Mr. Geoffrey Colvin
Senior Editor-at-Large, FORTUNE
Thank you very much, and I appreciate it. My topic is…holding a mirror to India…an outsider’s perspective…a westerner’s perspective. I want to be clear that that is exactly what it is. I am definitely not an expert on India. I am some one who has been very fortunate in his life to have the opportunity to see businesses of all kinds confronting the challenges of our global info-based economy…and to see companies dealing with these challenges…companies and managers….dealing with them successfully and unsuccessfully. I have had an opportunity to see what separates the winners from the losers and so I am hoping that this perspective may be relevant to you.

I brought today’s newspaper just because, as always it contains headlines. I want to mention three headlines from today’s paper, which I think will help in guiding this discussion. I will talk a bit about what I think some of the issues are, and then we will have some time for comments and questions. I am hoping that you won’t be bashful about them. This is a good opportunity to talk.

Headlines from today’s newspaper- number one: China economy gains speed. China’s economy grew 10.2% in the first quarter picking up from last year’s at breakneck pace. It seems almost incredible that an economy of that size could grow at that speed. It was 9.9% last year, 10.2% in this year’s first quarter. It reminds all of us that in a global economy, we are all facing competition from all quarters that we never had to worry about before…and it is really formidable substantial competition. We face it from where I come from and are having a terrible time dealing with it. It affects every one and there is no escape.
Second headline. 10% growth feasible for India says Rajan. He is the Chief Economist of the International Monetary Fund. His forecast is 10% growth is not over optimistic. It is totally attainable. Down in the story he says the government needs to work much harder in getting employment growth to pick up, adding that strict labor laws and poor infrastructure were preventing India from competing in labor intensive businesses such as textiles and manufacturing.

Third headline. GM posts 6th straight loss. New earnings release from General Motors, United States. In the most recent quarter, they lost only 323 million dollars. This was good news because in the same quarter last year their loss was 1.25 billion dollars. So this is the kind of news that makes them happy in General Motors these days. The point is who would have thought that the great GM would have 6 straight quarters of huge financial losses, and it would be on the brink of bankruptcy as it appears to be…and yet that is the reality of a global economy…a truly global economy. The predecessors of the current CEO did not foresee and did not plan for it satisfactorily at all.

These headlines, I think, give us some idea of what the themes are. I want to be clear about this. I am going to talk about…I, as an outsider, perceive some of the strengths and weaknesses in the Indian business culture to be, and I want to do it with a particular focus on your topic in this Conference which is building global brands out of India. I do have a particular interest in brands. So I want to talk about that in particular.

I want to make sure that a few themes come through. First of all, obviously, India will produce major global brands, and that is not the question. The question is which companies will do it and when they will be able to do it? I believe the answer will depend in part on the evolution of Indian business culture to the point where it can embrace the economic value of something that is totally tangible as the brands that appeal to the global markets…and a brand that connects to the global markets. In a way they, for cultural reasons, may at first not seem totally or comfortably India. The answer also depends on the development of India’s consumer economy…not the consumer brands are the only brands. Obviously, business-to-business brands can be enormously powerful. But the consumer brands tend to lead the way in the development of sophisticated brand identity. In my opinion the development of the consumer economy will have a huge influence on the development of the global brands out of India.
Overall, strengths of Indian economy as perceived from the outside. First and foremost the people and the their hunger for growth. The hunger for economic growth and the hunger for personal growth. This is overwhelmingly the great strength of this great economy as perceived from the outside. I think it is clear, well known, and talked about quite a lot. In addition, a part of this, an important part is the educational system that is producing hundreds of thousands, millions of graduates every year, who are well qualified to participate in a knowledge-based, information-based global economy. To the outsiders this is the huge part of the appeal. In addition, this is a familiar theme, simply the fact that it is a democracy with a legal system that is comprehensible and relatively dependable to any one looking to do business some place else…that is a huge advantage. As I say, it is nothing new for me to cite that but I want to emphasize it. It is really important.

On the other side of the ledger…the weaknesses. It isn’t fashionable to say weaknesses any more. We are all supposed to say opportunities for development or some thing like that. Well, let us be frank. Weaknesses are words as perceived from outside. Number one…the obvious one which the IMF person mentioned- the infrastructure. This is a concern to any company intending to do business in a big way in India. I don’t want to dwell on it because this is a well known criticism. You have heard it all many times before. It has been cited very often and talked about a lot.

