Management practices for sustainable growth

28/07/2010 ICMPSG, Annamalai University

Management Practices for Sustainable Growth-Focus India as if People and

Environment Matter

Presentation by

Prof.K.Prabhakar

[email protected]


Some Questions

• Are we growing or developing in economic sense?

• Do you agree with India’s Growth as unprecedented and the future is the brightest and most prosperous for all of us including the world?

• Do you think India will be a knowledge super power by 2010?

• Do you have a limit for growth?


What I am going to talk?

• Growth- The economic phenomenon; should we address this?

• Sustainable Growth- The ecological phenomenon; should we address this?

• Management Practices; what are management practices? What are relevant?

Some questions for you.


India: Among the Top-15 Countries in terms of GDP at constant prices

205 223319 347

103 91

116117

104 109

155168

0

100

200

300

400

500

600

700

1999-00 2002-03 2005-06 2006-07

US

D B

illio

n

Services Agriculture Industry

The Indian economy has witnessed an unprecedented growth…. Booming Indian services and industry sector are providing the required impetus to the economic growth

The sound performance of each industry segment is leading to the overall robust performance of the Indian economy

Indian economy is the 4th largest in terms of PPP – USD 4.1 trillion in 2006

India’s GDP witnessed high growth and was the second fastest growing GDP after China

Growth in sectors (2006-07):Industry: 10.9%Services: 11%Agriculture: 2.7%

Growth in sectors (2006-07):Industry: 10.9%Services: 11%Agriculture: 2.7%

Fastest GDP growth of 9.4 percent in 2006-07, since last 18 years

Fastest GDP growth of 9.4 percent in 2006-07, since last 18 years

Contribution of Services -

increased from 49

percent to 55 percent

Contribution of Services -

increased from 49

percent to 55 percent

India's GDP: 2002-07

424484 534

590 631

0

100

200

300

400

500

600

700

2002-03 2003-04 2004-05 2005-06 2006-07

US

D B

illio

n

GDP at Constant Prices

4%

8.5% 7.5%

8.4%9.4%


India: Economic PlatformIndia's Forex Reserves: 2001-07 (Till 22 June 2007)

5475

112

141152

199213

0

50

100

150

200

250

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08(Till 22June)

US

D B

illio

n

External Debt-to-GDP Ratio

21.120.4

17.817.3

15.816.4

10

13

16

19

22

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Ra

tio

India’s enhanced economic performance has been the major contributor towards increased Forex reserves

Steadily increasing Forex reserves offer adequate security against any possible currency crisis or monetary instability

Falling Dollar inflates the India’s external debt

Falling Dollar inflates the India’s external debt

Increased confidence of investors in Indian companies have led to a surge in cross border borrowing by the corporate houses

Forex reserves witnessed an increase of 200 percent for the period 1990-2007

…at present level of Forex reserves, the country has adequate cover for 12 months of imports

…at present level of Forex reserves, the country has adequate cover for 12 months of imports

India’s Forex reserves are in

excess of external debt…

…the decreasing external debt to GDP ratio indicates that India has a sound economic platform

…the decreasing external debt to GDP ratio indicates that India has a sound economic platform


India: Surging Exports

India's Import: 2002-07 (till February 2007)

61.5278.28

111.89

149.65162.30

020406080

100120140160180

2002-03 2003-04 2004-05 2005-06 2006-07(upto Feb.

07)

US

D B

illio

n

India's Exports: 2002-07 (till February 2007)

52.8163.95

83.81

103.42112.40

0

20

40

60

80

100

120

2002-03 2003-04 2004-05 2005-06 2006-07(upto Feb.

