Ahmedabad, 11 June 2012

Almost a decade back BRICs report stunned the world by announcing that India’s Demographic Bonus will make it one of the long growth stories of the world. Of course the hypothesis was based on the fact that young population has to be integrated in the economy and for that manufacturing sector has to grow backed by global trade and FDI. Very interestingly Planning commission just announced growth data for states and most commendable according to me was Gujarat and TamilNadu. In spite of large economic base, both this states are still growing at 9% plus rate. In a way it vindicates writing about the whole series. That the whole country is getting marred by policy paralysis, these two ports should be India’s hope is very interesting.

In first article (link here), we tried to briefly discuss the Indian reforms or if you like to call them non-reforms lately. Even among this chaos, how TN and Gujarat are being seriously seen as possible choice of locations by investors. In the next article (link here), we examined how these states approached different path and in third (link here) the importance of Ecosystem. In this article I would like to make humble assessment on the types and nature of Industries they chose.

At the peril of being blamed for the generalization, I am still unable to curb the urge to quote one antecedents of my early life. Still a novice green shoe, I was assisting my father in his trading house business during one of school vacations. In late 80s we were scouting for pigment and dyes producers, who can supply for long period of time. So far the companies visited were small and lacked the scale. Before we would move to Mumbai, we had a hope, as we were to meet one very large player who had office in swanky building of those days on Ashram Road. The meeting had just started, when the owner of company entered and before global buyer could explain the global market scenario or even engage in serious dialogue, the gentleman from this side announced that, he will never commit the quantity and price and he will only sell if he finds price right. Gleaming man announced to his enthralled audience (his employees) that profit is the only thing that drives him. We politely walked out and the visitor from outside predicted his business will not last long. Companies like his got washed away when the Tsunami of Liberalization hit India. When I visited Ahmadabad after a decade, found that the person as predicted was not in business. Moment the permit raj came to an end, companies like above got uprooted easily. This might be one of the cases and may not be restricted to Gujarat, but the fact remains that arrogance had some environmental causes. His company had the advantage of selling in local v/s Exports market and that he was so

comfortable living in the old world of License Raj.

In one of the gatherings, had a chance to overhear Dr. Ashok Desai (A Very well known Guajarati by birth Indian by soul and one of the finest architects of early reform days) on his take between Entrepreneurs from Gujarat and TN. He said typically Gujarat entrepreneur looks at Business innovation where as TN businessman will look for technological innovation as a base for their business. He quickly added that when Gujarati businessman succeeds, his first priority is to buy Farmhouse; his counterpart in Chennai will look to invest that amount into new Foundry to improve quality. The last line obviously was with tongue in a cheek, but it might be true to some extent. In spite of occasional or frequent absence of governance, industry in TN has played their natural role to grow based on simple rule of globalization. There are many exceptions from Gujarat of world class entrepreneurship ventures; however the dependence on global market makes Chennai entrepreneurs an easy partner to work with.

Besides pondering over the place, let’s look at which type of Industry is more popular in both these states. While inarguably Gujarat leads in Chemicals, Petrochimcals and Pharmacuticals, Chennai dazzles in Auto, Electronics and Engineering. If you broadly classify above industries they could be divided in to Process Industry and Discrete Industry. While these terminologies got popular with the advent of ERP, I want to use them from entrepreneur viewpoint to manifest my argument. The Petrochemicals, Chemical, Pharmaceuticals are the example of PROCESS industry where as Automotive, Aerospace; Electronics are the example of Discrete Industry. In a layman’s term, Discrete Manufacturing requires huge customization/ Adaptation/ R&D on the run, whereas Process Industries only change you can make is upfront. The rest is mostly automated. In process industry the raw material takes complete different form in each process where as in Discrete you can assemble and de-assemble them as per the requirement of final product. The formulations are the inputs in formers, design and blueprints are in the later.

