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Re: The Great Opportunity for India

Please help make the Manifesto better, or accept it, and propagate it!


Hi Yogesh,

> Not to mean that manufacturing industries could be ignored (after 
> all service industries hugely depend onmanufacturing also), but a 
> venturing into services industry appears to provide a good short 
> term economic improvement as well as a reasonable platform for 
> moving away from socialism.

I agree with you on services industries. I would like to add that
services industry is not only a good short term solution but a very
long term solution. In fact, as the pace of innovation increases
rapidly, huge capital investments will become more and more risky. Just
look at what happened in Telecom Sector in US. There was huge
investment in Fiber Optic cables by lots of Telecom firms like Global
Crossing etc. The ensuing glut in the capacity and tremendous
improvements in the telecommunications technology even before existing
Fiber Optic capacity was deployed and started earning any revenue
contributed largely to their bankcruptcies. India has to be very
careful here. Neither do we have huge capital to waste nor do we have a
huge R&D capacity. We don't need take any big risks in Capital
intensive and R&D intensive ventures. 

The high technology investments becomes rapidly obsolete because of new
innovations. So, there is no security in having big Capital. In earlier
days pace of innovation was very slow. Therefore, once Capital
investment was made, the owners of the Capital were almost guranteed a
lifetime stream of income. Not anymore. Not only is there a glut of
Capital but Capital intensive projects have become very risky. So
overall risk-reward scenario for capital is terrible. 

Compare that with the investment in Education. Let's talk about
Software which I am more familiar with. Here in US an Software
professional with say 5 years of experience makes on an average
$70,000. To generate that kind of income every year, assuming an rate
of return of 10% (very large), the same person will require an capital
investment of $7,00,000. That's very huge. Compare that to the cost of
Education in US for a 4 year course in Software. The average cost of
private 4 year college will be: $50,000 * 4 = $2,00,000. That is less
1/3 of the Capital investment required. Not only that, Capital
depreciates. However, the earning capacity of an individual actually
increases because of experience (without any additional investment
needed in education). Right now and in the foreseeable future there is
nothing to beat the services sector. 

I think India should focus explicitly on the services sector. Govt.
should make it easier for Indians to get work from abroad (outsourced
services). For that Telecommunications, Service Contract enforcements,
Digital Identifies etc. should be provided by the Govt. The rest can be
take care by the private sector. My point is that the growth of
Capitalism happened not only because of efficiencies and technological
innovation but also because of development of Joint Stock Companies,
and Stock Exchanges etc. We should try to see if we can come up
something innovative to accelerate this transition to Services economy.
We should be ahead of the curve and not look backwards trying to match
foriegners in manufacturing technology or other areas. Let them catch
up with us.