07)

US

D B

illio

n

Petroleum products are the major contributors towards India’s growing imports

Petroleum products are the major contributors towards India’s growing imports

Quality and cost advantage are the two important parameters leveraged by the Indian producers to increasingly market their products and services

Quality and cost advantage are the two important parameters leveraged by the Indian producers to increasingly market their products and services

Services sector has been a major contributor to increased exports from India

Imports of products by India mainly includes petroleum products and minerals

Indian companies have chalked out extensive plans to increase their presence abroad

Acceptance of Indian products along with the cost advantage has provided an edge to Indian companies


India: Attractive Investment Destination

Net FII into India: 2001-07

1.80

0.60

10.00 10.209.40

6.72

0

2

4

6

8

10

12

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

US

D B

illio

n

India is ranked second in AT Kearney FDI confidence index

Telecom and Electronics topped the list of inward FDI

FDI inflow for the period 2006-07 witnessed a growth of 180 percent over the same period last year

Mauritius has been the largest contributor towards FDI into India…..

Return on the Investments in India (2006 Q1)

MarketPE

RatioP/B

RatioRoE (%)

India 16.1 4.53 22

China 10.62 2.06 17

Indonesia

10.26 3.09 NA

Korea 9.85 1.84 16

Malaysia 13.21 1.82 16

Taiwan 12.17 2 11

Thailand 9.84 2.32 23

EM Asia 11.19 2.12 15

Latin America

9.35 2.46 18

EM Europe

10.9 2.39 15

With improved performance on PE ratio and ROE, Indian markets have attracted large investments

FDI Inflow - India: 2001-07

4,2223,134 2,634

3,755

5,546

15,730

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

US

D M

illio

n

180 percent Increase


India: Pacing Ahead to Emerge as a Major Economy in the World

Projected GDP Growth Rates for Select Upcoming Economies

0

2

4

6

8

2005-10 2010-15 2015-20 2020-25 2025-30 2030-35 2035-40 2040-45 2045-50

GD

P G

row

th R

ate

(%

)

Brazil China India Russia

0

20

40

60

80

100

India Russia Vietnam Ukraine China Chile Latvia

GR

DI S

core

2007 Global Retail Development Index (GRDI) 2007 Global Services Location Index

3.3

2.6

3.2

2.8

2.9

3.2

1.5

1.8

1.2

1.3

2.3

2.3

1.1

1.5

1.6

2

1.4

1.4

Indonesia

Brazil

Thailand

Malaysia

China

India

Financial structure People and skill availablityBusiness environment

India has been ranked superior to other major countries by many prominent surveys…

AT Kearney placed India among the top three in its FDI confidence index…

… the retail market along with the services sector has been attracting the interest of major players

India is expected to outperform its rivals in the BRIC, in terms of GDP growth rates, from 2015 onwards…


India: Demographics

Per Capita Income

393

461519

583

651

0

100

200

300

400

500

600

700

2002-03 2003-04 2004-05 2005-06 2006-07

US

D2

9

48

221

726

9

17

74

285

710

20

33

120

404

613

2001-02 2005-06 2009-10(E)

Rich (Above 115,000)

High Income (57,000 – 115,000)

Consuming class (23,000 – 57,000)

Working class (10,200 – 23,000)

Needy (Below 10,200)

Annual Household Income

(in USD)

* In PPP terms

Pop

ula

tion

(mill

ion

)

Increasing per capita income coupled with an emerging middle class has provided the necessary impetus to consumerism in India

Growth in the higher income categories of India’s population has created an affluent section of society, which has significant level of purchasing power

Increasing per capita income and large population moving into middle class has led to high level of consumerism in India

DEMOGRAPHIC TRANSFORMATION OF INDIA


Countries worldwide are anticipating a shortage of working population in the future. India is expected to emerge as a clear winner, and by 2050, it will have the largest working age population.

Countries worldwide are anticipating a shortage of working population in the future. India is expected to emerge as a clear winner, and by 2050, it will have the largest working age population.

