What is it about Apple that makes it so successful? Be it the launch of ‘Apple Mac’ desktop computers, ‘Mac book’ laptops or iPhones, it always has its competitors desperately scrambling to play ‘catch up’. Why? To say that this is because it manufactures great products would be to completely miss the point.
We should, instead, really be digging a little deeper to come up with the right question — what is it that makes the company come up with consistently successful products? It is the secret ingredient that is often obscured from public view. Take the example of a tree. You may admire the tree standing tall and spreading its rich canopy of branches and leaves. But you don’t pause to consider that this has been made possible by the tree’s roots, that penetrate deep into the soil to absorb the nutrients that lie beneath it.
Likewise, successful companies have certain competencies that are not visible to the lay person, but are nevertheless at the core of these companies’ business operations. There may be a diverse range of products and services, all of which are totally unconnected with one another. But some competency acts as a common thread linking these diverse products, which their competitors do not possess, or at least, not in the requisite measure.
Countries’ competencies
Or so argued CK Prahalad and Gary Hamel, two management thinkers, in an insightful piece published in the Harvard Business Review , two and a half decades ago. And so, when Governor of Reserve Bank of India, Raghuram Rajan, delivered the fourth Prahalad memorial lecture in Coimbatore, in Tamil Nadu, recently, it was only to be expected that he pose a related question: “Do countries have core competencies?”
He answered it himself by saying, “Perhaps, they do”, but immediately qualified the answer with a caveat; that it is hard for the Government or other public authorities to determine what they are. Because any attempt at delineating these special attributes reduces the exercise to an ugly spectacle ‘of massive lobbying and disinformation from interested parties’. He goes on to caution that if the Government were to engage in any pursuit that is remotely in the nature of figuring out national core competencies, every industry will be out to show why it thoroughly fits the bill. Not very different from how industries lobby with the Government to justify why they deserve special tax benefits or interest subventions, he added.
Basically, what the RBI Governor seemed to be implying is that if there is anything like ‘core competence’ of a nation-state, it is so hard to find that it might as well be non-existent. So what is to be done? The formula he prescribes is straightforward — that the Government would be better off focusing on creating an ‘enabling environment’, and letting core competencies emerge from the fillip given by it. India didn’t set out to become a software superpower. It just emerged as a result of the investment that the country made in technical education, but without any specific encouragement as such, by the government.
Wittingly or otherwise, he ended up emphasising yet another management insight that had become quite popular around the same time that Prahalad and Hamel came out with their idea of ‘core competency’ in strategic management literature.
Necessity leads to invention
Michael Porter, in his book Competitive Advantage of Nations , attempted to answer a puzzling phenomenon in global economy — how is it that some countries, while being extremely successful in certain industries, fail to replicate the same success formula in other industries? How is it that the Swiss ended up being successful manufacturers of high-end luxury watches? What is it about the Japanese, that they came up with the idea of ‘Just in Time’ inventory management, while the Americans, no slouches at management insights, could not? How did Sweden end up being the country that gave birth to IKEA, the world’s leading player in pre-fabricated housing and furniture modules? The answer to each of these questions has its origin in the peculiar circumstances of manufacturing in their respective countries.
The Swiss recognised quite early on that they were facing an acute shortage of manpower. They could no longer afford the luxury of mass produced low-end watches. In the case of Japan, it was the paucity of land. If Japanese car manufacturers followed a policy of three-month inventory for a critical item such as tyres, the quantum of warehousing space they would have needed would be as large as the land needed for housing their manufacturing facilities. This necessitated their having to innovate in optimising the usage of a scarce commodity such as land and thus was born the concept of ‘Just in Time’ inventory management.
Sweden, because of its geographical location, enjoys only a limited season when it can engage in construction activity. it has no option but to prefabricate almost anything used in construction activity. Is it any wonder then that IKEA has emerged as globally more competitive than any other company in the prefabricated housing business?
Pioneers of Jugaad
For that matter, it is no surprise that India pioneered the concept of ‘Jugaad’ or improvisation in the face of scarcity of resources. Is there a shortage of capital? Are there restrictions on import of plant and machinery or raw materials? Is there an over all problem of difficulty of doing business in India? Not to worry! There is a jugaad for every problem. Of course, there is good jugaad and bad jugaad . A low-cost solution, such as a refrigerator without a freezer box, is an example of low-cost jugaad but an essentially value-accretive improvisation that is good. But importing a plant meant for commercial production and describing it as R&D equipment import is difficult to defend as an ethical corporate practice.
Of course, mere peculiar circumstances in the access to factors of production, while a necessary pre-condition, does not in itself confer on a country the competitive advantage in specific industries. Porter argues that it needs other favourable circumstances — decent home market, conducive regulatory environment to foster vigorous domestic competition and presence of institutions that impart specialised technical knowledge — that will lead to the inevitable emergence of champions in select industries.
India can do with improvements on practically all the parameters listed above. When that happens, champions will emerge across many industry segments. The success of the software and pharmaceutical industries is a testimony to the global possibilities elsewhere in the economy.