There is little disagreement that emerging markets such as China and India will be the key drivers of the world economy in the days to come. Jagdish N Sheth, Charles H Kellstadt Professor of Marketing at Emory University’s Goizueta Business School and a renowned scholar on global business, goes a step further. He says emerging markets will also be the growth drivers for other emerging markets. Sheth also sees a role for public sector enterprises in India on the global stage. In Delhi for the launch of a compilation of his work, called Legends In Marketing: Jagdish N Sheth, he spoke to Amit Ranjan Rai on his current areas of work in marketing and global business.
You have been working on a new marketing framework. What is it?
The framework is called ‘the 4-As in marketing’, which are Acceptability, Affordability, Availability and Awareness. Along with my colleague, Rajendra Sisodia, with whom I have written three books, I have almost finished work on it. This new book is based on hundreds of case histories done over eight to nine years. A lot of research work for it has been done by our students.
What do the 4-As in marketing imply?
Let’s start with affordability. While in marketing too much emphasis has been given on the willingness to pay, one needs to figure out the ability to pay. This essentially means that quality products need to be made affordable. Prices need to be brought down keeping quality the same. How? Not by creating stripped-down versions — that would not find much acceptability — but through low-cost innovations. The challenge is to innovate to reduce costs and not quality. Usually, the innovation here can be a change in technology, going for a sourcing advantage, changing the raw materials, a change in the manufacturing process and so on.
Second is availability. We are still locked into our traditional distribution systems, but consumers need convenience, they need more accessibility to products in places and at times that have not traditionally been offered. How do you do that, especially in rural markets?
Awareness is an old marketing idea. Consumers like to be informed, they are knowledge seekers. While marketers work hard on brand awareness, they don’t do much when it comes to product awareness. People want to know all about the products they are using. It is in the interest of the marketer to educate about the product itself. For instance, in food products, the ingredients that have been used, the negative side-effects it can have and so on should be told. It’s better to inform than to hide. Consumers will anyway get the information they want. Companies today are like fish in a digital fish ball. Through social media the word gets out very fast. You can’t hide, so you should not hide. The consumer wants you to be accountable for what you promise. If you hide, the penalties in the long term can be enormous if there is a problem with the product and the consumer is affected. The economic penalty for such misbehaviour is huge in the Western legal system.
Your previous book, Chindia Rising, talked about the rise of emerging markets. What have been the developments after the economic crisis?
On the geo-economic side, the great recession of 2008 tipped over from what I saw happening in the 1990s, and wrote in my book Tectonic Shift, that is, a geo-economic realignment, namely, the world shifting towards emerging markets. In the next evolution, emerging markets will create more growth for other emerging markets, rather than the traditional model of advanced countries creating growth in emerging markets for their own future. This is a key paradigm shift.
For 200 years, the Europeans were not able to do anything for Africa’s future. After World War II, America tried but nothing happened. But today, Africa is getting energised and revitalised at a fast pace by China and India. While China has been active in Africa on the infrastructure front, India is playing the role of a soft power there with activities in areas such as education, healthcare and so on.
Can you elaborate on the shift?
There is a certainly a big shift. The BRIC nations themselves are getting together. Last year in September, we saw what happened at IMF — rather than being a body of the G-8, it became a body representing the G-20 nations. One more shift, which is now a foregone conclusion, is the world becoming Asia-centric. China is today the largest trading partner of Japan and South Korea; their economies are aligned to China’s. Both these nations have also invested heavily in India in manufacturing and infrastructure industries. With these developments we will clearly see the emergence of Asia as the dominant economy in the world.
In this process, the trilateral relationship of India, China and the US would be crucial. The more this relationship is harmonious in terms of politics and economics, the better it would be for growth, markets and economies. Right now, China and the US seem to be on a divergent path. What should be avoided at any cost is the coalition of two against the third, which could be dangerous.
The previous trilateral relationship — between the US, European Union and Japan — was a harmonious one. There were minor differences and each one invested heavily in trade, commerce and markets, and the capital market grew without any hurdles.
What approach should Indian companies have to benefit from such developments?
