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    End Term Examination

    Fourth Semester (MBA) May-June2009

    Global Competitiveness and Strategic Alliance

    Paper Code: MS232

    Paper Id-39232

    Time: 3 Hours Maximum Marks: 60

    Q.1 Explain any four of the following:

    (a) Co-optionCo-option is a tool for value creation logics and alliance management

    Strategic interests must be similar

    (Success: Toshiba-Time Warner)(Failure: IBM-Apple)

    Each partner must find enough benefits in the alliance to remain committed to its


    Medium competitive strength for alliances with competitors (usually at same stage in

    the value chain).

    Uniqueness and differentiating power of contribution for alliance for alliances with

    complementers (usually at different stages in the value chain).

    Consideration of overall strategic scope of each partner.

    Strategic foresight imagining winning coalitions and migration paths.

    Negotiating successfully for mutual gains.

    Maintaining and leading the coalition over time

    Improved margins, increased market share for coalition members.

    Life cycle of the industry structure, unless alliance leaders use their partners and

    encourage defection from the alliance.

    Balance of costs and benefits among members of the coalition: rents of the coalitions

    focal or leading firms versus benefits to the other members of the coalition.

    (b) Three Cs in the partner selection process

    The First C: Compatibility

    Many MNCs talk of alliances in terms of marriages. The use of the term simply means

    that, as in a marriage, compatibility and the ability to resolve problems and differences arekey ingredients to a prosperous relationship. In fact compatibility does not mean therelationship is always harmonious. The inherent tension underlying competitors/collaboratorsin an alliance make some friction inevitable. However, if some chemistry exists themarriage partners will likely manage their differences.

    The Second C: Capability

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    The capabilities of the potential candidates are obviously of prime importance, andcompanies may want to compile a dossier on each and evaluate their strengths andweaknesses. Among the issues to consider are:

    Have you checked for complimentary strengths?

    Has a multi-functional team scrutinized the capabilities?

    Is compatibility inferring with a rigorous analysis?

    The Third C : Commitment

    Finding a partner with an equal sense of commitment to alliance is the third keystone tosuccess. Even if partners appear capable and compatible, unless they are willing to invest thetime, energy and resources to make alliance a success, the chances of venture weatheringchanging market conditions are slim. Several companies suggest two important tips on howMNCs can test whether their potential partners share a sufficient degree of commitment tothe alliance:

    Does the alliance fall within a core business or product line of the partner?

    Determine how difficult it would be for a potential partner to withdraw from the


    (c) Enterprise Resource Planning in Indian industry.

    ERP stands for its acronym as Enterprise Resource Planning. The main objective isEnterprise-wide resource, which aims to integrate entire business system, all departments,and all functionalities of the organization. Generally all departments in the organizationhave different computer systems and this was a bit difficult task for the company to dothe business but with the emergence of this software application, businesses have

    simplified to a very large extent. This has helped businesses to prosper in every respectthus making the entire corporate sector to simplify in all respect. The integration of all thefunctions of the company is due to implementation of erp software solution.

    In most cases it has been seen that an ERP India implementation takes three to six monthsfor any organization but sometimes it also depends on the size of the organization.Suppose if a business organization has to implement only Accounting module, which isitself, an expensive application software system may take less time to implement.Sometimes it depends on the size of the module to be implemented. When ERP system is

    implemented, it is required to change the ways you do your business if you want erp towork in right way. Similarly the employee of the company also needs to change their wayof working and follow according to the erp functioning.

    ERP India is one such huge system that almost all kinds of business specialized in anyindustry wants to implement in their organization. They want to implement this in orderto smoothen their business functionality and thus create prosperity for their business. Youalso need to understand for what purpose you need this system and also consider how you

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    will use it to improve your business system. In an organization, finance has its own set ofnumbers, sales has its own version and all other have their own revenue figures and it isresponsibility of the authority to analyze all these figures. An ERP business systemcreates a single version of all these which any user in the organization can use tounderstand it fully.

    Before ERP came into being, MRPs were found in the market to solve businesses.Manufacturing Management Systems were put into process in industries to solve businessfunctionalities at every step. During the time, a lot of research and development wasgoing on and then this system converted into Material Requirement Planning system.This system was an advanced version of manufacturing management system that came asa business solution. Over the time there took numerous changes in the manufacturingindustry in the sales, production department and others which led to the evolvement ofManufacturing Resource Planning and then later on came to be known as EnterpriseResource Planning. Till date, Enterprise Resource Planning is functional in all kinds ofindustries with the businesses requirement analysis, planning and demand. This system

    was designed with intent to plan the proper use of enterprise, resource and planningwidely.

    (d) Strategic rationale of building strategic alliancesA strategic alliance is when two or more businesses join together for a set period oftime. The businesses, usually, are not in direct competition, but have similar products orservices that are directed toward the same target audience.

    Alliance means "cooperation between groups that produces better results that can begained from a transaction. Because competitive markets keep improving what you canget from transactions, an alliance must stay ahead of the market by making continuous


    Strategic alliance is a primary form of cooperative strategies. "A strategic alliance is apartnership between firms whereby resources, capabilities, and core competences arecombined to pursue mutual interests."2

    Alliances can be structured in various ways, depending on their purpose. Non equitystrategic alliances, equity strategic alliances, and joint ventures are the three basic typesof strategic alliances.

    Why Strategic Alliances?

    In the new economy, strategic alliances enable business to gain competitive advantagethrough access to a partner's resources, including markets, technologies, capital andpeople.

    Teaming up with others adds complementary resources and capabilities, enablingparticipants to grow and expand more quickly and efficiently. Especially fast-growingcompanies rely heavily on alliances to extend their technical and operational resources.In the process, they save time and boost productivity by not having to develop theirown, from scratch. They are thus freed to concentrate on innovation and their corebusiness.

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    Many fast-growth technology companies use strategic alliances to benefit from more-established channels of distribution, marketing, orbrand reputation of bigger, better-known players. However, more-traditional businesses tend to enter alliances for reasonssuch as geographic expansion, cost reduction, manufacturing, and other supply-chainsynergies.

    As global markets open up and competition grows, midsize companies need to beincreasingly creative about how and with whom they align themselves to go to themarket.

    Case Study Toshiba

    Toshibas approach is to develop strategic alliances with different partners for differenttechnologies.

    (e) Competitiveness and its levelsCompetitiveness has irrelevance at different levels and achieving global competitiveness atany level often requires synergistic linkages with other levels.

    Competitiveness can be defined at three levels: nation, industry sector and company. Thereare many different definitions of the comprehensive concept of competitiveness. Here,fuctional definitions of competitiveness at three levels, which are relevant for our purpose,are given (D Cruz, 1992)

    Country Competitiveness: extent to which a national environment is conductive or

    detrimental to business.

    Industry/Sector Competitiveness: Extent to which an industry or a business sector

    offers potential for growth and attractive return on investment. The concept can alsobe defined as the collective ability of firms in the sector to compete internationally.

    Company Competitiveness: Ability to design, produce and/or market products or

    services superior to those offered by competitors, considering the price and non-pricequalities.


    Q.2 Explain an integrated framework for competitiveness and define

    competitiveness enhancement and sustenance process.

