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'Only those who selectively unlearn the past will survive'

Prof Vijay Govindarajan, is the 'Earl C Daum 1924' Professor of International Business, and Director, William F Achtmeyer Center for Global Leadership, Tuck School of Business Administration, Dartmouth College.

He is the faculty director for the Global Leadership 2020 Program. His area of expertise is strategy, with particular emphasis on strategic innovation, industry transformation, and global strategy and organisation.

He was in Madras to give a talk and presentation 'Strategic revolution: Transforming industries and organisations' at the conference organised by the CII (southern region) on 'Competitive strategies in emerging markets'.

After the presentation, he spoke with Shobha Warrier on what Indian companies need to do to face up to the global challenge.

Isn't the competition arising out of globalisation unfair to the developing and underdeveloped countries?

No. Unless we open up our borders and invite world class multinationals to India, we will never become world class ourselves.

All major multinationals bring with them a much larger resource base and a tremendous track record of competing in so many different markets.

The Indian economy, which is fairly protective and therefore complacent, has allowed a lot of inefficiency to creep into the system. What would happen then is that some companies would die in the process.

I think it is not bad because it is like the forest fire. Trees die in the fire, but some also get regenerated. Ultimately, some really hungry, bright entrepreneurs will find their way to create corporations, which can be world class. Therefore, this is, may be a blessing in disguise for us.

The information technology boom in India has demonstrated many things, and one thing is that you don't have to be the son of Tata or Birla to set up an industry and become rich. If you are well educated, have ideas and not scared of competition, you can set up an enterprise.

Some of them like Infosys and Wipro are even challenging the well-established companies.

Yes, it is unfair to people who do not know how to compete. But it will be very fair to those who are imaginative, creative, and we have got plenty of them.

I would say, on balance, what globalisation will bring to the Indian market are world class technologies, world class products and world class management practices.

I am sure Indian companies will use it to launch themselves successfully on the global platform.

You said that for a company to be competitive, it must 'unlearn the past'. Take, Dr Kurien's revolution in Anand. This co-operative milk movement has been successful. Should these people look for new ideas to remain competitive? Would what they had been doing successfully till now be irrelevant in the new scenario?

Without a doubt! They will have to unlearn. Anand is a great example of the creative flair that is there in India. Dr Kurien was able to create a whole new value proposition of superior quality.

Now, if somebody else from abroad is able to bring the same quality milk at a lower price, we also need to change the existing system so that our product also becomes cost competitive.

While a local company has the advantage of having a deep local knowledge of the culture, distribution practices and the whole infrastructure, a multinational suffers from two disadvantages.

First, they don't have the deep local knowledge and second, as they are so big, they may be slow to respond. That is what we need to exploit.

Indian agriculture scientist feel that the invasion of MNCs will destroy local industries. Why is there a price difference? Why are they able to sell at a cheaper price?

Because they are organised and they have better resources. It is not so here. There, the volume produced is also big.

Therefore, the key issue is scale. Somebody there has such a huge scale that they are able to produce at a lower cost. That's exactly the concept of co-operatives. Kurien organised people so that they could produce milk at a lower price. A scale can be a double-edged weapon too.

If you have too big a scale, sometimes, you may not be able to respond quickly. Maybe, we don't have enough of a scale to compete against a global player. Therefore, we have to think about how the scale can be increased further.

This means, we have to change the rules of the game again.

Putting tariffs or artificial barriers from milk coming to this country is a wrong approach. We have realised that protectionism is not the best way to serve the customers. In the long run, it is detrimental to the country's economy.

Japan has put high tariffs on the import of rice to protect their rice farmers from the Americans who otherwise would dump rice in the Japanese market. Even the Americans protect many of their products. So, where is the level-playing ground?

You are right. Artificially putting high tariffs on select products to protect the domestic industry simply does not make sense to me.

To keep all the rhetoric aside, globalisation and global co-operations help bring world-class technologies and products to all the domestic markets without which I don't think we can develop. Yes, it will hurt the local producers, and people may lose jobs but we have to somehow deal with that issue.

The answer to that is not to protect but to see how we construct them.

Would the early days of globalisation be very tough for many…?

Yes, they will be. I am all for allowing some time gap so that people can re-group and get ready before the multinationals enter. That's fair.

You can give two years or five years before you open up your borders.

When should Indian firms start 'unlearning the past'?

With global competitors coming to their arena, the sense of urgency to act will heighten. But I think the better approach is to be proactive because there is nothing that stops any of the Indian companies to globalise themselves.

During the late 1980s, when our borders were sealed, there was nothing that prevented TVS or Tatas or Reliance to become a global corporation. We should have been thinking proactively.

