Consumer Discretionary

<p>Let me admit, I am not much of a calendar person. To the best of my memory, I can recall having a calendar only once in my life. It was a Rocky Balboa wall calendar back in the 90&rsquo;s - and it stayed on that wall for a good part of a decade. Until one fine day, an audacious painter thought of pulling down the poster of a bare-chested, beefed-up guy to make way for blue distemper wall paint. That episode scarred me for life - for I did not use a calendar until&hellip; 2020.</p><p>Earlier this year, I received a beautifully conceived&nbsp;&ldquo;EXPORT TEMPLES OF INDIA&rdquo; table calendar from my Alma mater, IIFT<strong>.</strong>&nbsp;As the title goes, it raises a toast to the unsung heroes of Indian exports &ndash; the exemplary MSME (Micro, Small and Medium Enterprises) city clusters. For the uninitiated, MSMEs are small units with original investment in plant &amp; machinery up to ₹200 Million ($2.7 Million) &amp; turnover up to ₹1000 Million ($14 Million). MSME sector in India alone contributes to 48% of total exports, employing over 110 million Indians.</p><p><strong><em><u>REAL CUSTODIAN OF NATION BRANDS:</u></em></strong></p><p>Not sure how many of us would have heard of<strong>&nbsp;</strong>NAMAKKAL<strong>.</strong> Interestingly, it holds the distinction of being Asia&rsquo;s first ISO 14001-2004 certified municipality and is popularly known as the &lsquo;EGG CITY&rsquo;. Almost 95% of all eggs exported from India are from this one town of 120,000 people. Several nondescript places of the likes of&nbsp;ADITYAPUR&nbsp;(Auto components),&nbsp;ELURU&nbsp;(human hair),&nbsp;MORBI&nbsp;(Ceramic) &amp;&nbsp;NARSAPUR&nbsp;(crochet lace-work) also find credible mention in this calendar fixture. The moot point here is that MSMEs operating out of these city clusters never grab much limelight. Proprietors working here never get a bestseller biography written on their lives. They don&rsquo;t get invited to Davos. However, when it comes to putting India on the world map, they do punch above their weight!</p><p>Let me explain. For a moment, imagine an American construction firm refurbishing the swimming pool of a 5-star resort in Florida with swanky ceramic tiles or a restaurant in Muscat serving poached eggs in their breakfast menu or a South African woman flaunting beautiful braids. They all have something &lsquo;Indian&rsquo; in common.</p><p>When global citizens develop positive feelings about buying products from a country, to me, that&rsquo;s when the &lsquo;real&rsquo; nation branding happens. The power of positive word of mouth can never be underestimated. Think&nbsp;Californian Wines, German Cars, Saudi Oil, Taiwanese semiconductors, Ecuadorian Bananas, or the Darjeeling Teas. These names resonate because of the credibility they&rsquo;ve built over the years with their patrons. You needn&rsquo;t even visit these places to vouch for their prowess. The tourism and service industries are also no different. If you need IT solutions, chances are that you would gravitate towards Bengaluru. If you&rsquo;re planning a beach holiday, Thailand would feature high on your list. All&nbsp;<strong>3 forms of customer loyalty &ndash; HEAD, HEART and HAND</strong>&nbsp;come together to develop a potent&nbsp;<strong>Nation brand</strong>. Believe you me, getting customers to switch to alternates is not an easy task.</p><p>The economic upside of strong exports? Huge!</p><p>Ecuador accounts for 23% of world trade in Bananas raking in $3.4 Billion. Taiwan&rsquo;s semiconductor exports &amp; German car exports bring in $152 Billion &amp; $142 Billion respectively. Saudi oil revenues top $180 Billion.</p><p><strong><em><u>CAPTURING THE &ldquo;VALUE&rdquo;</u></em></strong></p><p>As I see the calendar daily on my desk, I cannot help think, &ldquo;Did we do justice to these city clusters?&rdquo;</p><p>And by &lsquo;WE&rsquo;, I mean INDUSTRY, PROFESSIONALS &amp; GOVERNMENT as a whole. Have we milked the power of these clusters to capture the real value of their &lsquo;commodity&rsquo; in international markets? The fact that many in India reading this article would Google these cities is testimony to the fact that we have not succeeded in making these city clusters truly world-beaters.&nbsp; Peter Drucker once remarked &ndash;&nbsp;<strong>&ldquo;</strong><strong><em>The purpose of business is to create a customer. The business enterprise has two--and only two--basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs</em></strong><strong>.&rdquo;&nbsp;</strong></p><p>However, it seems that the majority in India &amp; other developing nations discounted the last 2 lines.</p><p>Silicon valley has Apple Inc (and several others), Californian Wines have E&amp;J Gallo, Saudi oil has Aramco and the Taiwanese semiconductor industry has TSMC as their brand ambassadors. As much as we love cheering the underdog, the fact of the matter is you need industry behemoths to create value in the international arena. There is a reason we were taught ECONOMIES OF SCALE in B-School. Unlike domestic markets, where local legislations can shield you from competition, the international markets can be brutal. You would never know which side you&rsquo;d get hit from!!