    Ans The 12 pillars of competitivenessThe determinants of competitiveness are many and complex. For hundreds of years,economists have tried to understand what determines the wealth of nations. This attempt

    has ranged from Adam Smiths focus on specialization and the division of labor toneoclassical economists emphasis on investment in physical capital and infrastructure,and, more recently, to interest in other mechanisms such as education and training,technological progress (whether created within the country or adopted from abroad),1macroeconomic stability, good governance, the rule of law, transparent and well-functioning institutions, firm sophistication, demand conditions, marketsize, and many others. Each of these conjectures rests on solidtheoretical foundations and makes common sense. The central point,

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    however, is that they are not mutually exclusiveso that two or moreof them could be true at the same time. Hundreds of econometricstudies show that many of these conjectures are, in fact,simultaneously true.2 This also can partly explain why, despite thepresent global financial crisis, we do not necessarily see large swings

    in competitiveness ratings, for example in the United States. Financialmarkets are only one of several important components of nationalcompetitiveness.The GCI captures this open-ended dimension by providing a weighted average of manydifferent components, each of which reflects one aspect of the complex reality that wecall competitiveness. We group all these components into 12 pillars of economiccompetitiveness:

    First pillar: Institutions

    The institutional environment forms the framework within whichindividuals, firms, and governments interact to generate income and

    wealth in the economy. The institutional framework has a strongbearing on competitiveness and growth.3 It plays a central role in theways in which societies distribute the benefits and bear the costs ofdevelopment strategies and policies, and it influences investmentdecisions and the organization of production. Owners of land,corporate shares, and even intellectual property are unwilling to investin the improvement and upkeep of their property if their rights asowners are insecure.4 Of equal importance, if property cannot bebought and sold with the confidence that the authorities will endorsethe transaction, the market itselfwill fail to generate dynamic growth. The importance of institutions is

    not restricted tothe legal framework. Government attitudes toward markets andfreedoms and the efficiency of its operations are also very important:excessive bureaucracy and redtape,5 overregulation, corruption, dishonesty in dealing with publiccontracts, lack of transparency and trustworthiness, or the politicaldependence of the judicial systemimpose significant economic costs to businesses and slow down theprocess of economic development. Although the economic literaturehas mainly focused on public institutions, private institutions are alsoan important element in the process of creation of wealth.The

    significant corporate scandals that have occurred over the past fewyears, and the present global financial crisis, have highlighted therelevance of accounting and reporting standards and transparency forpreventing fraud and mismanagement, ensuring good governance, andmaintaining investor and consumer confidence.An economy is well served by businessesthat are run honestly, where managers abide by strongethical practices in their dealings with the government other firms, and the public.6Private-sector transparency is indispensable to business, and can be brought about

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    through the use of standards as well as auditing and accounting practices that ensureaccess to information ina timely manner.

    Second pillar: InfrastructureExtensive and efficient infrastructure is an essential driver ofcompetitiveness. It iscritical for ensuring the effective functioning of the economy, as it is animportant factor determining the location of economic activity and thekinds of activities or sectors that can develop in a particular economy.Well-developed infrastructure reduces the effect of distance betweenregions, with the result of truly integrating the national market andconnecting it to markets in other countries and regions. In addition, thequality and extensiveness of infrastructure networks significantlyimpact economic growth and reduce income inequalities and povertyin a variety of ways. In this regard, a well- developed transport and

    communications infrastructure network is a prerequisite for theability of less-developed communities to connect to core economicactivities and schools.

    Effective modes of transport for goods, people, and servicessuch as quality roads,railroads, ports, and air transportenable entrepreneurs to get their goods to market in asecure and timely manner, and facilitate the movement of workers to the most suitablejobs. Economies also depend on electricity supplies that are free of interruptions andshortages so that businesses and factories can work unimpeded. Finally, a solid andextensive telecommunications network allows for a rapid and free flow of information,which increases overall economic efficiency by helping to ensure that decisions made by

    economic actors take into account all available relevant information.Third pillar: Macroeconomic stability

    The stability of the macroeconomic environment is important for business and, therefore,is important for the overall competitiveness of a country. Although it is certainly true thatmacroeconomic stability alone cannot increase the productivity of a nation, it is alsorecognized that macroeconomic disarray harms the economy. Firms cannot makeinformed decisions when inflation is raging out of control. The government cannotprovide services efficiently if it has to make high-interest payments on its past debts. Insum, the economy cannot grow unless the macro environment is stable.

    Fourth pillar: Health and primary education

    A healthy workforce is vital to a countrys competitiveness and productivity. Workerswho are ill cannot function to their potential, and will be less productive. Poor healthleads to significant costs to business, as sick workers are often absent or operate at lowerlevels of efficiency. Investment in the provision of health services is thus critical for cleareconomic, as well as moral, considerations. In addition to health, this pillar takes intoaccount the quantity and quality of basic education received by the population, which isincreasingly important in todays economy. Basic education increases the efficiency

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    of each individual worker. Moreover, a workforce that has received little formaleducation can carry out only basic manual work and finds it much more difficult toadapt to more advanced production processes and techniques. Lack of basic educationcan therefore become a constraint on business development, with firms finding it difficultto move up the value chain by producing more sophisticated or value-intensive products.

    Fifth pillar: Higher education and training

    Quality higher education and training is crucial for economies that want to move up thevalue chain beyond simple production processes and products. In particular, todaysglobalizing economy requires economies to nurture pools of well-educated workers whoare able to adapt rapidly to their changing environment. This pillar measures secondaryand tertiary enrollment rates as well as the quality of education as assessed by thebusiness community. The extent of staff training is also taken into consideration becauseof the importance of vocational and continuous on-the-job trainingwhich is neglectedin many economiesfor ensuring a constant upgrading of workers skills to the changingneeds of the evolving economy.

    Sixth pillar: Goods market efficiencyCountries with efficient goods markets are well positioned to produce the right mix ofproducts and services given supply-and-demand conditions, as well as to ensure thatthese goods can be most effectively traded in the economy. Healthy market competition,both domestic and foreign, is important in driving market efficiency and thus businessproductivity, by ensuring that the most efficient firms, producing goods demanded by themarket, are those that thrive.The best possible environment for the exchange of goodsrequires a minimum of impediments to business activity through government interventionto be in place. For example, competitiveness is hindered by distortionary or burdensometaxes, and by restrictive and discriminatory rules on foreign ownership or foreign directinvestment (FDI). Market efficiency also depends on demand conditions such ascustomer orientation and buyer sophistication. For cultural reasons, customers insome countries may be more demanding than in others. This can create an importantcompetitive advantage, as it forces companies to be more innovative andcustomeroriented and thus imposes the discipline necessary for efficiency to be achievedin the market.Seventh pillar: Labor market efficiency

    The efficiency and flexibility of the labor market are critical for ensuring that workers areallocated to their most efficient use in the economy, and provided with incentives to givetheir best effort in their jobs. Labor markets must therefore have the flexibility to shiftworkers from one economic activity to another rapidly and at low cost, and to allow forwage fluctuations without much social disruption. Efficient labor markets must alsoensure a clear relationship between worker incentives and their efforts, as well as the bestuse of available talent which includes equity in the business environment betweenwomen and men.

    Eighth pillar: Financial market sophistication

    The present global financial crisis has highlighted the critical importance of financialmarkets for the functioning of national economies. An efficient financial sector isnecessary to allocate the resources saved by a nations citizens as well as those entering

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    the economy from abroad to their most productive uses. It channels resources to theentrepreneurial or investment projects with the highest expected rates of return, ratherthan to the politically connected. A thorough assessment of risk is therefore a keyingredient. Business investment is critical to productivity. Therefore economies requiresophisticated financial markets that can make capital available for private-sector

    investment from such sources as loans from a sound banking sector, well-regulatedsecurities exchanges, venture capital, and other financial products. An efficient financialsector also ensures that innovators with good ideas have the financial resources to turnthose ideas into commercially viable products and services. In order to fulfill all thosefunctions, the banking sector needs to be trustworthy and transparent.

    Ninth pillar: Technological readiness

    This pillar measures the agility with which an economy adopts existing technologies toenhance the productivity of its industries. In todays globalized world, technology hasincreasingly become an important element for firms to compete and prosper. Inparticular, information and communication technologies (ICT) have evolved into the

    general purpose technology of our time, given the critical spillovers to the othereconomic sectors and their role as efficient infrastructure for commercialtransactions.Therefore ICT access (including the presence of an ICT-friendly regulatoryframework) and usage are included in the pillar as essential components of economiesoverall level of technological readiness.Whether the technology used has or has not been developed within national borders isirrelevant for its effect on competitiveness. The central point is that the firms operating inthe country have access to advanced products and blueprints and the ability to use them.

    That is, it does not matter whether the personal computer or the Internet was invented in aparticular country. What is important is that these inventions are available to the businesscommunity. This does not mean that the process of innovation is irrelevant. However, thelevel of technology available to firms in a country needs to be distinguished from thecountrys ability to innovate and expand the frontiers of knowledge. That is why we separatetechnological readiness from innovation, which is captured in the 12th pillar below.