Perhaps more provocatively, another worry is what about those who are not participating in the tremendous economic story of India? In other words, what about the hundreds of millions of people who are not participating in this tremendous economic growth? If such a large number of people are not participating, will there eventually be some kind of political reaction that could be sufficiently severe that the economy could become less competitive in the global setting. Well, you are better able to judge that phenomenon, but I can tell you that, to the outsiders, it is a worry. I am not referring to the stories in the newspapers the last couple of days about the idea of affirmative action and quotas in private industry and so forth. That certainly is the latest news about it. But more generally, the idea of a lot of people in the society, if they are being left out of progress, creates an unsustainable situation. To outsiders, that is a worry…not an immediate crisis, but a worry to be monitored.

Another point. Again, since my mandate was to be blunt, it is sort of the opposite of the tremendous hunger for advancement that I mentioned as one of the great strengths. I was just talking earlier today with an executive in a major multi national company that operates in a big way in India. He is a high executive in an American company but he is an Indian, and he said “we came here for costs…for low costs; we encountered, somewhat to our surprise, very high quality, and then we encountered to our surprise, tremendous innovation, and that is what we are staying for.” Well, that is a huge strength. The worry or weakness on the other side is that, some one I was talking to recently, described as a mind set that remains colonial. In other words, it is a generational thing in a large part, but not entirely. A mind set that isn’t entrepreneurial, isn’t energetic, and to some extent is still encountered. I can tell you again from the point of view of an outsider this is a worry that they monitor.

Even more, perhaps off the radar, but nonetheless real. It is a paradox. As India becomes integrated in to the global economy there is a certain amount of western influence that is necessary, inevitable, and desirable. But the flip side of it is the downside of the western influence…and I have to say that by simply observing as an outsider, there is a worry of that happening. What do I mean by the downside of the western influence? Well, I mean, a lowering of standards…a lessening of hunger for education…a lessening of the willingness to sacrifice today for tomorrow. I am describing the problems of my own country, and I write and speak about it a lot. These are tremendous problems for the United States, and I think they are going to cause tremendous trouble in the years ahead. We are lowering our standards, we are much reducing our willingness to sacrifice today for tomorrow, and it is a bad thing. Another concern is, as these influences come here will they cause the same things to or at least begin to happen in this economy?

Well, I want to focus also on the idea of brands, and how global brands are going to come out of this economy? I think one of the big challenges is changing business models. There is a hierarchy of adding value, begins with simply producing commodities. This is what all of mankind did for thousands and thousands of years. It was the subsistence for life that all of the mankind in the world did for thousands of year. Simply producing, to be alive for today and tomorrow. About 500 years ago, we moved to the next stage of value creation, next stage in the value hierarchy…which is creating physical capital in order to produce what we need. In other words, finally, we were able to save a little more than what we need for consumption. We were able to produce physical capital, in the way of tools, in the way of ships, in the way of plans, factories. These things enable real wealth creation for the first time. The next stage in the hierarchy is the creation of intellectual capital, to permit the creation of differentiated products. Of course, this is what persists to this day, and allows all of us to create the wheel-wealth, the substantial wealth that surround us now…whether that intellectual capital is the formula for Coca Cola or the formula for the pharmaceutical or any number of other things. It permits the creation of differentiated products which create far more wealth and fame. Here we reach then, the subject of brands. Arguably the brand is the ultimate form of intellectual capital. It is after all nothing more than a word, a word that can be worth billions and billions of dollars. It is intellectual capital, arguably at its highest stage of development, which is why brands of course are attractive to pirates and people who want to steal them. In these lists of most powerful brands, you often see Coca Cola listed as number one…it is high up there. The former Chief Executive of Coca Cola, Roberto Goizueta used to say “if every physical asset that we own were destroyed tomorrow, we could borrow all the money we need to rebuild it, based on the value of brand”. In other words, for his Company, every thing physical was, in a sense, secondary. The value of the brand, the value of that word, was so great that it over shadowed every thing else. It was more valuable than any thing else the company owned.

When I say the challenge is creating new business models, what I mean is, we all know that brands are valuable, but how many companies have the courage to use a business model that is actually based on the value of the brand? It takes courage because it requires confronting the business value, the economic value of, in the case of consumer brands, pure emotions - of love, hope, joy or on the case of business-to-business brands, other attributes - honesty, trust, values, purpose, all of which are deeply emotional. How many people have the courage to build a business that accepts the economic values of these things?

