June 1, 2008 Sujeev Shakya

Glocalising growth and accepting the corporation

If Bharti Airtel, one of the largest telecom companies in India, is successful in acquiring South Africa’s MTN group, its valuation is estimated to go up higher than USD 75 billion – equivalent to Bangladesh’s entire gross domestic product. The combined business of India’s ten largest companies currently far exceeds the total combined GDP of Afghanistan, Bangladesh, Bhutan, the Maldives, Nepal, Pakistan and Sri Lanka. Indeed, when Mukesh Ambani, one of the richest people on the recent Forbes list, finishes building his two-billion-dollar, 27-storey home in Bombay, this “world’s most opulent private residence” will have cost as much as the entire annual GDP of the Maldives.

It has taken less than two decades following India’s liberalisation of the early 1990s for wealth creation and consumption to gain social acceptance. Today, manifestations of the consumer boom range from luxury cars, lavish weddings and birthday gifts of airplanes and yachts. The Nehruvian model viewed conspicuous consumption with distaste, and ended up taxing private wealth and income at levels that created an informal economy that in some ways superseded the formal economy. In a context in which the ideals of socialism were still afloat, the respected icons during those days were lead actors in Bollywood movies, who portrayed workers nobly fighting the capitalist class. Today, more and more is being written that blames both Jawaharlal Nehru and his daughter, Indira, for unduly restraining entrepreneurship, which can be seen as having led to the constantly strapped state coffers. The Indian government was made to lose huge revenue, as tax evasion became as much a way of life as swiping credit cards is today.

The situation is similar outside of India. The post-liberalisation kids in Southasia, those born around 1990, constitute the new spending class; unlike their middle-class parents, they do not think twice about shelling out for the latest-model motorcycle or car, or dining at an expensive restaurant. This segment of the population will dominate the Southasian population in the coming years, thereby inevitably bringing about a culture of consumption, and providing fertile grounds for private corporations to grow.

These youth also see what they consider to be a significantly more level playing field, as few obstacles stand between talent and opportunity. You no longer need to be wealthy to do the things over which rich kids were earlier perceived as having the monopoly. These could range from gaining admission to world-class education institutions, getting bank loans or buying the latest cell phone or digital camera. The power has shifted from the world of politics and government to the world of the corporate office. Till as late as the 1980s, government employment was highly sought by the educated middle class across Southasia, as it offered the opportunity for a better standard of living, combined with social prestige and the power of influence. The civil-services examination was thus the crucial gateway to a better life. Today, the MBA entrance tests have replaced the IAS exams, and to be sure corporate careers have transformed lives in ways similar to the government jobs of old.

The icons too have changed. Business owners in India are more widely known by the masses than are many government ministers. A handful of bankers in Pakistan are more powerful than the governor of the State Bank of Pakistan. In Bangladesh, the corporations owned by Grameen Bank enjoy better recognition than do government departments. This again follows the global trend of corporate power, where massive companies such as Wal-Mart are able to make it onto lists of the world’s 20 largest economies. In China, it is said that Bill Gates today has emerged as a far stronger brand icon than George W Bush.

In the past decade, the commercialisation of art, sport and all forms of hobbies has also brought about a significantly greater acceptance of corporate culture. The same artists who yesterday were painting as political activists, are today taking the help of private bankers and consultants to enter the global art market. Over the course of a handful of years, cricket in Southasia, especially in India, has been commercialised in a manner that dwarfs the US basketball or baseball industries. Music videos in Nepal have become a must-do commercial venture for the youth, and folksingers coming to Kathmandu from distant parts of the country are suddenly able to earn money on a level that they had never expected.

The shift from caste- or community-based occupations to the acceptance of an individual’s profession has also helped gain wider acceptance for corporate culture. The neighbourhood barber has become a hair stylist, and tailors are dress designers. Cell-phone-wielding, vehicle-riding plumbers, carpenters, electrician, florists, delivery boys, cleaners and others who were previously looked down upon for their ‘menial’ labour are now also recognised as businesspeople. These shifts have led to the creation of new business models that have dramatically changed the lives of those who used to be at the bottom of the social and economic pyramid.

The acceptance of the corporation, as part of the expanding acceptance of globalisation and the market economy, has led not only to innovation but has also benefited communities in Southasia at large. ‘Glocalisation’, or the localisation of global strategies, has ensured that multinational and transnational corporations alike further their businesses by creating models that specifically reach out to the large mass of people. This could involve McDonalds being forced to serve vegetarian meals, or Honda adapting its cars to the narrower, bumpier Southasian roads. Indian initiatives such as E-Choupal from ITC, and Shakti from Unilever India, have shown how companies can often deliver rural-development goals more effectively than can the government.

The initiatives of these companies have gone beyond corporate social responsibility (CSR), and instead seek to embody a notion of ‘corporate social opportunity’. Indeed, in the quest to reach out to the very wide bottom of the pyramid, companies have constantly innovated. And so, only in Southasia can one buy a packet of cooking oil or a sachet of detergent for single use – and these are sold at full-sized supermarkets. In this region, many conventional marketing and business rules have been defied and changed to suit local conditions, including the lower purchasing power of a vast majority of consumers.