    Tenth pillar: Market sizeThe size of the market affects productivity because large markets allow firms to exploiteconomies of scale.

    Traditionally, the markets available to firms have been constrained by national borders.In the era of globalization, international markets have become a substitute for domesticmarkets, especially for small countries. There is vast empirical evidence that shows thattrade openness is positively associated with growth. Even if some recent research castsdoubts on the robustness of this relationship, the general sense is that trade has a positiveeffect on growth, especially for countries with small domestic markets. Thus, exports canbe thought of as a substitute for domestic demand in determining the size of the marketfor the firms of a country. By including both domestic and foreign markets in ourmeasure of market size, we give credit to export-driven economies and geographicareas (such as the European Union) that are broken into many countries but have onecommon market.Eleventh pillar:Business sophistication

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    Business sophistication is conducive to higher efficiencyin the production of goods andservices. This leads, in turn, to increased productivity, thus enhancing a nationscompetitiveness. Business sophistication concerns the quality of a countrys overallbusiness networks as well as the quality of individual firms operations and strategies. Itis particularly important for countries at an advanced

    stage of development, when the more basic sources of productivity improvements havebeen exhausted to a large extent.The quality of a countrys business networks andsupporting industries, which we capture by using variables on the quantity and quality oflocal suppliers and the extent of their interaction, is important for a variety ofreasons.When companies and suppliers from a particular sector are interconnected ingeographically proximate groups (clusters), efficiency is heightened, greateropportunities for innovation are created, and barriers to entry for new firms are reduced.Individual firms operations and strategies (branding, marketing, the presence of a valuechain, and the production of unique and sophisticated products) all lead to sophisticatedand modern business processes.

    Twelfth pillar: InnovationThe last pillar of competitiveness is technological innovation. Although substantial gainscan be obtained by improving institutions, building infrastructures, reducingmacroeconomic instability, or improving the human capital of the population, all thesefactors eventually seem to run into diminishing returns. The same is true for theefficiency of the labor, financial, and goods markets. In the long run, standards of livingcan be expanded only with technological innovation. Innovation is particularly importantfor economies as they approach the frontiers of knowledge and the possibility ofintegrating and adapting exogenous technologies tends to disappear. Although less-advanced countries can still improve their productivity by adopting existing technologiesor making incremental improvements in other areas, for countries that have reached theinnovation stage of development, this is no longer sufficient to increase productivity.Firms in these countries must design and develop cutting-edge products and processes tomaintain a competitive edge.This requires an environment that is conducive to innovativeactivity, supported by both the public and the private sectors. In particular, this meanssufficient investment in research and development (R&D) especially by the privatesector, the presence of high-quality scientific research institutions, extensivecollaboration in research between universities and industry, and the protection ofintellectual property. The interrelation of the 12 pillars Although the 12 pillars ofcompetitiveness are described separately, this should not obscure the fact that they arenot independent: not only they are related to each other, but they tend to reinforce eachother. For example, innovation (12th pillar) is not possible in a world without institutions(1st pillar) that guarantee intellectual property rights, cannot be performed in countrieswith poorly educated and poorly trained labor force (5thpillar), and will never take place in economies with inefficient markets (6th, 7th, and 8thpillars) or without extensive and efficient infrastructure (2nd pillar). Although the actualconstruction of the Index will involve the aggregation of the 12 pillars into a singleindex, measures are reported for the 12 pillars separately because offering a moredisaggregated analysis can be more useful to countries and practitioners: such an analysisgets closer to the actual areas in which a particular country needs to improve.

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    Q.3 Evaluate the macro-competitiveness using 10Ps framework to identify

    and monitor major drivers of competitiveness.

    Ans: A conceptual framework for global competitiveness

    The function of a framework is to enable the strategist to structure a problem through a fewkey situational variables or factor. His task subsequently is to identify the hierarchy,priorities, and interactions between the variables. Compared to a model, the variables in aframework are imprecise and loosely-bounded. Unlike a model, no ceteris paribus conditionsare assumed and the user has the flexibility of testing his decisions on the relationships undervarying contexts.The 10-P framework for globalization symbolize the aspirations and needs of employees andorganizations in the new competitive settings. It comes a long way from the initial impetusprovided to the subject by Michael Porter in his book Competitive Strategy (1980), and goesbeyond his purely industrial organization perspective. The 10-Ps framework integrates theoryof strategic management and practice of business policy and provides a structure for the

    practicing manager to evaluate competitiveness at regular intervals.

    True to the vision of a world class organization, the central fulcrum in the framework is apeople-orientation-both inside and outside the corporation. This approach presents a humaneperspective to issues at hand and differentiates between a satisficing approach and anexcellent approach. It realizes and reflects that modern economies and corporations thrivemainly on innovation in all respects of value-augmentation-creative thinking at the designstage, ensuring production at highest efficiency and minimum costs, and satisfying thecustomer in a most effective manner.The rest of the 9Ps are levered in a highly interactive mode with people and amongstthemselves. A change in any of the Ps affects performance of the other levers and therefore

    the final outcome for the organization. The 9-Ps are: Purpose, perspective, Positioning, Plans(& Policies), Partnerships, Products, Productivity, Politics, and Performance.

    People: Organization is people

    An organization is created by the people, it exists for the people, and continuously drawssanction from the people.The people focus implies that the primary purpose of an organization can never be to provideemployment at the expense of customers or society in general- a drill routinely exercised inthird world countries, and especially in India by many public sector and governmentorganizations during the height of regulated economic regimentation.

    PurposeAny human activity must have a purpose. Organizations define their purpose differently.Organizational purpose as used in strategy making sense is interchangeable with mission,vision, mission, core competence, strategic intent, and basic values.Business growth is a conscious management decision process and can be nurtured through astatement of purpose on which decisions are pivoted. Growth after a certain level are elusiveintangible and difficult to come by unless sustained by professional management andentrepreneurial, dynamism, and sense of direction.

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    The nature of reality rests on the perceptions of the manager. Making a strategic choice andsubsequently managing its outcome depends largely on the outlook of decision maker. Forinstance, making a choice between economics and consumerism implying consumption of

    goods and services and economics of production through increased savings and investmentsin permanent assets is a matter of alternative perspective, although from a mathematical pointof view they should mean the same. Perception of opportunities and threats and their type inturn, is largely affected by the assumptions made by the manager about the world aroundhim.In facing global competitive challenges, it is important that the firm possesses a globalperspective, even though it might be competing and managing locally. A global outlookkeeps the manager informed and prepared for any eventuality and not get surprised withtechnological innovations or managerial onslaughts.


    An important dimension in achieving world class competitiveness relates to the positioningof the firm. This dimension has high interface with organizational purpose, planning andperspective resulting in definitional confusion. Positioning of the firm is distinct frompositioning of products in marketing. The term has remained mostly confined to abstractstrategic management literature despite its obvious critically to practice.An important dimension in strategy is to understand where am I, why I here, where do Iwant to be, and how do I reach there. In other words, the strategic manager has to ascertainthe existing position and future positioning of the firm.


    The partnership approach suggests a sense of belief and trust in other persons capability andskills. It opens the doors for people to look beyond the usual routined responses, and createan environment where people voluntarily come up with innovative solutions for seeminglyintractable problems. Wal Mart, the no. 1 retail business in USA, emphasizes on the keyorganizational value of treating each employee as an associate. Each associate is encouragedto act independently by taking initiatives as partners.


    A countrys prosperity is indicated by the amount of value-added goods that areproduced/made available for consumption. Labor productivity is generally the acceptedmeasure of value addition with the assumption that the same individual would have differentcapacities in different technological environments and organizational contexts. Thus, capitaland other factor inputs are assumed to be reflected in the final output of the worker. Increasein productivity through better management and organization boosts the aggregate supplywithout increase in inputs, thereby helping control inflation (it reduces the demand supplygap). By several estimates, USA has the highest labor productivity in the world. Germanyand Japan are reported to be lagging behind by as much as 20 percent for the manufacturingsector in terms of value added per hour worked (converted at purchasing power parity).Japanese manufacturer have higher productivity in automobiles, chemicals and plastics,metal products and electronic equipment.

