Mr. Jehangir S. Pocha
China Correspondent - Business World and The Telegraph
I will do this very quickly so that I can turn things around for half hour. Last night I was at the Bombay gym and having a dinner with an old friend and there was a gentle man in the room and only thing that I heard from him…his table was ” you know china just spent 100 or 1.7 billion dollars to buy IBM PC unit.” It is very literal sort of experience that reverberates around the world. It has become some sort of mantras. And how is it, how is it that a country that torches its people, there are more journalists in jail in any other country, that routinely flouts every human rights that we have worked over three thousand years to develop reverberating every where in the world. Why is it that when I look at the china brands at googles that first headline that I come across is that china brands Taiwanese as the troublemaker or something like that. This is in America, actually there is away of getting to the American google to china. And that is a different question; how is it, that is has acquired a positive bent and the answer is very simple because the human beings love a winner and china thinks big and succeeds and nothing succeed like success. You know India has been following these debates about the retail markets and Chidambaram was in Beijing and he was talking about you know Wal-mart came to India we would be able to sell them X amount of things in so many billion dollars and is very interesting but frankly at the end of it, it is rather meaningless things. This was the headline in the Chinese magazine, it is like the anecdotal evidence kind of thing, intellectual discourse and discussions on how and why it should be done and in what way and what form. This is all very interesting but at the end of the day there has to be a vision. There is great myth in this country that somehow has began reforms before India. It is one of those conventional wisdoms that has taken root and it is completely false. Even in 1979 when china was beginning to open up to the world India was far more open to the world and in fact even today India is actually on paper that it is more a reformed economy then china, I mean I can count the number of industries that are still close to 51% in china. Automobile manufacturing, civil aviation, obviously the media and the list just goes on and there are huge industries. Actually our economy is more reformed and more open to foreign investment in many ways and we think its not. Why is it that the Chinese are more successful? I think that truth is that I think they are more westerns oriented and more outwardly focused. When china began the reforms it was more about the FTI in, before that even there was a sense that china looked at itself this is all about. What we have built for ourselves from last ten years isn’t really good. they has a revolution and it was terrible, hundreds and millions of people suffered and clearly millions of people died and they began to look within themselves and they were like what is bad in our society and we need to burn out of our society and they looked to west an they looked to modernity and embraced it. With all the complications and tragedies that they had faced, it also created an orientation towards it modernity, towards the west and in 1997 it is natural that they looked towards the west and want an FTI as the way of going forward. That is not quite the same in India and this is too short get into these intellectual discussions, the essential point to extract from this is the western orientation and by western I don’t just mean England or America but modernity. Whether it came from Korea, Japan or Hong Kong or Taiwan it was essentially the desire to be modern. Chinese companies …you know because of the FTI have always been focused on exports. Actually the domestic consumption in china is very low and you see in this slide that the incentives to export are the largest item on the china’s budget expenditure. So all the incentives are structured towards going to the world; and lastly this is one of the most important difference between the Indian and China is at the economical level again which has not got attention I believe is that the china is a capital rich country and India is a capital starved country. There is stock of money is six or seven times the stock of money in India. And that is something to keep in mind about what china is and what’s driving it a lots of its drivers come essentially from the cheap capital. Again the point to extract over here is that while we may learn from certain things from china there are certain things also unlearn or learn not to do, learn that their situation is lot different from ours. That is that their companies have the western orientations, the access to chief capital, and their incredible ability to implement and that is why when we look as I said in 1980 they were far behind India until they began the reforms. There were no brands in china forget about foreign or domestic, there was no professional management, there were no counting systems, there was no legal system. it was a country that was devastated and that was trying to claw its way back to some sort of normalcy which they haven’t really got to. Now today as we speak a photograph of today and that is important in emphasizing Chinese brands have overtaken the western brands but I’m sort of saying in the last point that I’m not sure that it is sustainable and I’m not sure that it is sustainable in India because while we are talking about India going abroad, china going abroad western and Japanese and Korean companies are coming here and they are basically eating our lunch. So that is also something to think about is as to what are they doing and not to think about or get entirely fixated on the lucky gold star or china or Haier you just think of what the best companies everywhere in the world are doing. So far china has built about a ten companies that function at the world level, it is not the world class or a new cliché that is thrown out there, it is not about who is world class or who is not world class, they claim to be about ten companies that are world class in china. My personal point of view is that any company that makes a product that sells easily in the global market is world class, essentially that’s the start. The start is really…if I had to pick one thing out that I would say is ….these are some other things that are put here, the essential thing is that what makes a product acceptable in the world market. There’s all the philosophical stuff of understand the consumer, but essentially I was at a conference in 2001 at planetarium and making India happen and CII – basically it said the same things that we have said this morning. We essentially know all that stuff, its quite clear and common sense, it meets the test of common sense, but essentially the difference is are Indian products, is Indian professional management has world class finishing because the consumer looks for the finished product doesn’t see the back office. I’ll live in china and I see the back office and its pretty terrible let me tell you. With