Last weekend The Economic Times published couple of excellent speeches by two of India’s most eminent business leaders. One was by Mr Harish Manwani, Chairman, Hindustan Unilever Limited and second was by Mr Y C Deveshwar, Chairman, ITC Limited. While both the speeches make for an excellent read, I wish to reproduce here, short excerpts which I think deserve a wider audience.
The third megatrend is the changing relationship between humanity and the planet we inhabit. Scientific evidence has proven beyond any doubt that today we are living beyond our means. Living beyond our means not just in a financial sense (which has already led to the 2008 financial crisis), but also in an environmental sense. You can see the impact already in the loss of bio-diversity, unpredictable weather patterns and natural disasters.
Today, according to the World Wildlife Fund, we are consuming the resources of 1.5 planets. The human population took more than 250,000 years to reach the 1 billion mark in the 1800s. It took a century more to reach 2 billion in 1927. It then took us only 32 years to reach 3 billion around 1960 and only 50 years since then to add another 4 billion to reach 7 billion in 2011. By 2050, there will be another 2.3 billion more people on earth sharing the same space we have today. Almost all of them will be in the developing world. If the developing world consumed in the future at the rate the developed world consumes today, we would need somewhere between 3-5 planets. Obviously, that is not sustainable.
India’s economic challenges:
To my mind, one of the most critical problems hindering India’s growth prospects is the unsustainable Current Account Deficit…Therefore, it is very clear that the only sustainable solution to tackle the large Current Account Deficit is to create extreme competitiveness in higher value-added goods and services…It is my belief that tomorrow’s world belongs to those who create, nurture and own intellectual property…Therefore, creation of intellectual property assets is a vital pre-requisite for attaining international competitiveness.
The Indian Global Market: Dominance of Foreign Brands
In recent times, several media reports have drawn attention to the extraordinary increase in royalty payments to overseas entities. The ET Intelligence Group in one such report brought out that royalty payments by Indian arms of top MNCs have trebled over the past 5 years. The report points out that in FY12, 306 listed companies paid royalty and technical fees aggregating almost Rs 35,000 crores. A similar analysis by Business Standard of 75 BSE500 companies reveals that these firms paid out royalty equivalent to 32% of their net profits in FY12.
It is perfectly legitimate that owners of intellectual property seek returns for the use of their assets. However, these media reports have highlighted that the sudden surge in payments took place following the removal of the ceiling on royalty payments in December 2009. These reports seem to suggest that a substantial part of this increased outflow was on account of payments made by the Indian subsidiaries to their overseas parent for the use of brand names established several decades ago. It was further indicated that this spurt in payments did not reflect any noteworthy value-addition from technology transfer by the foreign entities. These media articles also expressed concern at the adverse impact of this huge outflow on minority shareholders and on the exchequer.
Reflecting on these reports, it must be said that the concerns expressed are not without merit. At the core of this issue is the increasing consumption of foreign-owned brands by a rising population with growing per capita income. These range from run-of-the-mill to high-end luxury products. A closer look, however, reveals an unnerving picture. Today, even for items of daily consumption, the brands consumed by millions of households in India are predominantly owned by overseas enterprises.
The list is large and unending. Be it baby food, baby care products, home care & personal care products, toothpastes, toothbrushes, shaving creams, razors, breakfast cereals, snack foods, tea, coffee, cosmetics, soaps, shampoos, detergents, dish cleaners, beverages, ice creams, chocolates, confectionery, non-generic pharmaceuticals, washing machines, music systems, personal computers, laptops, refrigerators, mobile phones, televisions, cameras, air conditioners, apparel & fashion accessories, stationery products, toys, console games, sports and fitness equipment, luggage, diapers, sanitary napkins, burgers and pizzas, automobiles and many others, including even packaged drinking water, the leading brands in the Indian market are the property of foreign enterprises. Every time these products are consumed, value flows out of the country to pay for trademarks used, licences provided, services consumed and so on. With rising aspirations and growing disposable incomes, this outflow has the potential to increase exponentially over time. These foreign brands have so much been a part of the daily lives of Indian households, and for so long, that most people would genuinely think that they are Indian brands. A majority would have no inkling that every purchase would send value out of the country to the foreign owners.
This unenviable situation is indeed a disheartening reflection of the competitive capacity of India’s home-grown brands. Despite so many years of Independence and the country’s multi-dimensional strengths, it is a sad augury that we do not possess globally competitive brands created by Indian enterprises. True, there are worthy exceptions. Indian consumer brands such as Airtel, Amul, Bajaj, Godrej, Hero, Mahindra, Reliance, Tata, amongst others have found a pride of place in Indian households. Yet these examples are few and far between. For the most part, India’s market space has been abdicated to foreign-owned brands.
Be that as it may, apart from a re-examination of the merits of the revised policy currently in force, this issue also needs to be looked through a different lens altogether. Instead of bemoaning the huge outgo in terms of royalty or other payments, it is much more important to align national and corporate energies to create world-class Indian brands. Domestic enterprises must build globally competitive brands that can compete with the best in the world on equal terms. In the first instance, such brands by gaining larger franchise in the Indian global market would reduce the outflow on account of consumption of foreign brands in India. Over time, such world-class Indian brands can aspire to win global markets generating an additional flow of wealth into the country.
Need to Build Innovative Capacity and World-Class Indian Brands
World-class brands lend a huge intangible value to products and services enabling them to command a premium and loyalty from consumers. Truly world-class brands are an asset that transcends cultural, geographical and sovereign borders to continuously enrich their owners. Moreover, successful brands reflect the innovative capacity of the countries of their origin. When a country’s institutions build world-class brands, they enrich their economies. For example, the net sales of Samsung is equivalent to 20% of the GDP of South Korea. A successful global brand is a badge of honour for the country it belongs to, and a sustained source of wealth creation.
It is imperative to reiterate these facts & reports if we are to generate even slightest interest at an individual level. Idea is to spread awareness. It sort of resonates with my earlier post about the – Water.