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    Innovation based productivityTime and space as a key resources


    A product is a package of information which the customer interprets in his mind while going

    through the process of consumption. Therefore, the concept of any product must start withthe customer mind, and end with his total satisfaction. In this definition all products areultimately services converted into information. For world class performance, simplymanufacturing products to the customers define the quality parameters. All across the value-addition chain, the relationship between suppliers and consumers (even within the shop-floordepartments) goes beyond the usual contractual responsibilities. Maximum contribution canbe extracted only through strategic partnering which in turn suggests an acceptance of mutualinterdependence between the management and the employees, the suppliers and customers,and the organization and the society at large. Beyond quality, products must offer customersa satisfaction to a level where they become the best salesmen for the company forever. Whileconsuming a product the customer draws relationships of the actual information (Perceived

    through consumption) with his apriori expectations, especially with the price that he has paid.Customers cannot therefore be treated as guinea pigs or test drivers.Serving the customer beyond product-consumption.Product-partnership interface through team approach.

    Plans (and Policies)

    Plans are maps which the organization creates for guiding its members towards attainmentof:

    Objectives (which must be consistent with its mission-a hazy, vague idea of what it

    wants to be finally.

    The position it wants amongst the competitors (which in turn must be consistent withthe values held by the main decision makers); and

    Responsibilities towards society at large.

    One of the primary issues that any plan must address to is the type of tools, training, andincentives that would be needed by the organizational team members.The plan serves the background on which team work flourishes. World class companiesdetermine as much as 80 percent of a products quality and costs during the productdevelopment stage. The high emphasis on planning saves rejections, wastages, costs, andmost important, permanent loss of customers. Coca cola has largest distribution networkin the world. The company illustrates the fine interface between product quality andplanning.


    The orthodox organizational behavior school holds that politics is an attempt to bypassthe official channel or to influence outcomes for personal gains (Impliedly, at the cost oforganizational efficiency). Hence, this school holds that, politics being a negative power-bearing agent, should be discouraged. This cannot be true in a larger perspective. Politicalbehavior, in the positive sense of the word, is a highly democratic and peaceful form ofconflict resolution process especially useful in high-uncertainty environments. It signifies

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    willingness to admit that others also have their own needs and aspirants, which may be ina consonance with my or organizational goals.


    Improving performance outcomes is the core of all strategic management theories.

    Achievement of goals and objectives is the basis of all strategic planning. It is importantto realize that different stakeholders will possess different measures of performance.In one respect performance is the dependent variable whose outcome rests on theinterface of all the rest of 9Ps. But, performance in business settings is never an isolatedoutcome. It gets affected, and in turn affects, all other variables.World class companies organize themselves and perform in a manner that accumulationof wealth is an automatic consequence of policies and plans. For world classperformance, an organization has to be clear about its strategic objectives. Someimportant yardsticks with which performance can be objectively measured are:

    Market Share

    Time taken to develop and introduce new products

    Technological Competitiveness Employee motivation and skills

    Throughput value-addition


    The ten Ps are not only dynamic, inter-related, but also overlapping. The task of thestrategic manager is to strike a fit between the various soft and hard componentsappropriate to the organizational values and need of the times. At this stage, he has tohimself become a specialist-entrepreneurial-visionary-general manager.


    Q.4 Technological capabilities determine global competitiveness. Explainwith the help of a relevant example in Indian context.


    The name of the game in global competitiveness is technological capability. This relatesto the agility, and competencies that firms and other productive enterprises in aneconomy apply in accessing, adopting, adapting and deploying technical knowledge togain competitive advantage. Firms and entities compete on the basis of their ability tolearn and deploy technical knowledge to meet ever-changing and stringent customerdemands.

    Technological capability is built from four broad sources: the existing knowledge base ofproductive entities; the acquisition of technology from outside the organization; theirintensity of effort to develop technology in house; and the institutions, and systems thatexist in the environment within which the productive entities operate. Firms and otherproductive entities currently face the quick sand of a pervasive state of flux. Technologyis changing so rapidly that firms have to be constantly innovating in order to remaincompetitive. In fact, it is those firms that can become learning organizations that can staycompetitive. Knowledge-base has to be constantly updated. Technology effort has to be

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    constantly intensified for firms to maintain their competitive position and minimize therisk of obsolescence.

    The Case of The IT Industry in India.

    The IT industry, particularly IT enabled services (ITES), in India has shown remarkablegrowth over the past decade and continues to show resilience even in the face of a globaldownturn in the sector. While India has not been able to match China in manufacturingprowess, it

    may have found its competitive advantage in the area of knowledge-based services towhich its factor endowments are uniquely suited. Yet, the tremendous potential andpromise of this sector in spurring economic growth and national competitiveness may notbe realized, if the numerous obstacles to the sector's growth are not removed. This papertraces the evolution of the IT industry in India, its positives and negatives and itspotential to contribute to India's global competitiveness. Structural barriers in the nationalenvironment to the growth of this industry are identified and discussed. Conclusions and

    policy implications are presented.INTRODUCTION

    Why are some national environments more conducive to firm growth and prosperity thanothers Why are some national environments more conducive to firm growth andprosperity than others? (Porter, 1990). Nations, like firms, are unique bundles ofheterogeneous resources and capabilities. They seek to capitalize on these resources andcapabilities in order to build and maintain core competencies in certain industry sectors,which can provide a unique identity to the country and lead to sustainable competitiveadvantage, if those resources and capabilities cannot be easily imitated. In the more openglobal trading environment of the 21st century, nations are under pressure to develop and

    market their "national brands" in order to "position" themselves favorably in the mentalmaps of demanding global consumers. A nation's positive image in any particularindustry may impact the ability of its firms to compete in global markets. Spillovereffects may also benefit firms in other industries thereby enhancing the competitiveadvantage of national firms in general (Kotler et al, 1997).

    Consumers have positive or negative stereotypes associated with products / brandsoriginating from different countries (Jackson, Biswas and Lumb, 1995). For instance,Japan has positioned itself in the minds of consumers as a nimble, global market leader inconsumer electronics, automobiles, watches and so on. Japan's products have served asgood brand ambassadors for the country and today the "Made in Japan" brand isassociated with superior quality at a competitive price. By contrast, India has operated for

    decades as a closed, private investment unfriendly socialist economy recognized more inthe global media for its poverty and squalor than for its achievements in science andtechnology. Foreign investors perceive India as a difficult environment to do business.This may be changing, as a World Bank 2001 report points out, "Indian technologicalsophistication, though still narrowly defined, has begun to alter international perceptionsof the country. Instead of viewing India as a country burdened by decades of heavy-handed government regulation of the economy, foreigners now view the countrysomewhat more favorably, though not as yet as a country where future growth will

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    approximate that of China ..." (Miller, 2001). China, its neighbor and closest competitor,in a matter of less than two decades has established itself as a manufacturing powerhousein global markets, offering an unmatched price-quality value proposition. While India hasnot been able to match China's manufacturing capability, it may have found its source ofcompetitive advantage in its knowledge-based industries, which capitalize on the

    country's rich source of human capital.Seeking to explain "competitiveness" at the national level, Porter (1990) argues that thereis a critical link between the national environment and firm level competitive advantageand that the answer to national competitiveness may not rest on the economy as a whole,but in specific industries. This paper, therefore will consider India's IT / software industryand its potential to contribute to the country's national competitiveness. It will analyze thegrowth of the IT / software industry in India by tracing its evolution, the part played by agrowing and vibrant private sector in IT/software services and software industryassociations, such as the National Association of Software and Service Companies(NASSCOM), and the role of the government in facilitating the sector's growth. Thequestion facing the country is what the Indian government at the central and local levels

    and domestic firms can do to leverage this industry's success to enhance nationalcompetitiveness in global markets. While the prospects and potential for this sector arehigh, the paper highlights the many barriers that have to be dealt with before the ITindustry and the country realize their full potential.

