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Global Competitiveness and Technology Deepak Bhatnagar Head, Centre for International Trade in Technology [email protected] [email protected] India: Competing with the World A peep into the past…… • Indian Steel in arrows and swords: - Iron tipped arrows used by Indians in the Persian army (480 BC) - Alexander the Great prized a gift of 100 talens of steel from Porus in 326 BC - Indian ‘Wootz’ steel used for making Damuscus blades and became famous in Europe (‘Wootz’ derived from the Kannada word ‘UKKU’ meaning steel) - British Royal Society made a detailed examination of Wootz Steel in 1790: their report says….“the steel of India is decidedly the best I have yet met with!” - “Should Tatas make steel rails to British specifications, I would undertake to eat every pound of it” Sir Fredrick Upcott, Chief Commissioner of Indian Railways. “If Upcott had carried out this undertaking he would have had some slight indigestion” (comment by Dorabjee Tata when the rails were sent to UK) Competing for the Future Forget that the ‘World is flat’ The world of business is turning upside down (The Economist April 17th 2010) - - - World’s Centre for economic gravity is shifting towards emerging markets Emerging countries are no longer content to be sources of cheap hands and low-cost brains. Instead, they too are becoming hot beds of innovation, producing breakthroughs in everything… from telecom to car making to health care. They are redesigning products to reduce costs not just by 10% but by upto 90%. They are redesigning entire business processes to do things better and faster than their rivals in the West. They are the “new masters of management” Innovation and Technology Breakthrough ideas are tilting the balance • Rich-world companies are doing more R&D in emerging markets e.g. Fortune 500 companies now have 98 R&D facilities in China and 63 in India • Huawei, a Chinese telecoms giant, applied for more international patents than any other firm did in 2008. It set up R&D operations in India in 1999. Globally, the company owns 17 R&D centres with a strength of 40,000 Engineers. Order book in India $ 2 Billion (Rs. 9, 000 crore) with BSNL, MTNL, Reliance, Tata Indicom and Bharti Airtel. • Even more striking is the emerging world’s growing ability to make established products at dramatically lower costs. e.g. the $2,200 Nano Car or the $ 350 laptop: this sort of advance – dubbed as “frugal innovation” is not just exploiting cheap labour. It is redesigning products and processes to cut out un-necessary costs. (Similar to the concept of “lean manufacturing” when Japanese car industry beat the American giants 30 years ago!) • Emerging economies are not merely challenging that lead in innovation. They are unleashing a wave of low-cost, disruptive innovations that will, as they spread to the rich world, shake many industries to their foundations All sorts of CEOs will scream for protection! Technology and Competitiveness -these two are the most popular buzzwords of our time. • Technology is high up the agenda in both policy and academic debates. • The capacity of firms to use new technologies and improved organizational methods is central in explaining industrial leadership and the competitiveness of regions and countries. • Nevertheless, the relation between industrial innovation, scientific research, organizational change, and competitiveness is not clear. • The extent and manner in which innovation occurs in an economy depends on the development of new production and business capabilities, institutions, and infrastructure-factors which are, in turn, contingent (among other things) on business strategy and government decisions on public research funding. Defining Competitiveness • Country Competitiveness: Extent to which a national environment is conducive 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 also be defined as the collective ability of firms in the sector to compete internationally. A more performance-oriented definition of industry competitiveness can be given as: Collective ability of an industry on performance factors such as productivity, cost, market share and technology. • Company Competitiveness: Ability to design, produce and/or market products or services superior to those offered by competitors , considering the price and non-price qualities. The Global Competitiveness Report 2010-11 Long term prosperity in the wake of Global Economic Crisis: Since 2005, the World Economic Forum has based its competitiveness analysis on the Global Competitiveness Index (GCI). - A highly comprehensive index which captures the micro economic and macro economic foundation of national competitiveness. The report defines “competitiveness as the set of institutions, policies and factors that determine the level of productivity of