RC Bhargava, Chairman, Maruti Suzuki India Ltd, addressed the 28th convocation of BIMTECH, held at its Greater Noida campus, on April 3. Here are excerpts from his address:
A convocation is a very memorable day for students of any institution. Years of going to school and college come to an end, and the degrees or diplomas received enable careers to start.
Most, if not all, of you must be fully aware that this diploma does not mean that the process of learning has come to an end. In fact, your years of education will have made you competent to learn and understand the complexities of working in the real world, interacting with diverse people and adding value to whatever you decide to do. Academic learning is essential for more efficient learning in the non-academic world. Studying in an institution like BIMTECH enables you to become better in your understanding of different disciplines that are relevant for your working life, and increases your analytical abilities. But the process of learning should continue for your entire life. Those who keep learning are likely to be the most successful. Those who stop learning, or believe they have learnt enough, will cease to grow and add any real value.
India, over the years, has not developed as fast as many other countries which, not so many decades ago, were behind us. Most people will agree that, in terms of resources as well as the intelligence and skills of people, India has always been better placed to grow economically than almost any other country. Somehow, we have not utilised our potential, especially in the areas of agriculture and industry. It is only now that the Government has clearly focused on these areas for rapid development, and many changes are taking place that will enable India to become competitive in industrial production, and enable farmers to realise much more value from their efforts. What is of relevance to all of you is the numerous new opportunities that will become available, especially because of the ‘Make in India’ drive.
Maximising effectiveness
The actions of the Government, undoubtedly of great importance, will not by themselves enable India to accelerate growth. That has to come from all of us also understanding our new roles, and how to play them effectively. Today I would like to talk on what I believe to be the way leaders of industry and business should go about the task of making India into a preferred place for industrial and manufacturing activity.
Leaders in the industrial and business world can maximise their effectiveness in any nation only if they fully understand the political, economic and social culture of the country where they work, and adapt their policies and actions accordingly. In India we have learnt management theories and practices largely from the West. Numerous students go to Western colleges and business schools. Even in our business schools, the courses and case studies are mostly derived from Western business schools. Management practices are, in many ways, similar to those in the West.
The question is whether western management systems are appropriate to our political and economic environment. The economies of the US and the UK have shown an increasing lack of competitiveness in industrial production, and have moved more to the financial and services areas. We, on the other hand, want manufacturing to increase its share of the GDP, and create jobs for the youth. For this to happen, the competitiveness of manufacturing has to grow on a sustained basis. Can following the Western education system and management practices, really enable us to attain our goals? I believe this needs widespread debate.
Winning confidence
On the face of it, the political systems of the West, particularly that of the US and the UK, are the same as that of India. We are all democracies. However, we have followed the UK pattern of governance and not the presidential system of the US. The income levels and extent of poverty are very different in India, compared to the UK and the US. We are a country of far greater diversity in all respects, including our social structure. We have not been able to achieve universal literacy, and health-care facilities are not as well developed as in the West. I believe all these factors are relevant to the nature of management practices that will bring us success. Leaders will only win the trust and confidence of workers, and get their wholehearted involvement in making continuous improvements, if the policies and actions of managements are appropriate to our environment.
In 1950 we accepted socialism as our political ideology, as it was believed that with our huge population, large disparities in the social and economic condition of people, and the scarcity of resources, central planning and social control over productive assets, would be the most efficient way of ensuring growth. While in some areas this system was reasonably successful, it did not result in competitiveness and high industrial growth. Changes in that system had to be made from 1991 onwards.
However, the practices followed for over 40 years have resulted in large numbers of intellectuals, politicians, bureaucrats and media believing that profit-making and wealth creation by individual industrialists was not in the national interest. Many of the policies framed by the Central and State Governments were based on this belief and still are in force. It has led to the thinking that industry can afford to pay higher prices for inputs than other segments of the economy. A large number of laws and regulations to control industry and protect the interests of workers were introduced. The cost of compliance has become high and affected competitiveness, without really achieving either objective. While the Central Government has started to make changes and ‘ease of doing business’ is now a priority policy, the States have, by and large, not moved as fast.