    India's political leaders have expressed their strategic intent to use the IT industry tocreate the next information technology superpower. Jack Welch responding to theparadox of change and development in India remarked, "India is a developing countrywith developed country R&D infrastructure." The disconnect between the Indian politicalelite's talk of India becoming the next "information technology superpower" and skepticaloutsiders such as Jack Welch of General Electric could not be more stark. In a talk to

    Indian businesspeople, Jack Welch recognized India's "intellectual capital" and itssophisticated R&D infrastructure, while pointing out the old economic concerns such aslack of power generation capacity and a communications infra-structure that couldhamper growth (Gardner, 2000). Welch's warning that India could fail to capitalize on theinformation technology revolution, in spite of its prowess in software skills and R&Dcapability should serve as a reality check for a country that is betting on IT to power itsway into the new global economy.

    India is still a developing country mired in developmental problems of poverty andilliteracy, yet has a nuclear arsenal and the world's second largest pool of skilled softwaretalent after the United States. India's achievements in science and technology, and the"emerging knowledge-based" industries have drawn the world's attention to this

    developing nation of a billion people that has had difficulty keeping pace with the growthrates of the "tiger" and "dragon" economies of the ASEAN region, or that of China, itsgiant neighbor to the North. National competitiveness has long been an elusive goal forIndia; it has been a forgotten investment continent, perhaps due to its economic insularitystemming from its autarkic policies. The past decade however has been one of sea changefor India. A balance of payments crisis in 1991 catalyzed it into breaking out of its insularmold, forcing it to change course from insularity to economic liberalization. India is atlast on the verge of freeing the tremendous potential of its human capital that has been an

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    inherent, but untapped part of this sub-continent. While India could not match China inmanufacturing prowess, its economic growth or its ability to attract foreign directinvestment, it has discovered an untapped resource in its skilled human resourceadvantage, capable of powering the information technology revolution sweeping acrossthe world. How the country uses this rich source of economic advantage will determine

    its economic fortunes at the beginning of this new century.Kapur and Ramamurti (2001) analyze the Indian IT sector's competitiveness drawingupon the framework provided by Porter's diamond of competitive advantage. They pointout that India has become competitive in software because of its advantage in IT related,knowledge-based resources. It has plenty of the requisite factor conditions in terms ofhuman capital, low wages, and English language capability. Since barriers to entry arerelatively low for firms in the software / IT sector, there is healthy domestic rivalry tohone the players for demanding global markets. Related and supporting industries, suchas the educational institutions that turn out world class technical talent, improvingcommunications and duty-free access to component parts help the growth of thisfledgling industry. Weak domestic demand is not a key problem, since strong U.S.

    demand comprised of demanding customers fills the gap. In this paper, we will focus onthe positives and negatives by considering the elements in Porter's diamond that are weakor missing and hence could serve as major hindrances to the growth of this sector.


    The software and information technology industry in India is without question one of themost dynamic sectors in India's economy. The industry has been growing at 50 percentannually since 1991. Worldwide, the sector is worth $850 billion with a projected growthof 50-60 percent per year. Software services exports have been growing at 29 percent inrupee terms even during the downturn in the global IT industry in 2001. The growthengine seems to be the IT enabled services (ITES), which grew at 69 percent this year

    compared to IT services, which grew at 22 percent (Deccan Herald, July 22, 2001). Thesector consists of about 1000 companies employing 280,000 software engineers and, by2008, is expected to employ four million people. The industry has grown at an annualrate of over 45 percent for the past three years and is expected to account for 7 percent ofGDP by 2008 (Nasscom-McKinsey 2002 Report). The Indian IT sector's growth since1990 has been primarily export driven. Exports for this sector in 1999 totaled $4 billionand is projected to grow to $50 billion by the year 2008. According to NASSCOM 62percent of the exports go to the United States, 23 percent to Europe, 4.0 percent to SouthEast Asia, 3.5 percent to Japan and the rest to West Asia, Australia, New Zealand and therest of the world (

    In light of the recent global downturn in the IT sector, the Nasscom-McKinsey 2002Report notes three fundamental shifts in the IT industry: 1) shift in near term demandfrom new application development to maintenance and product enhancement, 2)significant increase in offshoring, and 3) competition from emerging locations,particularly China. IT enabled services (ITES) include services such as customer care,web sales and web marketing, billing services and accounting transactions. Recentprojections for the growth of the ITES sector were scaled up from $17 billion in theNasscom-McKinsey 1999 survey to $20 billion (The Economic Times, May 14, 2002).

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    Multinationals, particularly from the U.S. have been shopping India as a low costoutsource base for their labor-intensive IT related back office work and did so prior to theyear 2000 for on-site work related to Y2k issues. The Europeans have done the same foreuro conversion. India's advantage in IT related high technology, innovation andknowledge base, its large market, its well-developed R&D infrastructure, its large pool of

    cost competitive technical talent and the sophistication of Indian IT vendors make it adesirable destination for IT firms from developed countries.

    The growth and evolution of the IT sector has been incremental and organic in nature, butif it maintains its momentum and succeeds in realizing its projected potential its impacton the economy and politics of India would be dramatic. But, frankly this is a big "if."The IT sector in India came into the global limelight by the on-site Y2K servicesperformed by an army of Indian software engineers sent by Indian companies to writesoftware code or to plug Y2K problems for foreign companies. While margins from on-site work were necessarily low due to the high cost of transferring personnel to overseaslocation, it gave India much needed visibility and an opportunity to showcase its ITcapabilities on the global stage. Capitalizing on the credibility built through Y2K work,

    Indian software companies have been steadily migrating up the value chain to providemore lucrative offshore services, i.e. work done in India. Indian firms now are developingproprietary software technology for e-commerce applications and other web basedservices for overseas clients. In the process they are proving that they are adept atscalability, while maintaining their competitive advantage in cost and quality (Merchant,2000).

    The offshore model (operations in India) is more profitable and also helps India build itslocal infrastructure to support a strong and growing IT sector. It includes IT enabledservices, such as medical transcription, call centers, legal database work, logisticsmanagement and web-content development, which are labor intensive and require IT

    skilled personnel. (In fact, your medical records for visits to your local (US) physicianmay be transcribed in India). United States (200 out of the Fortune 500), and Europeanfirms now outsource this type of work to India to take advantage of the low cost laborand the time-zone difference in India, which allows the U.S. or European firm to work ona 24-hour basis. As Indian firms move up the value ladder they are offering higher valueadded services such as IT consultancy services. Many Indian IT firms have set upoverseas offices to offer customized IT consultancy services and more lucrative e-commerce work to clients and to gain increased visibility. And often they have the goalof ultimately developing branded software products designed for exports, but this goalmay not be realized in the immediate future given the fact that marketing brandedsoftware in competitive overseas markets is heavily capital intensive (Taylor, 1999). The

    IT industry in India is labor intensive and is well suited to its competitive advantage.However, this may be changing as India's attraction becomes more skills-based ratherthan cost-based, as leading players in the IT industry, such as Wipro, seek a U.S. listing,set up overseas offices and make foreign acquisitions. Three broad characteristics are saidto define the new growth phase among the top players in India's IT industry: a foreignstock market listing, a global base of customers, and a multinational workforce(Merchant, 2001). The industry may be able to move up to branded product developmentif it maintains its current upward momentum.
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    The Indian IT industry as it matures and migrates up the value ladder is gaining depth andsophistication in its portfolio of capabilities. This is reflected in the fact that cost is nolonger the sole competitive tool for these companies. Their depth and diversification isbeginning to allow them to compete on quality, speed, reliability and innovation. ManyIndian software companies are ISO 9001 certified and are able to offer world class

    services at competitive prices. As these companies moved from value-based Y2Kactivities to value-added e-commerce work their revenues are on the increase and thebasis of competition is speed of delivery and faster cycle time, which supports a premiumpricing strategy. The Indian IT industry also shows signs of consolidation and growththrough overseas acquisitions, both clear signs of maturity in the industry.


    Domestic demand for software and for PC's

    A recent analysis of the IT / software industry in India points out several areas ofemerging opportunity in the domestic software market, such as the energy sector which isin the process of being privatized, services such as insurance, banking and financial

    services that see IT as a way to cost efficiency through cross-selling services, and e-governance drives by state and central governments that are interested in the spread ofbest practices and local language applications (Deccan Herald, July 22, 2002).

