Posted in Operations & IT Articles, Total Reads: 3682
, Published on 22 May 2013
During the present time when recession seems to be the buzz word, it is imperative for a country like India to test its basics and see its strong enough to weather the storm which is currently engulfing the European countries and making its mark felt in the country as well. The theme of Competing through organizational agility-strategic, portfolio and operational, makes me concentrate on the word “Competing”. In order to compete we need to be better than the best and in the world of globalization it is not only your fellow citizens with whom you have to compete but also big firms worldwide, which have a proven record of accomplishment and can engulf any company with the blink of an eye. But even before we embark on the journey of determining what sets us apart, we need to first analyse whether as a country we are conducive enough for business to thrive and whenever we talk about business, operations management cannot remain far behind.
In this article, I will talk about my experiences with the Indian Business scenario and how I feel that concentrating on the basics of Operations Management can take us forward individually as well as a country. The Indian story is very typical. We call ourselves a developing country yet more than 55% of our GDP is dominated by the service sector. If we track the growth of any country, we will notice one common thread.
Private companies became the preferred destination for all the success hungry mongers and rightly so as the baton of India’s future was passed on to this sector after 1991. But did the PSU’s of those times or the Tata’s and L&T’s of today focussing on the basics of Operations Management and driving their bottom line correctly to reap in benefits for their top line? Many will argue that they are benchmark industries and how do I even dare to question the efficiencies of such giants? But what is our benchmark? They might be standing tallest when it comes to comparison within the country, but where do they stand globally? Not a single Indian brand is even considered for inclusion in the Top 100 brands of the world in rankings of any standard. We boast of a huge working population but are we using that to our advantage? Where are we going wrong? Why is it that in spite of having all the resources and having the perfect formula on paper, we fail when it comes to the result? It is high time that we ponder on what we can do and apply the basics so that we can steer ahead in this competitive world. I can comment confidently on some issues because I have observed the policies and practices of the manufacturing sector closely and worked at shop floors and made decisions at the top level and have a crisp view on where we are going wrong.
I would be taking up certain issues and write about what is wrong with that and my view on what can be done on that issue.
1. India and China
L&T had been wanting to enter the power sector through some avenues and the electricity act of 2003 gave impetus to its intentions and it made strategic decision to enter the sector by making a huge manufacturing unit of boilers and turbines at Hazira in Gujarat. It was certain of getting government support as the only other company making such equipments was Bharat Heavy Electricals Limited (BHEL) and it being a PSU unit was overloaded with orders. Electricity consumption has a direct link with the GDP growth and for the country to grow at a sustainable rate it was of utmost importance that we set up lot of power plants. Therefore at that time it was a low risk investment. L&T had technology tie up with Mitsubishi and it was the first dedicated plant for supercritical boilers which boast of higher efficiency and low pollution levels. In the midst of all this no one envisioned the entry of Chinese equipment manufacturers who had the ability of quoting insanely low prices for Boilers, Turbines and balance of plants (BOP’s). Just to get a feel of the numbers, a L&T equipment plant costs around 6.5 Cr/MW and a plant with Chinese equipments costs 5 Cr/MW. An ultra mega power plant is of 4000 MW capacity. You can imagine the capex difference between a L&T plant and a Chinese plant. Companies like Reliance which have won bids for 3 ultra mega power projects have no qualms in bulk ordering from these Chinese companies. Other smaller companies follow suit and what is the result? The equipments required for the 12th plan power projects have been booked and after 2014, L&T would not be having any equipment orders for a minimum of 5 years at least. So, all its investment in making a state of the art facility results to zilch. Now the question is, how do the Chinese manage to supply at such low costs? The government gives a subsidy where the power plants which are deemed Mega Power Projects (above 1000 MW) don’t have to pay around 21% tax, while the equipments manufactured within the country has to pay this tax. If these were not enough, the Chinese banks are giving loans to Indian companies. How far do we go? How can the industry prosper under such policies whose prime motive seems to be profit churners for the Chinese companies?
2. Goods and Services Tax (GST)
Doing trade in India is equivalent to doing trade in 28 different places as the taxes differ with states. Implementation of the GST in adhering to the destination principle (The destination principle is a concept of international taxation which allows for value added taxes to be retained by the country where the taxed product is being sold) will solve this problem. The GST in different countries are:
The slated rate for GST is 20% in India. Such measures will go a long way in ensuring that trade practices and procedures are going in the right direction.
Even if as a country we are successful in building state of the art manufacturing industries and plants, it will amount to zilch if we do not strengthen our existing infrastructure. Our roads, ports and airports leave a lot to be desired. The reasons are varied- Inefficiency on the part of the government, high level of corruption when it comes to awarding road projects which ultimately leads to the vendors using sub standard raw materials and the roads being degraded soon after the construction is over. If goods are produced in factories, then there should be a method to ensure that it reaches its preferred market at the right time. This is a basic requirement which has been neglected since ages.
4. Logistics Management
More than 30% of food produced in the country go bad just because we do not have proper logistics management. In the present era where most of the products thrive on the economies of scale, we as Operations Manager cannot afford to neglect this particular aspect of business. With increase in volumes the logistics management is going to be more difficult so its a basic requirement that we have a strong hold on the logistics management.
5. Duty free imports and free trade agreements
For the country to prosper it is of utmost importance that our exports exceeds or imports. Though not a reality so far, we have to aim for this and align our manufacturing processes according to this. Therefore, it is also of prime importance that we have healthy relationship with other countries in the form of trade agreements. Agreements should be made in such a way that it is mutually beneficial for both the countries. If country X produces a certain good in surplus then we should make sure that its not the same case with us and we require that product i.e. there is considerable demand of that item in the country. Agreements will make that good available to us at lower prices. Similarly we should be in a position to export goods which is required by the country we are entering into an agreement with.
Concluding on a positive note, I would like to say that there are many things which are going right in our country else it is very difficult for a country as diverse as India to be self-sustainable. Though I have harped on so many fronts, where we go wrong and suggested necessary changes, we also need to remember that we are a strong nation with the capacity and potential to attain the India 2020 dream and if we get our basics right, then there is nothing stopping this country.
The Article has been authored by Rahul Mourya, XIMB
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