The dominance of economy over politics can perhaps best be illustrated by the fact that no political party in India would be in a position to effect a complete bandh of, say, Bangalore, due to the simple fact that so many companies in so many countries today depend on Bangalorean back-offices. Indeed, the globalisation of national economies will ensure that politicians have lesser control over the territories they have heretofore considered their own. Similarly, the very fact that banks in politically unstable Pakistan are being coveted by regional and international conglomerates also shows that, in business, many have learned to forecast risks – and to mitigate them. In this day and age, businesses simply must thrive under any circumstance, be it war-torn Sri Lanka or Nepal under the Maoist insurgency. Global and regional multinationals have come to realise that Southasia is a massive market, in which one needs to operate by taking calculated risks. It is this evolving understanding that has allowed the corporate model to thrive even in countries that are politically anarchic.

The corporate model works
In Bangladesh, the successful operation of private businesses owned by Grameen Bank and the organisation BRAC has added a new dimension to doing business, proving that if the fundamentals of corporate ownership and management are segregated, companies can deliver. Good corporate governance demands segregation of ownership and management of companies. As long as there are good management structures in place, the owners can concentrate on a guidance role, which in turn places increased focus on delivery of the organisation’s goals and objectives. The outsourcing by companies of parts of the apparel-manufacturing process to women’s self-help groups in Pakistan, the formation of cooperatives to market coffee produced in Nepal, the consolidation of tea-growing by a company with a global branding in Sri Lanka – each of these demonstrates that people and businesses alike are looking for innovative ways to get ahead.

The rise of large corporates in the region has also seen the concept of corporate foundations becoming increasingly popular. The largest of these foundations are to be found, of course, in India. While the Tatas have been a frontrunner in engaging with the social-service-delivery sector, many others are now joining the trend. The Bharti Foundation in India, for instance, has drawn up an ambitious plan of starting 1000 schools, while ICICI Bank has already created a foundation that will institutionalise their involvement in micro-finance. Indeed, the ICICI Foundation is headed by an individual who chose to take the path of philanthropy rather than head the mainstream business.

Unlike corporations in the developed world, where the concept of the ‘target market’ is comprised of an affluent populace, in Southasia this market is made up of people who can barely afford the product or service. This initially led governments to start up corporations that would sell food, cigarettes and cement, or trade in goods and services. But these invariably failed, leaving private-sector organisations to fill the gap. By now, the state trading corporations that exist in each of the Southasian countries have become unproductive monoliths, in which positions appointed through government patronage has become a tool of manipulation that leads to the states losing billions.

The private sector has thus come to be seen by many as the most sustainable growth model when it comes to manufacturing, trading and delivery of quality goods and services at the best prices. The constant quest to keep income above expenses keeps this model going. Furthermore, if the agenda of poverty alleviation is to be seriously addressed, it can be argued that this goal can best be achieved by creating wealth. In turn, wealth can best be generated by private enterprise, be it through large-scale endeavours that will continuously create jobs or the micro-entrepreneurs who understand that, in order to sustain, income has always to outstrip expense.

At the same time, the growth of the corporate sector also necessitates the government to become stronger as a regulator. The economy of the United States can actually be said to be less free than that of Southasia, due to dramatically stronger regulation in many sectors. Registering a drug, opening an airline, allowing for foreign investment in the media – all of these undertakings are much more difficult in the US than practically anywhere in Southasia. Laws that curtail monopolistic businesses or tendencies are likewise more stringent in Europe than in our region. The regulation of the media industry in the US has ensured that no single corporation can operate in a certain percentage of print and electronic media in a particular market, thereby ensuring that no single entity is able to dominate. Moreover, if pharmaceutical companies in Southasia were regulated in a manner resembling the stringent standards laid down by the US Food and Drug Administration, thousands would not be dying today due to spurious medicines. Growth of the corporates would necessitate the building of government capacity that can effectively regulate the business environment and businesses themselves, so that there is no space for crony capitalism and the other deficits of a laissez-faire system without effective regulatory authority.

The advent of public-private partnerships (PPP) has also added an important new lexicon to the development business, and more and more bilateral and multilateral aid agencies are finding this an acceptable strategy by which to engage with the private sector. In Nepal, the Communist Party of Nepal (Maoist), which emerged with the most votes following the 10 April 2008 elections, has been emphasising the need for PPPs, but is yet to spell out the actual implementation structure of such undertakings. While the wag would dismiss the Maoist suggestion of PPPs as meant merely to ensure that Maoist cadres would work in private businesses, it is important to look at such partnerships as a crucial middle path towards building long-term sustainable businesses.

PPPs could include the engagement of the local community in the development of infrastructure projects, or empowering it to act on its own social-service-delivery needs in areas in which the corporate se ctor is already engaged. Local communities could be given shares in infrastructure projects such as hydropower or special economic zones (SEZs), against the land or resources acquired to build such projects. These would surely engage marginalised communities, and also act as insurance regarding local political environment issues for the businesses. Similarly, private businesses working hand in hand with local NGOs and community-based organisations could create a network for either access to markets or to be part of the supply chain. Various enterprises in the traditional handicraft businesses throughout Southasia have formed successful alliances with producers by giving them not only jobs and contracts, but ownership in the businesses.

