Solution Set End Term Examination Fourth Semester (MBA) May-June2009 Paper Code: MS232 Paper Id-39232 Time:

3 Hours Q.1 Explain any four of the following: (a) Co-option (b) Three Cs in the partner selection process
The first C: Compatibility Many MNCs talk of alliances in terms of marriages. The use of the term simply means that, as in a marriage, compatibility and the ability to resolve problems and differences are key ingredients to a prosperous relationship. In fact compatibility does not mean the relationship is always harmonious. The inherent tension underlying competitors/collaborators in an alliance make some friction inevitable. However, if some chemistry exists the marriage partners will likely manage their differences. The second C: Capability The capabilities of the potential candidates are obviously of prime importance, and companies may want to compile a dossier on each and evaluate their strengths and weaknesses. Among the issues to consider are: Have you checked for complimentary strengths? Has a multi-functional team scrutinized the capabilities? Is compatibility inferring with a rigorous analysis? The third C : Commitment Finding a partner with an equal sense of commitment to alliance is the third keystone to success. Even if partners appear capable and compatible, unless they are willing to invest the time, energy and resources to make alliance a success, the chances of venture weathering changing market conditions are slim. Several companies suggest two important tips on how MNCs can test whether their potential partners share a sufficient degree of commitment to the alliance: Does the alliance fall within a core business or product line of the partner? Determine how difficult it would be for a potential partner to withdraw from the alliance

Maximum Marks: 60

(c) Enterprise Resource Planning in Indian industry.

ERP stands for its acronym as Enterprise Resource Planning. The main objective is Enterprise-wide resource, which aims to integrate entire business system, all departments, and all functionalities of the organization. Generally all departments in the organization have different computer systems and this was a bit difficult task for the company to do the business but with the emergence of this software application, businesses have simplified to a very large extent. This has helped businesses to prosper in every respect thus making the entire corporate sector to simplify in all respect. The integration of all the functions of the company is due to implementation of erp software solution.

In most cases it has been seen that an ERP India implementation takes three to six months for any organization but sometimes it also depends on the size of the organization. Suppose if a business organization has to implement only Accounting module, which is itself, an expensive application software system may take less time to implement. Sometimes it depends on the size of the module to be implemented. When ERP system is implemented, it is required to change the ways you do your business if you want erp to work in right way. Similarly the employee of the company also needs to change their way of working and follow according to the erp functioning. ERP India is one such huge system that almost all kinds of business specialized in any industry wants to implement in their organization. They want to implement this in order to smoothen their business functionality and thus create prosperity for their business. You also need to understand for what purpose you need this system and also consider how you will use it to improve your business system. In an organization, finance has its own set of numbers, sales has its own version and all other have their own revenue figures and it is responsibility of the authority to analyze all these figures. An ERP business system creates a single version of all these which any user in the organization can use to understand it fully.

Before ERP came into being, MRPs were found in the market to solve businesses. Manufacturing Management Systems were put into process in industries to solve business functionalities at every step. During the time, a lot of research and development was going on and then this system converted into Material Requirement Planning system. This system was an advanced version of manufacturing management system that came as a business solution. Over the time there took numerous changes in the manufacturing industry in the sales, production department and others which led to the evolvement of Manufacturing Resource Planning and then later on came to be known as Enterprise Resource Planning. Till date, Enterprise Resource Planning is functional in all kinds of industries with the businesses requirement analysis, planning and demand. This system was designed with intent to plan the proper use of enterprise, resource and planning widely.

(d) Strategic rationale of building strategic alliances

A strategic alliance is when two or more businesses join together for a set period of time. The businesses, usually, are not in direct competition, but have similar products or services that are directed toward the same target audience. Alliance means "cooperation between groups that produces better results that can be gained from a transaction. Because competitive markets keep improving what you can get from transactions, an alliance must stay ahead of the market by making continuous advances."1 Strategic alliance is a primary form of cooperative strategies. "A strategic alliance is a partnership between firms whereby resources, capabilities, and core competences are combined to pursue mutual interests."2 Alliances can be structured in various ways, depending on their purpose. Non equity strategic alliances, equity strategic alliances, and joint ventures are the three basic types of strategic alliances. Why Strategic Alliances? In the new economy, strategic alliances enable business to gain competitive advantage through access to a partner's resources, including markets, technologies, capital and people. Teaming up with others adds complementary resources and capabilities, enabling participants to grow and expand more quickly and efficiently. Especially fast-growing companies rely heavily on alliances to extend their technical and operational resources. In the process, they save time and boost productivity by not having to develop their own, from scratch. They are thus freed to concentrate on innovation and their core business. Many fast-growth technology companies use strategic alliances to benefit from moreestablished channels of distribution, marketing, or brand reputation of bigger, betterknown players. However, more-traditional businesses tend to enter alliances for reasons such as geographic expansion, cost reduction, manufacturing, and other supply-chain synergies. As global markets open up and competition grows, midsize companies need to be increasingly creative about how and with whom they align themselves to go to the market. Case Study Toshiba Toshibas approach is to develop strategic alliances with different partners for different technologies.

