Let’s be makers again
— Dr. Hari Om Rai
Iam a serial entrepreneur who has always been lucky to see all my businesses attaining leading positions in their respective segments. However, at Lava, despite my best ever efforts, I would still term the past year as the most challenging one in my entrepreneurial journey. Nonetheless, every single setback and challenge that I faced has been valuable in my quest to understand the issues at their core. I have come to the realization that we are not fighting this battle with other companies but in the real sense, our battle is with the evolved countries. I am not only excited but also determined that the challenges at Lava will enable us to build our country in times to come.
For most of the 5,000 or so years before British colonization, India accounted for around 25% of the world’s GDP. By 1947, at the time of our independence, this number had fallen to a mere 4.2%. More painfully, we have fallen even further since then and today our GDP is constitutes just 3.2% of the global GDP.
This, despite the fact that in a global context we have the most ideal demographics and the second-largest cultivatable land (only about 10% less than the USA), while in terms of natural resources, we are fourth in the world.
Hence, we must, first of all, collectively acknowledge our failure over the period of the last 70 years.
Nations are rich only if their companies are rich. Each and every successful nation understood the principle of “winner takes all” enabled by economies of scale, and thus the need and importance of creating large worldleading firms.
The ecosystem of the top 500 firms alone creates USD 30 trillion, which accounts for 38% of the global GDP. Of these 500 companies:
Prussia, 19th century USA and 20th century unified Germany followed by Japan, South Korea, Taiwan, and China have each deployed protectionist and champion policies to create large world-beating firms.
Initially, it may have amounted to crony capitalism, but great leaders deployed the following practices to rid the country of the cronies and their ill effects on the economy: a. Protecting and nurturing their infant companies. b. Allowing competition among the domestic companies. c. Culling the weak ones through the principles of natural
selection and thereby resorting to mergers. d. Putting export discipline into place to ensure that the companies are able to compete in the global markets without any protection. e. Providing support to deserving companies who emerged as winners from within the local competition, and then could sustain their businesses in foreign markets. f. Ensuring fewer large-scale enterprises to ensure economies of scale and thus building capabilities to compete globally.
Young companies are akin to children who are supported by their parents during their education phase. This is the key principle followed by the developed nations during their development stage. They regulated their banks during this phase to pursue the development agenda. First, areas of strategic importance were recognized on the bases of national security, economic value, job creation, technology, and skill acquisition. Thereafter, the right domestic companies were chosen through the principles of natural selection and subsequently supported to help them acquire skills to become competitive in the global arena.
We deregulated our banking and opened up our markets far too early. In the boom years of the 1990s, our failure to build the indigenous manufacturers’
technological capabilities was concealed by the arrival of high levels of foreign direct investment, but the country remained fundamentally weak. headquartered companies start moving out to cheaper destinations.