a country” - Thus, more-competitive economies tend to be able to produce higher levels of income for their citizens. - The productivity level also determines the rates of return obtained by investments in an economy. - The concept of competitiveness thus involves static and dynamic components. The Global Competitiveness Index 2011–2012 rankings and 2010–2011 comparisons Global Innovation Index (2011) The 12 Pillars of competitiveness • The GCI provides a weighted average of many different components, each of which reflects one aspect of the complex concept that we call competitiveness. These are broadly grouped into 12 pillars of competitiveness. • Strong inter-relations of the 12 pillars- in fact, they tend to reinforce each other 9th Pillar - Technological readiness • This measures the agility with which an economy adopts existing technologies to enhance the productivity of its industries. In today's globalised world, technology has increasingly become an important element for firms to compete and prosper. • In this context, whether the technology used has or has not been developed within national borders is irrelevant for its effect on competitiveness. The central point is that the firms operating in the country have access to advanced products and blueprints and the ability to use them. Among the main sources of foreign technology, FDI plays a key role. India is the 2nd favourite destination for FDI (after China) Level of technology available to firms in a country needs to be distinguished from the country’s ability to innovate and expand the frontiers of knowledge 12th Pillar - Innovation • In the long run, standards of living can be expanded only with innovation. Particularly important for economies as they approach the frontiers of knowledge. • Firms must design and develop cutting edge products and processes to maintain a competitive edge. • This requires an environment that is conducive to economic activity, supported by both public and private sectors. • Sufficient investment in R&D, especially by Private Sector. • Presence of hi-quality research institutions • Extensive collaboration in research between university and industry. • Protection of Intellectual Property (IP) Organizational strategy for competitiveness: Develop and Integrate the Technology Strategy with Business strategy Key factors for the top spot in GCI Switzerland has: - Excellent capacity for innovation - High spending on R&D - Scientific research institutions are among the world’s best - Strong collaboration between academic and business sectors ensures that much of this research is translated into marketable products and process, reinforced by strong IP protection - High rate of patenting : 148 per million inhabitants. (India: 5.46 per million inhabitants) USA: no 2 slot – has all these plus an excellent university system Seminar on Global Competitiveness of Indian Industries- organized by IIFT and BICP on 19th February 1997 Main findings/recommendations • The technology issues affecting competitiveness - Guiding factors towards the objective of achieving international competitiveness should be profitability, quality and creativity. Profitability Commercial approach inevitable Quality Quality not only of the final product but also of the raw materials Creativity Proper development and integrated approach towards human resource development Indian industry in order to be competitive would require to increase labour productivity, upgrade technology and resort to aggressive marketing. Need to focus on issues related to packaging, high transactional cost, on time delivery and consistent quality Need to form joint ventures with world leaders in the domain to inject efficiency into operational parameters Need to promote energy efficiency and general resource efficiency Quality of products and services are as important as prices in international market. The question of technology up-gradation is inextricably linked with improving quality Imperative to devote adequate attention to research and development to keep pace with international standards. - What are the requirements for enhancing competitiveness ? • Prevent obsolescence – sustained R&D • Making the future work for you! • • • • Are you confident about… Future trends: how they may affect you? Where the new opportunities will be? How S&T can help you seize these opportunities? What you should be doing NOW? For every person and organization priorities may differ. But one thing is certain: We live in a world of change!. The need to anticipate and prepare for the future is crucial. Need to “Manage” Technology • rapid technological change, uncertainity and complexity • technological knowledge to sustain competitiveness in an uncertain business context • issues become manifold because of globalization of technology • technology financing (VCs, Government schemes to encourage R&D and incentives) • create and nurture a ‘culture of innovation’ NEED FOR A TECHNOLOGY VISION… ‘Blessed are those, who have a dream or a vision, for, those who have not, are dead while living!’ The Quest of the Mind (Article By N R Narayana Murthy in Times of India, 24th October, 2012) • Boosting R & D is key to driving the future of the Indian economy. • India continues to enjoy the No. 1 position in IT, Business outsourcing and consulting. • Other emerging power houses of BRIC Nations are all destinations for future investments. • We cannot rest on our laurels. Imperative that we strike to become the finest research hub in the world. • We can achieve this by investing in our schools. Knowledge Network & Nations - Global Scientific Collaborations in the 21 Century st (Royal Society’s Seminal 2011 report) “ Even in the difficult economic times we now face, national governments need to maintain investment in their science base in order to secure economic prosperity, tap into new sources of innovation and growth, and sustain vital connections across the global research landscape.” R & D Spending …… • Currently, India spends less than 1% of GDP on R & D. • 12th Plan proposes to step this up to 2% with half coming from private sector. • Admirable intentions – but goal falls short. - Israel spends 6% of GDP. - Switzerland and Sweden both 4%. - Even China approaching 2%. Spend on Education…… • India has increased its expenditure on education as a percentage of GDP to 4% (2011-12), from 3.3% in 200405. • Compared to other BRIC Countries, we need to do more. • According to World Bank: - Brazil, spends 5.7% of GDP on education. - Ethiopia spends 4.7%. - Even Botswana spends 7.8%. - Imperative to have strong investments in education to build a sustainable pipeline of scientific research. “ Scientific gains and a booming economy go hand in hand. How we move forward at this moment in our history will determine whether we lead the world well into the next century.” N R Narayana Murthy Chairman Emeritus, Infosys Trustee, Infosys Science Foundation. Stories and new ideas… Opportunities on how frugal technology helped companies become globally competitive Global Leadership through Technology the charms of frugal innovation • Mac 400- a hand held ECG device developed by GE’s health care lab at Bangalore. This miracle sells for $800 (conventional ECG is $ 2000) • - Water Filter- using rice husks to purify water developed by TCS in Chennai. Gives abundant supply of bacteria free water for an initial investment of about $ 24 and recurring expense of $ 4 for a new filter every few months. Tata Chemicals is making these filter. Plan to produce 1m next year and hopes for an external market of 100 mn. • Frugal Innovation- not just about re-designing products: it involves re-thinking entire production processes and business models. • Companies need to squeeze costs to reach more customers and accept thin profit margins to gain volume Low Cost Insulin Pump - Under development at Amrita School of biotechnology with support from TIFAC, DST. - Partnership with Bio-Con, a leading manufacturer of human re-combinant insulin. - Price range in the 1000s. Imported pump costs Rs. 1.75 lakhs. - Globally competitive product. - A boon for diabetics, numbers increasing at alarming rate. Cost effective removal of Arsenic Subterranean Arsenic Removal (SAR) technology • A 2007 study found that over 137 million people in more than 70 countries are affected by Arsenic poisoning of drinking water. High concentration of Arsenic in regions like Gangetic belt of India, Nepal, Cambodia and Mekong delta a serious health hazard: Arsenic levels range from 50-150 PPB against WHO norm of 10 PPB • Innovative method of removal of Arsenic from ground water without using chemicals by In-Situ treatment has been developed by a consortium of European and Indian scientists. Technology demonstrated near Kolkata during 2005-06 and successfully replicated in 6 Arsenic affected areas in West Bengal. Technology involves simple and adaptable process to remove Arsenic using controlled oxidation and bio remediation process taking place inside the aquifer. No chemicals are used and no sludge is produced since iron and arsenic are trapped under the earth. Estimated cost of SAR plant of 4000 liters/cycle capacity is $ 3000. • Competitive with Ex-Situ treatment (Pump and treat) due to much lower cost (10% of conventional). No cost towards expensive toxic sludge removal. This globally competitive technology has won the 2010 St. Andrews Prize for the environment. • Maintenance cost very low and expected life of 10 years. Medical Tourism - India is fast becoming a popular medical tourism destination. - Growing numbers from the first world are flocking to India - Health care in the West is either too expensive or too