Management practices for sustainable growth
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Transcript of Management practices for sustainable growth
28/07/2010 ICMPSG, Annamalai University
Management Practices for Sustainable Growth-Focus India as if People and
Environment Matter
Presentation by
Prof.K.Prabhakar
28/07/2010 ICMPSG, Annamalai University
Some Questions
• Are we growing or developing in economic sense?
• Do you agree with India’s Growth as unprecedented and the future is the brightest and most prosperous for all of us including the world?
• Do you think India will be a knowledge super power by 2010?
• Do you have a limit for growth?
28/07/2010 ICMPSG, Annamalai University
What I am going to talk?
• Growth- The economic phenomenon; should we address this?
• Sustainable Growth- The ecological phenomenon; should we address this?
• Management Practices; what are management practices? What are relevant?
Some questions for you.
28/07/2010 ICMPSG, Annamalai University
India: Among the Top-15 Countries in terms of GDP at constant prices
205 223319 347
103 91
116117
104 109
155168
0
100
200
300
400
500
600
700
1999-00 2002-03 2005-06 2006-07
US
D B
illio
n
Services Agriculture Industry
The Indian economy has witnessed an unprecedented growth…. Booming Indian services and industry sector are providing the required impetus to the economic growth
The sound performance of each industry segment is leading to the overall robust performance of the Indian economy
Indian economy is the 4th largest in terms of PPP – USD 4.1 trillion in 2006
India’s GDP witnessed high growth and was the second fastest growing GDP after China
Growth in sectors (2006-07):Industry: 10.9%Services: 11%Agriculture: 2.7%
Growth in sectors (2006-07):Industry: 10.9%Services: 11%Agriculture: 2.7%
Fastest GDP growth of 9.4 percent in 2006-07, since last 18 years
Fastest GDP growth of 9.4 percent in 2006-07, since last 18 years
Contribution of Services -
increased from 49
percent to 55 percent
Contribution of Services -
increased from 49
percent to 55 percent
India's GDP: 2002-07
424484 534
590 631
0
100
200
300
400
500
600
700
2002-03 2003-04 2004-05 2005-06 2006-07
US
D B
illio
n
GDP at Constant Prices
4%
8.5% 7.5%
8.4%9.4%
28/07/2010 ICMPSG, Annamalai University
India: Economic PlatformIndia's Forex Reserves: 2001-07 (Till 22 June 2007)
5475
112
141152
199213
0
50
100
150
200
250
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08(Till 22June)
US
D B
illio
n
External Debt-to-GDP Ratio
21.120.4
17.817.3
15.816.4
10
13
16
19
22
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
Ra
tio
India’s enhanced economic performance has been the major contributor towards increased Forex reserves
Steadily increasing Forex reserves offer adequate security against any possible currency crisis or monetary instability
Falling Dollar inflates the India’s external debt
Falling Dollar inflates the India’s external debt
Increased confidence of investors in Indian companies have led to a surge in cross border borrowing by the corporate houses
Forex reserves witnessed an increase of 200 percent for the period 1990-2007
…at present level of Forex reserves, the country has adequate cover for 12 months of imports
…at present level of Forex reserves, the country has adequate cover for 12 months of imports
India’s Forex reserves are in
excess of external debt…
…the decreasing external debt to GDP ratio indicates that India has a sound economic platform
…the decreasing external debt to GDP ratio indicates that India has a sound economic platform
28/07/2010 ICMPSG, Annamalai University
India: Surging Exports
India's Import: 2002-07 (till February 2007)
61.5278.28
111.89
149.65162.30
020406080
100120140160180
2002-03 2003-04 2004-05 2005-06 2006-07(upto Feb.
07)
US
D B
illio
n
India's Exports: 2002-07 (till February 2007)
52.8163.95
83.81
103.42112.40
0
20
40
60
80
100
120
2002-03 2003-04 2004-05 2005-06 2006-07(upto Feb.
