Five Country Competitiveness

Singapore's Competitive Advantage in the Hard Disk Drive Industry

I Singapore is known as one of the most competi­tive nations in the world. Between 1995 and 12001, the country ranked second in the na­tional competitiveness scoreboard released by -based IMD (International Institute for Manage-it Development). Hard disk drive (HDD) production in Singapore reached about $10 billion accounted for approximately 70 percent of the word's production of HDDs in 1999.

HDDs are highly standardized and easily transportable. Demand is primarily driven by their technical and operating characteristics. This allows manufacturing to be located in distant locations away from con­sumers. Many world MNEs and do­mestic companies use Singapore as the platform of HDD manufacturing and as the gateway to international markets, particularly to other Asian countries. Seagate, a world leader in the industry and the largest industrial employer in Singapore, has built a $130 million facility there for assembling disk drives and making printed circuit boards.

Singapore's workforce was rated the best in the world by the Business Environment Risk Intelligence (BERl), based on such factors as relative productivity, worker attitude, technical skills, and legal frame­work. Although not rich in natural resources, Singa­pore is situated in a strategic location on a major trading route across continents and is a focal point for Southeast Asian shipping routes. Singapore is also a thriving financial center served by 149 commercial banks, 77 merchant banks, and 8 inter­national money brokers. Additionally, Singapore has first-class infrastructure in telecommunications and communications. The National Science and Technol­ogy Board (NSTB) was established in Singapore in 1991 in order to promote R&D through a financial assistance program, coordinating with several re­search institutions such as the Institute of Microelec­tronics (IME) and the Institute of Manufacturing Technology (IMF).

To promote growth and productivity in the elec­tronics industry, the Singaporean government established several major agencies. Apart from the NSTB, the Economic Development Board (EDB)-devises in­centives to attract competitive companies into the nation's electronics sector. In addition, the National Computer Board (NCB) was created to drive Singa­pore to excel in the information age and to exploit the information technology (IT) niche. The NCB spearheads the implementation of Singapore's na­tional IT master plan—ITZOOO. The government also initiated eight large-scale industrial parks in China, Indonesia, India, and Vietnam. These flagship pro­jects, each of which is geographically concentrated in the same area, are positioned as premier invest­ment locations, only for Singaporean investors but also for other foreign firms and local enterprises. Singapore is increasingly dependent on the value-added edge that a highly skilled workforce brings. Therefore, through research aid and program devel­opment, the government assists higher educational institutions in providing a skilled workforce. 

Questions for Discussion:

1.      Why do countries differ in their over cornpetitiveness in the global marketplace?

2.  Why is a country competitiveness salient In some industries? For example, why do Swiss watches or pharmaceuticals dominate the world as do German upscale cars or Italian gold and silver jewelry?

3.  What roles should firms and individuals play in shaping country competitiveness? For example, can Japanese firms' total quality management Improve country competitiveness?

4.      How does a foreign country's competitiveness Influence the strategies and decisions of MNEs?

“Central government hikes fuel prices” - It’s impact in Indian economy

After much deliberation, the Central Government on Friday, the 25th June 2010 announced fuel price hike across the board that petrol price by Rs. 3.50 per litre, diesel price by Rs. 2 per litre, kerosene by Rs. 3 per litre and LPG which is used for cooking is raised by Rs. 35 per cylinder. This will help the government to minimise its deficit and could help to generate funds for economic growth but will also push inflation up. The Empowered Group of Ministers (E-GoM), headed by Mr. Pranab Mukherjee the Union Finance Minister, cleared the hike of fuel price, which is based on the recommendations of the Centre-appointed expert group, headed by Dr. Kirit Parikh. Defending the increase, Union Minister of Petroleum and Natural Gas Murli Deora said: “The government has decided to deregulate fuel prices … however, the government will intervene in case of high volatility in the international crude prices…we are there to safeguard the interest of consumers.” Day by day the international barrel prices are shooting up. In such a situation how long do the people expect to enjoy subsidies from the government?

