April 16, 2009

How the western recession is the real beginning of great news for India!

Yes! Indeed the western recession is really the beginning of good news for India! But to understand that, I’ve to take you away from the topic of western recession for a while... to the Japanese recession! For years, I’ve admired the Japanese style of management as a management teacher and given its examples in scores of my workshops. However, over the last one decade or so, I’ve been continuously facing one key question from my workshop participants – mostly CEOs from top corporations of India Incorporated. Their question to me invariably has been, ‘If the Japanese management style is as wonderful as described, then why has Japan been in a recession for the last decade and more?’ This question is what I guess one needs to understand first, if one has to really understand the beauty of the current western recession. My answer to this question has always been very simple. I believe culture plays a very important part in shaping up economies. What succeeds in one culture fails somewhere else. Kenichi Ohmae, a famous strategy guru, wrote in his bestseller, The Mind Of The Strategist, that if you want to sell a new kitchen appliance to a Japanese housewife, you have to first enter a Japanese small sized kitchen. And then, from the stacked kitchen appliances on the kitchen shelves, you have to tell her which one of them is to be thrown away to make way for the new appliance. Well, they are all excellent in quality. Long lasting. And tough to throw! And that’s why the Japanese economy has been in a recession for a decade now.

Because culturally, these Buddha lovers are basically non materialistic. And however much rich they become, unlike Americans, they cannot just keep throwing and buying endlessly. And once they have almost everything they need, there is a saturation point. After this point, there are primarily three kinds of demand. Replacement demand, new product demand and FMCG demand. And that can’t keep giving an economy a double digit growth rate! Add to that Japan’s rapidly aging population and negative population growth rate (the Japanese Ministry of Health forecasts that even till 2050, they won’t have a positive population growth rate). That’s exactly what happened with Japan. The government tried everything. They gave shopping holidays. They gave mass discount vouchers. But nothing could increase demand. However, every time a new breakthrough product – say, like an iPod – was launched, it was a sell out in the first week itself in Japan. The same with fancy new Louis Vuitton purses. The stores would run empty on the first day itself! It was only when companies like Toyota realized that they cannot keep selling cars endlessly to their home market that they went really aggressive in the western markets – and the rest is history. While General Motors is about to file for bankruptcy anytime, Toyota is the now the world’s No.1 car maker! Japanese companies grew bigger by catering to the world markets when their home markets shrunk!

And the markets have to shrink finally after one level of affluence! And that’s great for the world. Because Earth needs sustainable development. It doesn’t need monstrous consumers who keep consuming at the cost of the environment and the Earth. There should be limits to growth; and consumers, for their mental wellbeing, should not be converted into material dustbins for the profits of a handful of corporations. That’s why the Japanese recession has been good for the Earth. And what the Japanese – due to their small homes and culture – stopped doing years back, is finally going to happen with the west, now with this recession setting in. And nothing can prevent this from happening. No Barack Obama, no bailout packages. And thank god for that!

It’s the western diehard, capitalistic, greed-driven materialism that made these economies create artificial demand for most of the last decade or so, resulting into the total collapse of the system (as I had predicted five years back in my book The Great Indian Dream). Because of the materialistic culture in the west, it was possible to keep selling them newer products despite having existing ones which served equally good. If someone was happy with his car or house and did not have enough money to buy more, he was lured through advertising and marketing techniques of ‘dustbinisation’ of the consumer; and then finally, once he became a ready customer, he was given loans and credit to help him buy. But credit systems have logical limits. And that is, no bank would be ready to give credit beyond, say, fifteen years of future income. What happens when all the possibilities of excess savings by you over the next fifteen years have already been booked by the virtue of various products you’ve already bought? Well, then you cease to be a part of the market (For example, the US savings rate has declined from around 3% in April 2002 to near zero in April 2008; savings rate in UK fell to around 2% in the last year, its lowest in a decade; similar with other western economies). And what happens when aggressive sellers have lured all creditworthy people into pledging their next fifteen years income (the ratio of average household debt to disposable income is now around 140% in US and 180% in UK)?

