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Sunday, December 15, 2019

Indian business needs to change. It is regarded as a contributor to the unjust social order

The point is that there is a strong undercurrent of dissatisfaction and public outbursts of anger are being triggered by the slightest spark. This is directed not just against the government. It is also targeted against business.

Written by Vikram S Mehta | Updated: November 4, 2019 9:54:19 am
A look back on the response of Indian business to the Third Industrial Revolution (computers and IT) suggests that many Indian businessmen lost sight of this fundamental verity. (Representational image)

Indian business is in trouble. Its markets have shrunk, credit flows have choked, competition has squeezed margins and technology has disrupted conventional business processes. Jugaad has limited upside potential.

What should business do? There is no catch-all answer. Every company will have to craft its own specific road map. But to progress down these pathways, all companies will have to pass common milestones. For, despite the changes that have been wrought in the business landscape over the past 150 years or so, these milestones are the markers confirming that the company is headed in the right direction. The answer lies, therefore, in keeping sight of these milestones even as the company twists and turns to meet specific challenges.

What are these markers that have remained constant even as the business context has changed? Let me answer this question by engaging in a historical flight of fancy.

Imagine a gathering of business titans of the western world in the Alpine village of Davos in January 1914. A gathering that includes people like John D Rockefeller, the richest man in the world who built the Standard Oil conglomerate by leveraging railroads and Morse code to integrate discrete economic activities into a seamless and cost-efficient supply chain and to secure economies of scale; Andrew Carnegie who built a steel empire by innovating to produce the best quality steel at the lowest cost; Henry Ford who positioned workers along the assembly line for mass production and quality control; the CEOs of the German companies, Bayer and BASF, who between them controlled almost 80 per cent of global trade in chemical and pharmaceutical products. Imagine these successful men leading panel discussions to discuss the reasons for their success. They would all emphasise the fundamentals of quality, cost control, economies of scale, innovation, leadership and principled governance.

The gathering is, of course, a flight of fancy. But the messages are not. These were the factors that allowed businessmen to master the paradigmatic changes of the first (steam power and telegraph) and second (electricity, mass production and mobility) industrial revolutions. And that too, notwithstanding the drumbeats of conflict that resounded across Europe.

There is a French saying which translated into English reads, “the more things change, the more they remain the same”. The saying can be variously interpreted but for business it means that whilst the contours of the business landscape may change, the fundamentals for corporate success will remain constant. The business models will, however, have to be adapted to reflect this altered reality.

A look back on the response of Indian business to the Third Industrial Revolution (computers and IT) suggests that many Indian businessmen lost sight of this fundamental verity. They did not appreciate the full extent of the impact of the forces of globalisation, liberalisation and IT on the business landscape and they did not alter, therefore, their “licence raj” business models of relationship governance and jugaad. They were unable, in consequence, to counter the intensified competitive pressures and lost their market ranking. A list of the top 20 Indian companies by market capitalisation in 1990 compared to a similar list in 2019 is revealing. There are few companies on both lists. The first list is dominated by family-promoted companies; the second by IT, finance and MNCs. Many on the first list no longer even exist. This mistake should not be repeated.

The current market environment of the “Fourth Industrial revolution” (so termed by Klaus Schwab, the founder of the WEF) is very different from that of the first three industrial revolutions. It prefaces a world of “ubiquitous mobility, internet of things, artificial intelligence, gene sequencing and nano technology”. It also prefaces a world of deepening distrust towards the established systems and processes of governance in politics and business. This sentiment is evident from the spate of protest movements across the world.

Thus, the NGO Extinction Rebellion issued a call to the public to compel governments to act more forcefully to contain carbon emissions. Six million people, mostly young, and from across the world responded and blockaded roads and airports. Thus, the protests in Hong Kong against the extradition orders issued by the Chinese government continue despite the strong arm tactics of the Chinese police.

Thus, the unprecedentedly large demonstrations in Santiago, Chile against the policy to hike the prices of metro tickets; the violent protests in Lebanon against the tax on WhatsApp messaging and last year , the yellow vest movement in France protesting the rise in fuel prices and the cost of living.

These are just a few of the examples of social convulsion. One could cite many more. But the point is that there is a strong undercurrent of dissatisfaction and public outbursts of anger are being triggered by the slightest spark. This dissatisfaction is directed not just against the government. It is also targeted against business. They, too, are regarded as contributors to the existing unjust social order.

The challenge for Indian business is, therefore, to create a business model that responds to not only the emergent challenges of “digital, biological and physical” breakthroughs, but also the challenge of societal anger. It is to create a model that narrows, if not bridges, the social trust deficit. This is a difficult challenge, but one step toward meeting it would be to redesign the CSR strategy. Currently, the bulk of CSR funds are directed towards time-bound, measurable projects like schools, health clinics and toilets. These are important and impactful initiatives. They do not, however, address the root causes of social disaffection (social injustice, illiberalism, corruption, pollution). To do so, businesses may have to allocate a higher proportion of their CSR budget towards longer-term, hard to measure, livelihood and sustainability “programmes”. This will push businesses beyond their remit and competence, but that is the point. Companies can only succeed if they keep their eye on the fundamentals, but also adapt, unhesitatingly, their business models to the changing business landscape.

This article first appeared in the print edition on November 4, 2019 under the title ‘The trouble with business’. The writer is the chairman of Brookings India and senior fellow, Brookings Institution.

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