A question! Could this represent a mind set problem in India? How does the business culture value these things as opposed to how it values tangible assets? Or as opposed to how it values engineering, accounting, software, and other left-brained disciplines that are so important?
I stress, this is a question, I ask it as a real question. I don’t know the answer. You have much better sense of the answer than I do. And secondly, it is not about the Indian culture but it is a question about Indian business culture. To what extent is it willing to embrace the value of these things? These things that are at the heart of extremely successful brands. This leads to a larger question…where does economic dominance come from today? The conventional answer is that economic success comes from advancement and success in science and technology…because that is the way it has been for the past 300 years. Ever since the scientific revolution of the 1600s really got going…those places that could establish scientific dominance were also economically dominant…whether it was Western Europe in the beginning, later America, later Japan. Scientific and technological dominance lead to economic dominance. Any economist, virtually any economist, would tell you today that it is still the case.

There is a counter argument however…and I mention it because it is definitely worth our consideration. As we all try to become dominant in science and technology, as well focus on how many engineering graduates we produce, this argument says that we are fighting yesterday’s war. We are not looking to the future. This argument says that science and technology are becoming commoditized…that in fact, as China graduates 650,000 engineers per year, technological advancement becomes commoditized. In fact the way economy adds value and creates wealth in the future is through right brain activity…things that involve creativity, imagination, and intuitiveness. Can this really be so? There is an argument that it could be. One good example of that would be this device - the iPod. Why is this, an example? Things like this, MP3 players, have been around for years. The MP3 players were around for years before the iPod was created. They never did much, they never caught on…they never were popular. This device does not represent a technological advance. What they did was take existing technology, design it beautifully, and create a very nice intuitive interface with the user. Somehow one view’s it with coolness, and somehow this thing has taken of beyond all imagination. It is powering the Apple computer company, earnings are up 40% every quarter, and hundreds of millions of dollars are profited. In the U.S., this device now has 76% of the market for these portable MP3 players…and the music that the Apple company sells online has 73% of the total market for online music sales. In fact, it has 10% of the market of music sales of any kind….totally revolutionalising the industry. The point here is that it didn’t represent new technology. What it represented was taking existing technology, and being creative with it, designing some thing well, using intuition, imagination, and creating a valued product.
I am not sure that this is going to be the case, but it is an important argument that it can not be ignored. There are people who say that in the United States, the cool degree for graduate students to get now is no longer the MBA, the Master of Business Administration, but the MFA the Master of Fine Arts, because the young graduates want to do this kind of work in the future. Well, that leads to another question…what is the value of brands in today’s economy? Why are they important? This is a crucial question. They are more important than ever for 2 big reasons…one, we are in a world where everything is becoming commoditized, Quality standards are rising. It is possible for almost everyone to make some thing just like the competitors product, if not today then tomorrow. I keep referring to Coca Cola because the secret formula for Coca Cola was once a great competitive asset. It isn’t any more. Technology is now so good that any beverage maker of any size can manufacture a product that is physically indistinguishable from Coca Cola, that is from the consumer’s point of view, indistinguishable from Coca Cola. In other words, any body can make it, but only the Coca Cola Company can call that. The brand is where all the value is, but at the same time, brands are increasingly imperiled, they are increasingly in danger. Why? Because we are in the internet era, where the brand depends on the reputation of the whole company. It isn’t used to be this way. Consumers never used to care where Nike made the shoes. Now they do care. Now consumers care about the behavior of the whole corporation. One mistake any where can imperil the brand, and so at just the moment when these things have become more economically valuable and important, they also have become more fragile, easier to lose.

Where does brand power come from? I want to suggest an answer I have found extremely powerful. This is based on work that was done some time ago at Young and Rubicam Inc, an ad agency, but it has been widely applied which I find very compelling. Brand power, they found, comes from 4 attributes…and the order of importance of these attributes really matters. Number one-differentiation, number two-relevance, and in fact those two are far more important than any thing else. Number three-knowledge, how much people know about your brand or company, and number four-esteem, how much do they like it. The reason this is important to most of us, even to people who are in the business of brands, marketing and so forth, instinctively ask as a first question, how do you get people to like our brand? Esteem, it is number four, it is the last thing. This is very counter-intuitive, but I believe it is absolutely so. Number one, most important, is differentiation. This above all, the brand has to be clearly different from any competitor, and paired with it, a close number two, is relevance. These things, above all, create brand power.

