Facing Global Competition - Orrisa PCS Exam Notes

Facing Global Competition

Globalisation means gradual integration of economies through free movement of goods, services and capital which has significant impact on the economies of both developed and developing countries.
Globalisation refers to a process of growing economic interdependence among different countries of the world. Thus, in the globalised era, the whole world is changing into a global village in the sense that economic activities in one part of the globe are affecting significantly the rest of the world. For this purpose, it becomes necessary for India to participate in the process of globalisation.
The New Economic Policy of 1991 aimed at making Indian economy competitive and much better integrated with the rest of the world.
The liberalisation and economic reform process which included both short term and long term measures have direct and indirect bearing on the manufacturing sector of India in general and small scale sector in particular.
The dynamics of change will bring about inflow of technology, resources and both human and physical capital that are scarce or costly to be procured locally in the developing economies like India. This will lead to rise in the productive capacity of the nation to supply increasingly diverse economic goods and services to its growing population.
Therefore, globalisation can bring immense benefits to various countries that are able to harness the resulting opportunities for the proper development of their material and human resource endowments.
Besides offering greater opportunities for economic growth, globalisation has also posed some important challenges which may be viewed as problems from the perspective of developing countries like India.
With the launching of the process of liberalisation, globalisation and formation of WTO, the Indian small scale industrial sector will have to upgrade its technology, adopt modern marketing and management practices along with an improvement in the quality of its products to become more competitive and resource efficient

The issues of liberalisation and globalisation in the WTO regime

When the liberalisation process intensified in most of the developing countries in early nineties by following market oriented policies alongwith the widening of the scope of GATT and formation of WTO in 1995, the world started changing into a global village.
The world economy became increasingly structurally interdependent and the use of the concept „global‟, as distinct from „international‟ became acceptable and justifiable.
Globalisation represents closer integration of the world economy resulting from increase in trade, investment finance and multicountry production network of MNCs.
It extends beyond economic interdependence to include dilution of time and space dimensions as a result of spread of information technology.
Globalisation is thus, a supranational phenomenon, which has reduced the distances between various countries by the provision of international trade and the relaxation of quantitative restrictions on commodities and thus has changed whole world into the world without borders.

The opportunities and challenges confronting the Indian small scale industrial sector in the era of globalization

The development of small scale industrial sector has been one of the major planks of India‟s economic development strategy since independence.
India accorded high priority to this sector from the very beginning and pursued support policies to make these enterprises viable and vibrant. Despite numerous protection and policy measures for the past so many years Indian small scale units have remained mostly small, technologically backward and uncompetitive.
The opening of the Indian economy in 1991 added to the problems of this sector and at present, the small scale industrial sector in India is at cross roads and intense debate is centered around questions like what would be the future of this sector? How can these enterprises survive in the international trade arena? What role can the government play in making this sector more competitive?
In this context, it is important to re-examine the opportunities and challenges confronting this sector in the globalised regime.
It has been observed that small scale industrial sector in India has been facing an increasingly competitive environment due to:

Liberalisation of the investment regime in the 1990s, favouring foreign direct investment (FDI);
The formation of the World Trade Organisation (WTO) in 1995, forcing its member countries (including India) to drastically scale down quantitative and non quantitative restrictions on imports; and
Domestic economic reforms.

The cumulative impact of all these developments is a remarkable transformation of the economic environment in which small industry operates, implying that this sector has no option but to „compete or perish‟.
While the WTO engineered trade regime is likely to affect almost the entire range of industries, its effect would be more pronounced on the small scale sector because of the largely unorganised nature of his sector, lack of data/information, obsolete technology, poor infrastructure, weak capital base and inadequate access to economies of scale.
The provisions/ agreements which are likely to affect the Indian small scale industrial sector under the WTO regime are Quantitative Restrictions (QRs), tariff reductions, antidumping practices, subsidies and countervailing measures, Technical Barriers to Trade (TBT), Trade Related Investment Measures (TRIMs) and Trade Related Intellectual Property Rights (TRIPs)
While the domestic market is going to be fully exposed to external competition, the small enterprises may have to be cautious against possible dumping by their competitors from abroad, which may be difficult to establish in many cases.
What is also significant is that the cost of anti dumping investigations may be prohibitive. On the other hand, anti dumping charges by the importing countries may do serious damage to the export prospects as well.
The small enterprises would need to understand the challenges posed by the Agreement on Anti-Dumping Measures.
There are certain provisions (Special and Differential Provisions) that are intended to benefit the developing countries, but may act against the small and medium enterprises when it comes to trade among the developing countries.
Article 5.8 of the Agreement provides that the volume of dumped imports shall normally be considered negligible if dumped import from a particular country is found to be less than 3 per cent of imports of the like products, unless countries which individually account for less than 3 per cent of the import of the like products collectively account for more than 7 per cent of the import.
There has been an increase in number of anti-dumping cases initiated against low and middle income countries particularly by OECD countries to protect their own domestic industries.

