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The Rediff Business Interview/ Jagdish Sheth

'To become an economic superpower, India must export finished goods'

Jagdish Sheth is the Charles H Kellstadt Professor of Marketing at the Roberto C Guizueta Business School, Emory University, Atlanta, the United States of America. If that sounds like quite a mouthful, what he says about India's competitive strengths is more than that.

Professor Sheth is a Gujarati born in Burma. During World War II, his family came over to India and then settled in Madras where he completed his schooling. He went to the US in 1961 to do his Ph D at the University of Pittsburgh. Then he began teaching, first at Columbia University, later at the Massachusetts Institute of Technology, back to Columbia, then at Illinois in Urbana-Champaign, University of Southern California and from 1991, at Emory where he teaches marketing.

He was in India last week to attend the Confederation of Indian Industry's Partnership Summit in Jaipur. He spoke to Amberish K Diwanji about where he thinks India should focus, its strengths and the future trading opportunities.

Tell me more about your academic career.

While I teach marketing, I also study the psychology of consumers, international marketing and comparative strategy. I try to look into the future and at the changing demography to understand its impact upon business and society, or at the effect of an ageing population in the West, of dual-career families, etc.

For instance, women started working in the World War II, joining factories as workers and later as managers. Today, women work to meet high living standards, at least in professional families, both in the US and India, and this has implications for society and business.

You mentioned comparative strategy. Tell me something about India's competitive abilities and strengths.

To be globally competitive, you require two things. The first is that every country needs a market access, which is actually a political process. No nation has become an economic superpower merely through its own domestic market; on the contrary, every economic giant has had an export market created through a political process.

For example, let us take the United States. The US was not an economic superpower till the late 1800s because the US population was small and centred around New England. However, in the late 1800s, the US got access to the European colonial markets because European nations began outsourcing for their industries from the US, leading to a manufacturing boom and the rise of the US.

After WW II, the US outsourced certain products from Japan, besides South Korea and Taiwan. Thus these three countries had access to the vast American market which saw them develop their respective economic strengths.

Thus, a country gains a comparative advantage only through having access to a huge market. India has to figure out which countries and regions it can gain access to. Gaining access is an economic-military activity and an important political process.

In today's world, Japan has the ASEAN region (which explains why the Koreans are so much more enthusiastic about India), West Europe has the emerging East Europe and Russia, and thus the only block left for India is the United States to develop such a link with.

What is the second aspect? Also, why would the US look at India, why not nearer south to Mexico and Brazil?

The second point about a comparative advantage is that India must have something that other countries do not have, something that is uniquely Indian. And here comes in the point about Mexico and Brazil. We have to find certain products and services that even the Latin Americans cannot give to the US. Where we do score above the Latin Americans is in our natural and human resources.

Let us look at human resources. India must target its huge human resources to industries that have market access and are thus growing. Also, though a relatively small percentage of India is educated, in absolute numbers it is very high. Thus, India's comparative advantage is its people. We have among the largest numbers of engineers and technical people.

But how can or should India develop its comparative advantage?

Given our resources, there are three areas in which India can become a world-leader and beater. First, India has the gigantic talent to become R&D (research and development) centre. We can create breakthrough innovations or have laboratories that create inventions that in turn can be licensed across the world.

There are many areas that India is ahead in R&D such as chemical science especially pharmaceuticals, mechanical engineering, and recently, in electronics and software.

The second area of our strength is, of course, information technology, especially in the software part. This has been spoken about at length.

The third area of great strength is that Indians are world-class managers. As companies become global enterprises, they are going to hire less and less of local people (at least at the higher levels) and more and more of people from other continents who are capable.

At present, India ranks third in providing global managers for global firms, after the United Kingdom and the Netherlands, while the US ranks fourth. One reason for this is that Indian professionals are more broadly trained and knowledgeable than many others; second, Indians can adapt more easily to local cultures because India is a multicultural country exposing Indians to divergent views, cultures, lifestyles.

Indians have proven their managerial skills across continents, in the US, Africa, Australia, Europe. In many US universities, you will find Indians as deans, chancellors or department heads. Then today, the head of McKinsey is an Indian, Rajat Gupta; the head of Standard Chartered is Rana Talwar and so on.

What about natural resources, how unique are they?

There are several areas and categories where India has a clear advantage over others. First is in agriculture. Rather than export raw products, we should turn our agricultural products into processed foods and beverages and ship them out. India produces huge amounts of cereals, vegetables, fruits, grains, etc all of which are valuable.

Then we have the animal resources, especially in cattle (India has the world's largest bovine population). Thus we can become one of the world's great dairy countries (India is at present the second largest producer of milk). Here again the need is to produce processed products such as milk powder, etc.

Another use of the cattle numbers is in leather goods. For cultural reasons, India can never be a great meat exporter, and in this area Argentina and Australia and some European countries are already well established).

Our third natural resource is the minerals and metals we possess: huge deposits of granite and marble. Again, the need is to make these raw materials into value-added products rather than ship them out raw. For instance, how many people know that the Vietnam War Memorial in Washington DC is made from Indian marble by an Indian company?

Especially in marble, India can easily take the market away from the Italians.

Another area is in garments, where we should seek to sell finished goods rather than grey cloth.

What must India do to have an edge globally?

First, India must specialise. No country can do everything. In this, I am a great believer of David Ricardo's theory of comparative advantage. The US never manufactured everything, it imported many items and exported many items.

India must also realise that it can never become an economic superpower without being an exporter. No country has. You must export what you can make better, and import what others make better.

You have stressed on the need to sell finished goods rather than raw materials. Yet, today, to sell a finished product one needs a powerful brand, and India really has no world class brand save one or two.

All countries that used to export raw materials and buy back finished goods have learnt to export finished goods instead. And in doing so, they have all created brands. Japan did that, and later the Koreans created world-class brands.

To create a world class brand, one must have integrity.

What is a brand?

The whole business of branding started when meat sellers used to brand their cattle to assure buyers of certain quality. Later, when chemists began to make cough mixtures, with each mixture being different, chemists began to brand their own mixtures with a seal to assure quality.

Most of the quality promised in a brand must be at prices that are cheaper than the competition. And the only way to give cheaper prices is in products where India has an advantage.

What should Indian firms do to acquire a global brand image?

To create a brand, a company needs three things: quality; resource advantage, and market access through distribution.

To consider the last first, Indian companies will have to learn how to leverage the US distribution system. I may add that the US system is the best and most open. In comparison, Europe is partially restricted, Japan is totally restricted, so concentrate on the US.

Also, regarding quality, brand names have to be supplemented with good customer service. This is one area where Indians are not good. An airline is not just an aircraft that connects destinations but it is pre-sales, flight-sale, and after-sale. It is all of these, and Indian firms would do well to remember them.

And resource advantage I have mentioned above. Given our human resources and education, India could be a leader in hotels, medical care and even higher education. There is a big market in higher education and India can reverse the brain drain and attract students for higher studies.

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