(e) Competitiveness and its levels

Unit-I Q.2 Explain an integrated framework for competitiveness and define competitiveness enhancement and sustenance process. Ans The 12 pillars of competitiveness
The determinants of competitiveness are many and complex. For hundreds of years, economists have tried to understand what determines the wealth of nations. This attempt has ranged from Adam Smiths focus on specialization and the division of labor to neoclassical economists emphasis on investment in physical capital and infrastructure, and, more recently, to interest in other mechanisms such as education and training, technological progress (whether created within the country or adopted from abroad),1 macroeconomic stability, good governance, the rule of law, transparent and wellfunctioning institutions, firm sophistication, demand conditions, market size, and many others. Each of these conjectures rests on solid theoretical foundations and makes common sense. The central point, however, is that they are not mutually exclusiveso that two or more of them could be true at the same time. Hundreds of econometric studies show that many of these conjectures are, in fact, simultaneously true.2 This also can partly explain why, despite the present global financial crisis, we do not necessarily see large swings in competitiveness ratings, for example in the United States. Financial markets are only one of several important components of national competitiveness. The GCI captures this open-ended dimension by providing a weighted average of many different components, each of which reflects one aspect of the complex reality that we call competitiveness. We group all these components into 12 pillars of economic competitiveness: First pillar: Institutions The institutional environment forms the framework within which individuals, firms, and governments interact to generate income and wealth in the economy. The institutional framework has a strong bearing on competitiveness and growth.3 It plays a central role in the ways in which societies distribute the benefits and bear the costs of development strategies and policies, and it influences investment decisions and the organization of production. Owners of land, corporate shares, and even intellectual property are unwilling to invest in the improvement and upkeep of their property if their rights as owners are insecure.4 Of equal importance, if property cannot be bought and sold with the confidence that the authorities will endorse the transaction, the market itself will fail to generate dynamic growth. The importance of institutions is not restricted to

the legal framework. Government attitudes toward markets and freedoms and the efficiency of its operations are also very important: excessive bureaucracy and red tape,5 overregulation, corruption, dishonesty in dealing with public contracts, lack of transparency and trustworthiness, or the political dependence of the judicial system impose significant economic costs to businesses and slow down the process of economic development. Although the economic literature has mainly focused on public institutions, private institutions are also an important element in the process of creation of wealth.The significant corporate scandals that have occurred over the past few years, and the present global financial crisis, have highlighted the relevance of accounting and reporting standards and transparency for preventing fraud and mismanagement, ensuring good governance, and maintaining investor and consumer confidence.An economy is well served by businesses that are run honestly, where managers abide by strong ethical practices in their dealings with the government other firms, and the public.6 Private-sector transparency is indispensable to business, and can be brought about through the use of standards as well as auditing and accounting practices that ensure access to information in a timely manner. Second pillar: Infrastructure Extensive and efficient infrastructure is an essential driver of competitiveness. It is critical for ensuring the effective functioning of the economy, as it is an important factor determining the location of economic activity and the kinds of activities or sectors that can develop in a particular economy. Well-developed infrastructure reduces the effect of distance between regions, with the result of truly integrating the national market and connecting it to markets in other countries and regions. In addition, the quality and extensiveness of infrastructure networks significantly impact economic growth and reduce income inequalities and poverty in a variety of ways. In this regard, a well- developed transport and communications infrastructure network is a prerequisite for the ability of less-developed communities to connect to core economic activities and schools. Effective modes of transport for goods, people, and servicessuch as quality roads, railroads, ports, and air transportenable entrepreneurs to get their goods to market in a secure and timely manner, and facilitate the movement of workers to the most suitable jobs. Economies also depend on electricity supplies that are free of interruptions and shortages so that businesses and factories can work unimpeded. Finally, a solid and extensive telecommunications network allows for a rapid and free flow of information, which increases overall economic efficiency by helping to ensure that decisions made by economic actors take into account all available relevant information.

