What does world class mean?

Can we in India redefine what world class is, and what world class can be rather than just benchmark best practices? Can we in India invent Next Practices, rather than worry about best practices? These are some of the issues that Management Guru and Professor at the Michigan Business School, C K Prahlad, spoke about at the annual session of the Confederation of Indian Industry, held recently in Bombay. Prahlad said the Indian economy has the potential to grow 10 to 15%. Entrepreneurship, innovation and quality can generate 10 million jobs annually. The trick: Industry should leverage resources and cut costs. Even a 20 to 30% cost cut will double demand. India has demonstrated global scale markets in telecom, two-wheelers, trucks, cement, petrochem and entertainment. This now needed to be replicated in other sectors as well, Prahlad said: Excerpts from his speech: About three, three and half years ago, when I started talking about 10% growth and 10 million new jobs, it looked totally out of reach. I think today we have have become bold enough to talk about 8-9% and sometimes people even talk about 10%. But three, three and half years ago, when I said this, it looked like very difficult to achieve. My starting point was very simple. I think if we did nothing to the Indian economy, or if it grew at 5%, we will grow from $450 billion in GDP to $1.2 trillion. That is the good thing by itself. Nobody can look at these numbers and say - this is not interesting - because only two countries are growing at 5% a year in the whole world, and that is India and China. China is growing faster. So I just said - look at our population - it may be about 1.3 billion. I do not believe that population will continue to rise at the same rate. With education, as we have seen in the Kerala, it may stabilise. So if we say 1.3 billion and $1.2 trillion, it is not a bad record. But, if India looks at itself from inside, the record looks good. On the other hand if you compare it with our neighbour, they have about more or less comparable population. But it's very different in terms of capita income. It's 450 for us and 1000 for them. And if we continue to grow at 5% and they continue to grow at 10%, then the picture looks very different. That is what it looks like. So my starting point three and half years ago was very simple. What do you give up our aspirations or our inability to grow? I think we need to ask that question continuously. This is not a debate about whether we can grow at 10%. The question is, we have to grow at 10%, create at least 10-15 million new jobs. The question is 'How'

rather than 'whether we can or not'. Because if we ask the question 'whether we can do it or not' the answer is always going to be based on our past. It cannot be done.

So the question is "How can we do it?" There is a new voice that has been added this very important debate and that is the voice of our President. I think he is now talking about India as a developed nation. You cannot get there with less than 10% growth and I think it is an important voice and it carries tremendous amount of credibility. The second, I said, the poor of India can be a source of tremendous innovation and opportunities. We can no longer look at the poor as a problem, which we have done for 50 years. Poverty alleviation, subsidies...that is not going to solve the problem. The first question we need to ask ourselves is "How do we start looking at poor people with respect?" and "How do we start looking at poor people as customers?" I used the word customers because, once you call somebody a customer, then you start developing a respect for that person. Our job is to unearth this latent opportunity Therefore I say based on most of the research that I have done over the last five years, if we can serve 800 million poor people in India; we have the largest export market in the world. We have five billion people around the world who have exactly the same problems that we have. They live in China, Brazil, Indonesia, Philippines, Mexico, and South Africa. So export is not only about IT for the largest companies in the world and certainly in the US. It is also about understanding how to take shampoo to the poorest people in the world, and I think it is a huge market opportunity. But in order to do it, you cannot use all technology. We have to start with at least four basic principles. The first principle is, you have to use the most innovative hi-technology hybrids. How to marry state of the art technology with very poor infrastructure that exists in villages of India? It is not just in the villages of India, it is in the villages of Brazil or in the rural parts of the China as well. So we need to understand how to be imaginative in combining hi-tech with innovative solutions. How to scale both nationally and globally? How to create solutions that are ecologically sustainable because when you start thinking about five billion people and if you start using resources, they way you and I use, it is almost not sustainable. So we have to think about sustainable solutions and that provides tremendous opportunities for innovation for us. And finally rethinking price performance levels, maintaining high levels of profitability, but fundamentally rewriting price performance levels. And that is going to be my basic argument. If you can meet the price performance requirements of the poor, or the

bottom of the pyramid, then the tremendous cost advantage you have in serving the rich becomes unreal. The third basic thesis I have developed over the last three year is, all the pre-conditions for growth exist in India. What are the pre-conditions? There are tremendous price performance changes that are taking place. Wireless is a very interesting case in point. You all are familiar with what has happened to wireless. We are adding almost a million new consumers every month and this is the highest growth rate anywhere else in the world. Recently I looked at some numbers. There are 250 million cell users in China, 20 million plus in India. I don't count anymore because by the time you got the numbers, it is already obsolete and there are 35-40 million are in Brazil, just three countries. So if you put them together, you are close to 300-350 million cell users. And US is only 122 million. So you can ask the question who is driving what? I believe fundamentally that wireless is going to be driven by the bottom of the pyramid. That is the first time in the world where the poor people are going to be the engines of growth and engines of change. And wireless is just one example and I want you to think about what would happen if we make consumption possible for ordinary people. The reason why wireless took-off in India is, consumption was made possible with pre-paid cards and very attractive starting options. If we can give somebody Rs 500 phone, they will buy one or they will get one. Through out the world the engine have changed in telecommunications today or the poor people. Second, there is tremendous availability of consumer credit in India. I know some of them complaint that because of the consumer credit, some other businesses are suffering. The good news is people can buy stuff for the first time. Access to credit, must become a fundamental right for every citizen and that is what creates economic growth. Third, growth in per capita income, there is magic when per capita income in a developing society crosses about $600. There is a huge inflection point where domestic consumption becomes a major driver. That is what has happened in China. That is going to happen in India. And you can already see in some parts of India where we have crossed $500-600 per capita income, the growth rates are much higher than any other parts of India. So you could look at India and say on a different shaded basis, some parts of India growing at 10%, some at 3%. If we put them all together, it doesn't look very attractive but there are growth opportunities in India today where some states are growing faster than others. It is not the same rate of growth.

