Many a Cinderella has found her pair of dainty slippers, many miles have been covered on this earth by feet wearing this name and since centuries the synonym for footwear is BATA. This is one name that’s packed with punch, a brand powerful enough to lord it over numerous other brands, yet very affordable to the common man. Bata has been with us since the Raj, millions of us cherish memories of our first day at school, at college or first day at work, standing proud on BATAs.
“In the business the rules change and you have to adjust to competitive realities and I think working with an internationally renowned group of outstanding managers and advisors is a great combination.“
-- Thomas G Bata
The product stole the thunder from its creator. Etching the memory of Bata in the minds of generations of people are generations of the Bata family. Thomas G Bata while in Chennai met with N Sankar, Chairman of The Sanmar Group, at the Sanmar premises. Matrix caught up with the legendary Bata to find out what it means to have such a powerful name.
Bata has been around for 120 years and for a consumer product it’s quite an achievement. This is because we keep reinventing ourselves; sometimes it is forced on us, sometimes as a principle, in six to seven years we decide to revisit our business model just to change the rules of the game and to imbibe changes in consumer patterns. Yet another reason for our resilience is our set up that is a mixture of centralised and decentralised approach. It’s like a car with eight cylinders – ideally we would like to have all of them working optimally, but in a world crisis such as the present one, we may have only a few cylinders working to keep us going while we re-engineer ourselves.
When the business has your name it is a strong motivation. Whether people like the product or they don’t, they will associate the product with your name. It’s extremely satisfying when you see customers loyal to the brand and to the name. In many countries people are surprised to find that there is a person called Bata.
On the other hand it is quite a responsibility. You want to be perceived in good light and be successful in a positive manner.
We have an interesting mixture of legacy and change. Being a family business, we are able to maintain the culture and a certain long term pers-
pective. The advantage of not having too many families in the business and working with colleagues and external advisors takes the sentiment out of running a family business which is positive. In the business the rules change and you have to adjust to competitive realities and I think working with an internationally renowned group of outstanding managers and advisors is a great combination. This helps to look long term while continuing to find ways of restructuring the model.
First of all it’s not always an easy silver spoon to inherit, particularly when you have generations who’ve been around. The successful model that the original entrepreneur built may have done its time. For future generations it’s quite a burden to inherit because there is pressure on you. So and so was successful but the model no longer works. It’s a big responsibility to figure out how to re-do the model and ensure continuity. You have to contend with big changes and the speed of change in the world. Earlier, generations of the family would bring in the change. Today in a single generation you have to reinvent the business four or five times over. That’s why a combination of family involvement and managers to bring fresh ideas, I think, works best.
Thomas G Bata with N Sankar
Mojari of the Nizam of Hyderabad, India, Hyderabad, Andhra Pradesh, early 1800s
This pair of mojari is said to have been worn by the Nizam of Hyderabad, Shikander Jah, in the early 19th century. They are embellished with gold metal thread called zardosi and salma sitara embroidery (gold metal embroidery incorporating a sequin, called a sitara or star). The throats are embellished with rubies, diamonds and emeralds set in enamelled gold.
Ivory paduka, India, Travancore-Cochin, 1775-1825
These rare paduka, or toe-knob sandals, embellished with inlaid ivory, were once worn by a member of the highest class. The dense, meandering fl oral motif and the careful piecing of the ivory veneer are characteristic of 18th century Travancore workmanship.
Acholi Sandal, Africa, c.1900
Like pieces of abstract sculpture, footwear from certain parts of Africa can be quite dramatic in design. Traditional footwear from the Acholi region of Northern Uganda is formed using an oval shaped piece of wet rawhide which is incised and pigmented red and black.
Chopine, Italy, 1580-1620
Today, only a small number of museums have examples of chopines. The debut of chopines occurred during the Renaissance but they were still the footwear of choice for many wealthy women at the beginning of the 17th century. Highly impractical, the chopine’s primary purpose was to make the wearer stand out and therefore it was perfectly suited for extravagant and expensive embellishment. This treasured pair features silk velvet covered wooden platforms ornamented with silver lace, silver tacks and an upper of ruched silk edged with silver lace and fi nished with a silk tassel.
