we tend to overvalue it a little. Technology is cast-less, color-less, creed-less, race-less and secular, but we tend to impose a lot of colors on technology and knowledge. We don't simply adapt and adopt, so we are partly to be blamed. Amit Kapoor: Now that we recognize the imitation aspect in the knowledge economy, what corrective action do you think can be taken? Siddharth Rastogi: Firstly, throwing solutions is always easier said than done. Nevertheless, there are examples where countries have transformed themselves, and those countries include small countries like Estonia, which is becoming a major hub of technology and entrepreneurship in Europe these days. Estonia’s population is almost one by 1000 of India, yet they are making waves worldwide. Now, if we try to imitate, we can shelter ourselves with the problem of numbers, but population is our problem as well as the solution. Estonia is struggling with numbers so they don't have the market but we have the market of 1.3 billion people. Estonia is so sparsely populated that they opened application for online citizenship in 2014. Therefore, our solution somewhere lies in what Estonia did at a different scale. They digitized everything. Our mindset is that if it is something new, we are too much afraid of change unless we are forced to or unless the white guy does it, but technology is one of the major solutions. Technology provides a level playing field to everyone. It provides solutions at a very throwaway price and that is where our next problem comes. We are obsessed with pricing and costing, but sometimes we need to look at a long-term perspective. We are still building highways of four and six lanes, whereas a country like Kazakhstan that is poorer than India even today was building highways of 14 lanes and more 20 years ago. We do not think in terms of scale. We do things on piecemeal basis, so we need to be braver and a lot more adventurous as far as our decisions are concerned. This is not only about government but also the industry and academia. We are too risk-averse to change. Amit Kapoor: How do you think the people with special needs can create a transformation for enterprises? Meera Shenoy: I help companies build an inclusive workforce and the specific focus is on youth with disabilities. Recently, there was a company that wanted to set base in the south because they saw a lot of incentives there including land. It was for diamond polishing but they didn't have skills for that, because diamond polishing skills are in Surat and pockets of Bombay, not in the south. We thought of hiring youth with disabilities, and therefore decided to look at a pocket which is really poor, which don't have legs but have eye-hand coordination. So, all we did was a very simple low-cost workplace adaptation of giving stools that can be raised upward and down to suit their needs. Today, 80% of the workforce is youth with disabilities, extremely focused on the task because they need their jobs, and there is no attrition at all. When customers come, especially European customers, this workforce is shown because it helps to build their brand. We are constantly showing new solutions to industry on how this actually helps their business. On the subject of locational advantage, there is another story. In 2004, I was invited by the Government of AP to set up the country's first skilling mission. The industrialists used to come there and talk about land, infrastructure, power, etc. but one of the issues which they also talked about was skilled manpower. We did a lot of customization for the various industries, and that actually helped. A study had come out which showed that retail was going to be a big thing, so the government asked me what they could do about it. I suggested getting rural and tribal youth to do entry level jobs in the retail sector. Accordingly, I set up the Rural Retail Academy in one of the remote districts of Andhra, where I took students who had passed out of schools, and trained them to the needs of the industry. Since it was being done for the first time, I sent a mail to Kishore Biyani conveying him the idea of this mission and asked if he could send his team here. In a day, he sent his Director HR to come and look at it, and the entire batch was taken by Big Bazaar. There was no looking back after that. We set up a training center targeting the services industry in every district of Andhra. The service industry really boomed there as a result of the availability of skilled manpower given by the government. So, this can be a perfect driver. Our mindset is that if it is something new, we are too much afraid of change unless we are forced to or unless the white guy does it, but technology is one of the major solutions. Amit Kapoor: How do you look at the idea of recruiting disabled or specially-abled people in a country where this problem is masked across the board? Kavinder Singh: As of now, we have 64 specially-abled people working in our various resorts. Since we have resorts in literally back of the beyond places, sometimes we find that even if we are able to recruit, retention is a problem, but when we take the specially-abled people, they stick longer and have a far greater sense of loyalty. In terms of their ability to do the job, there definitely are jobs which are in the back of the house, in the kitchen and various places where they are in a position to do these jobs, which included even the front office. We are a membership-based company, and when our members come to holiday, they are very appreciative of these initiatives we are taking. We are now actually setting internal targets to scale this in a big way. We are driven by two things. Number one, we believe that we need to make a difference in the immediate environment we are in and this is what drives us. The second thing is that we believe that we want to also create a very inclusive environment. We want our members, our guests, our staff to understand that there is a need for inclusion for these specially-abled people, and this is also good business because they stay, they are loyal and they do a very good job. Amit Kapoor: As your enterprise works across very difficult sets of terrains where there is huge lack of availability of talent, how do you look at the problem of educational institutions having long gestation periods? How would you solve this as you go along? Prashant Jain: We are in the power industry, and when we are setting up a hydropower station, it is set up in the hills or near the coal mines area which are all backward regions that lack talent pool. But these are the large industries and we have to create inclusiveness around the society, so training centers have to be set up so that those people develop the skills over a period of time. After that, we improve their employability, because inclusive growth is the only way to peacefully establish a large industry in a backward region. Going forward, these people then get employment near their homes. From 1960s to 1999, when China was urbanizing its villages, they were setting up steel factories, power plants or cement factories in every village. As a result, people were getting jobs in these locations and were therefore not moving out from the villages to urban centers looking for jobs. We believe that everybody can be trained over a period of time and people who get jobs near their home become very loyal. The industry just needs to be a little patient when they are investing in human capital. Amit Kapoor: As a first-generation enterprise, how would you react to this point of view that the industry should train people and be patient? Yatindra Sharma: If you spread the wings of young ones who come to work with you, you are not going to lose out in bargain. We always configure the retention period of our young