    On the Indian domestic front, the hardware market is growing as domestic PC sales andsales of servers, printers and notebook computers are on the increase. PC penetration inIndia is currently quite low at 3.6 per 1000 compared with the U.S. at 363 per 1000.

    However, the buying power of India's for-midable 250 million middle class is substantial.Firms such as Hewlett Packard and IBM have entered the market focusing on thissegment. As the interest in home Internet use increases and the popularity of alternativechannels of Internet access grows, such as "cybercafes" in Indian cities, the potential for

    rapid growth in urban areas is real. Clearly, the key drivers of PC growth in India are theInternet users; they wish to enhance their computer skills and to use it as a tool inchildren's studies. While PC prices are still relatively high, (it is estimated that a PC costs24 months of per capita income in India vis-a-vis 4 months in China!) Indian householdsremain the fastest growing market for the PC manufacturers. The increase in corporateusers and the government's stated desire to move to incorporate computers in facilitatinggovernance are also important factors in increasing demand in the hardware market.

    Role of state governments

    Attracted by the infinite possibilities of growth and job-creation offered by this sector,Indian States have been vying with each other to offer a hospitable environment for IT

    rums, both foreign and domestic. E-governance has been gaining popularity in certainentrepreneurial States in India, such as Andhra Pradesh, where the state has expresseddesire and interest in leveraging technology to spur development. The state's web sitestates its mission in the following terms: "Andhra Pradesh will leverage InformationTechnology to attain a position of leadership and excellence in the information age and totransform itself into a knowledge society." (www. The governor ofthis state, dubbed the "laptop minister" (Levander, 2000) has invested in acommunications infrastructure to support e-governance and has succeeded in attracting

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    Microsoft's product development center and GE Capital's international data center, whichotherwise may have gone to the State of Kamataka, India's first IT champion which nowstands to lose that position as other states vie with each other to attract foreign investorsto their backyard by investing in the right infrastructure mix. Companies such asMicrosoft cite better infrastructure as the primary reason for moving to Andhra Pradesh.

    Key cities such as Bangalore (Karnataka State), Hyderabad (Andhra Pradesh) andChennai (Tamil Nadu) in the south are referred to as the "silicon triangle" for having thehighest concentration of IT industry in the country. The reformist States in India areproving successful in attracting foreign investors as well as World Bank monies toimprove their infrastructure.

    Software associations

    The National Association of Software and Service Companies (NASSCOM) plays apivotal role in the growth of the software / IT sector. The mission of NASSCOM is to bea one-stop provider of comprehensive information on all aspects of the software industryin India. As a non-profit organization, its goal is to facilitate India's emergence as a front

    runner in the information technology industry. The organization actively and effectivelylobbies the government for improvements in IT infrastructure and changes in policydesigned to promote the sector's growth. Its web site provides a gateway tothe IT policies of the various states in India along with information on past and upcomingevents in the IT sector and industry research and news. It has a membership list thatincludes most of the IT companies in India and uses this information to match Indiancompanies with foreign IT companies and vice versa. NASSCOM as an IT industrypromoter is a key force for generating credibility in India's capability to participate fullyin the global IT industry.

    Capital sources

    A vibrant private sector to support entrepreneurial developments in the software/IT areais growing in India, where a mixed economy has created a deep-rooted free market sectorin spite of heavy government control and ownership in certain key sectors. The expansionof this sector is helped by infusions of knowledge and capital from returning non-residentIndians (NRI) eager to share in the growth opportunities presented by the newlyemerging IT sector. Of late, venture capital activity has been growing in India. Foreignventure funds, some created by wealthy Indians based in the U.S. such as The IndusEntrepreneurs (TIE) and Chrysalis Fund have entered India seeking to invest intechnology start-ups with good prospects for growth. Newer varieties of venturecapitalists are also moving into India with foreign capital to fund Indian startups. AtIndia, a VC founded by a Silicon Valley NRI calls itself a "business value accelerator"

    that seeks to provide value beyond capital. The VC has a joint venture with SiliconValley based Hambrecht & Quist and a venture capital base of $50 million (TheEconomic Times, November 21, 2000). American firms with Indian subsidiaries, such asGE Capital and Intel are investing in new ventures in India that have the potential to selltheir products. Intel has just announced that it will invest $100 million in its Indiaoperations making it one of Intel's largest overseas ventures. As current restrictions onventure capital funds are eased by the government coupled with the change in market

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    structure and the availability of risk capital for entrepreneurial firms this will increasegrowth and new venture creation in the IT sector.


    New world class educational institutions are being set up in the more reformist oriented

    states in India. In March 2000, Motorola signed an agreement to set up Motorola Schoolof Communication Technology at the Indian Institute of Information Technology (IIIT)in Hyderabad, one of the cities in the silicon triangle and capital of the state of AndhraPradesh. The Motorola School of Communication Technology is designed to be a state-of-the-art center to create new talent by providing advanced IT and telecom education. Inaddition, the school will offer research and development opportunities to innovate newapproaches to wireless communications for the Indian market. ( The Indian School of Business located in Hyderabad, brainchild ofRajat Gupta, Managing Director of McKinsey and Co., is designed to provide businesseducation in India in collaboration with the Wharton School, University of Pennsylvaniaand the Kellogg School of Business at Northwestern University. Both schools are

    supported and financed by leading companies in India and abroad, as well as thegovernment. As world-class educational institutions enter and locate in India to satisfythe educational need, it will impact the number and quality of information technologygraduates. Several leading IT firms from developed countries are outsourcing and outlocating their IT requirements to India, a reverse brain drain of Indian NRI's is spurringnew entrepreneurial activity in the country and the energies of the local entrepreneurialtalent is being unleashed by the government's willingness to provide incentives and relaxregulatory controls for the IT sector. The government is serving to facilitate the industry'sgrowth having realized that this may be the country's best chance to improve itseconomic fortunes and to achieve global integration and economic parity with thedeveloped world in the long term.

    To summarize, the Indian IT industry's competitive advantage derives from its depth ofEnglish speaking, well-trained human resource base, a powerful cost/quality combinationcoupled with a growing ability to compete on speed of delivery. The "Made in India"brand is gaining equity as the country scales up the value ladder to offer services thatstand for high quality and good value. Added to this is the return of non-resident Indians(NRI) to India drawn by entrepreneurial opportunities in India's growing IT sector. Thebrain drain, which has usually been Westward, is now showing some reversal to India'sbenefit. Many of the returning IT professionals have experience in the well-developedWestern markets, such as the U.S. and Europe and will able to take back the fruits of theirexperience to India. Kapur and Ramamurti (2001) argue that if India maintains its currentmomentum in IT, it could emerge in the short term as a back office of global companies,

    and in the medium to long term move up to knowledge-based tradable services.Numerous obstacles, however, stand in the face of this scenario and are discussed in thefollowing section.


    In spite of the many successes in this area India faces numerous obstacles to growth ofthe IT sector in the short to medium term. At the firm level, even star performers, such asInfosys sell very little packaged software. Most of its business is still in consultancy, one-

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    time software projects and in helping international vendors develop their own products(Phillipson, 2002). The capability gap could hinder Indian firms' global competitivenessand leave them vulnerable to competitors from other countries.

    At the macro level, the government's plans for privatization and deregulation of keysectors, such as banking and telecommunications are slow and halting due to a political

    process that demands consensus on these issues from various groups at different levels.Many of the telecom providers of long distance services are still state-owned and understate-controlled international bandwidth, which is insufficient to meet the country'sneeds. In the domestic arena, lack of competition in telephone service translates to lack ofphone lines and high cost of local access. The high cost of local phone calls could be amajor disincentive to Internet usage to those who have a PC and Internet access. The costof Internet access is relatively high since usage is still metered. Lack of bandwidth fordata also influences availability, cost and speed of access. India's total internationalbandwidth is only 350MB, compared with China's 40GB and 200GB in the U.S.( Interruptions and fluctuation in power supply compound theproblem creating a major disincentive for growth of the domestic market for Internet

    usage and web-based retailing. High quality, reliable, and uninterrupted supply of poweris critical to the sector's growth.