India: Increasing Working Population

-3

0

10

17

31

33

44

64

71

314

-5 45 95 145 195 245 295 345

Stock Position 2005

South East Asia 362

Southern Asia 132

India 691

Africa 500

China 934

Latin America 359

USA 200

Europe 497

Japan 85

World 4,168

In Million

Addition to Working Age Population by 2010

Growth in Global Working Age Population (15-64)


GDP – USD 590 billion

GDP growth rate – 9 %

Services contribution – 54 %

FDI limit not 100 percent in major industry sectors such as Telecom, Semiconductors, Automobiles, etc.

Balance of Trade – USD (-)46.2 billion

Investment goal – USD 250 billion

20062006


GDP growth rate – 9.5%

Services contribution – 60 %

FDI limit is expected to be close to 100 percent in major industry sectors such as Telecom, Semiconductors, Automobiles, etc.

Balance of Trade – Should increase with surging exports as compared with imports


20082008


GDP growth rate – 9%

Services contribution – 60-65 %

FDI limit is expected to be 100 percent in major industry sectors such as Telecom, Semiconductors, Automobiles, etc.

Balance of Trade – Should be positive with increased level of exports as compared with imports


20102010

Growth Expected in IndiaTo sustain the GDP growth of more than 8 percent, India requires

an investment of USD 1.5 trillion in the next five yearsTo sustain the GDP growth of more than 8 percent, India requires

an investment of USD 1.5 trillion in the next five years


India has among the highest returns on foreign investment.

- Dan Scheinman, Cisco System Inc. as told to

Business Week, August 2005

- Dan Scheinman, Cisco System Inc. as told to

Business Week, August 2005

“We came to India for the costs, stayed for the

quality and are now investing for innovation”.

A T KearneyFDI Confidence

Index 2005

A T KearneyFDI Confidence

Index 2005

India is among the three most attractive

FDI destinations in the world.

Jack WelchJack Welch

“India is a developed country as far as

intellectual capital is concerned”.

US Department

of Commerce

US Department

of Commerce

By 2032, India will be among the three

largest economies in the world.

BRIC Report, Goldman Sachs

BRIC Report, Goldman Sachs

Why India? – Quote Unquote

Travyn Rhall,

ACNielsen

Travyn Rhall,

ACNielsen

“The Indian market has two core advantages - an

increasing presence of multinationals and an upswing

in the IT exports”.

Craig Barrett

Intel Corporati

on

Craig Barrett

Intel Corporati

on

“India has evolved into one of the world's leading technology

centers“.


Economic Growth


Benefits


•Increases in economic growth should enable more of everything to be produced•Increases possibility of providing consumer goods for all•More consumer goods, etc. could be equated with an increase in living standardsWealth generated may eventually ‘trickle down’ to those who are poor by means of income distribution – taxes and benefits, etc.

Assumptions about Growth

•Welfare associated with well-being:•Welfare is improved by the provision of support services for those not necessarily able to help themselves – often on the margins of society. Welfare includes: Pensions, Benefits – sickness, disability, etc.

Support – maternity, holidays, Housing Infrastructure – homes for the elderly

Such welfare provision often funded through income redistribution - taxes


Costs


Economic growth can bring with it costs: Not all income distributed equallyWealth often in the hands of a few‘Trickle down’ does not always seem to work in practiceCorruption may reduce redistribution effectsGrowth funded in part by spending on weapons which do not benefit the population as a whole

Negative ExternalitiesPollution – dumping of hazardous wasteEnvironmental degradation – over farming reduces productivity of the soil, deforestation, damage to eco-systems and reduction in biodiversityNon-renewable resources – finite resources


Opportunity Cost of Growth

• Resource allocation– Consumer Goods?– Capital Goods?

• Necessity of generating growth through allocating resources to the sources of growth – capital goods

• Makes population poorer as fewer consumer goods initially available – often these consumer goods represent the basic essentials of life


Opportunity Cost of GrowthCapital Goods

Consumer GoodsC1C2

K1

K2

Production Possibility Frontier:

Assume initial output levels of C1 consumer goods and K1 capital goods – where C1 barely represents the essentials of life in a developing country – clean water, food, shelter, etc.

