China and India will Segment the market, rather than Compete

China and India will Segment the market, rather than Compete

Vinitha Valsalan

Vrithi Chandramani P.

IInd Year, PGDM

About the Author

Dr. Jagdish N. Sheth is the Charles H. Kellstadt Professor of Marketing in the Goizueta Business School at Emory University. Prior to this, he was at the University of Southern California (7 years); at the University of Illinois (15 years), and on the faculty of Columbia University (5 years), as well as the Massachusetts Institute of Technology (2 years). Dr. Sheth is nationally and internationally known for his scholarly contributions in consumer behaviour, relationship marketing, competitive strategy and geopolitical analysis.

Dr. Sheth has worked for numerous industries and companies in the United States, Europe and Asia, both as an Advisor and as a Seminar Leader. His clients include AT&T, BellSouth, Cox Communications, Delta, Ernst & Young, Ford, GE, Lucent Technologies, Motorola, Nortel, Pillsbury, Sprint, Square D, 3M, Whirlpool and many more. He has offered more than a thousand presentations in at least twenty countries. He is also on the Board of Directors of several public companies including Norstan (NASDAQ), Cryo Cell Internatinal (NASDAQ) and Wipro Limited (NYSE).

In 1989, Dr. Sheth was given the Outstanding Marketing Educator award by the Academy of Marketing Science. Dr. Sheth was also awarded the P.D. Converse Award for his outstanding contributions to theory in marketing in 1992 by the American Marketing Association. In 1996, Dr. Sheth was selected as the Distinguished Fellow of the Academy of Marketing Science. Dr. Sheth is also a Fellow of the American Psychological Association (APA). 2004 marked a stellar year for Dr. Sheth ,as he was awarded both the Richard D. Irwin Distinguished Marketing Educator Award and the Charles Coolidge Parlin Award which are the two highest awards given by the American Marketing Association.

A prolific author, Dr. Sheth has published more than 200 books and research papers in different areas of marketing and business strategy. Many of these are considered classic references. His latest book, published in 2008 is ‘Chindia Rising – How China and India will benefit your Business’.

Q: Sir, please tell us something about your latest book ‘Chindia Rising – How China and India will benefit your Business’.

A: Primarily I saw the rise of these two nations changing the whole geo-economical and geopolitical alignment of the world. There are several aspects to this change. This rise is not only inevitable, but also is desirable for the world. There are three dimensions to this change.

The first dimension is that these two nations will need so many resources, be it agricultural resources, industrial raw materials or human capital. This will put enormous pressure on the world for the demand of resources. Already many countries are worrying about food security. They don’t know if they will be able to get food or energy to meet their future needs.

The second dimension is that these two nations will be the largest consumer markets in the world. Therefore the rest of the world will have to show up here for their survival. These two markets will be contested heavily by everybody. The biggest excitement in both these countries is about rural China and rural India. The growth will come more from rural areas rather than the metros.

The third dimension is that both these nations will go global, but differently. Chinese companies will expand geographically by exporting their product and putting their own manufacturing capabilities. Indian companies will grow globally by acquisitions of big companies. Many of the western countries would rather sell to Indian companies than companies from China. They feel more comfortable with the Indian companies. This is because we are not so insulated by the Communist rules.

Q: In recessionary times, how critical is customer service? What are companies doing; or rather, what should they be doing?

A: In recessionary times, there is usually an enormous pressure to do cut back. The three places a company does cutback is, first of all on travel. Second is training and education. And the third is customer support.

Now, there are several architectures in customer support. The first architecture is to say, what can I do more efficiently within the company, for productivity. The Customer Support Head is under productivity pressure. So he says, ‘What can I do more with people?’ And the way to do it is to embrace technology. I can make a person more productive if I give him tools. It’s like the fulcrum of the Industrial Revolution; a person could leverage and lift 500 pounds, which he could not do otherwise. So I think machine-enabled customer support, where people are still there, but machines enable them; will be the first major platform. In recessionary times, they will ask how they can put a little more automation in customer support organizations.