Dr Arvind Subramanian is a senior fellow at the Peterson Institute for International Economics. He also holds a joint appointment at the Center for Global Development and is senior research professor at John Hopkins University. He teaches at John Hopkins’ School for Advanced International Studies (SAIS). He had served at the International Monetary Fund since 1992, most recently as assistant director in the research department (2004–07). He worked at the GATT (1988–92) during the Uruguay Round of trade negotiations and taught at Harvard University’s Kennedy School of Government (1999–2000). During his career at the Fund, he worked on trade, development, Africa, India, and the Middle East.
Writing is indeed his passion. He is ranked among the top 4% of authors in Economics by IDEA (www.ideas.repec.org). Subramanian has written on growth, trade, development, institutions, aid, oil, India, Africa, the World Trade Organization, and intellectual property. He has published widely in academic and other journals. His collection of writings on India, “India’s Turn: Understanding the Economic Transformation,” was recently published to wide acclaim.
He is an ardent admirer of Paul Krugman, the Nobel laureate. In a very Krugmanish fashion, Dr Subramanian put across the rudiments of the impact of the global financial crisis in an interview to Matrix.
It hit like most mishaps do - just when we thought it is something that happens to others. As we watched with numbed silence the stirrings of “The Great Recession” on the other side of the world, the smoke and flicker caught on in our own backyard. Hit by the contagion yet escaping its virulence, India is working to identify and address the spoke in its wheel of fortune. The two brightest stars of hope for the future still remain China and India; India rides on the brand equity built on democratic ideals and China on its financial muscle. It is indeed time for the world economy to disintegrate and, from the fallen embers, rebuild a sturdier, stronger and sanctimonious economic order.
Can India afford to be complacent that it can still manage about 6 to 7% growth? The golden days saw corporate India with its plate brimming. Now it stands highly leveraged, having bitten off huge chunks, unable to chew or gulp. Can India Inc keep its head above water on the strength of domestic demand? (Refer his article, “The credit crunch conundrum” in the Business Standard, dated 5 Nov 2008 for technical details on the situation).
As far as the world financial crisis is concerned, nobody anticipated the magnitude, the severity and its propensity to draw-in the emerging economies in its impact. This crisis is indeed testing the limits of our knowledge and our ability to respond to this crisis. With interest rates close to zero percent in the US, I think we are in full-fledged experimental mode. As for the beginning of the end game, no one has a clue.
In the case of India, the growth rates have been progressively shaved off. Policymakers and pundits were complacent about the impact of the crisis in India, seriously underestimating how financially exposed we stand. While we knew we were integrated with the global financial markets through the inflow of foreign funds into equity markets, we underestimated the extent of the integration of corporates through their overseas borrowings and the vulnerabilities that it would create due to the fall out in the global financial markets.
Corprorates borrowed heavily for mergers and acquisitions and when the crisis hit they were not able to roll over their loans overseas because foreign financial markets were frozen up. They had to turn to the Indian banking system and RBI for financing. The demand on credit and foreign exchange in India was something policy makers hadn’t anticipated. The deleveraging that took place brought a sharp decline in the rupee. This could have gone down further but for the fact that the RBI intervened. This is the fall out of our exposure to international financial markets.
Now from a trade perspective, we also underestimated how exposed/integrated we are to world trade markets. We used to be a closed economy 20-odd years ago but now we are much
more an open economy. Our trade to GDP ratio is close to 50% as opposed to 25% about 15 years ago. When there is a downturn in the global economy our exports are affected. It’s making its way not only in goods but foreign contracts, outsourcing and the whole BPO/IT sector is much more affected.
This crisis has shown up that India is more integrated in the world economy not only in trade but also in financial terms. Therefore if you ride the tiger, you face the risk of being eaten up by the tiger.
There is an inherent unpredictability to this crisis. We are responding as things come by but we are responding very well. The RBI was quick to come up with its measures.
During India’s consistent growth phase, the economy seemed to be hotting up. On hindsight, considering the present fiscal and trade deficit due to the downturn, have we gone overboard and let things run amuck?
