SMEpost

Focus on home, world does not need another low-cost exporter

Globalisation has been on the ascent since the collapse of the Berlin Wall, with the free flow of trade and capital benefiting both the developing and the developed world. India has more than tripled its per capita income since joining the global economy in 1991. Within a decade and a half of joining the World Trade Organization (WTO), China has transformed itself into a global power.

As a result of lower trade barriers, consumers in advanced economies enjoy low-price goods and a higher standard of living. The companies in the S&P 500, the index of leading American firms, now generate close to half their sales from overseas markets. However, since the global financial crisis, support for globalisation is declining in the western world.

Much of the gains from trade have been secured by the skilled and highly educated while middle-class wages have stagnated and the number of low-skilled jobs have declined, creating significant political backlash. This blow-back is exemplified by Brexit, the rise of nationalist parties in Germany and France, and the emergence of Donald Trump as a major party nominee for president in the US.

Indian businesses have gained significantly from globalisation and needs access to foreign capital as well as global markets. So what could be India’s role in this challenging environment?

India needs to expand its focus beyond the contentious issue of agri-market access, and attempt to facilitate ongoing reduction of tariff and non-tariff barriers in the Doha round discussions. It must build free-trade agreements across its neighbourhood in Asia, either bilaterally or participate in multilateral regional trade agreements that support market access and protect investor rights.

Market access is critical for services and IP oriented businesses across sectors such as IT, pharmaceuticals and engineering services. The jobs of tomorrow are in urban clusters and not in the countryside. Indian trade negotiators need to represent the interests of both farmers and entrepreneurs in global trade forums.

World markets do not have the capacity to absorb another China-size exporter of low-cost manufactured goods Perhaps, Indian entrepreneurs can look at Germany as a role model. Germany, with a population of 80 million and one of the highest per-unit labour costs, is one of the world’s largest exporters.

The country has achieved this success on the back of its Mittelstand, the dynamic SME sector, that produces high-quality goods is more flexible and customer-centric than large western conglomerates. Indian mid-sized businesses can learn from this model of intense training and commitment to quality . Indian businesses have the opportunities to become world leaders in areas such as medical tourism, speciality chemicals, and auto and aviation components.

However, for Indian entrepreneurs, the big opportunity is at home. A focus on the domestic market will also protect Indian businesses against future global economic crises, which may reoccur due to high debt levels and zero-interest monetary regimes across the developed world. Across sectors such as consumer goods, healthcare or education, the trillion-dollar opportunities exist within India.

The policy prescriptions are well known to Indian policy makers -improve infrastructure, reduce red tape and reform education. There are some encouraging signs that the government is gingerly moving forward on reforming these areas. Now it is up to the Indian entrepreneur to make the best of it.

Source: The Economic Times