07)
US
D B
illio
n
Petroleum products are the major contributors towards India’s growing imports
Petroleum products are the major contributors towards India’s growing imports
Quality and cost advantage are the two important parameters leveraged by the Indian producers to increasingly market their products and services
Quality and cost advantage are the two important parameters leveraged by the Indian producers to increasingly market their products and services
Services sector has been a major contributor to increased exports from India
Imports of products by India mainly includes petroleum products and minerals
Indian companies have chalked out extensive plans to increase their presence abroad
Acceptance of Indian products along with the cost advantage has provided an edge to Indian companies
28/07/2010 ICMPSG, Annamalai University
India: Attractive Investment Destination
Net FII into India: 2001-07
1.80
0.60
10.00 10.209.40
6.72
0
2
4
6
8
10
12
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
US
D B
illio
n
India is ranked second in AT Kearney FDI confidence index
Telecom and Electronics topped the list of inward FDI
FDI inflow for the period 2006-07 witnessed a growth of 180 percent over the same period last year
Mauritius has been the largest contributor towards FDI into India…..
Return on the Investments in India (2006 Q1)
MarketPE
RatioP/B
RatioRoE (%)
India 16.1 4.53 22
China 10.62 2.06 17
Indonesia
10.26 3.09 NA
Korea 9.85 1.84 16
Malaysia 13.21 1.82 16
Taiwan 12.17 2 11
Thailand 9.84 2.32 23
EM Asia 11.19 2.12 15
Latin America
9.35 2.46 18
EM Europe
10.9 2.39 15
With improved performance on PE ratio and ROE, Indian markets have attracted large investments
FDI Inflow - India: 2001-07
4,2223,134 2,634
3,755
5,546
15,730
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
US
D M
illio
n
180 percent Increase
28/07/2010 ICMPSG, Annamalai University
India: Pacing Ahead to Emerge as a Major Economy in the World
Projected GDP Growth Rates for Select Upcoming Economies
0
2
4
6
8
2005-10 2010-15 2015-20 2020-25 2025-30 2030-35 2035-40 2040-45 2045-50
GD
P G
row
th R
ate
(%
)
Brazil China India Russia
0
20
40
60
80
100
India Russia Vietnam Ukraine China Chile Latvia
GR
DI S
core
2007 Global Retail Development Index (GRDI) 2007 Global Services Location Index
3.3
2.6
3.2
2.8
2.9
3.2
1.5
1.8
1.2
1.3
2.3
2.3
1.1
1.5
1.6
2
1.4
1.4
Indonesia
Brazil
Thailand
Malaysia
China
India
Financial structure People and skill availablityBusiness environment
India has been ranked superior to other major countries by many prominent surveys…
AT Kearney placed India among the top three in its FDI confidence index…
… the retail market along with the services sector has been attracting the interest of major players
India is expected to outperform its rivals in the BRIC, in terms of GDP growth rates, from 2015 onwards…
28/07/2010 ICMPSG, Annamalai University
India: Demographics
Per Capita Income
393
461519
583
651
0
100
200
300
400
500
600
700
2002-03 2003-04 2004-05 2005-06 2006-07
US
D2
9
48
221
726
9
17
74
285
710
20
33
120
404
613
2001-02 2005-06 2009-10(E)
Rich (Above 115,000)
High Income (57,000 – 115,000)
Consuming class (23,000 – 57,000)
Working class (10,200 – 23,000)
Needy (Below 10,200)
Annual Household Income
(in USD)
* In PPP terms
Pop
ula
tion
(mill
ion
)
Increasing per capita income coupled with an emerging middle class has provided the necessary impetus to consumerism in India
Growth in the higher income categories of India’s population has created an affluent section of society, which has significant level of purchasing power
Increasing per capita income and large population moving into middle class has led to high level of consumerism in India
DEMOGRAPHIC TRANSFORMATION OF INDIA
28/07/2010 ICMPSG, Annamalai University
Countries worldwide are anticipating a shortage of working population in the future. India is expected to emerge as a clear winner, and by 2050, it will have the largest working age population.
Countries worldwide are anticipating a shortage of working population in the future. India is expected to emerge as a clear winner, and by 2050, it will have the largest working age population.
India: Increasing Working Population
-3
0
10
17
31
33
44
64
71
314
-5 45 95 145 195 245 295 345
Stock Position 2005
South East Asia 362
Southern Asia 132
India 691
Africa 500
China 934
Latin America 359
USA 200
Europe 497
Japan 85
World 4,168
In Million
Addition to Working Age Population by 2010
Growth in Global Working Age Population (15-64)
28/07/2010 ICMPSG, Annamalai University
GDP – USD 590 billion
GDP growth rate – 9 %
Services contribution – 54 %
FDI limit not 100 percent in major industry sectors such as Telecom, Semiconductors, Automobiles, etc.