The second platform is self-service; encouraging end consumers to do it themselves. I worked quite a lot in telephone companies. Telephone companies, till mid 70s, had nothing but operators because the switches were manual. And we put a platform called TSPS, which is a telecommunication platform for automating the handling of calls. We saw huge resistance by the workers of these companies. And we found that the number of people needed for call management was 1/10^th of what the companies were employing. Then there was a slow phasing out; with early retirement programmes and so on.

People actually like machines. They see human variability enormously, because at the call centre level or customer support level, companies have to invest as well. People do not want to chat with the operator because she can make mistakes. You would rather access the database of the company by pressing a button; and get a quick answer. Now, with the web, technology and broadband, people actually love to do online shopping rather call and make orders. With iPhone coming now, you will see more and more consumers saying, iPhone is my first preference. Press a button, and I can get a road map, the traffic problems and so on. Otherwise, I had to call customer support.

The third alternative for companies is to strategically outsource. But outsourcing in India will be to another Indian company.

The fourth mechanism for customer service in recessionary times is to convert the call centres from ‘cost centres’ to ‘revenue centres’. We did it in America, in a telephone company. The calls are coming in, but you still have people available to do outbound calls, which is revenue generation. So they will convert from cost centres to call centres, and eventually to profit centres.

Q: In the key note address delivered by you at the Conference here, you said that China would dominate the service sector in 10-15 years. Given India’s advantages, be it proficiency in the English language or thought leadership, how will China catch up with India?

A: China, like many nations, has targeted India to understand why India is so good. And the language advantage has been identified. So the Chinese government has now mandated that every school child has to learn English; preferably with no Chinese accent, i.e. accent neutral. Now, you can learn a language in a year or lesser; even 30 days! Even if we learn it as a part of our curriculum, it takes no more than 3-5 years. So they will equalise that.

In my view, the way it is going to work is that China and India will segment the market, rather than compete. In areas where India will excel, China will not come in. And that surprisingly turns out to be defence and security. The rest of the world does not want to have China as the supplier of those services. Areas of very high levels of research and development, is also where China will not want to do much export. They are very worried about retaining their own people and talent. Whereas we feel it is okay and that it is a market process. If you are a qualified scientist and you want to pick up a job anywhere in the world, it is okay. Whereas the Chinese will simply say, “Get my permission first. You are a strategic asset to the nation, and I tell where exactly you should go”.

At the lower end, like contact centres and low-end BPOs, China will become pretty large. Same is the case in front-end hospitality. Not the managerial class; they have a shortage of managerial class. But they have a lot of frontline people. And this is what I think is going to be the key difference between the two nations.

Q: In the service industry, the employee is the face of the company, and he delivers the service to the customer. At the conference, Mr. Andrew Hendrian was talking about how some of the best companies that score high on the loyalty index also have very high employee retention. This idea meets with a lot of resistance. How do you think we can get around this?

A: The only way we can get around is to discover the value of human contact. And I think as we move towards cost reduction, there will always be a counter reaction saying that we have missed the human touch. It is already happening in the US. Because of the cost reduction and high wages, we have automated the whole process.

Secondly, human capital seems to be more cost effective if you don’t measure strictly in terms of input Rupees or Dollars per hour, but more in terms of the effectiveness on the output side. A human intervention, if it is a service recovery problem, is much more cost effective than a machine intervention because machines are still not as intelligent to understand the nuances of the customer. And therefore the human intervention seems to recover faster, better and cheaper. And personally I am more passionate about human beings.

If we take wheat and make it into a loaf of bread, the value added is about five times. If we take a rough diamond and polish it, the value added will be about ten to twelve times. But if we take a human being and polish him, the market value is infinite. There is no asset when compared to factory or money as mouldable, as flexible and as versatile as a human being. If companies learn to make ordinary people extra-ordinary, they will see enormous economic benefit.

Q: What are your thoughts about the ‘Easternization’ that is taking place in the world currently?