Then there is hardly any scope of further selling in this market apart from the replacement demand of people who finish past loans every year. And this is only 6 percent of the market... Let’s assume that even this much was fair. But at least this should have been the time when corporations should have started looking at newer markets and avenues. But instead, they took the shortcut. They went to the non creditworthy people and gave them loans. At double the rate, assuming fifty percent will return the loans. But unfortunately, these non creditworthy people are non credit worthy; and they all expectably defaulted and the entire system collapsed. And now, there is hardly anything that can be done! Bailouts are ineffective because when corporations have debts exceeding two trillion dollars, even the current one trillion dollars loan cannot help them revive. The bailout just disappears into paying back loans. To revive corporations, one needs to give upwards of three trillion dollars as a loan so that while two trillion of those dollars can be used to pay off the loans, another trillion can be used to revive. Unfortunately, that kind of money as well as vision is unseen and unheard of. To that effect, the current governmental ‘bailout’ is not going to help much!

So the question is, what is going to help? Well! Like Toyota, American companies will learn to find newer markets! And that’s the excitement for India. This country – which was till now just being paid lip service, but is in reality a great concept bubbling to make a global mark – will finally make the mark. Not because some Mittal or Tata. But because of its common man! The billion plus population that will in the next twenty five years become a consuming middle class. And that’s the big chance for western companies who are currently in search of a shortcut. Once all such metaphoric ‘shortcuts’ fail to realise, these corporations will indeed look towards China, India and Latin America to begin with, and finally at Africa as well. For just India can give them three times the combined markets of the west. If all the other countries are to be combined, this will be many times more! And that’s the good news for today’s Henry Fords! They won’t die. They will innovate and enter these markets and rule again. Unless of course, the Toyotas and Hondas do it before them. But whoever does it, it’s still good news for the world. Finally, the world’s attention will shift in reality to the developing world. Finally, there will be real surge in income of these people and in the next fifty odd years, one can really hope to see an equal world in terms of material plenty, with poverty being almost nonexistent! And it will happen not by selling more to Americans and Europeans. It will happen by creating markets in India, China, Latin America and Africa. By giving their people purchasing power and by making products for them. And the subprime situation will take another fifty years to hit these markets!

When Japan was in a recession, no one bothered. Now that the west is in it, they will realize that it’s not because of worse management techniques, but because of limits to growth. And they will realize that it is great for Planet Earth. After all, how many cars and houses must the rich own before calling it enough? It’s time for them to look at the others as well. Many years back, to increase his own profits, Henry Ford had started paying his workers more – so that they could buy his cars. Now, the developed world will pay the developing world people more – so that they can buy their cars and washing machines. Henry Ford started a process that made Americans more prosperous in general. This recession will kick-start the process of making the entire world more prosperous, and lay the foundation of limits to growth in the west and the foundation of real globalization in the world – the globalization of prosperity. And one of its first beneficiaries will be India! Thanks to the huge market it has to offer the world. A market that is the only solution to the western recession. Once the current panic in India gets over and the hunt for shortcuts to getting over the economic crisis in the west gets over, their focus will be on India. And India will only grow! Maybe 7 percent this year. But high double digits sooner than later!

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26 comments:

SHINU S said...

Sir,

Very Informative post.
But I didn't got this point.
"Now, the developed world will pay the developing world people more – so that they can buy their cars and washing machines."
How???

Let it be in anyways. . .
Waiting for your nexp posting. . .

Shinu S.

Manuj said...

Probably the right lesson by US bailout for multinational banks to realize giving human touch to the customer. Making him richer and regards his feelings and self respect.

sandeep.aba said...

Sir,
It was good to know the power of developing economy but when we will be in developed economies list,do we'll have the same market demand.Then what'll happen if we'll have big sum as dasposable income.
Recession is once upon a lifetime phenomenon.How can we plan to make it a NONE UPON A LIFETIME PHENOMENON?

Regards,

Sandeep,
BBM,
Alliance Business academy

Chaitanya said...
This comment has been removed by the author.
Chaitanya said...

A thought that came to my mind while reading this article was - Is the blind consumerism model of the west suitable for India? Is it really going to help India in the long run or is it going to leave broken homes and degeneration of values in Indians, just like the west? Now, I might be wrong but the effect of consumerism in India can be seen already. certainly it seems to be good news for the economy but is it really good news for individual Indian in the long run? Are we game for this trade or should we welcome this in a controlled manner?

Nand Kishore Singh said...

I am not a management person. As a common man I want to know if management people are not responsible for not identifying saturation of growth and plan for activities in down phase (recession) then who is responsible?
I could not understand if a family can not develop due to its consumption power then how a country can be. I think, like a person, a country can not develop due to its resources or consumption power but it may be due to power to take decision of highest level with higher degree of coordination among its parts.

Pavan Pandey said...