Balance of Trade – USD (-)46.2 billion
Investment goal – USD 250 billion
20062006
GDP – USD 750 billion
GDP growth rate – 9.5%
Services contribution – 60 %
FDI limit is expected to be close to 100 percent in major industry sectors such as Telecom, Semiconductors, Automobiles, etc.
Balance of Trade – Should increase with surging exports as compared with imports
Investment goal – USD 305 billion
20082008
GDP – USD 900 billion
GDP growth rate – 9%
Services contribution – 60-65 %
FDI limit is expected to be 100 percent in major industry sectors such as Telecom, Semiconductors, Automobiles, etc.
Balance of Trade – Should be positive with increased level of exports as compared with imports
Investment goal – USD 370 billion
20102010
Growth Expected in IndiaTo sustain the GDP growth of more than 8 percent, India requires
an investment of USD 1.5 trillion in the next five yearsTo sustain the GDP growth of more than 8 percent, India requires
an investment of USD 1.5 trillion in the next five years
28/07/2010 ICMPSG, Annamalai University
India has among the highest returns on foreign investment.
- Dan Scheinman, Cisco System Inc. as told to
Business Week, August 2005
- Dan Scheinman, Cisco System Inc. as told to
Business Week, August 2005
“We came to India for the costs, stayed for the
quality and are now investing for innovation”.
A T KearneyFDI Confidence
Index 2005
A T KearneyFDI Confidence
Index 2005
India is among the three most attractive
FDI destinations in the world.
Jack WelchJack Welch
“India is a developed country as far as
intellectual capital is concerned”.
US Department
of Commerce
US Department
of Commerce
By 2032, India will be among the three
largest economies in the world.
BRIC Report, Goldman Sachs
BRIC Report, Goldman Sachs
Why India? – Quote Unquote
Travyn Rhall,
ACNielsen
Travyn Rhall,
ACNielsen
“The Indian market has two core advantages - an
increasing presence of multinationals and an upswing
in the IT exports”.
Craig Barrett
Intel Corporati
on
Craig Barrett
Intel Corporati
on
“India has evolved into one of the world's leading technology
centers“.
28/07/2010 ICMPSG, Annamalai University
Economic Growth
28/07/2010 ICMPSG, Annamalai University
Benefits
28/07/2010 ICMPSG, Annamalai University
•Increases in economic growth should enable more of everything to be produced•Increases possibility of providing consumer goods for all•More consumer goods, etc. could be equated with an increase in living standardsWealth generated may eventually ‘trickle down’ to those who are poor by means of income distribution – taxes and benefits, etc.
Assumptions about Growth
•Welfare associated with well-being:•Welfare is improved by the provision of support services for those not necessarily able to help themselves – often on the margins of society. Welfare includes: Pensions, Benefits – sickness, disability, etc.
Support – maternity, holidays, Housing Infrastructure – homes for the elderly
Such welfare provision often funded through income redistribution - taxes
28/07/2010 ICMPSG, Annamalai University
Costs
28/07/2010 ICMPSG, Annamalai University
Economic growth can bring with it costs: Not all income distributed equallyWealth often in the hands of a few‘Trickle down’ does not always seem to work in practiceCorruption may reduce redistribution effectsGrowth funded in part by spending on weapons which do not benefit the population as a whole
Negative ExternalitiesPollution – dumping of hazardous wasteEnvironmental degradation – over farming reduces productivity of the soil, deforestation, damage to eco-systems and reduction in biodiversityNon-renewable resources – finite resources
28/07/2010 ICMPSG, Annamalai University
Opportunity Cost of Growth
• Resource allocation– Consumer Goods?– Capital Goods?
• Necessity of generating growth through allocating resources to the sources of growth – capital goods
• Makes population poorer as fewer consumer goods initially available – often these consumer goods represent the basic essentials of life
28/07/2010 ICMPSG, Annamalai University
Opportunity Cost of GrowthCapital Goods
Consumer GoodsC1C2
K1
K2
Production Possibility Frontier:
Assume initial output levels of C1 consumer goods and K1 capital goods – where C1 barely represents the essentials of life in a developing country – clean water, food, shelter, etc.
Any attempt to increase the basis for wealth generation – by producing more capital goods that need to be used for such wealth generation – will mean a reduction in the number of consumer goods available (the opportunity cost). Such a reduction can be very damaging to a country already suffering a lack of basic essentials.
Opportunity cost of K2 – K1 capital goods is C1 – C2 consumer goods sacrificed.
