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3 factors that can make global firms more competitive

By TS Vishwanath
September 26, 2014 12:24 IST

Emerging nations believe sustainability should not just be an objective or act of corporate social responsibility. It should be a business proposition, says TS Vishwanath.

Photograph: Amit Dave/Reuters 

At a recent conference in Berlin, Germany, think tanks and industry from emerging nations discussed the issue of sustainability and its impact on business.

Discussions at the summit, organised jointly by the Economic Policy Forum and the Emerging Markets Multinationals Forum, were focused on sustainability as a means of building competitiveness for engaging in global markets.

Many issues were discussed and some had a direct bearing on trade. Sustainability, companies felt, was not just an objective or even an act of corporate social responsibility. It can be a business proposition.

More importantly, they felt that sustainability should not have a one-size-fits-all approach.

The drivers for sustainable investments in the emerging world, it was pointed out by a few, will be influenced by some serious indicators.

First was the desire to tap the large domestic market while remaining competitive in global markets.

It is important to note, at this point, that according to McKinsey, half of the Fortune 500 companies will be from the emerging world by 2030, with China accounting for the lion's share and, therefore, their commitment to sustainability assumes importance. 

Image: A view of Bandra-Worli sea link in Mumbai. Maharashtra is fifth-most developed state. Photograph: John Goh/Reuters 

Second was the urge among a large number of companies to address the issue of inclusive growth and remaining aligned with the larger national objective in each country.

Companies confirmed that the first pillar of competitiveness will be driven by three factors: the constraint on resources and the need to manage and conserve them.

It will also be driven by the need for innovation to ensure that products can be created for the large sections of people with limited spending power.

Most emerging market multinationals and policy analysts believe that the large market at the bottom of the pyramid can help in creating sustainable business models since they provide the scale and platform to experiment and innovate.

One point that industry said needed far greater attention in the sustainability debate is the role of free trade agreements and the increase of global value chains in ensuring the creation of sustainable business.

Free trade agreements, especially the mega trade agreements that are being negotiated, could play an important role in increasing the pressure on companies for building sustainable business.

These agreements will call for greater emphasis on technology, innovation and the judicious use of resources.

Another point of discussion was the role of the services sector in helping companies focus on sustainability.

 

Image: Electricians check the electricity pylon situated amid farmland in Chuzhou, Anhui province, China. Photograph: China Daily/Reuters 

Service companies can build a strong business model by helping the manufacturing sector create sustainable products.

Since services today account for a large share in a manufactured product, they also drive the move towards sustainable business models through innovation and better processes.

This discussion at the summit fitted with the vision Prime Minister Narendra Modi provided in his Independence Day speech, when he urged companies in India to produce with "zero defect and zero effect".

With several companies in India, especially in the small and medium sector, looking to become a part of global value chains, there is a need to focus on innovation.

Innovation can help co-create intellectual property rights that can develop the strategic fit for companies in value chains since it will help them develop sustainable and inexpensive products.

Image: A Namma Metro (Kannada for "Our Metro") train travels along an elevated track as traffic passes below in the Indira Nagar area of Bangalore. Photograph: Vivek Prakash/Reuters 

While some companies in India do focus on innovation, a majority of them do not realise the importance of this feature to expand their footprint in the global marketplace.

The government and industry should, therefore, consider giving a strong push to innovation. As of now, innovation resides in pockets within the industry.

This needs to be broadened.

There is an urgent need to consider a national innovation policy that is jointly developed by industry and the government, which can help small and medium sector companies deepen their participation in global markets. The writer is Principal Adviser at APJ-SLG Law Offices

TS Vishwanath
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