Creating, capturing and retaining value in India
In a globalised economy with a liberal trade regime, it is immensely important to build internationally competitive Indian enterprises that own intellectual property assets manifest in higher value-added branded products and services. A substantial proportion of the value created in the domestic market accrues to intellectual property resident in trademarks. Unfortunately, given the paucity of domestically owned intellectual property, there has been an increasing over-dependence over the years on foreign intellectual property to service even the home market. As a consequence, a large part of the value created flows out of the economy to overseas entities on account of charges for the use of their intellectual property resident in patents, trademarks, copyrights, industrial processes, designs and so on. Even in external trade, the country would have retained far more value had its exports comprised branded products and services rather than items predominantly at the commodity-end.
India’s billion plus population represents a potentially huge consumption market. With rising per capita income and a growing middle as well as affluent class, there is a substantial growth momentum in the consumption of higher-end value-added products and services. Today, almost all the well-known international players market their brands in India, capturing the dominant part of the international companies operating in India rely, in part or full, on their global supply chains to service the Indian market. Their ready access to well-developed supply chains overseas, facilitated further by lowered import duties, makes international sourcing more attractive. As a result, the country’s consumption basket has a large share of imports either as finished products, sub-assemblies or components. Despite the presence of several multinational entities in India, a substantial part of the value created therefore remains outside the country. This contributes to the phenomenon of jobless consumption growth witnessed in recent times.
Creating intellectual property in India
Ownership of Intellectual Property assets forms a superior basis for sustaining competitive advantage over the long-run, ensuring that larger value is retained in the economy. It is my firm belief that tomorrow’s world will belong to those who create, own and nurture intellectual property. Ownership of intellectual capital will be the springboard that will propel India from a developing economy to a developed nation. It will transform the country from a mere provider of labour, commodities and relatively lower value added goods and services to a position of leadership in innovation. A long-term sustainable solution would be to build India’s innovative capacity to develop and own intellectual property in the country to reduce the outflows overseas. This is where the corporate sector has a crucial role to play. By investing in innovation and cutting-edge R&D, developing world-class brands for the domestic and external markets, Indian companies could enable significant value capture in the economy, stemming the revenue flows out of the country.
Creating world-class Indian brands
Brands are a powerful manifestation of intellectual property created over time. World-class brands lend huge intangible value to products and services, enabling them to command a premium and loyalty from consumers. Moreover, successful brands reflect the innovative capacity of the countries of their origin. When a country’s institutions build world-class brands, they enrich their economies. A successful global brand is a badge of honour for the country it belongs to, and a sustained source of wealth creation.
The mission to create world-class brands in India must, therefore, assume the fervour of a national movement. Such world-class Indian brands will help create, capture and retain larger value for the economy. I have confidence that Indian enterprises truly have the mettle to create world-class Indian brands. Not very long ago, countries like Japan and Korea had a similar dream amidst every adversity. Today, their brands have conquered the world and earned global respect. Admittedly, building winning brands is not an easy task. Successful global corporations have been steadfast in nurturing their brands and remaining well ahead on the learning curve. Therefore, the challenge of building brands in competition with such established players is no mean task. The countries that have accomplished this seemingly impossible mission have done so through close collaboration between the governments and their companies over the long haul.
In addition to spurring investments and growth, such brands can become a force multiplier for inclusive and sustainable growth. By serving as market anchors, these brands can lend relative stability to drive the competitiveness of the entire value chain of which they are a part. This in turn can further empower the weakest in the economic value chain and generate considerable sustainable livelihood opportunities, so critical for our country.
Y C Deveshwar, Chairman, ITC Limited writes this piece for FICCI publication “Economy of Jobs”. Post continues on Page 3.