First, Indian companies must have a global mindset, which is that they first become a dominant player in India and their take on global expansion. The expansion will be both organic and inorganic. The world is willing to sell to Indian companies; they are somewhat reluctant to sell to Chinese companies.
Second, you cannot ignore China as a market in this global mindset. We are too enamoured with Western economy markets because of their higher price points.
And what should these companies do?
Companies first need to identify their market, they need to decide if they are going to be global, domestic or regional players. If they decide to go global, the approach cannot be that their competition is another domestic country. The competition is everybody. Second, they need to embrace global standards. Perhaps, winning a global award of excellence can help with a mindset change.
Accessing low-cost capital is another key area Indian companies need to work on. Whether it is debt capital, equity capital or private capital, the cost needs to be lower. Higher capital cost has been a key disadvantage for Indian companies. Agencies generally rate India as a country with high risk and high return, which means that our cost of capital is high. As a strategy companies have to go for lower capital costs, and their own reserves built over time can be very useful here.
Something unique that I see happening in the next 10 to 15 years is the rise of the public sector enterprises of India as globally admired companies. Just as we saw the rise of the great private sector companies, such as the Tatas, Reliance, Infosys and Wipro, after the economic reforms, we’ll see the same happening with public sector companies.
They were asked to focus on the domestic market, serve rural India, even though they may lose money because of the social objective of the nation, and now they are in core businesses. LIC is today one of the best life insurance companies in the world. It innovated for 50 years on how to make affordable life insurance policies which the rest of the world is going to discover now. Maruti has done fantastically well.
In fact, this is exactly what has happened with the Chinese corporations that had a huge domestic market and then rose to the occasion by serving and sourcing from the western world. Haier, Lenovo and Huawei are good examples. They were all state enterprises and have become world-class global competitors. I think India will follow on those lines.
What have been the key reasons for public sector companies’ growing potential?
The reason behind their success is primarily that they were regulated. They were not allowed the freedom to explore areas where there was too much risk. The banking sector is a classic case. Public sector banks were not allowed to participate in derivatives or structured instruments. They were not exposed to risks private sector banks were.
With the Indian economy opening up, the domestic growth has been fantastic. Not only is the private sector growing, but also the public sector. That has been to its advantage. Public sector companies now have tremendous buying power and they can afford to invest in the next generation of technology and into more capacities; and as they put new capacities, they modernise themselves.
The government allowing a typical corporate governance mechanism as opposed to a government-based mechanism has been a significant change in transforming them. They are held accountable for performance now, and not just for serving the society.
You are working on another book which deals with environment issues and the growth of companies.
Yes, it’s a follow-up from Chindia Rising. When it comes to the rise of consumer-centric economies, the biggest show stopper will not be capital, technology or even human talent, but the environment. We have looked upon environment in a wrong way since the industrial revolution. We have looked at nature as if it is inert, inorganic and passive. We began not only to use it but overuse, exploit and abuse it. We didn’t understand the interdependence between different organism systems, so we reduced biodiversity. For instance, we have used the bio-capacity for the demand that we have produced in the past hundred years. The demand we are creating for the next hundred years, especially with the rise of the emerging markets, is going to be so enormous that if we do the right job now then probably we will be sustaining, or self-sustaining. What’s the right job is what I am researching now.
We’ll have to find out how we can nurture nature in a way that it becomes regenerative while we are still using and consuming. In other words, the capacity is expanded by nature reproducing itself.
Consumption-led growth, as we see, has been energy-guzzling and resource-depleting, and something that can no longer be ignored in view of concerns relating to global warming. What’s the way out?
It’s about what I and a colleague have been talking about: Mindful consumption. You can also call it smart consumption. If you allow free market processes, smart consumption doesn’t happen. We have to educate the consumers that their consumption can have unintended consequences they are not even aware of. We call it the 3-Rs, which are reduce consumption, reuse and recycle. The second is that companies themselves migrate consumers from wasteful and environmentally damaging consumption to products that are more environment-friendly. The biggest mistake companies make is that if they have a green product they want to charge more. That will never work. The trick would to be to make green products at lower costs. Third is policy change, which can come from compliance on industry.
