25 Jun 20
Competitive Advantage – Real and Fair
A few days ago, a leading industrialist from Pune, one of the
leading two and three-wheeler manufacturers in India (and
world), made a case for suppliers from China. His views, as an industrialist,
as a global company are well taken, and respected. This post is not to criticize him or his business. Not to make any
offending comment on that. He may be right in his view.
As per him, four C’s (Confusion, Continuity, Compassion,
Completeness), that make Chinese businesses as indispensable, seemed bit
irrelevant to me. It is not necessarily required that we should make efforts to
strike a balance of trade always to maintain continuity or completeness. What
is the confusion about China? Why is the need for Compassion? Anyways. Opinions
after all.
Out of the 5 C’s that he mentioned, one C was competitiveness. His view is that, and I quote, "The third 'C' to my mind is that of competitiveness. The reason we source components from China is simply that China is more competitive." I hope he meant price competitiveness! And my views are different, not necessarily his views are incorrect or motivated. It could be out of their experience.
Well for any industry, to remain competitive is the key, and to
achieve that, one needs set of competitive suppliers. Absolutely Nothing wrong
with that.
But, is it really practical (emotions apart) to say that Chinese
supplies are most competitive because they offer less price? It could be argued
either way. Is that all? Price competitiveness? Technically it might be
correct.
But, there could be more to that. Where does that human compassion
and emotional appeal, that all those years you have generating, go? Is
there any relevance to this in China?
Is there any indirect message - that Indian suppliers cannot be
cost competitive? Should Indian SMEs leave in a perpetual denial mode?
In order to remain Competitive, one has to control over all the
aspects of the value chain. Like supplies, customers, substitutes, government
policies, and competition within your industry. If you have advantage over all
these factors then it is easy to say that you have competitive advantage.
If one meant, Chinese suppliers; because they are cheap and so
competitive, hence have competitive advantage then it would be quite a big
statement. For that one would really need to understand their ecosystem.
Difficult to envisage their ecosystem. What type of labor laws they apply,
working conditions, environmental compliance and so on! In addition, their
products come cheap because they get 15% export benefits and, a lot of add-on
cost might be getting subsidized under the propaganda. Possible.
So, in my view, that is by no way a fair competitiveness
or competitive advantage.
Management Guru, Michael Porter defined the two ways in which an
organization can achieve competitive advantage over its rivals: cost advantage
and differentiation advantage. Cost advantage
is when a business provides the same products and services as its competitors,
albeit at a lesser cost.
Competitive advantage
Competitive advantage is the leverage a business has over its
competitors. This can be gained by offering clients better and greater value.
Advertising products or services with lower prices or higher quality piques the
interest of consumers. Target markets recognize these unique products or
services. This is the reason behind brand loyalty, or why customers prefer one
particular product or service over another.
Cost advantage vs Differentiation advantage
Michael Porter defined the two ways in which an organization can
achieve competitive advantage over its rivals: cost advantage and
differentiation advantage. Cost advantage is when a business provides the same
products and services as its competitors, albeit at a lesser cost.
Differentiation advantage is when a business provides better products and
services as its competitors.
In Porter's view, strategic management should be concerned with
building and sustaining competitive advantage.
So, in this case of Mr. Industrialist, by competitive, we are only
talking in terms of cost advantage. But it is not a fair comparison to other
suppliers. Where would the quality comparison go – if an European supplier and
Indian supplier offering the product at a tad higher price than the Chinese
supplier, but with better quality and longer life, which one should be
preferred?
No wonder, if some OEs (Original Equipment Manufacturers) prefer
to go with lesser value proposition, because the cost of maintenance is borne
by the customer.
Understand - Industry Structure
However, (after looking at this statement of Mr. Industrialist), what some of the Indian stalwarts may be missing that by giving majority access of raw materials to foreign suppliers, especially countries like China, they are ONLY increasing their bargaining power. And one day there will be chaos. So where is the alternative? It’s like, the whole carpet under your feet is taken away overnight!!
There was also a mention of compassion and other aspects. But,
where is Emotional Advantage (EA)? Trust advantage (TA)? Is there one? If
an Indian OE, purchases, 100% of the raw material requirement, from Indian
suppliers and which are indigenously made by Indian companies, the EA,TA will
be higher!!
Albeit there could be add-on price for that – and some people
proudly say that businessmen look only at costs. Fair. But at what cost?
Nation’s sovereignty? This is the time when lesser or attractive cost of
Chinese goods MUST be looked with higher price for nation’s sovereignty. The
time is Now. The time to Rise and contribute to build a national ecosystem.
All automakers (and large appliances too), cleverly build
emotional appeal to sell their high priced products (even though the old
version and new version have very less to differentiate in terms of key
aspects!!).
सामान बनाते वक्त आप में का "होशियार व्यापारी” जाग जाता है, लेकिन बना हुआ सामान बेचते वक्त ग्राहकों कों “इमोशनल अपील” दिलाते हो. ऐसा कैसे चलेगा भाई ? (While manufacturing goods,
the businessman in you prevails. But while selling you touch upon emotions of
customers. How will that work?)
International trade etc will happen as long as humans will exist.
But the core businesses should have highest possible homogenization (extent of
indigenous component, higher the better). Automobile is certainly one of them.