--- Yogesh Upadhyay <u_yogesh@rediffmail.com> wrote:
> Hi Ashish:
> Let me site a couple of examples here:
> 1. Nirma, a startup then, almost threatened the very existence of 
> Hindustan Lever in detergent business in the eighties. 
> (Manufacturing industry)
> 2. Grameen Bank, Bangladesh, started as a humble initiative by a 
> local to provide short-term micro-loans to the villagers today 
> lends loans outside Bangladesh. (Service industry)
> There is something strikingly common in above two examples. Yes, 
> the target markets in both cases are the people at the bottom of 
> the economic pyramid. So, what do we learn from this? There is 
> huge and almost untapped market in this segment. Untapped because 
> conventionally managers have seen this sector as low-profit area 
> and hence neglected it. These are not my original deductions. I 
> had read it in the paper "The Fortune at the Bottom of the 
> Pyramid" by Prof. C.K.Prahalad and Stuart L. Hart. Although, at 
> times, I thought that the authors appeared to be callous about the 
> the purchasing power of the people in this zone, I think there is 
> a great message in there, which has went unnoticed even in the 
> paper, perhaps because the focus was different.
> While people in this section offer vast markets, as the authors 
> explain, they also offer scope for vast employment in areas of 
> door-to-door sales, customer service, market research (data 
> collection) and many other areas that involves human 
> participation. And for reasons more obvious than not, such would 
> be a profitable institution because they would be run privately. 
> And this is where my comments merge with yours. Manufacturing 
> industries are more investment intensive and due to lack of R&D 
> and University relations, have suffered a setback especially with 
> opening up of Indian markets to foreign investment. This is, 
> however, not the case with service industries because any investor 
> would be more happy to buy resources (most of which is labor) from 
> within the country even if she / he is free to bring in resources 
>  from her/ his home country (as a protection provided by WTO to 
> the investor).
> Not to mean that manufacturing industries could be ignored (after 
> all service industries hugely depend onmanufacturing also), but a 
> venturing into services industry appears to provide a good short 
> term economic improvement as well as a reasonable platform for 
> moving away from socialism.
> These are my thoughts as of now. Comments are welcome.
> Regards,
> Yogesh
> On Wed, 06 Mar 2002 Ashish Hanwadikar wrote :
> >Please help make the Manifesto better, or accept it, and 
> >propagate it!
> >
> >IPI_Marker
> >
> >Hi all,
> >
> >Read the great article on "new" economy - The People Economy.
> >
> >I think what we are experiencing today is what Europe 
> >experienced
> >during Industrial Revolution. We have an "Services Revolution". 
> >Today,
> >list of millionaires and billionaires is dominated not be 70 
> >year
> >industrialists but 50 something Bill Gates and Azim Premiji.
> >
> >The new Economy - The People Economy - has a very profound 
> >implications
> >for India. We have to seize this opportunity. Its the only 
> >opportunity
> >for millions of people living in poverty to escape from it. So 
> >instead
> >of whinning about "cheap imported goods from abroad", high cost 
> >of
> >capital in India, or worry that foriegn capital will cause 
> >speculation
> >and volatility or protecting domestic farmers and industries 
> > from
> >unfair foriegn competition we should gear ourselves to seize 
> >this
> >opportunity.
> >
> >Uptil now, we were living in an economy dominated by Capital. 
> >Capital
> >was a major requirement and lack of Capital a major impediment 
> >for
> >development and growth. However, with huge overcapacity in 
> >various
> >manufacturing sectors like Cement, Steel, Automobiles etc. it is 
> >not
> >the Capital that determines the success but the innovation, 
> >talent, and
> >knowledge that determines the success or failure.
> >
> >Earlier, innovation and development of new technology like say 
> >steam
> >engine was once in a decade affair. Thus, once the technology 
> >gets
> >popularized, all one needs to have is savings, a system (like 
> >stock
> >market and corporations) that can channel and pool together the 
> >savings
> >and deploy them as Capital. The one who produces the products at 
> >a
> >faster rate and with least amount of costs is the winner. This 
> >was
> >because the products were related to basic amenities like 
> >clothing,
> >housing, food etc. So, identifying the needs of the customers 
> >and
> >targeting them (Marketing), convincing them to buy the products 
> >(Sales)
> >were not critical to the success. You don't have to convince 
> >the
> >customers to buy your products if there is not much choice and 
> >people
> >desperatedly wanted the products as basic necessities. Thus, 
> >access to
> >capital, physical transportation (port, Airport, roads etc.) 
> >determined
> >success. Services like doctors, financial consultants, teachers 
> >(most
> >people used to complete high school, take a diploma and join 
> >work
> >force), hair dressers, entertainment were costly and were not 
> >easily
> >affordable to millions of people. Because fulfilment of basic
> >necessities was a priority. Poor people spent most of the time 
> >working
> >in the factory. However, the situation has changed and is 
> >changing
> >rapidly.
> >
> >With tremendous improvement in technology and thus 
> >corresponding
> >increasing in production capacity there is suddently a huge glut 
> >in
> >consumer products. Thus, capital is no longer in great demand. 
> >Also,
> >with basic necessities satisfied in the developed countries, 
> >savings
> >also increased. The capital is no longer in short supply. 
> >Together with
> >huge supply and low demand of capital means decreasing return 
> >on
> >capital investments.
> >
> >That means, talents of people who identify specific customer 
> >needs and
> >target them (Marketing), convincing and educating customers about 
> >their
> >products vs. competitors (Sales), rapidly customizing 
> >manufacturing to
> >suit customers taste (Software rather than Hardware), 
> >maintaining
> >customer relationship, supply chain (Web and Internet) etc. has 
> >become
> >very critical. Not only that, with basic necessities taken care 
> >of,
> >people in developed world spent more for entertainment (sports, 
> >movies,
> >art, music etc.) and other personal services (hair dressing etc.) 
> >than
> >on basic goods. They are also living longer which means more
> >requirement for nursing, elderly care, financial advice (if you 
> >live
> >longer in retirement you need advice on handling), insurance 
> >etc.. This
> >business is not that capital incentive, plus whatever capital 
> >is
> >required is getting cheaper. Here personal qualities like 
> >talent,
> >honesty, sincerity, punctuality, respect, style etc. matter more 
> >than
> >anything else. Plus, the competitive advantage lies with the 
> >talented
> >people and not with the Capital. Thus, more and more portion of 
> >the
> >returns of the companies go to these talented people rather 
> >than
> >shareholders. This has given rise to a huge services sector. It 
> >is
> >growing faster than Agriculture, and manufacturing. Also, since 
> >talent
> >is highly differentiated and intimately a part of the person, it 
> >is
> >very difficult for capitalists to exploit it (when you leave a 
> >job you
> >take your talent with you. Also, finding similar talent is 
> >difficult
> >and costly). Plus, employess develop strong customer 
> >relationship. That
> >means, if they leave they take their customers with them. In 
> >fact, lack
> >of personal touch in the customer service in the developed 
> >countries

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