Any attempt to increase the basis for wealth generation – by producing more capital goods that need to be used for such wealth generation – will mean a reduction in the number of consumer goods available (the opportunity cost). Such a reduction can be very damaging to a country already suffering a lack of basic essentials.

Opportunity cost of K2 – K1 capital goods is C1 – C2 consumer goods sacrificed.

Sacrifice

Gain


Growth and Production Possibility Frontiers

C1

Capital Goods

Consumer Goods

A

B

Economic growth when a country is operating below capacity – more of both capital and consumer goods are made available as the economy moves from point A to point B

K1

K2

C2


Growth and Production Possibility Frontiers

C1Consumer Goods

A

B

K1

K2

C2

Country operating at full capacity but discovers new resources or find ways of improving the efficiency of existing resources, for example, education of the population to improve the quality of human capital.

Improving health care of people

Technological innovations

Entrepreneurship

Capital Goods


Is growth limitless-NO

• These variables that limits growth are world population, industrialization, pollution, food production and resource depletion.


Indicators of Economic Development


Economic Growth• Using measures of economic performance in terms of the value

of income, expenditure and output• GDP – Gross Domestic Product

– The value of output produced within a country during a time period

• GNP – Gross National Product– The value of output produced within a country plus net property

income from abroad

• GDP/GNP per head/per capita – Takes account of the size of the population

• Real GDP/GNP – Accounts for differences in price levels in different countries


Economic Growth

• High economic growth fuelled through capital spending can hide a number of underlying economic problems – how is the income and wealth distributed? Who is doing the spending and will it ‘trickle down’ to the poor?


National Income – Problems with using GDP/GNP

• Black/informal economy?

• Some economic activity not recorded – subsistence farming and barter activity, for example

• Some economic activity is carried out illegally – building work ‘cash in hand’, drug dealing, etc.

• Work of the non-paid may not be considered but may contribute to welfare – charity work, housework, etc.


Development


Levels of poverty, Absolute poverty, Relative poverty, Inequality-How to measure?Progress – what constitutes progress?


Development• Other considerations of human welfare:• Political freedoms?• Sustenance?• Sustainable development?• Self esteem?• Proportion of activity in different sectors of the economy:

– Primary– Secondary– Tertiary– We are not sure how to measure?


Other Measures?


What is said what we believe.Source: www.ibef.org

http://www.ibef.org/


What is UNSAID


Listen to What Rachel Carson said in 1964

1 of 6 Rachel Carson Silent Spring [www.keepvid.com].flv


What is happening to our climate?

• Many people are familiar with the recent graphic images of shrinking ice on the ArcticOcean, and may be aware of projections that the Arctic could be ice-free in the summerby the year 2030. However, there is little recognition of the significant loss in economicvalue that the disappearance of Arctic sea ice, snow, glaciers and permafrost couldimpose on humans.• The frozen Arctic may seem to visitors to be simply a barren sea- and landscape, but

in fact it serves as habitat for many species and is the foundation for the Inuit and other indigenous cultures of the North. Arctic sea ice has anchored the ecosystems of northern regions and helped regulate global climate for at least 800,000 years (Overpeck et al., 2005). Its seasonal disappearance would have far-reaching ecological, climatic, and economic impacts that we are just beginning to understand.

• On a global scale, the reflective surfaces of ice and snow have a cooling effect. Sea ice formation and melting help drive the world.’s ocean currents, permafrost traps vast quantities of methane and other forms of carbon, and the Greenland Ice Sheet holds enough water to raise sea level by 7 meters (AMAP, 2009). Greenland is in fact losing ice and contributing to sea level rise at a much faster rate than scientists predicted only a few years ago (Mernild et al., 2009).


