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THE
NEW ECONOMY: GUEST COLUMN
Redefining
India Inc
Only
a company that creates wealth In India can be truly indian
By
Anand Mahindra
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The
author is the managing director of Mahindra & Mahindra
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India
is probably one of the few countries where the phrase "locally-owned
industry" arouses not pride, but wariness in consumers' hearts. Consequently,
the use of the slogan "Be Indian, buy Indian" has never been
a formula for success in the marketplace ever since Mahatma Gandhi disappeared
from the scene.
The reasons
for this idiosyncratic behaviour are easy to understand. From Independence
until the reform process began, foreign companies were forbidden ownership,
since that would indicate a return to economic imperialism, and local
competition was curtailed in the name of resource conservation. Thanks
to this sophistry, we lived in an economy characterised by product scarcity
and shoddy product quality. Indian consumers were so oppressed they deserved
to be categorised as a threatened minority.
Business
houses could hardly be blamed for happily accepting a regulatory framework
that assured comfortable profits. However, in the consumer's view, industrialists
were the real villains, manipulating politicians and depriving buyers
of choice in order to protect their own lazy rear ends.
The reforms
and the resultant flood of imports was like manna. Faced with this orgy
of choice, the last thing on people's minds was whether or not the product
was made by a locally-owned company.
Small wonder
then that in public imagination, a landscape consisting of only Indian-owned
companies would be tantamount to a return to oppression. Hence, analysts
and observers thought fit to blur the distinction between the "Indian-owned
industry" and the more inclusive term "Indian industry"
so patriotism would not be the unintended casualty of the consumer's indulgence.
Yet the precise definition of what is Indian industry, and how it differs
from "foreign-owned industry located in India", still eludes
us. But I thought it would be cowardly of me to evade offering my own
definition, and so I took a stab at it.
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Ninan
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Three broad
trends have to be taken into account before evolving an appropriate description.
The first trend is the increasing recourse to equity markets in order
to fund growth. The implication of this trend is a diffusion of ownership.
And this diffusion could be not just from family hands to the public,
but also from local to overseas ownership.
The second
trend is the rise of knowledge as a competitive advantage, indeed, as
a source of wealth. And the last trend is the increasing propensity of
management to share the wealth produced by a corporation not just with
investors, but with the wealth creators themselves-the employees. In fact,
if this is not done, a company may not be able to retain, let alone attract
an increasing number of wealth-creators.
With these
trends as a backdrop, I would submit that an "Indian company"
is a corporation which, regardless of the location of its headquarters,
is committed to a) generating competitive advantage through development
of intellectual property within India; b) adding economic value within
India, be it through increased employment, or an increase in trade revenues,
and; c) transparently sharing that added value with Indian investors and/or
its employee-owners.
Admittedly
not a compact or elegantly phrased definition, but to my mind it has some
beneficial implications for corporate governance.
Currently,
for Indian-owned firms, this definition suggests that unless one is happy
to forsake growth, delaying the separation of ownership and management
is simply delaying the inevitable. Capital markets, when tapped, will
force that conclusion anyway. Indian families would do well to fashion
themselves as aggressive venture capitalists and invest their money in
support of the best professional executives for the job at hand. They
should also emulate global standards of corporate governance, especially
if they expect the continued largesse of equity markets.
If MNCs
want to squeeze themselves into this definition, there are implications
for their governance too. Foreign firms would be well advised to set targets
for measures of the value they add to the Indian economy and transparently
share their progress on this front. More important, they must be seen
to increase the share of intellectual property developed in India and
ensure global royalties accruing from such knowledge are credited to their
Indian entities.
In addition,
multinationals must demonstrate their willingness to share their wealth
with their Indian constituents. If they do not see fit to float their
equity on the local bourses, then providing options on their overseas
stock would be the required measure of commitment.
Finally,
there is a spin-off from this new categorisation. Companies that, regardless
of their geographic origins, are dedicated to being more opaque than transparent,
and to siphoning off company wealth would be precluded from our new definition.
Such firms would neither be "Indian-owned" nor "Indian";
they would simply be "outlaw-owned".
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