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<ul><li><p> Copyright 2001-2011 National University of Singapore. All Rights Reserved. Page 1 of 5 </p><p>Business Opportunities and Challenges in South Asia An interview with Mr. Praveen P. Kadle, Managing Director, TATA Capital Limited </p><p> Mr. Praveen P. Kadle, Managing Director and CEO of Tata Capital Limited, addressed senior </p><p>executives at the CEO Roundtable on Asias Business Megatrends: Challenges and </p><p>Opportunities on 31st March 2011 at NUS Business School, Singapore. A summary of his speech </p><p>on Business Opportunities and Challenges in South Asia and an interview with Mr Kadle are </p><p>presented here by Shyaamkumaar Krishnamoorthy and Oindrila Majumder of the NUS. </p><p> Background </p><p>Mr. Praveen P. Kadle has been with Tata group for the last 19 years and has played a </p><p>major role in the turnaround and growth of Tata Motors. He set up and guided the operations of </p><p>Tata Technologies and TELCON (a Tata MotorsHitachi JV) which have become the market </p><p>leaders in engineering design and construction equipment in India. He is also actively involved </p><p>with various Public Charitable institutions, notably as the Board Member and Honorary </p><p>Treasurer of Child Rights and You (CRY). </p><p>Summary </p><p>In the past decade, Asia has surged to become the region with highest growth potential. </p><p>Overall growth in Asia was 6%, with China growing at 11% and India at 9%. This growth has been </p><p>achieved at a time when the rest of the world was slowly recovering from the global recession in </p><p>2008-9. </p><p>Such phenomenal growth can be attributed to the growing populations and strong </p><p>domestic consumption demand, which in turn led to demand for capital goods, particularly in </p><p>South Asian countries One-third of the population in these countries has been below the </p><p>poverty line, earning less than USD1.25 per day. As this group slowly emerges out of poverty, it </p><p>demands a continuous supply of goods and services to feed its middle-class aspirations. In a </p><p>country like India where the rural sector accounts for 70% of the total population and </p><p>agriculture is the common occupation, infrastructure needs in the form of roads, water and </p><p>power management are growing rapidly. </p><p>Asia has another strong demographic advantage over the other continents. A majority of </p><p>its population (60-65%) is in the 19-60 age group, which is the income-earning group. This would </p><p>mean that the consumption demand in Asia is likely to continue for at least two to three </p><p>decades, thereby making this a lucrative market. This demographic also fuels the development </p><p>of a knowledge economy with abundant cheap talent, thus further generating growth. </p><p>However, the demographic advantage can also be a challenge to business and </p><p>Governments. The emerging population will require services in the fields of education, </p></li><li><p> Copyright 2001-2011 National University of Singapore. All Rights Reserved. Page 2 of 5 </p><p>employment and healthcare. Failing to address these needs can severely hamper growth and </p><p>make the region unstable, leading to recent social unrest like the Jasmine Revolution in the </p><p>Middle East. </p><p>A huge population will require rapid advancements in infrastructure, failing which the </p><p>entire growth can come to a halt. For instance, in a country like India where water and power </p><p>supplies are irregular, farmers are able to achieve only a third of their production capacity. This </p><p>will lead to food shortages and price increases. Thus managing the demand and supply gap is </p><p>quite a big challenge; if the supply does not meet the demand, there will be inflation. </p><p>Inflation has been a major problem for South Asian economies and interest rates have </p><p>been raised to restrict the effect of inflation. Rising interest rates are a big challenge not only to </p><p>the end consumer but also to businesses as they can severely impact the supply-demand ratio. </p><p>Managing the inflation will be one of the key challenges for governments of these countries in </p><p>order to sustain economic growth. </p><p>With significant growth prospects, the challenges above need to be managed by </p><p>effective public and private participation. If the challenges are overcome, a country like India </p><p>can grow at more than 9% and South Asia as a whole can grow by 7-8%. </p><p>Interview </p><p>1. What are the three megatrends that will have the most significant impact on the South </p><p>Asian economies? What opportunities and challenges will these bring to the industrial </p><p>players In the South Asia region? </p><p> The development of the knowledge economy, where human capital is being valued </p><p>more than financial capital. </p><p> The huge domestic demand in South East Asia due to its increasing working class </p><p>population will create excellent opportunities for growth. </p><p> The shift in centre of gravity from the