Sacrifice
Gain
28/07/2010 ICMPSG, Annamalai University
Growth and Production Possibility Frontiers
C1
Capital Goods
Consumer Goods
A
B
Economic growth when a country is operating below capacity – more of both capital and consumer goods are made available as the economy moves from point A to point B
K1
K2
C2
28/07/2010 ICMPSG, Annamalai University
Growth and Production Possibility Frontiers
C1Consumer Goods
A
B
K1
K2
C2
Country operating at full capacity but discovers new resources or find ways of improving the efficiency of existing resources, for example, education of the population to improve the quality of human capital.
Improving health care of people
Technological innovations
Entrepreneurship
Capital Goods
28/07/2010 ICMPSG, Annamalai University
Is growth limitless-NO
• These variables that limits growth are world population, industrialization, pollution, food production and resource depletion.
28/07/2010 ICMPSG, Annamalai University
Indicators of Economic Development
28/07/2010 ICMPSG, Annamalai University
Economic Growth• Using measures of economic performance in terms of the value
of income, expenditure and output• GDP – Gross Domestic Product
– The value of output produced within a country during a time period
• GNP – Gross National Product– The value of output produced within a country plus net property
income from abroad
• GDP/GNP per head/per capita – Takes account of the size of the population
• Real GDP/GNP – Accounts for differences in price levels in different countries
28/07/2010 ICMPSG, Annamalai University
Economic Growth
• High economic growth fuelled through capital spending can hide a number of underlying economic problems – how is the income and wealth distributed? Who is doing the spending and will it ‘trickle down’ to the poor?
28/07/2010 ICMPSG, Annamalai University
National Income – Problems with using GDP/GNP
• Black/informal economy?
• Some economic activity not recorded – subsistence farming and barter activity, for example
• Some economic activity is carried out illegally – building work ‘cash in hand’, drug dealing, etc.
• Work of the non-paid may not be considered but may contribute to welfare – charity work, housework, etc.
28/07/2010 ICMPSG, Annamalai University
Development
28/07/2010 ICMPSG, Annamalai University
Levels of poverty, Absolute poverty, Relative poverty, Inequality-How to measure?Progress – what constitutes progress?
28/07/2010 ICMPSG, Annamalai University
Development• Other considerations of human welfare:• Political freedoms?• Sustenance?• Sustainable development?• Self esteem?• Proportion of activity in different sectors of the economy:
– Primary– Secondary– Tertiary– We are not sure how to measure?
28/07/2010 ICMPSG, Annamalai University
Other Measures?
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What is said what we believe.Source: www.ibef.org
28/07/2010 ICMPSG, Annamalai University
What is UNSAID
28/07/2010 ICMPSG, Annamalai University
Listen to What Rachel Carson said in 1964
1 of 6 Rachel Carson Silent Spring [www.keepvid.com].flv
28/07/2010 ICMPSG, Annamalai University
What is happening to our climate?
• Many people are familiar with the recent graphic images of shrinking ice on the ArcticOcean, and may be aware of projections that the Arctic could be ice-free in the summerby the year 2030. However, there is little recognition of the significant loss in economicvalue that the disappearance of Arctic sea ice, snow, glaciers and permafrost couldimpose on humans.• The frozen Arctic may seem to visitors to be simply a barren sea- and landscape, but
in fact it serves as habitat for many species and is the foundation for the Inuit and other indigenous cultures of the North. Arctic sea ice has anchored the ecosystems of northern regions and helped regulate global climate for at least 800,000 years (Overpeck et al., 2005). Its seasonal disappearance would have far-reaching ecological, climatic, and economic impacts that we are just beginning to understand.
• On a global scale, the reflective surfaces of ice and snow have a cooling effect. Sea ice formation and melting help drive the world.’s ocean currents, permafrost traps vast quantities of methane and other forms of carbon, and the Greenland Ice Sheet holds enough water to raise sea level by 7 meters (AMAP, 2009). Greenland is in fact losing ice and contributing to sea level rise at a much faster rate than scientists predicted only a few years ago (Mernild et al., 2009).
28/07/2010 ICMPSG, Annamalai University
What is one single measure? Climate policy is finally moving forward• Serious discussion of emission reductions underway More or less (almost) heading for 450 ppm CO2Climate science is moving fasterMore and more evidence of potential harm at lower temperatures and
concentrationsHansen (1): doubling of CO2 causes 6oC of warming, not• 3oC as previously believedHansen (2): 450 ppm is the threshold for an ice-free earth,disastrously
higher sea levels, disruption of water supplyIf climate protection requires 350 ppm, can we afford• to get there from here?