This is debatable. After 25 years of 6% growth we’ve had 5 years of 9% growth; the feeling was that the economy was indeed overheating a bit. There was the commodity crisis and then the global crisis, which nobody could have anticipated. The commodity crisis led to the high rate of inflation and additionally, on the supply side, infrastructure bottlenecks, shortages of skilled labour, etc., were creating a strain on capacities raising the question as to how long we could drive on at 9% growth. But my view is that as far as the Indian economy is concerned you can’t hope for big bang reforms, or get infrastructure fixed. The Indian system functions by fixing bottlenecks that prop up unlike the Chinese approach of addressing a problem head on. This crisis is like a wake up call. The real collateral benefit of this crisis is-
1. Commodity prices have collapsed. That means it’s very good for inflation and we have been able to cut interest rates much more. It also means that we’ve been able to enact the fiscal package. Imagine the state if the price of oil were at 150 $!
2. When the crisis is over, we can expect to be a hyper economy. With the exchange rate at Rs 50 to the dollar our exports are going to be very competitive. The fall out of the overheating was that our exchange rates had become too strong. At some point we were Rs 39 to the dollar. With fantastic prospects for the export sector at the present exchange rates, I foresee going back to the 8 to 9% trajectory once the crisis subsides.
Will the benefits of the government’s fiscal package trickle down to keep afloat the lowest rung of the corporate sector? Not all corporates are in the league of the Tatas and Birlas to qualify for a government bail out. Will small and mid-sized industries buckle under? (Refer his article, “Preserving Brand India during crisis” in the Business Standard, dated 24 Oct 2008 for his suggested prescriptions).
Corporate profits have declined due to slowing down of growth and exports. While you can expect some fresh squeeze on margins this is going to be a transitory phenomenon because on the cost side, oil prices are down and that’s a wholesale cost cut for companies. Interest rates have been cut and the additions to the financial package with a cut in value added tax (VAT) by 4%, will provide some stimulus. The stimulus is targeted on the revenue side. We shouldn’t exaggerate the effect of that but the big action is going to be on the monetary side. With interest rates slashed mid term credit is going to be available abundantly. Government could do more and propping up of demand will help. In terms of a bail out package, we don’t have too much space on the fiscal side as debt ratio and deficit is still high. The financial situation in the public sector doesn’t look too good. Private sector will always do well, as progressively, more and more room will be given. The bottlenecks, I think come from the public sector.
If we remain at 6% growth trajectory, that will be enough to tide us through. In the wake of the worst financial crisis, we can’t complain with this kind of growth.
But the big uncertainty is - how long will the global economy remain weak? If it turns around we are in an especially good position as we have something good going around. If the global economy is going to be weak and sluggish and we have a prolonged recession, then you can expect many more bankruptcies and lay offs. Non-performing assets will increase in the banking sector which will put pressure on the banking system.
This is playing out to be the severest and longest recession. We have been into it since 2007. For two more quarters the US may see negative growth rate. If President Obama’s fiscal package gets through and Europe gets its act together on a similar package then we can say two quarters and 6 months down, we would have passed the worst recession and then the economy will pick up. It is in the nature of these things that when it turns around the rebound will be very pronounced. With an exchange rate of Rs 50, we can take advantage of the situation.
In the late 90’s when government and the RBI set the scene for banks to indulge in commercial credit, the banking babus didn’t budge. Will this happen now?
Rakesh Mohan (then Finance Secretary) called it ‘lazy banking’ when banks where unwilling to lend money. This happened when the investment cycle had declined. Post the economic liberalization, the economy picked up in ’91. Then there was sluggishness in growth and that’s when we saw this lazy banking. In the last 5 years, we have seen private credit growing at 30% a year. You can’t say banks are not lending. In contrast to lazy banking, increase in credit leads to over lending. The quality of credit deteriorates when you lend too much – laxity/ oversight in regulations, in standards, etc., – and that’s what we are seeing. When we are looking at 9% growth, credit will be available. There can be no going back to lazy banking.
As the global recession comes to roost, can regional economies turn into a bowl of spaghetti (as Prof Jagdish Bhagwati described the Asian trade caucus) to cushion themselves? Will a new form of protectionism emerge?