The Indian oil companies reported Rs. 77,000 crores as subsidy on crude oil out of which the load of 33,500 crores of rupees were shared by the govt. in the form of oil bonds and the rest of amount Rs. 43,500 crores was observedas as a loss of PSU oil companies in the balance sheet. If the oil companies being owned by private sectors, either that would have closed down or people would have been purchasing the oil at cost more than three times the present level. Practically we have seen when Reliance could not able to compete with other PSU petroleum companies, they closed several retail outlets. But question is how long the government is going to bear the burden of subsidy and these petroleum companies (PSU) will be able to survive with such huge losses?

Indian Government is spending a huge amount on providing subsidy. And this expenditure is a major portion of the revenue generated through various taxes. This is also another side of the issue that government was taking the burden of subsidy due to politics and for votes and this step was long overdue. It should have been years ago.
During the worst recession period, the crude oil prices were around $150/barrel, at that time the price in India hiked from Rs.45 to Rs.55 for one litre of petrol. But now crude oil price is near $76, but now petrol costs even higher than the recession time, Why?

In a country like India where government failed miserably to develop an efficient public transportation system, lot many people are depended upon personal vehicles to cover unavoidable distances. These are the people to whom even three rupees hike matters much. One can not deny that government can not sustain the huge subsidies for a long time. But at the same time we should thought about that section of society which genuinely need government protection from predatory market driven price mechanism. Financial condition of all the citizens are not equal, so it is injustice to apply such policy equally. The Government could have taken another step by increasing the taxes on vehicles (private cars) as per the various class of vehicles without reducing the subsidies on fuel. This would have no doubt served the purpose without burning the pockets of common man. Hike in fuel prices is affected all lower classes of people because there income is very low. The fuel price hike has got cascading effects like increase in transportation cost causes increase in cost of production and public expenditure due to hike in fare of transportation. Thus it is obvious that the increase in the price of food items and other necessary goods are also going to increase which definitely going to have an impact on hike in inflation may be by 1%. Our country is importing petroleum at high cost and the burden of this is borne by the general public either in the form of taxes or of general hike in the prices of all commodities. Higher crude prices will definitely weaken Indian economy. The manufacturers are disappointed as they have no other choice to increase the selling price of their products due to increase in production cost . Due to this the increase in price the total market demand is definitely going to reduce to all commodities results less business and will definitely weaken Indian economy.
 

Questions:
 

1. What is the role of government for this policy?
2. What do you understand about the fiscal policy?
3. Is the decision taken by the government is right on your view?
4. Is it going to have any effect on inflation?
5. In short run and long run what will be the effect of this decision on Indian Economy?

South East Asian Economic Crisis

An economic crisis, which erupted in Thailand in mid-1997 and which soon spread to neighbouring countries—Malaysia, Indonesia, Philippines and South Korea — came to be popularly referred to as South-East Asian economic crisis (although South Korea is in East Asia and only the other countries are in South East Asia). Although experts do not fully agree on the reasons behind the crisis, it is generally held that the crisis was caused mainly by the following factors.

1. Persistence of large current account deficit.
2. Large foreign debt and particularly, a high proportion of short-term debt.
3. Large inflow of foreign capital, particularly the sensitive short-term capital.
4. Indiscriminate lending by banks and other financial institutions, arising from lack of adherence of financial intermediaries to prudent norms concerning capital adequacy, asset classification, provisioning, and absence of disclosure requirements.
5. Lack of transparency in the economic system that made proper judgment  by investors and others, for decision-making difficult.
6. Over-investment in several sectors.
7. Imprudent lending by international lenders.
8. Large real effective exchange rate appreciation.

