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