Industry-friendly
There is a need for industrialists and managers to be aware of the political compulsions of the Governments, and be sensitive to them while making their own policies and management practices. While the aspirations of people have increased very fast, due to the internet, wide use of mobile and smart phones and the media, the growth of jobs and economic benefits has not kept pace.
It is necessary to understand that in a democracy it is important for the politicians to be sensitive to the genuine needs of the deprived sections, and not say and do things that would alienate them. Governments can only become industry friendly if industrialists are viewed by people at large as working in the interests of the nation, rather than for their own benefit. Industry must not only create jobs by growing faster, but also be able to communicate what they are doing and why and how that is in sync with national objectives.
We are still living in the shadow of socialism and many of the laws, rules and regulations are of that era. Why have they not all been repealed or modified in the 25 years since liberalisation and when a move to a market economy started? The persons to make the changes are the politicians and the bureaucrats. They have to be sensitive to the reactions from opinion makers including the media, as well as the Opposition parties. How to create an environment where doing so would be looked upon positively in terms of creating jobs and promoting inclusive development?
In the West such questions rarely, if ever, arise. In India they are the key issues for improving the competitiveness of industrial production. All our past experience, and that of the rest of the world, shows that if Indian industry is to grow at 15 per cent-plus a year, the bulk of the investments and growth has to come from the private sector. This is the sector that does not enjoy the trust of opinion makers and, hence, of the political establishment. There is absolutely no doubt that unless the private sector, by its actions and practices, as well as better communication with opinion-makers and the general public, wins their trust and confidence, the required changes will come very slowly. Both industry and the nation will be losers.
Remuneration
One of the issues is the remuneration level of top managers. India follows the West in this respect. CEOs in India, particularly those who are promoters, often give themselves a very high remuneration packet. These have been commented upon by senior politicians and periodically appear in the press. The salary of a CEO could be 1,000 times that of a worker of equal length of service. In Japan, the multiple would be about 7 or 8 and in Germany perhaps 12.
In addition to the very high salaries that create distrust, the ostentatious lifestyles of many industrialists are certainly not in tune with the general social and economic conditions in the country. The situation gets more complicated when media stories describe the large outstanding bank loans of industrialists, the low personal taxes many pay, and the widely held impression that money is regularly siphoned out of the company to pay off politicians, bureaucrats and for personal consumption.
The Indian environment requires that industrialists and managers have a low-key lifestyle and modest levels of salary. They must place the growth of their companies as their priority objective. All actions of management should be consistent with this objective. For this, internal resource generation would need to be maximised and reinvested in growing and improving technology, and productivity of business. Large outgo of funds as remuneration to the promoter is not consistent with this objective.
Implement effectively
At the same time CEOs and managers must improve their communication with the workers, so that the benefits of a modest salary and lifestyle can be further transformed into winning the trust and confidence of the work force, who must begin to believe that they are genuine partners in the business and that their future is linked to the prosperity of the company. This will enable the company to get workers to actively participate in substantially contributing to continuous improvements being made in productivity and quality and in finding ways to reduce costs. The partnership relationship between workers and managements in Japan is the secret why Japanese industry became so highly competitive, despite the disadvantage of not having natural resources and export markets being very distant. In India, Maruti, has shown that the same conditions as in Japan can be created, though with some modifications in the way of achieving that goal.
here are very many good things to learn from the West, and it would be a serious error to think that we should not look West at all. What is important is that Western, or for that matter Eastern, practices and experiences should not be blindly copied in India, without a careful examination to judge what would successfully work in the Indian environment, and with what modifications.
Managers and leaders in India have also to appreciate the obvious fact that any law, rule, regulation or practice is only as good as its actual implementation. That makes it extremely important to understand what can be effectively implemented, and how. When any shortcoming or failure happens, alibis for that should not be accepted. Instead, a root cause analysis should be done to identify the real cause of the failure. Using the failure as a learning process, changes should be made to correct the cause and improve future performance. This should be an ongoing exercise. Unfortunately, in India, the ability to implement effectively, particularly in the public sector, has not improved much over decades and if we are to ‘Make in India’ all of us need to concentrate on improving the implementation capabilities in the country.