SWOT ANALYSIS OF INDIAN SMALL SCALE INDUSTRIAL SECTOR

Strengths

Flexible Manufacturing system
Lower cost of production
Low level of capital investment per unit of
Utilization of local resources
Inherent ability to innovate
Ability to make quick adjustments to changing economic and trading scenario
Operational Flexibility
Knowledge of internal markets

Weaknesses

Lack of Development policy framework
Inadequate capital for investment/ expansion
Absence of brand equity‟ for „Made in India labels
Technologically weak due to inadequate capital
Product reservation Policy
Low recognition and appreciation of this sector in view of its contribution to industry output, exports
Lack of infrastructure facilities
Lack of Well-developed data/ information system
24 percent cap on formation of joint ventures(JVs) with foreign companies.

Opportunities

Untapped exports potential in sectors such as computer software, leather and leather products, light engineering products, hand tools and implements, auto components and ancillaries, garments including hosiery
Growing service sector
Sector and stability of access under the WTO regime
Tariff reduction by all countries
Phasing out of MFA
Establish backward forward linkages, both nationally and internationally
Joint venture
Technology upgradation

Threats

Technological Obsolescence
Inadequate use of information and communication technologies
Slow adoption of quality culture
Poor infrastructure support
International environmental agenda which is in stark contrast to low emphasis by Indian firms
Non–compliance with non-tariff barrier particularly environment, health and safety standards.
Growth of cheap imports
High cost of funds

Conclusion along with policy implications

Indian manufacturing sector in general and small scale industrial sector in particular are undergoing metamorphic changes amidst new world trade regime.
The WTO agreements coupled with liberalisation policy are likely to create some far–reaching implications for these sectors, specially with regards to the international trading norms, their competitive ability and integration with global markets.
The Indian industry needs to prepare itself to encounter challenges in the post GATT era as the system of protection through imports restrictions or high tariffs are virtually going to disappear. The fundamental strategy of both the Indian industry and government should be not to shy away from international rules and disciplines coming into vogue but to focus on raising the efficiency and competitiveness of Indian industry, including the small and medium enterprises.
The examination of the relationship between globalisation and Indian manufacturing sector vis-à-vis other major developing Asian Economies of world shows that inadequate development of Indian manufacturing sector is due to lack of basic parameters required by the industrial sector.
The results showed that although the Indian economy has opened to global competition over the last decade, yet manufacturing sector in India is still a long way behind global standards.
Even in terms of average ranking with respect to selected parameters, the performance of Indian manufacturing sector is dismal. This may be due to improper development of key enablers like infrastructure availability, utilities and efficient processes with low level of research and development expenditure etc.
The slow growth of Indian manufacturing sector may be due to slow pace of reforms especially with regard to freeing government controls. Therefore, investment in industrial infrastructure, technology and human skills holds the key for Indian manufacturing sector being in a position to meet the challenges arising in the international industrial area.
The liberalisation policy has posed certain challenges as well as opportunities to the Indian small scale industrial sector.
The challenges are in the form of increased competition arising out of reduced protection due to removal of restrictions on imports and lowering of tariffs.
Opportunities have come in the form of access to better technology, availability of a variety of raw materials and components, impetus to quality, efficiency and opportunity to restructure and to diversify.
The emergence of multilateral trade regime; WTO conditionalities have added urgency to the task of enhancing competitiveness. It is essential to remove the constraints which limit the competitive strength of Indian industry. It is not only the question of India coping with the WTO regime but for greater issue of how India can leverage the benefits of large access of global market.
The fast changes brought out by global trade and new marketing strategy over the past few years has necessitated bringing about structural changes affecting the micro, small and medium enterprises throughout the world.
The developing countries need to evolve new policies to suit the requirements of several changes in the field of industry and trade, besides entrepreneurs adjusting to the new environment. Moreover, the removal of Quantitative Restrictions may affect the small scale industrial sector, provided import surge is witnessed in those items.
With the removal of Quantitative Restrictions all reserved items have become freely importable, therefore small scale industrial sector will have to be safeguarded by the government.
In the new scenario, the West needs to be followed where the small units are the efficient engines of production for larger units who only do the branding, R&D and maintain logistics. This calls for strengthening a vertical integration between large and small scale sector, rather than infusing competition between the two.
The small scale sector should work more as supporting industry rather than a producer of finished goods. Consequently the large scale sector will protect them for their own interest.
There is also a need to provide immediate protection to industries such as chemicals and pharmaceuticals against adverse implications of TRIPs on patents by suitably amending Patent Act to have automatic licensing provision and making patent information freely available to small scale enterprises.
The efforts need to be directed towards ensuring environmentally clean production of Indian products for international acceptability wherever essential by involving industry associations and providing them support from international level sources and experts.
Also, Government needs to make antidumping measures more stringent to take prompt action against unfair dumping for protecting domestic industry. Lastly there is a strong need to create a knowledge network wherein small enterprises can access all information pertaining to technology, patenting and trade regulations from one place.
As competition from within the country and outside increases, this small sector, nurtured hitherto in a protective framework, needs to be enabled to take on the challenges posed to it by the process of on-going globalisation.
It calls for proper harnessing of the strengths it has built up over the last five decades and imbibing newer capabilities to meet emerging requirements of the new world trade regime.
Thus, the process of liberalisation and globalisation would help to explore the existing opportunities for the Indian small scale industrial sector only if government focuses on improving infrastructural facilities, encourages research and development, improves process efficiencies and bench marking against global players in the current economic scenario.

