Bet on value-addition, innovation, India Inc
Industry heads share their views on staying competitive
What they say
The only way to extract a price premium is through value addition and innovation.
Increasing compensation to tackle attrition will lead to a vicious cycle.
Companies should build on the platform of good practice and governance.
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Chennai , April 8
Industry's competitiveness is resting too much on labour cost advantage than on innovation, according to Mr R. Seshasayee, Managing Director, Ashok Leyland Ltd and Vice-President, Confederation of Indian Industry (CII).
Addressing a session on emerging challenges in sustaining growth at the CII's annual regional meeting here on Saturday, he said that the only durable way companies can extract a price premium is through value-addition and innovation.
Cost vs value
Intellectual capital needs to be a significant part of wealth of companies. "Not low-cost labour or arbitrage in labour cost - that is transient," he said.
The cost of inputs, and of commodities is bound to increase and can impede growth. Industries globally have addressed this through efficiency increase. Internal efficiency and continuous improvement has become a "part of today's DNA of Indian industries" in dealing with input costs and defending margins. But this cannot go on forever, Mr Seshasayee said.
"Why would people pay more?" he asked.
The differentiation by which companies can command a price premium is in delivering value. Value-addition by an order of magnitude, changing the rules of the game to develop novel packages - that has been the success of the industry leaders. Continuous innovation is the challenge for Indian industries, he said.
Areas of concern
Mr Ashok Soota, Chairman and Managing Director, MindTree Consulting Pvt Ltd, who spoke on employee attrition and increasing costs, felt that wage increase was a manifestation of success. But there has been a swing from one extreme - pathetic low wages a decade ago - to another and short-term cost increases could lead to loss of competitiveness.
Increasing compensation to tackle attrition would only lead to a vicious cycle. One solution would be for companies to move into new geographical areas to tap new human resources.
Another concern is the `Dutch Disease' - one sector growing at the cost of another - with the boom in information technology driving wages to levels that other sectors cannot afford.
On the supply side, the issues of quality and quantity of workforce need to be addressed. Educational institutions churn out graduates who are `unemployable.' But there is also talk of expanding reservation. That would be a wrong decision, as this would only take away quality. Industries need to focus on training to improve the quality of the workforce, Mr Soota said.
India has demographics on its side. It has the human resource capacity to meet the global demand for knowledge workers by 2020. It is the time to act now - but unfortunately when things are going well, action is difficult, he said.
`Conform to global standards'
Mr Ravi Uppal, Vice-Chairman and Managing Director, ABB Ltd and Deputy Chairman, CII Southern Region, said conforming to international standards despite the costs is a necessity for companies that are looking at a presence in the global market.
Whether a Sarbanes-Oxley accounting disclosure or the home-brewed Clause 49 of SEBI, companies need to have systems to instil confidence in the stakeholders. The Indian stock market cannot afford another scandal.
India scores higher than China on credibility and transparency. Companies should build on the platform of good practice and governance. "It is a must - Not an option," Mr Uppal said.
Stress on CSR
Mr Y.C. Deveshwar, Chairman of ITC Ltd and CII President, called for a system that provided an incentive or placed a value on a company's initiative in corporate social responsibility and environment conservation. The media too has a role in sensitising the civil society to good practices.
India has 17 per cent of the world's population but 2 per cent of the land mass and 4 per cent of water. So conserving natural resources and enabling a skilled workforce is the concern for all. The entire society should place a value on conservation.
Industry heads share their views on staying competitive
What they say
The only way to extract a price premium is through value addition and innovation.
Increasing compensation to tackle attrition will lead to a vicious cycle.
Companies should build on the platform of good practice and governance.
--------------------------------------------------------------------------------
Chennai , April 8
Industry's competitiveness is resting too much on labour cost advantage than on innovation, according to Mr R. Seshasayee, Managing Director, Ashok Leyland Ltd and Vice-President, Confederation of Indian Industry (CII).
Addressing a session on emerging challenges in sustaining growth at the CII's annual regional meeting here on Saturday, he said that the only durable way companies can extract a price premium is through value-addition and innovation.
Cost vs value
Intellectual capital needs to be a significant part of wealth of companies. "Not low-cost labour or arbitrage in labour cost - that is transient," he said.
The cost of inputs, and of commodities is bound to increase and can impede growth. Industries globally have addressed this through efficiency increase. Internal efficiency and continuous improvement has become a "part of today's DNA of Indian industries" in dealing with input costs and defending margins. But this cannot go on forever, Mr Seshasayee said.
"Why would people pay more?" he asked.
The differentiation by which companies can command a price premium is in delivering value. Value-addition by an order of magnitude, changing the rules of the game to develop novel packages - that has been the success of the industry leaders. Continuous innovation is the challenge for Indian industries, he said.
Areas of concern
Mr Ashok Soota, Chairman and Managing Director, MindTree Consulting Pvt Ltd, who spoke on employee attrition and increasing costs, felt that wage increase was a manifestation of success. But there has been a swing from one extreme - pathetic low wages a decade ago - to another and short-term cost increases could lead to loss of competitiveness.
Increasing compensation to tackle attrition would only lead to a vicious cycle. One solution would be for companies to move into new geographical areas to tap new human resources.
Another concern is the `Dutch Disease' - one sector growing at the cost of another - with the boom in information technology driving wages to levels that other sectors cannot afford.
On the supply side, the issues of quality and quantity of workforce need to be addressed. Educational institutions churn out graduates who are `unemployable.' But there is also talk of expanding reservation. That would be a wrong decision, as this would only take away quality. Industries need to focus on training to improve the quality of the workforce, Mr Soota said.
India has demographics on its side. It has the human resource capacity to meet the global demand for knowledge workers by 2020. It is the time to act now - but unfortunately when things are going well, action is difficult, he said.
`Conform to global standards'
Mr Ravi Uppal, Vice-Chairman and Managing Director, ABB Ltd and Deputy Chairman, CII Southern Region, said conforming to international standards despite the costs is a necessity for companies that are looking at a presence in the global market.
Whether a Sarbanes-Oxley accounting disclosure or the home-brewed Clause 49 of SEBI, companies need to have systems to instil confidence in the stakeholders. The Indian stock market cannot afford another scandal.
India scores higher than China on credibility and transparency. Companies should build on the platform of good practice and governance. "It is a must - Not an option," Mr Uppal said.
Stress on CSR
Mr Y.C. Deveshwar, Chairman of ITC Ltd and CII President, called for a system that provided an incentive or placed a value on a company's initiative in corporate social responsibility and environment conservation. The media too has a role in sensitising the civil society to good practices.
India has 17 per cent of the world's population but 2 per cent of the land mass and 4 per cent of water. So conserving natural resources and enabling a skilled workforce is the concern for all. The entire society should place a value on conservation.