I am someone representing a company, which was a small scale industry 45 years back. Maybe 16 years ago, we were at Rs.500 crore with a single-digit international business having grown 10x in the past 10 years. Around 49% of our order registrations come from the international market today.  Like many of you, we are moving towards globalisation so it is safe to say that I may be representing most of you. We are not the only example from Pune of a small scale company making it big. Some of this has happened in terms of organic growth and many of us have even gone for inorganic growth to save time and possibly to ensure that we adopt a culture.

In 1991 we were a domestic economy. There are three stages of growth in an economy — the first one being a factor-based economy. This means there are hands to work and mouths to feed. That is what  we were in 1990-1991, we were creating everything for India without maybe having a global ambition. We have done quite a decent job, when a critical mass gets evolved in this kind of a market others will come to your market because they see a sizeable market for themselves and that's where the efficiency part starts. This is the second stage in the growth of an economy. The advent of multinationals coming into India has put you into competition with the strongest in the world and some of them were able to stand up. The third change in any economy of the world is innovation. So as a nation, we have already passed through the factor-based stage and now we have gotten into efficiency. Unfortunately, India is one country only by name, but in reality it is a country where there are multiple sectors prevailing in the country even today maybe at the factor-based level, where some are at the efficiency level and some have already migrated to the innovation level.

Therefore some of them are able to compete against the global leaders in the world. I don't know which stage the audience here is in, because we all will have to do a soul searching to understand where we are and how do we take our organisation further. Frankly speaking, factor-based economy has no valuation. It's just as if you are existing as you get into efficiency you have a standard and benchmark that you have set for yourself but that doesn't take you everywhere. It can possibly give you a component level selling capability at the best or maybe a product level. If you want to get into solution level which will be winning in the world, you need to be in the innovation spectrum.

I would like to narrate some fundamentals related to this. Say some 15 years ago, there were studies available to prove that the entire larger G7 countries had labour cost of approximately $25 per hour per person and that is normally what we pay to a servant in India for a month. And at the same time the average salary of BRICS countries some 15 years ago, was between $2-3, so the arbitrage available on a scale-to-scale basis was 1 :10, and though we were inefficient we were able to account for that inefficiency of our society. Maybe still we had 1:5 advantage, now what has happened to this labour arbitrage?

Many countries have become more expensive in the meantime but it’s important to recognise the fact that India and China have got some advantage. BRICS countries do have some advantage. I am sure everybody is aware of what is happening in the world related to 3D printing, advanced robotics, artificial intelligence, big data analysis, etc. It's a deadly combination of getting into digitisation. Manufacturing as a process, which was earlier done by human beings can be sensed by a sensor today that could have possibly cost you $10,000 a decade ago. Whereas today, a German sensor is available for just $10. This is a major change which has happened and you can see it in your city itself. For example, a bearing manufacturer that employs around 5,000 people in Pune having a certain capacity, has a similar plant running in Europe currently employing only 155 people. Nine months back, before constructing the latest factory in Sweden to replace the old factory, they were deciding whether to hire one or two workers to replace the 155 workmen.

All the cost arbitration which is available to us will be wiped out overnight because they have recognised for a fact that there are countries like India which have labour availability at a cheaper level. So there is no choice for us as a country, as industrialists, and as people who are managing the business. On one hand, we have to create employment. But on the other hand, we also have to create wealth and compete with rest of the world. For that, there is no option available for us but to think about what is the greatest and latest in technology that’s available. Time is running out for each one of us to move away even from the conundrum of efficiency and get back to the innovation path.

This is the first of a two-part series. You can read part two here.