the product that comes into the market, comes into the retail doesn’t reflect that. And that is the essential thing, that is the chaos, lack of capital, lack of attention that is going on within a company show up on the retail floor and china as a company accomplished the fact even as a nation all the torture and the stuff talking about does not really stand out and define china in the world. That is very critical. Why is that? We tend to see the products in the markets and business as something by itself. It has become a culture of trying to forget about culture and politics, forget about society. When you talk about respecting a customer I’ll suggest that it is important to respect them as human beings. China for all its tragedies and for all its flaws has actually taken trouble to educate its people. I’m not talking about the IIM’s and IIT’s, but I’m talking about the fact that when I get into a cab in china, I don’t write Chinese and so sometimes I have to show the address to the guy and everyone reads it. Sometimes its very funny that when I talk to someone in Chinese you know the pronunciation is very precise and I don’t get it right and then we will start gesturing in the air Chinese symbols, it is like of course everyone knows how to read even if you can’t get how I’m speaking it you can understand the symbol that I’m trying to represent. In a way writing for them is more intuitive and natural then speaking. Three is of course the work ethic that lot of people have talked about, I will not get more into that but one has to mention it, I think that there is something else about the language, this is a pet theory of mine, Chinese writing is very complicated, for a child just write requires immense intellectual capacity and that aside it requires tremendous motor skills to be able to write those characters on the small line. It takes about a certain skill about the hand control and eye coordination, a certain aesthetic and of course in china writing is an art. Writing is a wonderful art and in India in the art market is growing and all that but people pay millions of dollars to have one symbol on a board it is also interesting. It is about building a culture that recognizes and appreciates the aesthetic. Then there is of course the idea that Chinese are far more connected to the outside world because of the Diaspora of Taiwan, Hong Kong and all that. They have been able to morph familiar with what it takes to live with in the developed world, in the western world and what the western consumers want and how to think as a western company while being Chinese. It is so interesting; they also think like the Russians, you know that the soviets had this idea of gigantism. If you have been to the communist countries or Russia or to china everything is very huge, nothing can be small. The roads are huge, if they want to build a highway it will be six way highway. If they want to build a thoroughfare it is great, if it is a railway it is huge. There is this idea of heroic architecture in soviets and showing…it was propaganda that has become the culture. What is more interesting is that more then the Taiwan or the Hong Kong that we all know about, it is the soviet idea of gigantism still survives in china. It has been transfused and diffused into so many different elements across the country and now they don’t think about building small things. So when I talk to people about India one of the things that they think is that Indian think small. They don’t see world scale factories, they don’t see people taking big bets in the country side which they do and what is so interesting is that they become the industrial behemoths. Lots of statistics on china is skewed and I think that the china was the fourth largest industrial power just in terms of its physical output. It doesn’t function like a industrial behemoth thru the country, of course there are elements of the country that do function like that, but really it has startup mentality isn’t that sort of a unbeatable combination, where you have a set up which is very huge and you have entrepreneurs and people and even government officials you will be surprised by this, who think like entrepreneurs. Think small and think smart and that is the completely inverse in India. So what is it that allows them to do by saying I can think smart. Really it is about saying that our MBA’s are great you know and I can dish Harvard because in china it is the most sought out university and at the end of the day people are like whatever! What is really key is the bootstrap, be smart and be in there. What they have learnt is that though china is one government system and feudal system and people have this lordship mentality they know that’s not the case when they go everywhere else. So they have learnt to deal with what I call the status debravation. You may be the biggest brand in china and you may be the big shot in china, you may be used to people bowing to you because he must he picking up your product but that attitude does not succeed when you go outside. While there are lot of speakers and I don’t discount text book stuff I have found value in the things that I have learnt in the universities abroad and here, sometimes it is good to leave it aside and sometimes it is good not to second guess yourself trying to find a best way, it is enough to find a way to get in because the minimum requirement to winning the game is to be just start playing it. once you have decided to play with whatever you have got, some companies have the benefits of having access to cheap capital, some companies have access to great design, some companies have access to smart marketing you know that someone’s cousin is the big shot in Canada. What ever you’ve got take and go use it and if it’s not enough that is where you have to learn very quickly to more up the value chain. Another big difference between the china and India, china is a far more adaptive society, its ability to take the circumstances and to work its way around it are truly astonishing. For a country that claims to be the oldest civilization, they have this whole mantra about…they call themselves as middle kingdom and the center of the world and yet they are tremendously modern and adaptive. Because they also live with the harsh realities of this that those who don’t survive will simply die. In India the companies are not allowed to die in china they are. Even if they survive on paper they are essentially dead and the government has made it very clear to the people including the four largest banks in India just I had the discussion with governor and he said very proudly that I know tat Indian banks are very sick but we will not allow them to die. He didn’t realize that how odd that felt to me because in china the conversation to the big banks I all about that listen guys if you don’t shape up we will let you die. We may not allow that to affect the consumers but we will let you die. There is certain harshness to the market which unfortunately is the reality that we live in which they have learnt to embrace. What is it that allows them to do? It is essentially very simple solve problems.