Now, let us apply this to a couple of cases. Let us take an extremely powerful brand by every measure, the Disney brand. Is it differentiated? Totally! There is nothing like it! You can’t think of any other company and say “oh, yeah, they are just like this”. Is it relevant? It is incredibly relevant. There are billions of kids in this world; there are billions of families with kids, and those kids all love magic and fun, and imagination. And that is what the brand name is all about. It is utterly relevant all around the world. Is it known? Yes! It is incredibly well known. Is it esteemed? Yes, it is very highly esteemed. So it scores near the top on all 4 attributes. It is an incredibly powerful brand.

Now let us look at another one. That is almost there but not yet quite. You may be surprised. Rolls Royce. Is it differentiated? Yes. You would hardly say that there is anything that is like Rolls Royce. Is it relevant? No! Completely not. Even to those few people who are rich enough to buy a Rolls Royce, it isn’t relevant to their lives. It is certainly isn’t relevant to people who might aspire to buy Rolls Royce one day. The brand does not like that. Is it known? Yes, it is quite well known. Is it esteemed? Well, it is pretty well esteemed. But because it is totally irrelevant to most of the people’s lives, it isn’t actually a strong brand on these ratings, it never shows up.

Next question. What is the nature of brand India? How does it rate on these four criteria? I invite you to think about it because you will know much better than I would. As we go through them, what do you think? Differentiation? Pretty high. I would think so looking at it as an outsider. Relevance? Not really, not very high. I think that may be right. When I think about these national brands, you know…what is brand Germany? Probably precision, quality engineering, and I guess a lot of people can relate to that. Lot of people around the world would want that. Brand Italy is probably fashion, style; good food, good living, and a lot of people would find that relevant. Brand India? I am not sure. I would ask you because you would know better than I do. But what would the attributes be and how relevant would they be to the markets world wide? Perhaps we can talk about this later in a few minutes. Is it no? Yes? Extremely well known. Esteemed? Yes. I would say very highly esteemed. So it does well on at least 3 of the 4 criteria. We might discuss that later.

I am going to wrap up in a few seconds. As global brands come out of India, one of the most important questions will be how Indian should they be? How Indian must they be? Obviously there are examples of both kinds. There are global brands where the nationality is unknown and nobody cares. Right? Nokia phones are number one around most of the world. I am sure that 99% of consumers don’t know that it is a Finnish company, and they don’t care. Nestle...who knows and who cares. It is Swiss and I am convinced that most people don’t know it is Swiss. On the other hand, sometimes, it is important. Mercedes Benz-it is important that it is German. Gucci-it is important that it is Italian. It has been my experience that the best, most of the enduring brands are self-defined. They are based on a word that has no meaning of its own; the company is able to imbue it entirely with meaning, and they create that brand identity entirely on their own. Dell computers. Dell happens to be the name of the guy who founded it but it is lucky for him that his name happens to be a short word, easy to pronounce in every language, and it means nothing. It has a meaning in English of course, but it is a word nobody actually uses, so it is a terrific brand name. They are able to give it all its meaning whatever meaning it may have. The best brands are like that, in fact, going back a long ways, Kodak, a famous great brand, is an entirely synthetic word. George Eastman who created the company decided that he wanted a word that meant nothing in any language, and as a result, he could create all the meaning that word would ever have.

As I mentioned, I do think that the development of India’s consumer economy would be key to its development of global brands. They are not the only brands, but they lead the way in the development of the branding ideas, sophisticated brand development. In my country which is arguably the best at creating brand identities, the economy is 2/3rd consumer related, about the highest proportion any where in the world, and it is no accident that this is the economy that has developed most of the strong consumer brands, and as a result most of the strong business-to-business brands. The development of the consumer economy turns out to be critical to the development of the brands.

In sum, I want to say that the creation of the powerful global Indian brands is an issue of mind set in business culture, not capabilities. These are the questions. It is a challenge because mind set and culture are often the hardest things to change. It is also obviously a huge opportunity that some one is going to take advantage of, and take advantage soon, and I am confident.
These are the points that I wanted to get across but we do have some time now to engage in discussion, have comments, questions, whatever you like.
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