You have given a very interesting angle to this global crisis. I hope that your assumption of global prosperity materializes soon. But one, would westerners relly help Asians or Africans to enhance their purchasing power? Second,the whole world would have to evolve viable and diversified models of sustainable development.

Azhar said...

I think that Arindam sir is very optimistic about the growth of India like my friends and me and many others.

However, I am quiet confused as he has not talked about the ability of India in various fields. If we go by the article, it seems that India will grow because the West ( and alike ) has already grown and it is time for India to grow!

I thought we are growing because of our expertise in various fields such as IT.

May be I see our way of living differently than our abilities.

Aren't they mutually exclusive?
I hope not!

Vinod Krishan said...

I have spent nearly 14 months in japan in two visits since 2005, at the Tokyo university and the Nagoya university. I find it is time the rest of the world starts imbibing the Japanese style of living. In particular I found:
1.their very desirable abstemious style,total individual honesty, generally no blatant show of upmanship,work ethics, civic sensitivity,all this and more even when no one is watching!
I tried conveying to some local philanthropists that the installation of automatic water taps could save us a lot of water and help maintain hygiene, as I saw it in japan, especially in public places, but to no avail!
Infact my Japanese colleagues were kind of pleasantly surprised when I pointed out the incredible simplicity of their life style and how it could be a lesson for the rest of the world as Arindam has rightly pointed it out.
Vinod Krishan, Indian Institute of Astrophysics, Bangalore

Anubrata "Atoms Vow" said...

This article is full of ambiguity. Like building up a castle and imagining what would have happened. I have some questions sir........

1. Size of US economy is 10 trillion, Size of Japanese Economy is 5 trillion USD.
India and China together (1 tr + 4 tr), how do they offset each other.

2. Japanese management is mainly famous for their TQM, Assembly line, cost reduction, etc. In the article which Japanese Management philosophy you were mentioning?

3. I consider these bailouts as govt. Investments, the US govt took stake in AIG and purchased many bad mortgages only to redeem later in future when the value is superficially high instead providing short term positive sentiments to the economy.

4. In the globalized arena recession is a bad news for any open economy, as we have opened our doors too it isn't good for us either.

4. This article

anoop singh said...

After reading your article a month back, I had sent an SMS to you saying that I would vote for you as the next Prime Minister of India.But after going over your latest literrati escapade, I did a double take on my last decision. What are you trying to project in this write-up is anyone's guess ? You have harped about RECESSION in your write-up, but, in fact, it is CORRUPTION which we have to face daily as an Indian.This is in regards to the 80% of us daily wagers who toil day and night for our two "rotis" at the end of the day.It is due to rampant corruption that even our currency has been skilfully forged and widely circulated. Are the commoners aware of this ? You will get the answer in your recession ridden mind that "yes" we can easily get out of this western phenomenon by simply printing counterfeit notes and countering the plague of so-called recession in our favour.Today my India is not faced with the wall of recession but with the deluge of corruption. You name anything and you will have it there. Be it "roti, kapda aur makaan". We have mastered this art to such an extent, that we have not spared anything from this demon of corruption. We, as a nation, have to take up cudgels against rampant corruption in our India to ensure a cure for recession. Jai-Hind. Paul Adams

IILM students said...

Dear sir,
very informative article, especially about japanese culture.
as you havw written that, "Now, the developed world will pay the developing world people more – so that they can buy their cars and washing machines."
i guess the meaning of it as, now the developed countries will share their profit with developing countries.

Guha Rajan said...

Nice & Informative post.

An interesting point which was being discussed in the comments is that "Now the developed world will pay the developing world people more- so that they can buy their cars and washing machines". I have not seen on what context/thought Arindam had mentioned it and would like to know about the same.

My thought on this one is

For 1$, one could get much higher value commodity/service in ountries like India , China compared to what the money can buy in US,UK or Japan, naturally any business man(or even a common man) in the developed countries would like a source his goods or service from that part of the world.

Even in your very house, if you look around you would only see international brand electronic products, hence in this era faster information exchange , easier airtravel , GATT/WTO agreement any commodity particularly consumer goods the entire world is the market and if the manufacturer concentrate a particular region/country then the manufacturer could become extinct or acquired due to competition.

Hence, product manufacturer has to optimize all categories of cost, this would naturally lead to locating manufacturing plants and jobs in low cost developing countries. This would directly or indirectly benifit the developing countries.