28/07/2010 ICMPSG, Annamalai University
Sustainability
• Sustainability is the capacity to endure, maintain or support. In ecology the word describes how biological systems remain diverse and productive over time. For humans it is the potential for long-term maintenance of well being, which in turn depends on the well being of the natural world and the responsible use of natural resources. What we had was extract-use-waste paradigm.
28/07/2010 ICMPSG, Annamalai University
Sustainable Development
• “Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”
• “Sustainability is improving the quality of human life while living within the carrying capacity of supporting eco-systems” conveys the idea of sustainability having quantifiable limits. But sustainability is also a call to action, a task in progress or “journey” and therefore a political process, so some definitions set out common goals and values.
28/07/2010 ICMPSG, Annamalai University
The dimensions to be addressed
• The field of sustainable development can be conceptually broken into three constituent parts: environmental sustainability, economic sustainability and sociopolitical sustainability.
28/07/2010 ICMPSG, Annamalai University
28/07/2010 ICMPSG, Annamalai University
What is needed?
• According to Hasna Vancock, sustainability is a process which tells of a development of all aspects of human life affecting sustenance. It means resolving the conflict between the various competing goals, and involves the simultaneous pursuit of economic prosperity, environmental quality and social equity famously known as three dimensions (triple bottom line) with is the resultant vector being technology, hence it is a continually evolving process; the ‘journey’ (the process of achieving sustainability) is of course vitally important, but only as a means of getting to the destination (the desired future state). However, the ‘destination’ of sustainability is not a fixed place in the normal sense that we understand destination. Instead, it is a set of wishful characteristics of a future system
28/07/2010 ICMPSG, Annamalai University
Types of Capital • The sustainable development debate is based on the assumption that
societies need to manage three types of capital (economic, social, and natural), which may be non-substitutable and whose consumption might be irreversible.
• Multiple uses of natural resources. • Failure of market to allocate resources. Perfect markets fail perfectly. • Similar to the eco-efficiency concept but so far less explored is the second
criterion for corporate sustainability. Socio-efficiency describes the relation between a firm’s value added and its social impact. Whereas, it can be assumed that most corporate impacts on the environment are negative (apart from rare exceptions such as the planting of trees) this is not true for social impacts. These can be either positive (e.g. corporate giving, creation of employment) or negative (e.g. work accidents, mobbing of employees, human rights abuses). Depending on the type of impact socio-efficiency thus either tries to minimize negative social impacts (i.e. accidents per value added) or maximise positive social impacts (i.e. donations per value added) in relation to the value added.
• Both eco-efficiency and socio-efficiency are concerned primarily with increasing economic sustainability. In this process they instrumentalize both natural and social capital aiming to benefit from win-win situations.
28/07/2010 ICMPSG, Annamalai University
What we should do for sustainable development?
• Renewable resources such as fish, soil, and groundwater must be used no faster than the rate at which they regenerate.
• Nonrenewable resources such as minerals and fossil fuels must be used no faster than renewable substitutes for them can be put into place.
• Pollution and wastes must be emitted no faster than natural systems can absorb them, recycle them, or render them harmless.
28/07/2010 ICMPSG, Annamalai University
28/07/2010 ICMPSG, Annamalai University
India
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Owner driven
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Global
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Dualism in Indian Management Practices
features of Indian management is the emphasis on the personality of the top leader in theorganization. Study also indicates that the expectation of the people in India is moretowards paternalism. The essential requisite for paternalism appears to be unity in theleadership, and single, identifiable source of power. Duality in this regard spawns patronage. The line of succession, if not clear leads to
people lobbying for the position and in the process subtly divides the organization in to cliques. Another unique feature of
Indian management is the “familial feeling” perceived by the employees because of theparental attitude adopted by the superiors and colleagues which gives a sense o fsecurityand belongingness among the employees. We also found among the organizations
studied that harmony is easier achieved when due deference is given to the familiality, seniority, age and open door communication, be it among the multinational, public sector, the traditional family-owned company or the government department.
28/07/2010 ICMPSG, Annamalai University
What is your suggestions?
28/07/2010 ICMPSG, Annamalai University
Thank you
If you have any questions please do send you mail to [email protected]