    The local, domestic market for PCs is growing in India, but for B2C internet commerceto grow in India, it requires a reliable delivery system, bandwidth for easy and fast accessto data and graphics and higher levels of credit card usage to facilitate payment. In arecent report by the U.S. government to facilitate Internet development, five keyprinciples were outlined in a document titled, "A Framework for Global ElectronicCommerce." They include private sector leadership, avoidance of undue restrictions,establishment of a legal environment based on a contractual model of law, recognition ofthe unique qualities of the Internet and facilitation of global e-commerce

    ( The government of India, recognizing the urgency of the sector'sgrowth to India's economic development has stated its intention to follow many of thesame principles set forth above in the U.S. government report (India BusinessOpportunities, 2000).

    A labor skills shortage could short circuit the IT sector's growth, if the country does nottake steps to deal with the issue on an urgent basis. The local shortage of trained andexperienced IT human resources is bidding up the cost of labor, which could erase one ofIndia's key advantages. India currently trains 68,000 software professionals a year andneeds to have 2.2 million a year by 2008 to meet projected demand. China could emergeas a formidable competitor in this area, since the Chinese government has announced itsintent to set up 100 IT training institutes in China (Ramesh, 2001). As the global IT

    industry grows, there is a shortage of trained IT human resources in the global market anddeveloped countries, such as Germany and Japan are increasingly turning to countrieslike India to recruit labor for their domestic market. As a global market lures Indian ITskills away with higher wages and more attractive benefits, the skill shortage in Indiacould be exacerbated. Literacy rates of Indian children at 45 percent are lower than manyother Asian countries. India is bifurcated between a middle class that has the resources toaccess technical training and a majority of the population with little or no formal

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    education. Servicing a "wired" economy would require a far more educated workforce(Miller, 2001).


    If information technology is to fuel India's economic growth into the ranks of the

    developed countries, there needs to be a confluence of policy changes. As the industrygrows and matures, it faces bottlenecks to growth in the form of inadequate power, weaktelecom and transport infrastructure and even an exhaustible supply of IT talent, ifeducational institutions in India fail to rise to the challenge. In the critical area of powerfor instance, leading Western firms that entered in the aftermath of liberalization lured bythe massive power shortages in the context of a growing economy are leaving India dueto frustration with bureaucratic roadblocks, government pricing controls which preventthem from earning fair market returns, and disillusionment with a difficult market.

    The Information-based new economy requires a free business environment, unhamperedby old economy regulations. In order to realize India's hopes for the IT sector, thegovernment has to free the economy and allow economic and social change to transform

    the business environment. So far, the industry has succeeded against all odds. However,the growth of India based multinationals would require a freer, more entrepreneurialclimate that is friendly to new venture creation that offers easier access to capital marketsand hard currency, sets fewer bureaucratic and regulatory roadblocks and provides betterIT infrastructure, i.e. telecom, power and transport. Moving faster on privatizing sectors,such as telecom and power and allowing for foreign competition would allow efficiencygains and technology leapfrogging. Computerizing governance mechanisms would createdomestic demand for IT products and services, while increasing the efficiency andresponsiveness of government.

    The McKinsey-NASSCOM report published in 2000 makes the following

    recommendations for enabling the Indian IT industry's growth:* Build a base of highly competitive "knowledge workers"

    * Create a regulatory environment friendly to the IT sector

    * Create India based IT multinationals

    * Build a world class telecommunications infrastructure

    * Build the "Made in India" brand for IT products

    * Encourage entrepreneurship and new venture creation

    What the government needs to do to foster growth of IT in India:

    * Improve infrastructure, i.e., education, telecom, transport and postal system.

    * Privatize and deregulate key sectors such as banking, telecom, and power

    * Allow foreign competition in these areas formerly under State control.

    * Cut bureaucracy and red tape to facilitate FDI and entry of foreign firms

    * Increase government spending on infrastructure, primary education, and health

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    * Computerize governance mechanisms when possible

    The growth of the Internet economy will have a major impact on the physical economy.Old economy roadblocks could block India's passage to the new economy. IT has nopolitical, economic, or social boundaries, and if India is to support its development it hasto create the right environment for its growth. A slowdown in the Indian economy will

    further boost IT investment by old economy companies interested in increasingproductivity. A slowdown in the U.S. economy could have a similar effect by openingnew opportunities for Indian IT firms with their dual advantage of a proven track recordand low cost relative to the U.S. An interesting fact noted in the NASSCOM 2002 surveywas the increase in software and service exports to the U.S. despite a slowing of the U.S.economy.

    If the IT sector in India is to grow and realize its potential, it has to be driven by anational agenda that includes various key stakeholder groups, such as business / privatesector, and government at the central and state levels. The government needs to changeits focus from a protectionist, regulation-driven "license raj" mind-set to one of fostering

    national competitiveness on a global scale. Businesses that are currently preoccupied withnegotiating bureaucracy would then have the incentive to alter their focus to competingwith world-class competition in an open economy. A strong IT industry, unfettered bydomestic regulation, may very well power the country to global competitiveness.

    Q.5 Explain two Power roles of innovation.

    The Strategic Power of InnovationInnovation has been overlooked and neglected for years by many companies as a keycomponent of business strategy. For too long, the primary thrust of strategic thinking andplanning has centered on how best to become low-cost producers. Of course, reducing costsand increasing operating efficiencies are important pieces of any smart business puzzle. Butinnovation brings with it more potential power to reach strategic and financial goals. The roleof innovation in setting and bolstering strategy has not been well understood or accepted inthe past. However, signs of support for innovation are definitely being seen in corporations.CEOs are turning to innovation as a growth mode for adding incremental revenues andprofits to their income statement. But, many still dont think about innovation as a corebusiness strategy.Every CEO should seriously consider innovation as a competitive weapon for shapingbusiness strategies. For many years, CEOs and strategic planners have used Michael Portersmodel for setting competitive strategy. When many companies evaluate their corecompetencies, they tend to assess their sources of competitive advantage according to someof the following areas

    Manufacturing economies

    R&D Technology

    Channel clout

    Brand name equity

    Distribution leverage

    Price competitiveness

    The smart executive of the future should assess one more source of competitiveadvantage-that is, the companys potential for achieving competitive innovation.

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    The Two Power Roles of Innovation

    Senior executives should think of innovation as a valuable corporate asset rather than acost or a risk. If you truly perceive innovation as a source of competitive advantage, itwill more likely be viewed as a long-term investment rather than a short term cost. This

    long-term investment perspective sets up the right mindset for innovation to workeffectively. Without it, innovation is perceived as a high risk. And as a consequence, yourmanagers will take the low risk approach of merely cutting costs or focusing on lineextensions and product improvements.Broadly speaking, there are two key power roles that innovation can play: (1)Competitive advantage protection (CAP), which stems from competitive innovation, and(2) shareholder, employee, and customer (SEC) satisfaction. The first, competitiveadvantage protection, provides a company with a long-term competitive insurancepolicy. Most importantly, it allows a company to play an offensive game in the marketplace rather than a reactionary game of always trying to catch up to competition.

    Competitive Advantage ProtectionA strategic approach for preempting, protecting against, or jumping ahead of competition.Competitive advantage protection enables a company to accelerate growth, experienceincremental margin enhancement, and build additional core competency, which bolsterscompetitive advantage.

    Exhibit 1 graphically depicts the role that competitive advantage protection can play inshaping business strategy. In each quadrant, competitive advantage protection can play asignificant role in enhancing competitive advantage. Each of the quadrants is describedhere:

    Radical Leapfrogging: with this strategy, competitive advantage protection is

    aimed at achieving new products that will leapfrog competition. The end outputsof this strategy usually are products or services that convey totally new consumerperceived benefits. They are radically different from anything currently offered inthe market. Consumers or end-users will clearly perceive the functional,emotional, psychological, or performance benefits of these new products as betteror greater than those offered by any competitive products.

    Benefits Differentiation: competitive innovation can play a major role in adding

    new benefits, the existing or newly developed products will provide a new sourcefor competitive advantage. The degree of uniqueness and benefit differentiationwill most likely determine the duration and strength of the competitive advantage.

    Market Share Simulation: there are many different approaches for simulating

    market share, ranging from advertising and promotions to distribution channeldiversification and pricing. However, competitive innovation can also be used tobuild market share by launching line extensions, flankers, and new-and-improvedproducts. This approach offers end-users new reasons to purchase your productsline rather than your competitions.