Then finally we have new forms of access to consumers, it is called direct distribution. It is Amway, it is Shakti, it is Avon, Oriflame etc. Assume that 6-7 million new entrepreneurs will be created. And each one of them can touch 50 people. Certainly we have 300 million potentially new and interesting customers that were not necessarily totally access or influenced by the existing retail distribution system. And I think today getting world-class technology is not a big deal, we can get technology if you really want to. And I think there is increasing focus of entrepreneurship in India. So if I put this together I say pre-conditions exist that does not mean every company is growing very rapidly, that does not mean everybody is able to or capable of exploiting these pre-conditions but we cannot complaint that pre-conditions don't exist. I also believe that one of the good news in India is what we always considered to be a bad news, is a very low install base and therefore there no switching cost in India. In the US when you want to switch technologies, there is huge switching cost. But here is no switching cost. Number two, all of you think about the learning curve. I would like to focus on the forgetting curve. It is lot more difficult to forget things than to learn things. The good news is both for consumers and for companies; there is not much of a forgetting curve because we didn't learn much anyway. For example, our consumers have no clue on what a landline looks like because there are no landlines. Therefore they can go to wireless directly. But if for 50 years, you are socialised to use a landline, you start thinking about wireless as a supplement, not the real thing. So we have huge opportunities here. Certainly we can have increasingly intelligent products. I just read that with cell phones today in Bombay, at least trials are taking place where you can switch-off of switch-on your microwave.. worry about looking at security in your house or air-conditioning. All these are possible today. And it's possible in Bombay.. it is not futuristic. That means hardware/software and material integration is taking place not in a big way but in a small way. And certainly ease of technology assimilation. Look at what has happened in cell phones. Look at what is happening in PC penetration. It is not at all clear to me that Indians have any problem accepting technology, especially the poor people either in rural or urban India. They gravitate towards that if it is of interest to them, if makes the life little bit easier, little bit better. And I think we have the highest quality, potentially lowest cost technical manpower.

Imagine the India in 2020 with me. 200 million graduates, that is only 16% of India's population. Imagine with me 500 million trained technicians, it may be carpenters, electricians, and plumbers etc. Think of what we can do? Can you give me one other country in the world, which can have 200 million graduates and 500 million trained technicians? And to sit on this potential, and to behave as if we are a poor country, defies common sense. Now we have to figure out how to do 200 million and it is totally doable and the reason is all that we have to do is 5-6 million graduates every year. And as a country if we cannot imagine how to do it, I would say we don't deserve to be a developed country. So imagine 200 million graduates, what we can do? That is the potential of this country. There is no other place. If we have 200250 million graduates, that is everybody in the US with a graduate degree. That is what we can do here. So I would say India's problems also mirror global problems. There was a time when many of our problems were unique to poor countries. I think we are going to have a record diabetes scare in this country. It is going to a huge public policy problem and a public health problem. Imagine 150 million people with diabetes, if we solve the problem here for the poor people, both in diagnostics and treatment, we can have the global market. Cardiac care is the same. In every field, India can be the world's Number One, if we just look at our problems and find solutions for those problems in an imaginative fashion. Therefore I believe pre-conditions for innovations exist in India. Then there are myths about manufacturing. There are 10 myths, almost all of them self inflected myths and I showed data from India to show none of them need be true and in case most of the case they are not true at all but we still have this wildly circulating. We cannot produce world-class quality. This is not borne out by evidence. We do not and cannot have world scale operations. Just look at two wheelers. We have world scale operations right here but we don't believe we have. We cannot be low cost. I am going to argue, we can be so low cost that none of you are going to believe. We cannot develop products. We are poor. There is no domestic market. At least wireless has proved one thing to us; there is a domestic market, if nothing else. We do not have global opportunities for export that is not true. We cannot build manufacturing based multinational companies. We do not have a competence base. I tried to take each one of them last time and use Indian examples to prove that.. that is not true. That it is not all manufacturing is not world-class but there are enough

people in India who have become world-class to convince us. if we try we could be world-class too. In other words it is not that there is some magic to being world class, it is just deciding that you want to be world-class and doing it. And we have done it in India over and over again. So I basically say that India can be a source of manufacturing excellence. At least this is the journey that we have been on so for. Therefore, I say that building blocks of competitiveness is that we have to create a new game. We cannot follow the existing game because somebody else establishes the rules, we have to break the rules and create our own game. We need to have the ability to understand, comprehend and exploit the power of the domestic market. I think it is very critical for us to understand what India can be, not what India is? Organising the unorganised sector, whether it is in the financial services, whether it is in the health care, whether it is in food processing and food consumption, if we just organise the unorganised sector, the amount of efficiency that we can get is quite phenomenal and the opportunities for industrial development. New approach to customer access and creating scale, both real and virtual scale. And I think how do you leverage the Indian advantage in terms of both talent and cost, not just cost. And finally, why can't we leapfrog the West? Why do we have to follow? If all these conditions exist, then we have the ability and the right to leapfrog.