Future Competitiveness

Quality and competitiveness are twin fundamentals in managerial economics. India Inc needs to wake up to this before it’s too late

In a recent survey conducted by ORG-MARG, a substantial mix of economists, experts and intellectuals were asked to suggest ideas (for policy-makers) that would enable India to prosper at the global level. It was interesting to read the highlights of this survey in a popular business magazine. To my pleasant surprise “improve product quality” was the most frequent suggestion. The idea is a surprise because the past several months have seen policy-makers only indulge in disinvestment debates and infrastructure discussions. The surprise is pleasant because I note that economists are driving home the fundamentals of managerial economics - that quality and competitiveness are twins. For the curious reader, the other suggestions that emerged from this survey are: practice protectionism(!); focus on attracting FDI; improving infrastructure; usher in a more competitive interest rate regime; ease the export process; and urge more Indians to go global.

As though by design, in mid-November 2002, Dr Hannan Ezekiel arrived from Washington for a two-month lecture tour cum vacation in India. Dr Ezekiel, former editor of The Economic Times and currently a business and economic consultant, has been primarily speaking on ‘future competitiveness’. I was fascinated to hear him articulate the concept of effectiveness-of-management. The recommendations were built around total quality management. Here was an eminent international economist advocating the practice of quality management in industry and government as a pre-condition for competitiveness.

Wearing his economist hat he also appealed for effectiveness-of-investment. In other words, Dr Ezekiel underlined that there are costs-of-poor-quality associated with delays in project implementation, be they of an industrial or infrastructural nature. Quite simply, the costs-of-poor-quality can be reduced through effective use of project management tools such as PERT and CPM. This remedy is supported by Dr J.M. Juran, the quality legend, now in his centenary year. According to Dr Juran, PERT and CPM are the oldest and yet least-used quality tools. According to Dr Ezekiel, in order to be competitive we need to integrate a revenue model in PERT and CPM, halfway through implementation.

Of course, there were several other honest inputs that Dr Ezekiel has provided, with laser beam precision, in the Indian context. As, for instance, efficiency-of-government or the need to reinvent government and thereby crash the costs-of-poor-quality of core administrative processes. He also mentioned on the costs-of-poor-quality associated with social factors such as corruption, crime, and communalism. I believe that if we were to make a transparent estimate of the national cost-of-poor-quality, covering business, economic and social dimensions, the statistic would exceed the GNP of at least a half-dozen Asian countries. In summary, the vital issues for India’s future competitiveness are to transform the attitude of a sleeping elephant to one of an agile tiger. As I understand the subject, the process of reinvention requires simplicity and leadership.

There is always scope to learn from history, and particularly from success stories. When Japan came out of the Second World War, the Emperor of Japan recognised the two key challenges facing his country: no buying power, and no economic resources. The primary strength of Japan was the commitment of its citizens to survive and succeed. The national business model required Japan to export in excess of 80 per cent of its output. The model recognised the need to eliminate all costs-poor-quality; to factor in higher distribution costs relating to export of goods; and to sell Japanese products in overseas markets at prices lower than the cost to produce the same in the market-country. Through the leadership of the Emperor and the constructive role played by the Japanese Union of scientists and engineers, the 1960s saw Japan leapfrog globally in entertainment electronics, with brand names such as National and Sony.

On looking back, it took Japan three decades to achieve global competitive advantage in the entertainment electronics and auto industries, using quality as the prime strategy. The pace was appropriate for Japan. In the late 1970s, South Korea benchmarked Japanese companies and transformed into a quality manufacturing power in half the time. This Olympic pace served South Korea very well. The future will have no consolation prizes. India needs to get competitive by 2010, or forget it.