slow, with waiting lists of several months - Also, patients from Africa where there is paucity of facilities and expertise. Medical Tourism GOOD MEDICINE PROCEDURE US Rate Indian Rate Angioplasty 50,000 11,000 Knee replacement 40,000 9,000 Hip Re-Surfacing 28,000 6,000 Rhinoplasty 10,000 2,000 Heart Surgery 30,000 6,000 Bone marrow transplant 2,50,000 26,000 Source: America’s Medical Solutions (All figures in US Dollars) Case of Steel Industry - India –fourth largest producer of steel in the world - Sustained R&D efforts have lead to India being one of the lowest cost producers of steel - Scope for improvement in technological key indices as compared to world leaders e.g. energy consumption, productivity of capital & labour and environmental emissions - Unique problem with regard to Indian raw materials hence indigenous technology development is imperative. Key technological improvements needed in : - - Quality of Blast furnace coke Reduction in coke requirement in blast furnace High temperature stoves for blast furnace Granulation of slag Challenge of higher heat size and quicker turn around in BOF as well as EAF for steel making Thin strip technology in continuous casting for near-net-shape products. Ladle metallurgy technology for producing cleaner steel - Strategic alliances and joint ventures by Indian steel companies: Key focus is acquisition of new technologies (e.g Tata-Corus JV, Posco-SAIL JV) - Steel demand in US gone down by 41% and UK by 35 % in 2009 but Middle East and North Africa (Mena) region clocked positive growth e.g. JSPL negotiating with Zimbabwe Iron and Steel Company, OMAN based Shaheed Iron and Steel based company for acquisition. Open- Sourcing of software Opening - a world of opportunities! • • • • • Open-source movement involves thousands of people around the world coming together online to collaborate in writing everything from their own software, their own operating systems, their own dictionary to their own recipe for Biryani While commercial software is copyrighted and sold (companies guard the code as they would their crown jewels!) open source software is shared, constantly improved by its users and made available free to anyone. A good example is Wikipedia- the user contributed on line encyclopedia (the word ‘Wikis’ is taken from the Hawaiian word for “quick”). Wikis are websites that allow users to directly edit any web page on their own Linux operating system- pioneered in 1991 by a student named Linus Torvalds, who posted his Linux operating system to compete with Microsoft Windows. He invited other computer geeks on line to try and improve it – for free Linux offers whole range of operating systems that can be adapted to run on Palm Pilots, all the way up to super computers. Big companies like Google, E-Trade and Amazon combined Intel servers with Linux operating systems to dramatically cut down technology spending. “Wisdom of Crowds”! (James Surowiecki) “WE Are Smarter than Me” (Barry Libert) “Group Genius” (Keith Sawyer) The amazing reach of open- sourcing Story of Gold Corp Inc • Toronto based Gold mining firm struggling to meet high cost of production from their dying 50 year old gold mine. • Its CEO, Rob Mc Ewen was inspired by Open Source Linux : company put all the geology data in a file and shared with the world. He risked his entire career by sharing proprietary data about their own mines. • March 2000- “Goldcorp Challenge" was launched with a total of $ 575,000 in prize money. Within weeks, submissions poured in from around the world. Contestants identified 110 targets in the Gold mine (half of which had not been identified earlier) • Over 80% of new targets yielded huge amount of Gold • Today, Goldcorp is reaping the fruits of its open source approach to exploration. It catapulted this under performing $ 100 million company into a $ 9 Billion juggernaut. • Shareholders are very happy: $ 100 invested in 1993 is worth over $3000 today. Suggestions for further reading • Wikinomics by Don Tapscott and Anthony D. Williams Published by Atlantic Books London 2006 • The World is Flat by Thomas L. Friedman. Published by the Penguin books 2005 • Competitiveness, Technology and Skills by Sanjaya Lall Published by Edward Elgar Publishing Limited in 2001 • International Competitiveness and Technological Change by Marcela Miozzo. Published by Oxford University Press in 2006 • Global Competitiveness of Indian Industries Published by Apex Printing House, New Delhi (Printed for the Indian Institute of Foreign Trade and Bureau of Industrial Costs & Prices) in 1997 • Technological Learning and Competitive Performance by Paulo N. Figueiredo. Published by Edward Elgar Publishing Limited in 2001 • Technology and Competitiveness by Jan Peter Wogart , Aasha Kapur Mehta, Arun Mehta. Published by Sage Publications • The Economist, April 17th-23rd 2010