Another striking difference is their initial investments. No prize for guessing then that PROCESS industry requires huge Capital Expenditure. The discrete industries can start even from small setup. For Gujarati entrepreneur once they taste success, it is not difficult to dream big and get in required capital to invest huge upfront. But the acumen also guides them to industry where they can bring in lot of predictability. So the model for Gujarati entrepreneur turns out to be invest big, hire Subject matter expert, get predictability and be free to “manage the environment”. On the other hand for TN entrepreneur, shop floor is the most sacred place. The nature of Discrete Industry requires huge commitment to human development skills, harmonious work force and more importantly understanding by owners and management about the nature of industry. The technocrat entrepreneurs of TamilNadu end up preferring them.

I had argued in my first article about a phase where State got chance to draw roadmap for themselves. Ironically Gujarat under Keshubahi chose Petrochemicals to develop Gujarat Growth. His counterpart in Chennai Jayalalitha; invested massively in Automotive ITIs. Unconsciously both economies chose to play to their strength.

The pinnacle of discrete industry is automotive. Any given time, there are close to 25,000 to 30,000 parts that are required to assemble a car. They come from all kind of raw-material like steel, non-ferrous, Chemicals, rubber, fabric, plastic, and glass. The direct and indirect impact both in terms of employment, innovation has its own force multiplier effect. The industry has the potential not only to boost employment; it improves quality and R&D level of country. Not to mention, the global nature of industry and ability to increase trade. Gujarat CM and his administration realize this. They are arduously, diligently and sometimes very intelligently creating a case for Gujarat in this space. But their efforts will not bear the fruits, if we don’t have entrepreneurs who will have respect for Discrete Industry and Global norms. Even offering world class infrastructure may not be enough. You can create environment, but to create atmosphere it takes its own time. Nature teaches us that you can have control over what tree to plant, but not on the kinds of birds will come because of those trees. The ecosystem, the water bodies they all play their role in creating harmonious atmosphere.

TamilNadu official presentation says that we produce from Bi-Cycle to Battle-Tank. Their boasting is not without reason, besides having large base of Chennai based Auto-component companies, they also have all the big names in mobility bearing few. In spite of weak infrastructure, they still end up being favourite short-listed place for investment by default. It is said that every one out of three cars are produced in Chennai. It makes one wonder how much growth would be at eco-system level.

On June-2, while signing SSA with Maruti Suzuki, CM asserted his keenness to welcome Auto companies in Gujarat. He added new reason for promoting Auto and component industry in Gujarat. The zero-discharge and non-polluting nature according to him is major plus point besides all the points discussed above. He and his administration are doing more than anyone can to make Gujarat an emerging auto-hub. If you recall whenever he goes to abroad to hard sell Gujarat as investment destination, he takes with him local entrepreneurs or gives them chance to be ambassador of State. The motive is very simple. He wants them to see his vision and need of the hour. Only time will tell, are they listening?

Once in the meeting at Bangalore about quality, Toyota senior executive was asked to reflect on the real secret of Toyota. His answer was very interesting. He said we normally attribute this to KAN and KEIKEN (Experience and Gut feeling of workers). He quickly added that we would not have been what we are if there was no support from our eco-system’s Hard work and sweat.

If Toyota (headquartered out of Aiichi Prefecture of Japan), is world leader; they owe it their Tier-one Atuo-component makers like Denso and Aisins. If Ahmadabad wants to emulate Aiichi, there is a need to create many Densos and Aisins or at least Murugappas and Sunderams. Is home-grown entrepreneur listening?

Once again thanking all the DG readers for their reading, commenting and sharing. Each comment and their reply makes me pause, think, rewind and relook. I guess without them the series will never feel complete. In next article shall ponder over People, Place and policies.

You can access all articles written by Somindu.S. here

Entire series:

Part 1:India’s port of calling: Credible Gujarat and Diligent TamilNadu
Part 2:Two ports, different paths: How to attract FDI
Part 3:India’s port of Calling: Importance of prolific ecosystem and lessons for Gujarat
Part 4:Tale of Two Industries: Lessons for Processed Gujarat from Discrete TamilNadu
Part 5:India’s Port of calling: Role of Palate, Place and People: A potent recipe to cook FDI