Take a look at my blog post dated 16th March in my blog and have discussed something on similar lines (http://indian-amps.blogspot.com/2009/03/global-economy-crisis.html)

Guha

karthikeyan said...

sir,

I wish you would clarify our doubts which proped up during a discussion on the article in BLine.

1. "Developed world would pay the developing world" - Did you mean the banking institutions and financial packages from G8 countries

2. As you have pointed the cultural dimension as the reason for recession, what do you think would be the impact on India and other developing countries due to our culture? ie, in simple words, when will be the next recession?

These were the majorly debated questions.

Guys, if you have any answers for the same, you are welcome to give me.

A.Karthikeyan
Business Analyst

bHu$hIr said...

totally agreed on every single point boss... its about time, people take these markets seriously.

But from what i feel, the multinationals have been taking India quite seriously but many of them have not yet been able to crack the Indian consumer mind.

Target has been in India since a while now, Metro as well.. So is Wal-Mart, but these people are still spending a lot of time and effort understanding the demographics of the consumer and have not made a move to open up a store... in essence maybe they're still not literate enough about the Indian consumer.. maybe..

Also, it kind of scares me to see all these companies who over-provided products and services to the US consumer, which in turn resulted into the downturn of the US economy.

I hope the current Indian generation does not get hooked to credit cards and excessive spending like their US counterparts. Considering the fact that an average Indian disposable income grown by leaps and bounds in the past few years, its imperative that we also remain a bit like the Japanese and not splurge like there's no tomorrow.!

Maanoj Rakhit said...

Yes, Sir. You write great articles - and I admire your writings. You hit at the fundamentals - undoubtably. However, you did miss or ignore or avoid one fundamental in this case.
What plagues the West today, that will come to build its nest in BhaaratVarsh tomorrow. Initially, it will give the deceptive look of "Prosperity to our People" (as you call it). Fifty years down the lane that very prosperity will take the shape of the disease that's troubling the West today and leading the mighty USA towards virtual bankrupcy.
Yes, the fundamental is that those greedy (or manipulative) multinationals you speak of, will simply shift to another playground and that will be BhaaratVarsh. A corrolary to that funda is also that many "Professionals" here in BhaaratVarsh will make plenty of "Money" while the Sun shines - something that we call "Responding to the Opportunity"!
Some might wonder what am I saying? All that I am saying is that the venue of "Drama" will shift from West to East. Nothing else will change. What plagues USA today will come to make its home here.
The Moral of the Story is that no one, I repeat no one, looks for remedy of the root cause - everyone is happy treating the symptopms.
Well, "Professionals" will continue to do that, and the "Common Man" will remain the Guinea Pig, as usual.
http://maanojrakhit.com

stockresearch52 said...

I completely agree with your argument that culture plays a vital link to the economic growth. You may agree with me that besides culture political literacy and quality of the political system along with exposure to the level of education do play a dominant role in deciding the rate of economic growth.

Prem Khanna J said...

Dear Mr.Choudri ,

That was a great article. As
as you rightly said , the
Japanese have got many good
time tested and proven systems
(other than management) which the
world can just close it's eyes and
follow.

~Prem~

shweta said...

sir,
your article seems to be an eye opener to the "may be" victims of this recession conundrum.But the process of seeing a stronger economy for india as u described seems to be an unending search for a tail process..it mite take years to reach the harmony u mentioned for india..but assuming that we have caught up to the peak where the markets boom in india again,we will still be left only as consumers rather than "producers", finally depending upon america once again .dont u feel the day india is going to become the strongest economy is when we are goin to rule the producer part of the market rather than being jus mere consumers and giving all benifits to the already developed nations?

Sidharth said...

quite impressive Mr. Chaudhari...

but the point I am not able to understand is that how can the westerners expect that if something is not working well for their country so would possibly work in a developing country n moreover I feel countries like India are automatically marked with recession tag due to the influence of the westerners becaue they haven't made an impressive mark in the global market...

Sidharth

SidFx
http://www.apnahomepage.in
Making Indian Weblife a comfortable journey...

sudhir said...

sir,
I find this article very much informative and intresting, but, like you cited that not being much materialistic is the reason for saturation in china, so could it not be the same situation with India also in coming future, it coud be, so my question is "Despite of this fact that every economy can moves towards stauraion RBI still providing monitary sops to Indian populous, so does this step will take India to more gloomy situation? as you mention that instead of providing more credit power one should look for the new market .
Sudhir Nair
IIPM Bangalore FW08-10

hanmi reddy said...