    Cost/Value Enhancement: value-engineering or cost-reduced new products and

    processes can also be achieved through competitive innovation. Sometimes thelower cost benefit can be passed on directly to consumers, resulting in a price

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    reduction. Alternatively, the cost savings can be applied internally to boost grossprofit margins. These incremental margin dollars can then be used to buildawareness or stimulate trial through increased marketing.


    Shareholder, Employee, Customer Satisfaction

    The second power role, shareholder, employee, customer (SEC) satisfaction, provides ameans for increasing the satisfaction level of companies three key constituencies. Ifsatisfaction can be increased for these constituencies with increased profitability, itsfairly safe to assume that the senior management will be rewarded handsomely.Executive should adopt a new mindset regarding these three constituencies. Thisshareholder-employee-customer triumvirate should represent the collective group thatexecutives are trying to best serve. The leader of an organization becomes a servantwhose primary job is to satisfy the needs, expectations, and desires of this collectivegroup. The three constituencies fall on a continuum, from externally to internally

    focused, as shown in Exhibit 2

    So, we can see the role of two power role of innovation


    Q.6 Discuss the impact of G-20 summit in London on investment markets

    and on overall economy across the globe.

    Global plan for recovery and reform (02/04/2009)

    The official communique issued at the close of the G20 London Summit.

    1. We, the Leaders of the Group of Twenty, met in London on 2 April 2009.

    2. We face the greatest challenge to the world economy in modern times; a crisis whichhas deepened since we last met, which affects the lives of women, men, and children inevery country, and which all countries must join together to resolve. A global crisis

    requires a global solution.

    3. We start from the belief that prosperity is indivisible; that growth, to be sustained, hasto be shared; and that our global plan for recovery must have at its heart the needs andjobs of hard-working families, not just in developed countries but in emerging marketsand the poorest countries of the world too; and must reflect the interests, not just oftodays population, but of future generations too. We believe that the only sure

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    foundation for sustainable globalisation and rising prosperity for all is an open worldeconomy based on market principles, effective regulation, and strong global institutions.

    4. We have today therefore pledged to do whatever is necessary to:

    restore confidence, growth, and jobs; repair the financial system to restore lending;

    strengthen financial regulation to rebuild trust;

    fund and reform our international financial institutions to overcome this crisis and

    prevent future ones; promote global trade and investment and reject protectionism, to underpin

    prosperity; and build an inclusive, green, and sustainable recovery.

    By acting together to fulfil these pledges we will bring the world economy out ofrecession and prevent a crisis like this from recurring in the future.

    5. The agreements we have reached today, to treble resources available to the IMF to$750 billion, to support a new SDR allocation of $250 billion, to support at least $100billion of additional lending by the MDBs, to ensure $250 billion of support for tradefinance, and to use the additional resources from agreed IMF gold sales for concessionalfinance for the poorest countries, constitute an additional $1.1 trillion programme ofsupport to restore credit, growth and jobs in the world economy. Together with themeasures we have each taken nationally, this constitutes a global plan for recovery on anunprecedented scale.

    Restoring growth and jobs

    6. We are undertaking an unprecedented and concerted fiscal expansion, which will saveor create millions of jobs which would otherwise have been destroyed, and that will, bythe end of next year, amount to $5 trillion, raise output by 4 per cent, and accelerate thetransition to a green economy. We are committed to deliver the scale of sustained fiscaleffort necessary to restore growth.

    7. Our central banks have also taken exceptional action. Interest rates have been cutaggressively in most countries, and our central banks have pledged to maintainexpansionary policies for as long as needed and to use the full range of monetary policyinstruments, including unconventional instruments, consistent with price stability.

    8. Our actions to restore growth cannot be effective until we restore domestic lending andinternational capital flows. We have provided significant and comprehensive support toour banking systems to provide liquidity, recapitalise financial institutions, and addressdecisively the problem of impaired assets. We are committed to take all necessaryactions to restore the normal flow of credit through the financial system and ensure thesoundness of systemically important institutions, implementing our policies in line withthe agreed G20 framework for restoring lending and repairing the financial sector.

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    9. Taken together, these actions will constitute the largest fiscal and monetary stimulusand the most comprehensive support programme for the financial sector in modern times.Acting together strengthens the impact and the exceptional policy actions announced sofar must be implemented without delay. Today, we have further agreed over $1 trillion ofadditional resources for the world economy through our international financial

    institutions and trade finance.

    10. Last month the IMF estimated that world growth in real terms would resume and riseto over 2 percent by the end of 2010. We are confident that the actions we have agreedtoday, and our unshakeable commitment to work together to restore growth and jobs,while preserving long-term fiscal sustainability, will accelerate the return to trend growth.We commit today to taking whatever action is necessary to secure that outcome, and wecall on the IMF to assess regularly the actions taken and the global actions required.

    11. We are resolved to ensure long-term fiscal sustainability and price stability and willput in place credible exit strategies from the measures that need to be taken now to

    support the financial sector and restore global demand. We are convinced that byimplementing our agreed policies we will limit the longer-term costs to our economies,thereby reducing the scale of the fiscal consolidation necessary over the longer term.

    12. We will conduct all our economic policies cooperatively and responsibly with regardto the impact on other countries and will refrain from competitive devaluation of ourcurrencies and promote a stable and well-functioning international monetary system. Wewill support, now and in the future, to candid, even-handed, and independent IMFsurveillance of our economies and financial sectors, of the impact of our policies onothers, and of risks facing the global economy.

    Strengthening financial supervision and regulation

    13. Major failures in the financial sector and in financial regulation and supervision werefundamental causes of the crisis. Confidence will not be restored until we rebuild trust inour financial system. We will take action to build a stronger, more globally consistent,supervisory and regulatory framework for the future financial sector, which will supportsustainable global growth and serve the needs of business and citizens.

    14. We each agree to ensure our domestic regulatory systems are strong. But we alsoagree to establish the much greater consistency and systematic cooperation betweencountries, and the framework of internationally agreed high standards, that a global

    financial system requires. Strengthened regulation and supervision must promotepropriety, integrity and transparency; guard against risk across the financial system;dampen rather than amplify the financial and economic cycle; reduce reliance oninappropriately risky sources of financing; and discourage excessive risk-taking.Regulators and supervisors must protect consumers and investors, support marketdiscipline, avoid adverse impacts on other countries, reduce the scope for regulatoryarbitrage, support competition and dynamism, and keep pace with innovation in themarketplace.

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    15. To this end we are implementing the Action Plan agreed at our last meeting, as set outin the attached progress report. We have today also issued a Declaration, Strengtheningthe Financial System. In particular we agree:

    to establish a new Financial Stability Board (FSB) with a strengthened mandate,

    as a successor to the Financial Stability Forum (FSF), including all G20 countries,FSF members, Spain, and the European Commission; that the FSB should collaborate with the IMF to provide early warning of

    macroeconomic and financial risks and the actions needed to address them; to reshape our regulatory systems so that our authorities are able to identify and

    take account of macro-prudential risks; to extend regulation and oversight to all systemically important financial

    institutions, instruments and markets. This will include, for the first time,systemically important hedge funds;

    to endorse and implement the FSFs tough new principles on pay and

    compensation and to support sustainable compensation schemes and the corporate

    social responsibility of all firms; to take action, once recovery is assured, to improve the quality, quantity, and

    international consistency of capital in the banking system. In future, regulationmust prevent excessive leverage and require buffers of resources to be built up ingood times;

    to take action against non-cooperative jurisdictions, including tax havens. We

    stand ready to deploy sanctions to protect our public finances and financialsystems. The era of banking secrecy is over. We note that the OECD has todaypublished a list of countries assessed by the Global Forum against theinternational standard for exchange of tax information;

    to call on the accounting standard setters to work urgently with supervisors and

    regulators to improve standards on valuation and provisioning and achieve asingle set of high-quality global accounting standards; and to extend regulatory oversight and registration to Credit Rating Agencies to

    ensure they meet the international code of good practice, particularly to preventunacceptable conflicts of interest.

    16. We instruct our F