Despite of sixty years of industrialization, and thirty years of globalization,
why many Indian manufacturers are still dependent on foreign suppliers? What
forces them to continue their love for foreign suppliers? Cost? Why many Indian
accompanies struggle to make world class two-wheeler- despite being leaders in
the world?
Is it their misconception or less time to market strategy, that
many prefer to adopt a "plug and play" model? Why do they have made
partnerships with Koreans and Japanese or Chinese to bring, so called, “new
machines / beasts”?
Negligible attention to research and development (changing lights,
shape or tweaking fuel tank and a new “variant name” name isn’t R&D) for
future mobility.
They seemed to have developed permanent love for old stereotypes.
They are stuck with old saying “Jo bikta
hai, wahi banate hai / जो बिकता है वही बनाते है (That what sells is
made)”. Why these
companies have to rely on battery and other parts on neighboring countries?
This applies to majority of electronics manufacturers, mobile
phone makers and many other consumer-goods makers. Easy supply, and ready market are the two things most of the
Indian entrepreneurs seemed to be looking at. Where is the desire to create the whole ecosystem (100
percent Indian yet effective)? Not that Indian companies can not make
desired quality goods. Remember, many Indian companies are supplying critical
component to ISRO, DRDO and many other institutions.
The future is digital. Smart Electronics. Internet of
Things. But sadly, For electronics, telecom sectors (and many others), we are
heavily dependent on chip making (ICs) companies from Taiwan, China. Today is the "Time" to evolve the Indian
semiconductor sector. Make it self-reliant. We have the manpower in abundance.
Similar will be the case for solar fabrics for solar panels. This
sector is crucial because, the Government of India has
set a target of installing of installing 175 GW of renewable energy capacity
by the year 2022, which includes 100 GW
from solar, 60 GW from wind, 10 GW from bio-power and
5 GW from small hydro-power (eventually this will be enhanced to 450 GW by
2030).
Sure, all such setups require massive top-loading
(requires investment in the beginning), but that can payoff handsomely in years
to come (by way of nation's own supplies), when our dependency on these
countries will subside eventually. This will not happen overnight, but then no
success comes so fast!
Look at the Fintech sector. A new baby as compared to
tall guys like automobile, consumer electronics, textile – but see how they
have designed a completely new ecosystem, developing and nurturing it. It needs
a sea-change in the attitude. That we have to make a difference from future
point of view. Agree, there is fair amount of Chinese investment in
this sector too!! But investment and suppliers are two different issues, though
both are critical.
Time to Build "brick by brick"..
When our country is encircled (gheraoed) by massive Chinese
strategic investments in neighboring countries (Nepal, Pakistan, Srilanka,
Bhutan, Myanmar and many others), it is pertinent to think long run.
I am not advocating any boycott on products from any nation. We
should increase our self reliance. It will not happen overnight, but a start
can happen, the least -with the blessings and conviction of Indian business
houses, who have proven their mettle, and also reaped the benefits for decades!
It is important to loosen the
grip of suppliers who come for a rogue or unstable country or a
country which often challenges India’s sovereignty in the world arena. It is
not fair every time to blame government or foreign policy. Entrepreneurs
are a big link of a country’s independent or self-resilient economy.
Most of the elite Indian businessmen and industrialists
seem to be turning a blind eye to the rise of the Chinese IT industry (by
choice?). Eighteen years ago – what was the state of the IT sector in China?
Indian IT educational institutions would go there and set up institutions to
teach them IT. Indian elites were harping all the while on our educated
workforce and its dominance in world IT.
We Taught them IT, They Built IT Empires..
But look, how Chinese IT sector has now taken the world
under its umbrella. Look, how many products have they created today. The
Smartphone ecosystem, the computer ecosystem, the connectivity etc. Today, they
are everywhere. Market
to consumer. Consumer to Market. End to end. Language no barrier. How could
they achieve that? Simple – create awareness, educate people, assign national
importance to the goal, make it a mission and then build an ecosystem (nest is
a small word)!!
This is no “pride singing” tune of
any Chinese companies. It is rather to show a mirror to the
"naysayers" in India.
Now is the Time for Indian manufacturers to think the same. Don’t
just look at the cost from a balance sheet point of view. Need of the hour is
to take a longer view. Take a National view. I am sure, desired help will come
from the establishments in due course.
To maintain the status quo, a narrative (false and created one) is
being systematically played for decades, by generations; "that we have no
alternative to Chinese suppliers" – it is almost like playing a perfect
part assigned by their 'Red-masters'. The “Left Liberal / Red” ecosystem is
everywhere – some economist, literati’s (literature), think-tank, students,
part of media, some journalists, traders and also industrialists /
entrepreneurs. Whenever some issue occurs, the whole "ecosystem",
sings "Red Tunes" like a well synchronized orchestra. Everybody is
free to make choices, has freedom of expression, we are a democracy after all.
In the end, I have a couplet for the "लाल के प्यारे (और प्यादे) " (Favorites and Pawns of the Reds) –
“ज़मीर ज़िंदा रख,
कबीर ज़िंदा रख..सुलतान भी बन जाये तो,
दिल में फ़क़ीर ज़िंदा रख..”
Time to RISE is now.
Till then, take care. Stay Strong.
Dhananjay Deshmukh, Mumbai
Dhan1011@gmail.com
(The author is a market research and business strategy analyst.
The write-up is not to demean or offend any individual or any organization. The
views are his own. Images and some inputs taken (with thanks) from the internet
for illustrative purposes only).
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