THE corporate sector of Pakistan has received a wake up call from across the border. With the emergence of WTO, and the bilateral barriers crumbling, the Indian companies are casting covetous eyes at the Pakistan market. Do we need to be worried? What comparative advantages does India enjoy? Let’s analyze these one by one:
The size of the market: India has a population of 1.1 billion people of which 400 million live in extreme poverty (less than $2 a day). However they have a middle class of 350 millions consumers – hungry for bank credit, consumer durables, fast food, transportation, vacations, and entertainment etc.
By contrast Pakistan has approximately 30 million middle class consumers. India’s huge market enables its companies to practice economies of scale, which brings down the cost of production, enabling it to out price their Pakistani counterparts. That Indian companies shall always enjoy economies of scale is business truism.
Research & Development: Pure research and product development are a basic foundation of competitive advantage. Indian companies have a long tradition of investing in research and development. The pharmaceutical giants of India have invested in basic research and trials. They are now positioned to capture the regional markets for generic drugs. They are also ahead in biotech where Pakistan has not even made a beginning. In the software industry, India has exports of $20 billions. They are now writing programmes which are second only to USA.
Education: The young graduates of India are far, far ahead of their Pakistani counterparts. The technical and business schools of India, the IIM’s and the IIT’s are right in front, internationally. In fact the western universities like Harvard and MIT are beginning to acknowledge that the Indian universities are world-class.
The Indian business schools supported by the large Indian corporates, are the large network of non-resident Indian community in U.S.A. and Europe, and turning out graduates who are being recruited by multinational corporations from across the world. Most of the Pakistani business schools are a sad and dismal lot, in the main because of the calibre of the faculty.
Brands: In the 21st century, you cannot do international marketing unless you have international brands. Although a late comer, Indian companies are building up their brands equity. TATA, as a corporate identity, is recognized worldwide. Amul is the most famous FMCG brand in India. Thumbs-up is the major cold drink brand (now having been purchased by Coca-Cola).
In the last 15 years Indian companies have leveraged their brands, in all sectors of the economy – financial services, textiles, retailing, jewellery, automobile, and engineering. In contrast Pakistani companies have not even started their journey towards branding and corporate identity.
Cost of Inputs: As India produces a wide range of raw materials, their cost of industrial inputs is cheaper as compared to Pakistan. Chemical and pharma raw materials, energy, steel, etc. are all cheaper. With raw materials available locally, Indian companies can do better inventory management, and unblock capital for more important purposes. In contrast, because Pakistani companies are dependant on imported raw materials, they have to keep a minimum six months inventory.
Taxation and Related Advantages: Income tax in India is lower by 2-3 per cent. Sales tax is also lower. There is no presumptive tax. Although this does not sound like much, it can add up to a significant advantage.
The “Feel Good” Factor: Although this is a psychological issue, it may be the most important of all – the match winner, so to say. The Indian corporates have a strong feeling of well-being and confidence. They are out to conquer the world and feel they can do it. They know that every coming government, changed through political dynamics, will not be able to reverse the pro-market policies of the last 15 years. Therefore they can plan on a 20-25 year horizon, which is the minimum required if you want a long- term strategy.
In conclusion, it does appear that India is suffering from delusions of grandeur. It is convinced it is an emerging superpower. Far from it, India’s per capita income is only US $780, marginally above Pakistan’s. OECD countries have a per capita threshold of US $18,000 per annum. It will take at least 25 years for India to realize its aspirations.