A: For the first we time I see ‘Easternization’ of the world taking place. It begins with spirituality, literature and art. I call it the ‘Slumdog Millionaire’ phenomena. I think it was Rudyard Kipling who said “East is east and west is west, and never the twain shall meet”. He was dead wrong; if you look at it, he is dead and he was wrong!

Jokes apart, Easternization will be different from Westernization. Western countries are always receptive to change since the Industrial Revolution. But the traditional societies resist change. But what we see is that our eastern approaches are increasingly becoming mainstream. We see Ayurveda, Yoga, Holistic medicine and Naturopathy spreading throughout the world. The Indian, or rather, the Chinese-Indian traditions will be made mainstream not by Indians or Chinese but by the western people. That will be the prime difference of Easternization.

Q: Everybody is talking about India being global. But do you really see any Indian brands making it globally?

A: Actually yes. For example, Tata is a major brand worldwide. Corporate brands of India are definitely in the global arena. So is Infosys; it is considered a world-class brand; so also Wipro. We can think of all the Indian corporates and they are clearly there.

The next level is product and service brands. We already have, for example, Tata Tea; that is Tetley Tea. They own the brand. India will rise as brand owners rather than as brand creators. In fact in the garment industry, most of the brands which are created in the West are owned by Indian companies. Ownership is the other way of becoming global. Many of the Indian companies are buying foreign brands not only for foreign markets, but also for bringing it to Indian markets. Jaguar and Land Rover are good examples.

Lastly, Indian product brands are going to go global. Primarily they are into the Indian diaspora. As ‘Easternization’ takes place, you will see more Indian brands in the mainstream. Right now they are very strong in ethnic markets. For example take Kingfisher beer. Now it is drunk not just by Indians. Now it is fashionable to ask for Kingfisher beer at a pub.

So the Indian brands will get globalised either by Indian owners liberating from ethnic markets to mainstream markets; or Indian brands will be owned by foreign companies for globalization. Q: Sir, you have been an academician for the better part of your life. What would be your message for MBA students like us?

A: The first advice is to never forget the purpose of you being here. Unfortunately students of management, unlike students of liberal arts and social sciences, were not given the sense of purpose in life through business. In other words, the role of business was to just make money, even at the expense of society. And now we are all finding that it was a huge mistake that business schools have made.

So my view is that students have to, on their own, say that if I am going to work in a company, how can I make that company use me and my talent to make itself socially relevant or useful. In other words, ‘doing well by doing good’.

And it is not a CSR movement. I am not actually fond of CSR. It is a good thing to do. But CSR often comes from the emptiness that comes with wealth; wealthy people become empty. In fact, they are lonely inside. Ultimately to help the society embrace them, they want to give it back to the society. So many of them create Foundations and say, ‘I will contribute money now’. It is not a part of business; it is like a side activity.

The second reason is they do it out of guilt. For instance, companies or founders who have made money from products which are not inherently good for the society, like alcohol or cigarettes; and even dynamite. Even the Nobel prizes were created because of that. They say, “My God I have made a technology that became very destructive”. Not that they meant to. But technology finds its own uses.

The third one is, a sort of an afterthought – strategic philanthropy. Here the company thinks “It would be good for my business”. So I generally think CSR is not a side activity but it is a daily thing you ought to do. That is one message.

The second message is that you must get skills, not just knowledge. At one point, it was thought that MBAs are in the business of gaining knowledge. I think that we are now finding that a management student has to have both, knowledge as well as skill sets. Which means you know the ‘what’ and ‘why’ – the theory or the phenomenon – but you also know the ‘how’. So that is my second message.

The third message is that it is really a life-long journey you are encountering here. What do you think about the journey of tomorrow? The traditional model is not going to be sustainable; where you start with a company and stay there till you retire. That is not going to be the phenomenon. You will have to constantly reflect upon your career choices. And you will probably experience more mid-life crisis than your parents or grandparents. So, how do you revitalise yourself? How do you think about career shifts? For example, whether you plan to move from the corporate world, to become an entrepreneur; or do you plan to run an NGO. You will have to prepare for that.