</p><p>This whole situation gets real stark when it comes to agricultural commodities. While everyone is aware of Ecuadorian bananas, Vietnamese fish sauce, Ghanaian Cocoa or Colombian coffee, you would be at pains to recall an &ldquo;INTERNATIONAL BRAND&rdquo; out of these countries. Ecuador may be the largest Banana exporting country in the world but Chiquita, a Swiss giant is the world&rsquo;s largest trader of bananas! Together with Dole &amp; Del Monte, they control over half of the world&rsquo;s Banana trade. Don&rsquo;t get me wrong. I&rsquo;m all for Laissez-Faire economics &amp; free trade. Capturing value is key to business economics. My concern is the&nbsp;<span style="color: #000000;">lack of local firms willing to take up the gauntlet to capture the value chain in markets of consumption.</span></p><p>I can&rsquo;t help attributing this phenomenon to&nbsp;<strong>FEAR OF UNKNOWN</strong>. Some typical ones which firms in developing market battle are as follows:</p><ol><li>Developed markets already have everything &ndash; what value can we add?</li><li>It is so expensive to maintain offices and local staff in markets like Japan, Australia, Singapore, Western Europe and North America. How will we afford it?</li><li>Marketing dynamics &amp; cultures are so different. What do we know about their consumers?</li><li>India is the next big opportunity. Why focus on international markets?</li></ol><p>We love talking about backward integration, but seldom venture to capture the downstream value. We don&rsquo;t mind exporting a shirt for $2 only to see it re-badged at $ 30 at Macy&rsquo;s on the west street, NY. We marvel at Apple Inc. for pocketing a cool $1400 for an iPhone 11 Pro Max which costs an estimated $ 490 to make! Surely, the $ 490 cost does not factor in R&amp;D, wages, services, and shipping costs but for a moment let us focus on mark-ups. The $490 is shared by all component manufacturers and assemblers as part of a complex global value chain. Apple takes the rest for itself, which it rightfully invests in R&amp;D, marketing, storefronts, and cutting-edge services which we have come to love in its products. At the end of the day, customers pay for Apple iPhone not TSMC chips, Invensense accelerometer or TDK inductor coils. The net impact? Apple has cash reserves of over $ 200 billion &ndash; more than what India makes as part of its GST collections in a year! And there is nothing wrong with this. If you are not profitable, you are not creating new products or generating jobs, paying taxes, or creating shareholder value.</p><p><strong><em><u>WHO DESERVES CREDIT?</u></em></strong></p><p>Once I was giving a guest lecture in a B-School on the importance of capturing the value chain in international markets. A young gentleman asked me what&rsquo;s the shame in trading? He invoked Adam Smith and his absolute advantage theory of international trade to support Indian firms not venturing downstream. I asked him if he were to make a project all by himself, will he be content letting his partner take all the credit for he took color prints and stuck them in a nice folder? If the thought of that scenario hurts, why should it not hurt Indian exporters? Porter Erisman in his book, Alibaba&rsquo;s World taught us a valuable lesson,&nbsp;&ldquo;When in Spring, prepare for winter.&rdquo; When it comes to exports, India chose not to.</p><p>India had a great bull run pre and post the 2008 crisis, but did we invest in scaling up these city clusters to giant SEZs? Banks were notoriously lax with their loans post the financial crisis, but did we utilize them to develop scale or penetrate western markets with new global brands? Indian dairy and poultry products are still a big no-no in most markets? Did we invest in infrastructure that cuts down the cost of our production vis-&agrave;-vis other markets? If you were to pick a copy of BUSINESS TODAY from 2006 and the one from last month, I bet you would still read almost identical articles on infrastructure woes plaguing Indian exports. Did we equip our farmers to match global productivity standards both in terms of yield and regulatory norms? It is heart-breaking to see news of consignment rejection of food exports from India to the US or EU on grounds of pesticide contamination. All we did was hanker about weaker currency. As if Indian rupee falling to 100 $ is the panacea of all exports. We kept crying foul about the MEIS incentives not being sufficient no matter the entire policy was in contravention of WTO norms &ndash; of which India is a signatory. However, if there were to be an award for the biggest miss for Indian exports in the 21st century, it would go hands down to&nbsp;<strong>LACK OF INTERNATIONAL MARKETING!</strong></p><p>A true marketer&rsquo;s job is not just designing glitzy campaigns, point of sale material, or eye-catching packaging. Agencies can pull that off. The real task is to identify a consumer subset that is willing to pay top dollar for your brand and be able to grab that opportunity with both hands. A marketer&rsquo;s real success is if he/she can build trust and create value for customers, stakeholders, and society at large. Indians have shown great ingenuity in doing that in India. The challenge at hand is to be able to replicate the same in international markets. Nothing could be more picture-perfect advertisement for Free Market capitalism if developing markets were also to invest in marketing their products in the developed world and make success stories out of it!</p><p>&nbsp;</p>