talent around three to four years. We have achieved a success ratio almost wherever attrition rates are less than 10%. We are a 20-year-old organization and almost 50 of our people have been with us for more than 15 years. So, the point is that we have to be on the go to get more out of young talent, and the more challenges you give to them, the more they will stay with you. Normally, there are three things that are very important when it comes to the younger recruits. One is element of challenge. Second is element of variety. A young person will not keep on doing a mundane thing year after year. The third thing is money. They want quick money. How to address these three elements? There is always a level of opacity in the conduct of industry leaders while dealing with young people. For example, when they join an organization, there is nobody there to even welcome them. That is where they start. Some nondescript job description is given and they are simply pushed away. But if they are given the opportunity to have a one-on-one meeting with the CEO four times a year, you can identify their interest level and what more you can take from them. In our organization, we have created a Young Engineers Club for new engineers. Till they complete five years, they are considered to be young engineers. We discuss different projects. We discuss fun, philosophy and everything under the sun, and they come up with solutions for the ongoing problems of the organization. This is the way we are reaping the benefits and are also able to better understand their needs, so the transparency level in the relationship is much better. The CEO then need not be afraid of the young talents leaving the organization and is instead able to focus on the way they train the youth so that they go out of the organization as ambassadors of the company and add to the company’s brand value. This will in turn fetch more talent, and those who left and moved up in their life would be welcome to come back. Location is a critical resource, but we are not able to acquire it because of various processes that exist there. Amit Kapoor: In this challenging environment that we are operating in, amidst global headwinds that are only becoming stronger, what do you think we should do as a country to become more competitive, attract more investments, and become more prosperous? Kavinder Singh: Firstly, our dire need is job creation. The job creation in our country is stagnant, and while we must drive manufacturing as a percentage of GDP to go up from 15 to 25, there is a big need to drive the services sector. It constitutes 56% of GDP, but the potential of job creation particularly in travel and tourism, healthcare and even retail is huge, and has not yet been leveraged. One of the reasons each new player suffers is the availability of skilled manpower. We have educated people but not skilled them, and there is a big gap between education and the skill needed for the industry or for the services sector. Thus, if India has to attract investments and be competitive, we need to be very mindful of this issue we face. The second imperative is ease of doing business. In India, it is extremely difficult to get a land of the right size at the right price in the right location. Location is a critical resource, but we are not able to acquire it because of various processes that exist there. We also do not have a single window system. For example, we do not have a single window even to develop travel and tourism in the country. In many countries, there are a lot of tourism boards that drive tourism. Dubai is one of those countries that has become a travel destination because of it. If we have to drive India as a destination, Incredible India is not enough. We will need to do much more. To begin, we first need to make ease of doing business as very critical, and second, we need to skill India in a big way to be able to attract investments and be competitive. Prashant Jain: In the World Bank index, India has scaled from 130 to the 100th rank in ease of doing business, but in dispute resolution, we are at 185th out of 190 countries. Recently the bankruptcy code has been enabled and it is apparent how things are lingering on because we cannot settle the disputes. Second important thing that India needs to make huge investments in is infrastructure. Today, cost of logistics is 13-14% of GDP in India as compared to 7-8% in U.S. and China, and this high cost of logistics needs to be addressed. The cost of capital is also critical. We have seen a very poor track record of the manufacturing sector in the last 30-40 years because of the high cost of capital and ease of doing business. Now, recent problem of NPA in the banking sector is further creating a deterrent for the banking sector to come forward and do project financing. If project financing does not happen in the coming times, it is going to become a huge challenge. Therefore, we need to look at different credit models so that patient capital with a high gestation period is available at a low cost to the industry. Otherwise, it will be extremely challenging for the manufacturing sector to move forward. Yatindra Sharma: Whatever sector we talk about in India, the first important challenge we have is the huge execution deficit, and there is a level of insincerity while accomplishing and executing what we decide. Whether it is government policy, industrial project, or a social project, execution deficit is a major issue. The first thing we need to do is change our mindset and get on to the job in order to take manufacturing sector forward. If we talk about ease of doing business, each country has got its own typical problems. For example, a major issue is Germany is labour. Today, many Indian companies who have gone to Germany had to wind up their businesses because of labor issue. In China, negotiating taxes with Chinese government is a big challenge. The point is that this is not an explanation for non-growth of manufacturing sector in India. The most important thing that what we really need to focus on how we can innovatively, forcefully and speedily work out things. If we have the will, there is a way. Meera Shenoy: We have to reap our demographic dividend through large programs like Skilling India. It is important that the vulnerable segments are not left out. Quite often we look at low hanging fruits, but that is not enough. We need to look at pockets like persons with disability, girls, scheduled caste, those in unreached villages, and the like, and unless we skill them and give them equal opportunity to access sustainable livelihoods, these programs will not be successful. Siddharth Rastogi: Since the discussion has been on location as the prime variable of consideration, this solution is specific to the aspect of location. Nobody is going to move to a very remote corner or a very underdeveloped city just because there is a government push or a tax incentive or a special economic zone created. The way to move forward and to push develop more business-friendly locations is to pick up perhaps top 55 cities ¾and 55 precisely because those are the 55 cities with million or more population in India, so they provide the scale also¾ and develop them for a specific hub of an activity. Even if you have to talk to your competitor, take them along and set up the facilities there because then you will be creating an ecosystem of your own kind. Use that hub and perhaps the neighboring city or suburban areas and rural areas within that district as the spoke model. This is known as the hub and spoke model in economics of geography, and it will create the points, the centers of creative competitiveness and competition with your competitors as well. This will solve the problem of skill, capital, and the ecosystem of the businesses.