What is one single measure? Climate policy is finally moving forward• Serious discussion of emission reductions underway More or less (almost) heading for 450 ppm CO2Climate science is moving fasterMore and more evidence of potential harm at lower temperatures and

concentrationsHansen (1): doubling of CO2 causes 6oC of warming, not• 3oC as previously believedHansen (2): 450 ppm is the threshold for an ice-free earth,disastrously

higher sea levels, disruption of water supplyIf climate protection requires 350 ppm, can we afford• to get there from here?


Sustainability

• Sustainability is the capacity to endure, maintain or support. In ecology the word describes how biological systems remain diverse and productive over time. For humans it is the potential for long-term maintenance of well being, which in turn depends on the well being of the natural world and the responsible use of natural resources. What we had was extract-use-waste paradigm.

http://en.wikipedia.org/wiki/Ecology


Sustainable Development

• “Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”

• “Sustainability is improving the quality of human life while living within the carrying capacity of supporting eco-systems” conveys the idea of sustainability having quantifiable limits. But sustainability is also a call to action, a task in progress or “journey” and therefore a political process, so some definitions set out common goals and values.


The dimensions to be addressed

• The field of sustainable development can be conceptually broken into three constituent parts: environmental sustainability, economic sustainability and sociopolitical sustainability.



What is needed?

• According to Hasna Vancock, sustainability is a process which tells of a development of all aspects of human life affecting sustenance. It means resolving the conflict between the various competing goals, and involves the simultaneous pursuit of economic prosperity, environmental quality and social equity famously known as three dimensions (triple bottom line) with is the resultant vector being technology, hence it is a continually evolving process; the ‘journey’ (the process of achieving sustainability) is of course vitally important, but only as a means of getting to the destination (the desired future state). However, the ‘destination’ of sustainability is not a fixed place in the normal sense that we understand destination. Instead, it is a set of wishful characteristics of a future system


Types of Capital • The sustainable development debate is based on the assumption that

societies need to manage three types of capital (economic, social, and natural), which may be non-substitutable and whose consumption might be irreversible.

• Multiple uses of natural resources. • Failure of market to allocate resources. Perfect markets fail perfectly. • Similar to the eco-efficiency concept but so far less explored is the second

criterion for corporate sustainability. Socio-efficiency describes the relation between a firm’s value added and its social impact. Whereas, it can be assumed that most corporate impacts on the environment are negative (apart from rare exceptions such as the planting of trees) this is not true for social impacts. These can be either positive (e.g. corporate giving, creation of employment) or negative (e.g. work accidents, mobbing of employees, human rights abuses). Depending on the type of impact socio-efficiency thus either tries to minimize negative social impacts (i.e. accidents per value added) or maximise positive social impacts (i.e. donations per value added) in relation to the value added.

• Both eco-efficiency and socio-efficiency are concerned primarily with increasing economic sustainability. In this process they instrumentalize both natural and social capital aiming to benefit from win-win situations.


What we should do for sustainable development?

• Renewable resources such as fish, soil, and groundwater must be used no faster than the rate at which they regenerate.

• Nonrenewable resources such as minerals and fossil fuels must be used no faster than renewable substitutes for them can be put into place.

• Pollution and wastes must be emitted no faster than natural systems can absorb them, recycle them, or render them harmless.



India


Owner driven


Global


Dualism in Indian Management Practices

features of Indian management is the emphasis on the personality of the top leader in theorganization. Study also indicates that the expectation of the people in India is moretowards paternalism. The essential requisite for paternalism appears to be unity in theleadership, and single, identifiable source of power. Duality in this regard spawns patronage. The line of succession, if not clear leads to

people lobbying for the position and in the process subtly divides the organization in to cliques. Another unique feature of

Indian management is the “familial feeling” perceived by the employees because of theparental attitude adopted by the superiors and colleagues which gives a sense o fsecurityand belongingness among the employees. We also found among the organizations

studied that harmony is easier achieved when due deference is given to the familiality, seniority, age and open door communication, be it among the multinational, public sector, the traditional family-owned company or the government department.


What is your suggestions?


Thank you

If you have any questions please do send you mail to [email protected]

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Management practices for sustainable growth

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