As the crisis first occurred in Thailand, a look at the factors which led to the Thai crisis would help understand reasons for the emergence of the crisis.  Because of the appreciation of the Yen against the US dollar after the Plaza Accord of 1985, Japanese exports were becoming costlier and hence Japanese firms were on the lockout for cheap manufacturing locations. The cheap Thai labour attracted lot of FDI from Japan (and also from other countries. The high returns on short term investments attracted large portfolio investments and short-term funds to Thailand. The pegged exchange rate system followed by the SE Asian countries encouraged such investments because of the absence of exchange rate risk under that system. The high interest rate differential between the developed markets and Thailand (also other SE Asian countries) tempted banks to channel funds from developed economies to Thailand. The indiscriminate lending by banks (and other financial institutions) resulted in the over-expansion of several industries. The speculative investments in real estate created such a situation that that the occupancy rates in new buildings were only about 20 per cent. The inability of the borrowers to repay resulted in 58 of the 91 finance companies downing the shutters. The investment spurt and increase in the demand for labour made Thai labour very costly—reported to be 3 to 5 times than the labour in neighbouring countries including China. The Thai exports suffered a setback due to increasing cost and increasing competition from cheap Chinese goods. The increased spending and high cost in Thailand encouraged imports, causing alarming current account deficit. All the above developments created an all around panic and the feeling that the Thai currency, Baht, would have to be devalued became stronger. There was a run on the Baht—people wanted to convert Baht into dollar so that they could re-exchange dollar for more units of Baht when it would be devalued. The Thai Central bank sold more than $ 23 billions forward in a desperate attempt to defend Baht. This only encouraged speculation. Finally, from July 2, the Baht was allowed to float. It immediately depreciated by 20 per cent and further later. As the crisis, emerged, short-term foreign investors began to withdraw their money. The crisis soon spread to other SE Asian countries where the conditions, in several respects, were similar to those in Thailand. Between end of June 1997 and end of March 1998, depreciation of these currencies against the US ranged between 11 per cent and 74 per cent. Between end of June 1997 and end of January 1998, stock prices declined in the range of 32 to 53 per cent. As these SE Asian economies were highly integrated with the rest of the world, the crises have had its impact on the world economy as a whole. The high foreign trade to GDP ratio of these nations (varying between 50 and 120 per cent) is one indication of their global integration. Equally important are the inward and outward capital flows. 

See Table

Table Case 1.1                   Current Account Deficit (Per cent of GDP)

                                1995                1996                 1997
Indonesia                   -3.3                   NA                  -2.9
South Korea              -2.0                  -4.9                   -2.8
Malaysia                    -10.0                -4.9                   -5.8
Philippines                 -4.4                  -4.7                   -4.5
Thailand                     -6.0                 -7.9                    -3.9
India                          -1.1                 -1.8                    -1.0

Table Case 1.2                      External Debt Ratios (1996)
                         Total debt as % of               Short-term debt as % of total              Debt service
Indonesia                  67                                            25                                              37
Malaysia                   49                                             28                                             8
Philippines                54                                            19                                             14
Thailand                   56                                             41                                             12
India                        28                                              7                                              24

QUESTIONS:-

1. Discuss the possible impact of the South East Asian economic crisis on:
i. Exports of India to South East Asia.
ii. Exports of India to the rest of the world.
iii. Imports of South East Asia to India.

COST CUTTING BY RANBAXY - case study

“ Together we can” was the new maxim being heard across Ranbaxy laboratories Limited, Indias largest pharmaceutical company. The promise was made more than a year back when project Cruose was born. Project Crouse, which stands for creatively releasing, unlashing substantial operating efficiencies, began as a small cross-functional team in ranbaxy, but soon took the shape of people’s revolution.

Through initially conceived as a cost efficiency exercise. Project Crusoe has now positioned itself as a change enabling HR exercise in the company. The pharma major had initiated the exercise for real business benefits and hence took the task in the most methodical and scientific for real business benefits and hence took the task in the most methodical and scientific manner, identifying broad areas of the business that needed a re lok and getting the right talent within it to overhaul it.

The team was given a clear brief – challenge everything that has come to be accepted as a norm. The team members, working as internal consultants, were to benchmark, question, ponder, suggest and implement better systems within established time frames. The result was ideas that veered clear of current practices, but ingrained in practicality and the current business context. Idea banks, constant brainstorming, weekly reviews and debates made the entire idea generation process in to one that gave birth to concepts that could be applied to business, not just discussed and shelved.

Today, the project is delivering in scale and proportion that has surprised the teams as well. Over 15 different areas of spend were addressed in four waves and around 425 projects were identified which are likely to generate savings up to 10 %.

A Director in the company was appointed as the team leader for the project on a full time basis. Each wave comprised 20 – 25 executives drawn from various functions across geographies, across layers and functions with the youngest member aged 21 and the oldest 50, which gave a perfect blend of fresh ideas and experience. The cumulative experience of the teams in each wave was close to 300 years.

