China and India policy dominate global boardrooms

'Globalisation and the opportunities it presents in Asia’ was the theme of a presentation by V. Thyagarajan, Senior Vice President and Regional Director of GlaxoSmithKline Asia Pacific at the recent CIMA CEO Forum in Colombo. A panel discussion comprising Prakash Schaffter, moderator and Managing Director - Janashakthi Insurance Co, Nihal Fonseka, Colombo Stock Exchange Chairman and CEO - DFCC Bank, Jeremy Huxtable, Managing Director/CEO – Suntel, Keith Modder, Managing Director – Virtusa, Dave Ranasinghe, Managing Director – Bodyline and Mourad Mankarios, Principal Coach – Singapore Institute of Management, followed after the presentation.

Excerpts of Mr. Thyagarajan’s presentation:

Globalization has been around for a long time but there are recent enablers which have really given it a spur. First and foremost, in my view, the end of the Cold War and the subsequent fall of communism was an important turning point because it moved the debate away from ideology and pushed what works best when dealing with the market economy. That was the first trigger and enabler for globalization to take place. This led to several trade agreements, the WTO, the value of FTA in many parts of the world clearly increasing the dependence between countries on the trade front and enabled globalization to take place. Technology and innovations taking place was an important enabler because it impacted people's lives. Not just information technology but the kind of communications for example had big changes taking place.

The Internet has clearly transformed the way we operate today. There is nothing that is happening in one part of the world that is not known elsewhere. People move from one part of the world to the other. Sri Lankans are working in different parts of the world, people are moving across the EU; migration enables globalization because people with global mindsets are different.

There are a few key trends which are cemented now. Money flows; you can sit in any part of the world, invest your money in any part of the word, this enables money and ideas to flow and business in different part of the world to flow. Markets are becoming global. The demand for products have become global. Manufacturing and production are clearly a global phenomenon. A good example is from my own industry, the pharmaceutical industry; there was a time when countries required pharmaceutical companies to have a factory in the country as a license to market the product. This was a huge inefficiency because we had factories all over the world operating at 20 to 30% capacity. Today, we have global manufacturing centres which supply to different parts of the world that is much more efficient and beneficial. The same thing can be said for services. A trend which is clearly established is that talent has become global.

Rise of China, India

The rise of China and India is talked about everywhere. This has made a big impact not only in Asia but globally. Today, in no board room around the world is there a board meeting without a discussion on the China strategy or the India strategy. Investors want CEOs to explain the China strategy or what are you doing in India.

This is because in the last 20 years or so, China has been growing by 10 percent per annum, it is a tremendous economic power. India, more recently is also growing significantly. The size of these countries in terms of population and sheer economic might is having a big impact not only on these countries itself but also on Asia.

The South East Asian Tigers along with Korea and Taiwan became global much earlier. They followed a model of economic development which was export-led, they sought markets outside their own boundaries for many reasons. Many of them are small countries with a few exceptions and they saw being global ahead. They have lessons from which we can learn. As I said earlier, it's not just an economic impact but there are tremendous social and cultural implications. These countries have vast populations and it does raise tensions and questions of inclusive development.

Trickle down approach

In China and India, the impact of poverty from being a trickle down approach. If you travel around small towns in India, you can see the impact of technology and simple indicators. Some years ago, you had to stand in a queue and wait five or six years to get a telephone connection.

Today, people get land-lines and it's quite amazing to see everyone in rural India having mobile phones which is recent. There is a tremendous impact on poverty. Agriculture incomes are going up and per capita income is beginning to inch up. The other impact is the economic reform, regardless of the political view of the party in power. Reforms need to be compelling otherwise businesses won't survive.

This is happening across the board, in China which is a communist government, in Vietnam, in India with a coalition government. Economic reform is necessary. The centre is shifting towards the east. This may sound optimistic but economic growth is really coming from Asia rather than the traditionally developed European and US centered approach. I believe globalization is a clear opportunity in Asia.

The importance of China in world affairs, not just in economic terms is there for everybody to see. This wasn't the case a few years ago. Now the US was the single base superpower and does worry about what China thinks. China's views on policies are clearly sought and recognized because it represents a big chunk of the world. It has become the manufacturing centre of the world from safety pins to aircrafts. You can go to any part of the world and look at the label and find made in China. It is definitely an incredible share of the manufacturing world. Their trade reserves are huge and their foreign exchange reserves exceed trillions of dollars.

This gives them a power which is beyond China. Their ability to invest this is significant, the amount of sovereign funds, a significant proportion of American bonds are held by the Chinese and they are beginning to invest in different parts of the world. Clearly it is a different situation than it was 20 years ago. This has a clear impact not only for China but for all Asian economies. This is spurring demand for products that China manufactures and this is an example for others in the region to follow.

Sleeping giant wakens

The next example is India, my country. The best way to encapsulate what is happening in India is the sleeping giant is slowing waking up. Economic reform has been a recent phenomenon. The biggest champions of economic growth is the minister of West Bengal which is a communist government. Showcase India in a way which was unexpected. Nobody expected this to take place.

It was the Y2K fear and trend which brought the IT industry to the fore. It was small industry with 2 or 3 million people which has now put India on the world stage. It has become the service centre of the world. You can see it in big cities. There are four metros, Chennai, Mumbai, Kolkata and Delhi.

These are big cities now. Tier 2 cities are also beginning to see the impact of purchasing power which is visible if you travel to India. It spurs demand for consumer power and durables and the biggest brand names in the world. There was time when companies used to focus on the top layer of the segment, top 10 percent. Now the strategies are changing and unlocking the purchasing power of the middle. The number of Indian companies going global in terms of being competitive globally are going up and have now become so competent.

Global Indian talent

Lots of Indians are studying in the US. Even CEO's of global corporations are Indian. It has an impact on the strategies of these companies. More recently, trade between India and China increased tenfold and India is recognizing that it is not 'China or India' but 'China and India'.

This is an interesting example for Sri Lanka. There is outstanding leadership in Singapore. Competence, calibre, high quality governance and leadership, political stability which is so key and enabled the country to focus on economic development. There is no other resource Singapore has besides its people and because of its size and leadership that has a global vision, they have a global mindset. The Singapore market is a global market. Size is no obstacle to excellence. The country has the best airport and airline in the world and it has nothing to do with its size. Size is not an issue at all.

Malta is no bigger than Singapore and how it reinvented itself by talking to the EU -- its transition from a low tech manufacturing centre to a service centre. A small country that took the opportunity to convert and reinvent itself. It focuses heavily on financial services and computing. All these strategies have seen a significant surge in investment between 2000 and 2008 and has an impact on jobs, on the economy growing and demand etc… more recently, many Arab countries are looking at Malta as a bridge into Europe and as this have can have implications for Sri Lanka.

India and global strategy

Indian IT companies are transforming the way they do business at home and globally. Mindset has to change. Attitudes have to change. Political instability impact is quite significant on social and cultural issues and there is a lot of debate around inclusive development. In many parts of Asia, there are countries where there are disparities in income and globalization is only aimed at people at the top. There are significant tensions at the other end of the social spectrum which is a huge challenge and not easy to go about. In developed countries, in the US, the rhetoric of the candidates for the presidential nomination on the democratic side, is very much this. Clearly, it is something which worries and concerns people across the world.

Sri Lanka – moving forward

Inter-dependency is significantly higher than before. It is here to stay. What are the implications of globalization for Sri Lanka? Look at the strengths Sri Lanka has and things here to focus on. Could Sri Lanka be a bridge to India. Sri Lanka and India ties have to be developed more strongly. But I think the political situation is key to any development.