Someone asked me a question on this and it is not systemic, it is essentially the attitudinal. A lot of time and research is spent on the systemic differences and democracy. I think that it is important but it is essentially secondary. The only thought that I will leave you which is that in Indian’s approach to corporation, to business, to governance is always been what sociologists politely call it as an exploitative system. The Chinese system is traditionally based on the system that is called as mandate of heaven where the man is allowed to be the boss and feudal lord as long as he also serves the people and delivers certain things and that has created very different attitudes towards what it means to succeed. Of course that’s why the government because of its ability to provide has provided many more social services not only at the human level but also the cheap capital to its industry and invisible support thru its contracts to the companies and the last thing is incredible ability to suck in knowledge in every industry. Every problem in china has I will tell you one thing without exception is being understood and is being addressed. Whether they solve it in don’t know but they are working on it. And they are leveraging the best mind in the world and best skills in the world working on them. For example in marketing they get the best people and when their banking system was close to collapse they basically got the twelve of the world biggest bankers and said help us solve them. And what is interesting again is it is not just about being free market driven or following the Harvard business school or Washington consensus. They have had the courage just this year in March to say that free markets are great but we are not free market fundamentalists. It doesn’t solve everything. From being one country and two system state we know that Hong Kong has been taken on board and they have come up with one country two systems and now they have said one country three systems, that there’ll be Hong Kong and it will do its thing, the east coast and the coastal area are great and they can do their capitalist thing but we are going to construct a socialist country side. That’s going to actually create tremendous income, tremendous stuff for their companies to sell their products. So since we are running short of time now I won’t go thru some of these other details but all’s not well because Chinese and Indian companies are losing out to foreign companies now and I actually see this happening for the last year actually, though it is still not reflected in statistics. Because foreign companies are basically more professional, they spend more in adverting and are not scared of that, they have access to far deeper financial markets, they have track records, they have far higher margins and they actually end up having much higher brand loyalty. So that’s why the previous presentation was about you know not about LG going abroad but it becoming an Indian company. So we really have to be careful to see whether we can do that. Is that important? Well you know yes it is and without that I don’t think that any developing country, that is an intellectual moral question and we can argue about that, the point is the reality today is that if you don’t learn how to market and brand you won’t be able to create great surplus in your economy. China still has a long way to go, it doesn’t have as many brands as we think it does or as it should but as I said it is ahead of India but its still not quite as ahead as we think it is, so we shouldn’t get awed by what is going on in China and we should realize what is Chinese or Indian is actually foreign companies who have donned the robes of being Chinese or Indian. I’ve already talked about this so I’ll skip this. But can we really do that final thing? Can we really become the professional companies? Can we really think? Can we really get our societies to change and our management culture to change? This is actually essential because the choice facing India and china today we have the aspiration become the next Europe today or America? That’s great I have a nasty suspicion that we may be forced to settle with to becoming the next Brazil or Argentina. And those two countries are actually important and what has happened in those two countries is that they had the potential as India and china. But they were never able to transcend the essential constraints they had on changing their society or on making their societies fairer and more driven and smarter, faster, more adaptive. Cheap labor an infusive capital can take you places but it can take you so far. Ultimately in the end as Alvin Toffler says in his book that has not been published actually and it will be soon and it is called the revolutionary wealth and he says, that advanced economies have to be based on advanced societies and at the very least if our counties don’t create advanced societies outside them the social environment that you create within a company has to be advanced and the way we treat the employees, customers, practices, principles that we take with people that drive us in these countries have to be advanced fully in the sense of the word. Otherwise Argentina is where we have to settle for. Thanks.
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