The project experimented with new technologies and leveraged them to acquire substantial benefits for the company. Two such tools used were online reverse auction and forward auction by the freight team and stores, spares and repairs team. The results re – affirmed that e – business delivers cost reduction and efficiency and improves velocity of transaction, thereby delivering an improved performance.

What was initially understood to be a euphemistic term for cost cutting has today grown to the size and stature of a regular business function. The company realized very early that cost cutting was no way to define what may ultimately change the way it does business. It was decided to approach the task with the objective of making a cultural change at the organization.

The core focus of each wave was to challenge the costs of business operations, but the third wave also worked aggressively on bringing in a cultural change in the ways of doing business. The fourth wave went a step ahead and brought about a change in the ways of doing business. The fourth wave went a step ahead and brought about a change in the business modules. A greater visibility and involvement at the employee level was generated to bring in a change of mindset and attitudes. The first initiative was taken by the power and fuel team who created innovative posters to communicative to every Ranbaxian the benefits of saving power and fuel, even in their personal lives.

The company has already implemented around 150 projects so far and the rest are under various stages of implementation. Each Crudoe crusader is responsible for taking ownership of the implementation of the project through the operational cross-functional team, required in the identified projects.

Various communication tools such as thought provoking colorful posters, screen savers across locations have brought in high visibility and participation from all Ranbaxians. The Cruose team’s journey so far was aided by the success of the Crusoe contest, which shows that Ranbaxy has been able to use the power of its people to charter the competitive waters that today’s business strive in.

Questions to Ponder

    Identify the mainstay of project Crusoe. How did the Crusoe team members implement the project? Discuss the success of the project in the short run and in the long run?

MITSUI STEEL PLANT. case study

Mitsui & Co., the $ 6 billion Japanese conglomerate, is keen to set up a five million tonne steel plant in Orissa. We are now exploring the possibilities and gathering information on the prospects of putting up a steel plant here, before coming out with a concrete proposal” said Takao Miyachi, chairman, Mitsui & Co India Pvt Ltd. He said, the most significant aspect of the proposed venture is that for the first time in the country, it will use the latest technology developed by an associate company of Mitsui, which uses non-coking coal for production of steel. This technology will not only help the venture to overcome the crisis faced by many steel industry due to short supply of coking coal, but also is cost effective.

Mitsui already owns a chunk of mining lease in Orissa through its Indian subsidisry Sesa Goa limited (in which Japanese company has 51 % stake) at Thakurani sector in Keonjhar district. Orissa has one of the richest iron ore reserves in the country, which account for a major share of the cost of production of steel.  

Though Miyachi did not specify the cost of the project saying it is still in an exploratory stage, he hinted that the cost could be less than the present industry standard of Rs. 2000 crore per tonne of steel because of the use of new techonologies. Striking a cautious note, Miyachi  remarked that Mitsui does not want to join the current rush by various domestic and international steel majors to set up steel projects  in Orissa. It will wait and watch and ascertain the atmosphere here before making the move. Besides, steel industry being cyclic in nature, we have to see there is enough demand for the product when the new project comes up, he added.

However, globally one of the key business areas of Mitsui is iron and steel product and raw material; trading. The expansion of capacities and volume of business has a priority of place in the company’s goal of attaining 100 billion yen income mark within next two years.

Among other international players, BHP Billiton is also planning an investment of Rs. 7000 crore in the state for mining and production of steel among other things. South Korean steel gaint Posco is also in talks with the Orissa government to set up 3 million tonne plant in Orissa. Non – ferrous metals major Vendata resources holding company of Sterlite industries has lined up an investment of Rs. 12,500 crore to set up 5 million tonne steel plant in the state, along with development of iron ore mines. Meanwhile, Tata Steel, the country’s largest private sector steel company has also announced a plan to set up 6 million tonne steel plant in Orissa. The company envisaged an investment of around Rs. 15000 crore for this project.

Questions to Ponder

Why are so many international steel manufactures planning to set up steel plants in Orissa?

Analyze the production function for steel and critically comment on the production strategy as envisaged by Mitsui and co.