Towards a rupa
Greater acceptance of the market economy will only lead to improved integration of the Southasian markets, irrespective of how the future pans out politically. For instance, Indian satellite receivers that provide good quality at reasonable prices are now being put up in Pakistan, Nepal, Bangladesh and Sri Lanka, all illegally. These businesses will have to become legal at some point, as the push from consumers will force the laws to change. Large banks such as Standard Chartered, which has a presence in every Southasian country, will likewise push for integration of the financial markets, as banking is today software-based with centralised operations. Having a uniform platform will make their products and services homogeneous across the region, and will reduce management costs substantially.

The integration process will touch many industries. Telecom integration will take place, as the business’s focus will increasingly be on value-added services such as video downloads, e-mail or Internet, rather than on simply making a call. Private airlines in all Southasian countries are already clamouring for the region’s skies to open up, so that a Sri Lankan airline would be able to fly to Kathmandu via Delhi. Companies in the other Southasian countries would also like to list their shares on the Bombay Stock Exchange, as it is emerging as one of the major global stock markets. Similarly, the other exchanges stand to attract the Indian companies, thereby bringing about cross-listing of shares in various regional exchanges. The reality is that in businesses the bigger ones will keep on gobbling up smaller ventures, such as the recent takeover of Hutch by Vodafone or the way global banks are eating up Indian companies. The key would be to ensure that there is enough retention of profits in the country by making it mandatory for such countries to go public. Another factor would be to ensure the benefits of technology transfer.

At this point, while it may not work in the arena of geopolitical integration, the structure of the European Union would seem like a good example for the Southasian markets to follow. Markets could first be opened for goods and services, and later for human resources as well. Ultimately, this could lead to the envisaged common currency, the ‘rupa’, becoming a reality. When the EU began to work on a common euro, federated India was taken as a case study by which to understand how a single currency – one that has different purchasing power in different parts of India – could be not only acceptable, but could ultimately work. Perhaps the single currency would form the basis of market integration. Nepal has benefited significantly from having a fixed exchange rate with India, and the buoyancy of the Indian economy acted as a shock absorber for the insurgency-hit Nepali economy over a full decade.

Regional access to markets could work on a hub-and-spoke model, wherein the booming parts of India in the west, south and northwest would be the hub from which the other Southasian countries and the more dispossessed parts of India could fan out. While the Indian companies would be able to tap into a large population in these countries, the neighbours would also have the opportunity to perform as outsourcing and service industries, and to offer the human resources that will be needed to drive growth. Mexico and Canada have benefited since the introduction of the North America Free Trade Agreement (NAFTA) in 1994, with Mexican exports to Canada increasing fourfold between 1994 and 2004, and regional trade growing threefold over the past 14 years. Giving a political twist to this, as has often happened, cannot negate the benefits. The regional economy, driven by India’s growth, affected as it is by Southasian politics, points to the need for policymakers to prioritise giving attention to the economic regime.

To address another longtime concern, the sovereignty of a country does not stand to be affected by a process of market integration. Indonesian sovereignty, for instance, has never been affected by the fact that most Indonesian businesses are today more comfortable operating out of their ‘financial capital’ of Singapore, as they find the overall business environment better than their own country. Of course, the movement of people will need to be monitored, and technological advancement in this regard is already thoroughly underway. The introduction of ‘smart card’-based passports or other identity systems ensure that not only will an individual’s national identity not change, but that each government can keep due track of the activities of its citizens.

A common visa protocol, such as the Schengen in Europe, is one solution. Initially, we will undoubtedly see significant movement of people to other countries in search of work, but this will inevitably stabilise over time as economies rise together. For example, when East European countries joined the EU, there were fears that there would be large-scale problems with immigration. However, over the years the more affluent countries have realised how better services are being delivered due to greater supply of labour to supplement the diminishing young workforce in their own countries.

In the end, an economically integrated Southasia simply offers the people of the region more benefits than does the alternative. It has been proven that regional blocs have always helped economies to grow. The reduction of tariffs between the member states of APEC (the Pacific Rim forum known as Asia-Pacific Economic Cooperation, which came into being in the early 1990s) has reduced cost of goods and services for its members. Similarly, the increased employment opportunities of a regional bloc can act as a huge social-security net.

Finally, as per one of the most significant anxieties in the region, while the primary economy – in this case India – generally does grow the most under a system of regional economic integration, others too stand to see clear benefits, which would otherwise not accrue. Indeed, the growth experienced by being a member of a larger Southasian economic bloc would inevitably generate more wealth than that experienced by an individual country on its own. When a highway is built, after all, the landowner who has the largest parcel of land benefits the most, but so too do those that have smaller plots. At this point, we cannot stop the highway from being built simply because the big guy will benefit the most: that would be acting against self-interest.

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