The sanguine view of the world economy is that things are bad but once the fiscal package goes
through, the US, Europe, China and the rest of the world economy will turn around. A less sanguine view is that in the event of a delay in the fiscal package in the US and EU, you could get this new wave of protectionism that will be a bad case scenario. There are signs that protectionism is re-emerging not just in the US but also in the emerging market countries. One instance is the assistance being contemplated in the public sector in the US; If the state provides the bail out money to the Detroit auto companies it is a mild form of protectionism which affects the competitive conditions for other companies like Hyundai or Toyota. The other form of protectionism we are likely to see is action against exchange rate manipulation; President Obama said that he will support any bill against currency manipulation, so that’s the real risk. If the current situation snowballs we could easily get a repeat of what happened in the 1930s. We had a macro economic problem and we had protectionism to boot that didn’t augur well. So there is a threat of protectionism with Russia and India, having enacted some protectionism measures. Unless the entire international community stands committed to keeping markets open there is a risk of running into a downward spiral of protectionism.
In the Indian case it is not so much as getting into the regional groupings as India raising its trade barriers. The regional agreements were underway even before the crisis. Is this the right track? As Professor Bhagwati alerts, one has to be careful about these regional groupings. Regional groupings in effect raise barriers to those that are not part of the union. Are these stumbling blocks or building blocks to expanded trade, is something that has to be well thought out.
Where does India stand in comparison to China in terms of the crisis?
The Chinese strategy is very much mercantilism. They kept the exchange rates very competitive and had this huge export juggernaut going. The resultant trade surplus built up a huge war chest of foreign exchange reserves. In the wake of the crisis, China is one country that was not affected on the financial side. The high forex reserves eased the pressure off its currency.
India has been more traditional. We went in for capital account liberalisation allowing capital to come in, and the exchange rate became strong resulting in the classic avenue of import expansion. In the face of the crisis, we are faced with trade deficits. If India had not built up the reserve of 300 billion dollars, the rupee would have dipped further and our financial crisis would have been much greater.
Looking ahead, there has to be one big strategic choice – the strategy of letting in capital or that of emphasising exports, as we start marching with the crisis.
Would the IMF don a new avatar in the new financial world order?
The crisis really serves to put the spotlight on the IMF and has given it a new lease of life. If the IMF’s new avatar would be that of crisis resolution in a world that has so many cash strapped countries seeking its assistance, then it needs huge resources, something to the tune of one or two trillion dollars. As we’ve seen, the amount of money sloshing through the system is huge and this is expected to grow by leaps and bounds.
In the expanded role of the IMF, the issue of its governance comes to fore. Presently, the big industrial nations influence its governance, with the EU enjoying more voting rights than its underlying economic strengths. In the past, some of the bigger responses to crisis have come from countries like China. A bigger IMF in this sense means a bigger role for creditor countries like China.
So, IMF will have to refashion itself to maintain a larger corpus of reserves and provide a voice for emerging market countries like China, Brazil and India. A combination of reforms will have to be negotiated as part of the G20 process.
What would be the prime role of India and China in the forthcoming G20 Summits?
(Refer “Multilateralism beyond Doha”, Aaditya Mattoo & Arvind Subramanian)
India may not have a big a stake in the financial order but we certainly have a big stake in the world trading order. Our big stake in this is to ensure that the world economy does not close down. The world view is that India is like a kind of a free rider on the world trading system. We still think in defensive terms, preferring to keep the freedom to raise or lower trading barriers. It would not be in our interest if the US and EU indulge in protectionism; we need demand so that our markets for exports open up. Hence our role would be to keep protectionism at bay and we need to initiate this.
India could take a diplomatic initiative convening Brazil, Russia, China, Korea, etc., and come up with a new agenda for keeping markets open.
The world economy needs resurrection now and
every country is under resuscitation. At the national
and international levels there is a need to pump in
fresh oxygen - a slew of good policy to drive out bad
policy. The crisis is too big and too deep; so much
needs to be done in many fronts and coordinated
across many countries.
As Dr Arvind Subramanian puts it, “If the world
economy recovers, the pressure to regulate would
wane. So while still in crisis mode, there is a need to
reform to prevent future crisis.”
But by who, when and how it will be done? Perhaps,
we should ask Nostradamus!
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