western world towards the east and this is causing </p><p>a significant impact on the Asian economies. </p><p>2. In your speech, you mentioned demography and geography as two important strengths </p><p>for South Asia. How will these strengths affect the business strategies for the future? </p><p>Demography and geography will certainly play a very key role. </p><p> Firstly the strong earning population will create a strong demand for goods and services </p><p>in this region. Moreover the increase in awareness levels among the income earners will </p><p>drive the demand for aspirational goods and sophisticated consumption items of better </p><p>quality, but at a cheaper price. Cost effectiveness in providing products and services will </p><p>be the key. </p><p> While an Asian customer looks to the West for product quality, he is also price sensitive. </p><p>Companies will need to look at cost structure in terms of product offerings. </p></li><li><p> Copyright 2001-2011 National University of Singapore. All Rights Reserved. Page 3 of 5 </p><p> Tremendous market potential in the areas of education, healthcare and real estate </p><p>present in this region will attract businesses and the demographic factors will force the </p><p>companies to strategically shape their business strategies for Asia. </p><p>3. What may be some stumbling blocks to the sustainable growth of south Asian countries in </p><p>the future? </p><p>Demographic advantage can become a disadvantage if the earning population is not </p><p>provided the right kind of education, employment opportunities, medical and health care. In </p><p>a region of economic imbalance where one-third of the population lives below the poverty </p><p>line and 40-50% live just above it, providing such essential services and opportunities for this </p><p>group will be the biggest challenge. </p><p>Thanks to advancement in communication channels, Asian markets are exposed to western </p><p>products and their demand is increasing. If the supply doesnt meet this rising demand, it </p><p>could lead to significant inflation. Managing this inflation can be a big challenge and </p><p>governments will look at increasing the interest rates as a containment factor. </p><p>4. Please comment on the relative contributions of private sector investments versus public </p><p>sector investments to South Asian countries. </p><p>The private sector plays a pivotal role in economic development. Infrastructure </p><p>development needs both private and public sectors as it may not be possible for either to </p><p>meet these needs alone. Education and healthcare are two avenues where contributions of </p><p>the private sector can make a huge impact. Progressively, I would like to see private </p><p>enterprises practise financial inclusion. In a country like India where a vast majority of </p><p>people live in rural areas, there is a need for commercial enterprises to deliver the right kind </p><p>of financial products. </p><p>5. Which country has the strongest potential to become the global business hub in South </p><p>Asia? What business opportunities and constraints does it have when compared to other </p><p>promising South Asian countries? </p><p>In my opinion, India has the better potential due to its size, strong savings and investment </p><p>pattern, and high education and skill levels in the areas of knowledge management. </p><p>Moreover, political and economic reforms have kept pace with the changing scenarios. </p><p>Political stability of a country still remains an important attraction for businesses. India is </p><p>politically stable due to its strongly embedded democracy where as other countries in South </p><p>Asia can be impacted by political uncertainty. The management of political uncertainty will </p><p>play a role in the sustainable development of other Asian nations. </p></li><li><p> Copyright 2001-2011 National University of Singapore. All Rights Reserved. Page 4 of 5 </p><p>6. In your opinion, what drives populous countries like India and China to emerge as </p><p>economies of high growth potential? How should business leaders look at population size? </p><p>Growing population creates strong domestic demand. The South Asian population is growing </p><p>at 1.6% whereas the rest of the worlds is only growing at 1.2%, with some countries </p><p>showing a negative growth trend. Thus strong domestic demand will be the key to economic </p><p>growth. </p><p>Business leaders can use this strong domestic demand to their advantage. For instance, the </p><p>recent innovation of the Tata Nano car is a strategy to address demand of the Indian </p><p>population. Aspirational goals of Indians rise as income levels grow. The demand for a cheap </p><p>yet personalized mode of family transportation rises. The whole conceptualization and </p><p>development of Nano emerged from this demand. </p><p>7. What type of leading philosophies, competencies and management practices are critical </p><p>for leaders to build businesses with strategic impact in Asia? </p><p>To build businesses with strategic impact, leaders