Challenges Facing Retailers in India Today

With the rapidly changing profile of consumers the world over, it remains a challenge for retailers to keep up with shifting shopping demands.
Shoppers today are more discerning and better informed about products and services than ever before, expecting a certain standard of shopping experience from retailers. This might be a global trend, but in today’s globalized environment, similar consumer trends may be replicated across most local markets too—including that of India.
Each local market has its own distinct characteristics to which retailers need to adapt themselves to stay ahead of the game.
Processes and approaches which work in the home country of a brand, may not necessarily work as efficiently in other geographies.
Local preferences, traditions, tastes and preferences, besides real estate dynamics such as operating infrastructure and costs have to be kept in mind to ensure a successful foray into a foreign market place.
Despite the structural challenges and bureaucratic bottlenecks that the Indian retail market suffers from, global retailers have been queuing up to enter and establish their footprint in the market, as they are aware of its potential growth opportunities.
Growth has almost plateaued in most developed markets, providing little room for retailers to drive their business expansion amid growing competition across segments.
The Indian market being largely underpenetrated, offers significant opportunity for growth especially in segments such as F&B, fashion apparel, and luxury goods due to factors such as an expanding middle class, rising disposable incomes, and a growing appetite for international quality goods and services among Indian consumers.
The Indian market, however, continues to face significant challenges to growth in the form of inadequate quality retail real estate space, restrictive legislation policies, and infrastructure bottlenecks. These challenges tend to impede India’s retail story, and restrict the market from attaining its true potential.

Some of the key challenges that retailers face in India include:

Real estate rentals,
Real estate quality,
Slowing consumerism,
MRP constraints, and
Policy issues

Policy issues: FDI norms

The erstwhile Indian government’s move to open the country’s retail sector to foreign supermarkets has been anticipated for some time, and is regarded by market experts as being crucial to re-launching the country’s flagging economy.
Supporters of the new policy say the entry of international supermarket retailers will help bring down soaring prices, make the retail sector more competitive, and help modernize its ageing infrastructure and distribution systems.
Small and medium sized family-run retailers will survive, they say, as they offer a valuable local service that large supermarkets are unsuited to provide.
According to the Confederation of Indian Industry (CII), such a move would likely increase the income of producers across sectors by about US$ 35–45 billion per year, creating approximately 3–4 million jobs with retail chains, and about 4–6 million jobs in the logistics sector, other than creating a demand for more contract labor in distribution and repackaging centers and functions such as housekeeping and security.
According to a recent announcement made by the Ministry of Commerce and Industry, the new government has decided to disallow FDI in multi-brand retail in the country, which would have led to increased consumer demand, catalyzing greater investment opportunities in organized retail in India.
As FDI in multi -brand retail encompasses big ticket investments; individual as well as institutional investors would have been more willing to make commitments towards the retail sector in India.
The key beneficiaries of such investment inflows would have been cities with population bases of one million or more, with phased benefits percolating to other locations as well. Vacancy levels would have dropped as hypermarket chains would have been likely to occupy large spaces across cities.
The country’s logistic sector would also have benefitted significantly, as leading global players likely invested huge amounts in logistics and supply chain techniques to reduce wastages and allow for faster delivery of perishable goods

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