Unlearning and creating things should be an ongoing process. Certainly, the opening up of borders created tremendous sense of urgency for us to act.

Would you say what companies have done in the past is irrelevant?

Not at all. I used the word 'selectively'. Unlearning everything from the past could be a mistake. I do not want companies to cut their roots because if you cut the roots of your tree, the tree will die. They have to understand what the roots are.

Who will be the survivor in the new scenario?

Those who selectively unlearn the past and those who also have a clear view of the future (will survive).

Of the two, unlearning is the most difficult thing.

Many MNCs have set shop in India and many more are coming. Do you think Indian industries are ready for this?

No. Nevertheless, I am very optimistic about the future of Indian companies but we have a lot of work to do. Some of these can be overcome quite easily.

One thing that is urgently needed is a dramatic transformation in our infrastructure. That's not easy.

The other thing that we have to change is the mindset. That is going to be much more difficult. We are coming from a very protective atmosphere, and that creates certain assumptions.

One of them is complacency. It is the cultural change in companies that is going to be much more difficult.

I don't think Indian companies are fully woken up to the challenge.

When do you feel the shake-out will come?

The shake-out will come when we are fully open. My own feeling is that some companies will never make it. They will die. Other companies will wake up but it may be too late.

Is it because they do not understand the seriousness of the issue, or is it because they have no solutions?

It is a combination of both. If you tell them now that somebody is going to crush you tomorrow, they will see it as a hypothetical statement. Unless you see it for yourself, you will not feel threatened.

However, I feel that they should change in anticipation, but it is very difficult because they are succeeding in whatever they are doing today. That's why I said they have to change their mindset.

You said that downsizing of any company was not advisable as it would demoralise the employees. But many companies are doing just that to cut cost and remain competitive. What exactly should they do?

I am not against downsizing per se. I am against exclusive use of downsizing. I think you need a good bit of downsizing but simultaneously you also should look for the new cheese. Then, the skills of some of those can be used in the new growth areas.

You can have two people doing a job, which was earlier done by ten people. But you can utilise the rest of the eight to create another business. Maybe out of the eight, six can be used and the two have to go. So, it has to be downsizing and growth.

Do you agree with the terms old economy and new economy?

I do not find any distinction between old economy and new economy. In fact, in the US, it is very clear that the dot-com and the e-commerce bubble has burst.

Why did the bubble burst?

I see this as a huge experiment and we have learnt quite a few things from the experiment. Ninety-nine per cent of the companies have failed.

Why?

I feel that venture capitalists played a big role in this. They pumped in a lot of money but they also set a narrow window because they were greedy; they wanted to get their money back fast.

The only way you get your money back is by going public. They were forced to go public within six months of inception. It made absolutely no sense.

ValueAmerica is a great example. They promised to sell anything from paper clips to tooth past to aircraft on Internet. The person who had started the company had no idea about any of these businesses.

There was also a lot of hype about these businesses. Even academicians like me played their role beautifully. We all sort of went along with them.

I don't think the conclusion of the bubble bursting is that dot-coms can never make money. They can make a lot of money but not in the crazy way that they started. There will be good e-commerce companies.

If we go back to 1985, people thought computers were also a fad and they would die. PCs took off in the early eighties and even Apple went bust. Then, the revolution came back.

The bigger lesson is how this is going to transform the old economy. Transformation of the old economy is not like Tata putting a little subsidiary for e-commerce. It is not going to be Walmart.com, but Walmart e-business, and to me Walmart e-business is also not about what you are doing today.

You mean brick-and-mortar is also essential?

Brick-and-mortar is absolutely essential. I believe dot-com revolution is dead, but the Internet revolution is alive and Internet revolution is going to transform the brick-and-mortar companies.

But it must be kept in mind that e-business is not Web-enabling your current business model.

E-business is about changing the rules of the game using Internet. Cisco is a good example. What Cisco is doing is co-engineering which is different from re-engineering. For e-commerce to succeed, you need a very efficient brick-and-mortar, except maybe for a purely information product.

Much of the wealth creation will be by brick-and-mortar companies using the Internet to change the rules of the game.

The successful business models will have both bricks-and-clicks. The question is, can dot-coms acquire the capabilities of the bricks, or can the brick-and-mortar companies acquire the capabilities of the e-commerce?

I feel the brick and mortar companies can acquire the capabilities of e-commerce. Many of these 20-year-olds who have started these dot-coms have no clue about businesses!

Coming back to India, I would say, supporting only the information technology sector at the expense of old economy will be a serious mistake. That's because it is the old economy that has to be transformed.

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