must adopt an Asian management style. </p><p>This is because the method of evaluating success in Asia will be very different from that of </p><p>Western management style. While a western style of management is focused towards </p><p>achieving straightforward business success, Asian leadership style is different. As companies </p><p>go through turbulence like business depression and restructuring, employees are regarded </p><p>as family and pains are shared by both employer and employees. This form of empathetic </p><p>and responsible leadership and management is a significant aspect of Asian leadership style. </p><p>We at Tata firmly believe in this human empathy factor and have ensured this philosophy is </p><p>practiced in all our companies. </p><p>8. Tata group has always championed Leadership with trust. What is astonishing is that this </p><p>trust based leadership and value system is evident in all Tata companies. How does Tata </p><p>group ensure that its value system is disseminated and absorbed by everyone at the </p><p>group? </p><p>The success of a group lies in its leadership. If the leader has strong, positive values and </p><p>leads by example, the successors will automatically follow. Leaders in the Tata group have </p><p>always been role models for the entire organization. </p><p>When younger generation of leaders is groomed, there is constant emphasis on the core </p><p>values and ethics that the group has grown with and will follow in the future. This strong </p><p>internal communication about the value system automatically ensures that the value system </p><p>is imbibed by everyone in the group. </p><p>9. Would you kindly share with us some unique leadership strengths of TATA group that has </p><p>contributed to its success not only in the domestic market but also worldwide? </p></li><li><p> Copyright 2001-2011 National University of Singapore. All Rights Reserved. Page 5 of 5 </p><p>Although Tata has done business with commercial objectives in mind, there has always been </p><p>an importance of giving back to society. Tata group has ensured that right products, which </p><p>catered to the exact demands of Indian public, were introduced at exactly the right time. </p><p>This ability of Tata to anticipate the needs of the nation in advance and meet them </p><p>commercially without compromising the social relevance has been one of its unique </p><p>strengths. </p><p>Secondly, we have always enjoyed visionary leadership by our founder Jamsetji Tata, JRD </p><p>Tata, Mr. Ratan Tata, Mr. Moolgaokar and the others who had acute business foresight, way </p><p>ahead of the competition. </p><p>Thirdly, the strong value system and strong corporate governance measures which have </p><p>been in place since the early days also contributed to the long term success of the group. </p><p>The Tata group has always placed leadership development as a priority and hence several </p><p>leadership development centers under the group have been in existence for more than 50 </p><p>years. </p><p>10. What will be your definition of the term strategic leader? </p><p>A strategic leader is a person who is constantly thinking about achieving success in spite of </p><p>competition, adverse market conditions and other adversities. He must think ahead to </p><p>capture opportunities and deliver what is relevant to the society. </p><p>As the theory of relevance states, a strategic leader is one who keeps in perspective what is </p><p>relevant to the organization: be it the business models, the products he needs to offer, cost </p><p>structure, pricing strategies and leadership development for the present and the future. He </p><p>has to get the entire organization connected to the whole strategy. </p><p>11. According to you, what is Responsible Leadership? How do you think this can be </p><p>incorporated more in the financial services sector? </p><p>Responsible leadership is not very different from strategic leadership in the sense that it is </p><p>all about balancing the requirements of the stakeholders. Being responsible to all the </p><p>stakeholders shareholders, employees, customers, vendors, and society in general is </p><p>responsible leadership. For a business leader, it is all about delivering the right business </p><p>offerings for the long term benefit of the society and the stakeholders. </p><p>The finance sector must incorporate social responsibility to benefit the society. Take </p><p>microfinance for instance. The concept of charging 30% interest rate is not very agreeable as </p><p>the borrowing rate is quite low, about 8-9%, and the spread is very high. This form of higher </p><p>interest rates in financial services is not very convincing. If you look at investment banks and </p><p>wealth management services, the fee can be charged based on the kind of services </p><p>delivered. Long term success in this industry will only come with the right kind of profit </p><p>margin, and business models will succeed only with the right kind of profit practices. </p></li></ul>

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