Every disadvantage has come inherent benefits. It all depends on particular person/situation to make it work

Guna said...

Dear Dr.Arindam

I had been a die hard reader of your articles at 4p/ business and economy. I was shocked to see that your prediction on India gaining by Global recession. Can you clear this point below for me and several of your readers please

"Once all such metaphoric ‘shortcuts’ fail to realise, these corporations will indeed look towards China, India and Latin America to begin with, and finally at Africa as well. For just India can give them three times the combined markets of the west. If all the other countries are to be combined, this will be many times more!"

Are you trying to say that Western world will invest money in Indian business, make it grow and make Indians rich?
So how do the Indian Middle class get the buying power amidst global recession?
With the decline of exports and foreign trade how are we to generate an economy locally?
With the threat to BPO and software Industry, how does the upper middle class thrive?
How will we control the fiscal deficit which is expected to rise to 11%?

Thank You

james said...

Dear Sir,
The tragic turn of events in Kandhamal in Orissa once again highlights the urgent need for church authorities to immediately halt the fraudulent conversions of poor non-christians, which are causing so much heart-burning and cultural anxiety.

As the menace of conversions is perpetuated with the receipt of foreign funds, the existing Poor Christians (read lower caste Christians) in India have steadfastly demanded that the church utilize all foreign funds exclusively for the welfare and uplift of poor Christians who are suffering from terrible discrimination within the community and are living in a pitiable condition, deprived of basic necessities. Indeed, this is the reason why some poor christians have been petitioning the Government of India not to appoint Bishops, priests and nuns to official Commissions and Committees, and instead appoint ordinary Christians.

The church annually receives so much money that the Catholic Bishops’ Conference of India (CBCI) and the National Christian Council of India (NCCI) should set up a Rs.1000 crore “Christian Development Fund” to ensure the integrated social and economic development of the existing poor christians in India.

Considering the confusion created by propagation activities in remote areas, some christians have been demanding that church authorities defer mass conversion programmes for at least a century. Evangelism cannot be a measurement of a society’s socio-economic development. Rather, the evangelism programme funds should be utilized for the welfare of poor christians who have already been converted to Christianity, and whose lot has not been improved by the church.

Instead of worrying about the living conditions of the existing poor christians, the church leadership is interested only in increasing the numbers of its flock. Even worse, a large chunk of foreign funds are being utilized for purchasing land and for the luxurious lifestyles of a few Christian leaders in India. As of now, the reality is that a handful of priests and bishops are monopolizing Church funds and property in the country. The Clergy including Priests, Bishops and Cardinals are monopolizing the Church estates and treating it as their own property and are indulging in its sale-purchase without the consent of the community.

The children of poor christians do not even complete their primary education. None of the 40,000 educational institutions run by the church give admission to the children of poor christians. This is the reason that in the last two decades many poor Christians have gone back to Hinduism due to maltreatment by the church. For this reason, some christians feel that the Government of India and the Supreme Court should redefine minority educational institutions and de-classify those Christian minority institutions which do not admit Christian children. They should also be taxed as commercial ventures.

There is no case for caste-based reservations for the Christian community in India, as this would institutionalize the discrimination against the poor Christians and blight their future forever. The teachings of Jesus Christ do not permit discrimination amongst his followers. All Christians are born in the image of God. Hence, if the Church in India pursues reservation for Christians on the basis of caste, it must pay compensation to poor Christians converted to Christianity in the past, for discrimination and oppression and false promises. The Government of India should also introduce special laws to protect Church property and land that is currently being misused and sold by vested interests.

Some christians also feel that the Vatican must stop appointing bishops and must follow the system in China. Poor christians must be appointed to important positions in the institutions of the Catholic Church. As the Church is the largest employer after the Government of India, poor Christians should be given 50% job reservations in Christian educational and medical institutions. There should be reservation of seats for poor christians, in Church-run schools, colleges, technical institutions and other vocational organizations.

Above all, the church should not criticize other religions, as this creates unnecessary ill-will. The time has come when pluralistic societies must be accepted. Hence the focus on fraudulent conversion and increasing the number of “rice Christians” does not serve the faith. The Church should instead promote multi-culturalism and inter- faith dialogue.


***

Gprofessionals said...

I am also a true believer that Japanese Style of management is far much better than that of American style of management. May be people have separate views but at present we can see the results why Japanese style of management is better.
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