Third pillar: Macroeconomic stability The stability of the macroeconomic environment is important for business and, therefore, is important for the overall competitiveness of a country. Although it is certainly true that macroeconomic stability alone cannot increase the productivity of a nation, it is also recognized that macroeconomic disarray harms the economy. Firms cannot make informed decisions when inflation is raging out of control. The government cannot provide services efficiently if it has to make high-interest payments on its past debts. In sum, the economy cannot grow unless the macro environment is stable. Fourth pillar: Health and primary education A healthy workforce is vital to a countrys competitiveness and productivity. Workers who are ill cannot function to their potential, and will be less productive. Poor health leads to significant costs to business, as sick workers are often absent or operate at lower levels of efficiency. Investment in the provision of health services is thus critical for clear economic, as well as moral, considerations. In addition to health, this pillar takes into account the quantity and quality of basic education received by the population, which is increasingly important in todays economy. Basic education increases the efficiency of each individual worker. Moreover, a workforce that has received little formal education can carry out only basic manual work and finds it much more difficult to adapt to more advanced production processes and techniques. Lack of basic education can therefore become a constraint on business development, with firms finding it difficult to move up the value chain by producing more sophisticated or value-intensive products. Fifth pillar: Higher education and training Quality higher education and training is crucial for economies that want to move up the value chain beyond simple production processes and products. In particular, todays globalizing economy requires economies to nurture pools of well-educated workers who are able to adapt rapidly to their changing environment. This pillar measures secondary and tertiary enrollment rates as well as the quality of education as assessed by the business community. The extent of staff training is also taken into consideration because of the importance of vocational and continuous on-the-job trainingwhich is neglected in many economiesfor ensuring a constant upgrading of workers skills to the changing needs of the evolving economy. Sixth pillar: Goods market efficiency Countries with efficient goods markets are well positioned to produce the right mix of products and services given supply-and-demand conditions, as well as to ensure that these goods can be most effectively traded in the economy. Healthy market competition, both domestic and foreign, is important in driving market efficiency and thus business productivity, by ensuring that the most efficient firms, producing goods demanded by the market, are those that thrive.The best possible environment for the exchange of goods requires a minimum of impediments to business activity through government intervention to be in place. For example, competitiveness is hindered by distortionary or burdensome taxes, and by restrictive and discriminatory rules on foreign ownership or foreign direct investment (FDI). Market efficiency also depends on demand conditions such as customer orientation and buyer sophistication. For cultural reasons, customers in

some countries may be more demanding than in others. This can create an important competitive advantage, as it forces companies to be more innovative and customeroriented and thus imposes the discipline necessary for efficiency to be achieved in the market. Seventh pillar: Labor market efficiency The efficiency and flexibility of the labor market are critical for ensuring that workers are allocated to their most efficient use in the economy, and provided with incentives to give their best effort in their jobs. Labor markets must therefore have the flexibility to shift workers from one economic activity to another rapidly and at low cost, and to allow for wage fluctuations without much social disruption. Efficient labor markets must also ensure a clear relationship between worker incentives and their efforts, as well as the best use of available talent which includes equity in the business environment between women and men. Eighth pillar: Financial market sophistication The present global financial crisis has highlighted the critical importance of financial markets for the functioning of national economies. An efficient financial sector is necessary to allocate the resources saved by a nations citizens as well as those entering the economy from abroad to their most productive uses. It channels resources to the entrepreneurial or investment projects with the highest expected rates of return, rather than to the politically connected. A thorough assessment of risk is therefore a key ingredient. Business investment is critical to productivity. Therefore economies require sophisticated financial markets that can make capital available for private-sector investment from such sources as loans from a sound banking sector, well-regulated securities exchanges, venture capital, and other financial products. An efficient financial sector also ensures that innovators with good ideas have the financial resources to turn those ideas into commercially viable products and services. In order to fulfill all those functions, the banking sector needs to be trustworthy and transparent. Ninth pillar: Technological readiness This pillar measures the agility with which an economy adopts existing technologies to enhance the productivity of its industries. In todays globalized world, technology has increasingly become an important element for firms to compete and prosper. In particular, information and communication technologies (ICT) have evolved into the general purpose technology of our time, given the critical spillovers to the other economic sectors and their role as efficient infrastructure for commercial transactions.Therefore ICT access (including the presence of an ICT-friendly regulatory framework) and usage are included in the pillar as essential components of economies overall level of technological readiness. Whether the technology used has or has not been developed within national borders is irrelevant for its effect on competitiveness. The central point is that the firms operating in the country have access to advanced products and blueprints and the ability to use them. That is, it does not matter whether the personal computer or the Internet was invented in a particular country. What is important is that these inventions are available to the business community. This does not mean that the process of innovation is irrelevant. However, the level of technology available to firms in a country needs to be distinguished from the

countrys ability to innovate and expand the frontiers of knowledge. That is why we separate technological readiness from innovation, which is captured in the 12th pillar below. Tenth pillar: Market size The size of the market affects productivity because large markets allow firms to exploit economies of scale. Traditionally, the markets available to firms have been constrained by national borders. In the era of globalization, international markets have become a substitute for domestic markets, especially for small countries. There is vast empirical evidence that shows that trade openness is positively associated with growth. Even if some recent research casts doubts on the robustness of this relationship, the general sense is that trade has a positive effect on growth, especially for countries with small domestic markets. Thus, exports can be thought of as a substitute for domestic demand in determining the size of the market for the firms of a country. By including both domestic and foreign markets in our measure of market size, we give credit to export-driven economies and geographic areas (such as the European Union) that are broken into many countries but have one common market. Eleventh pillar: Business sophistication Business sophistication is conducive to higher efficiencyin the production of goods and services. This leads, in turn, to increased productivity, thus enhancing a nations competitiveness. Business sophistication concerns the quality of a countrys overall business networks as well as the quality of individual firms operations and strategies. It is particularly important for countries at an advanced stage of development, when the more basic sources of productivity improvements have been exhausted to a large extent.The quality of a countrys business networks and supporting industries, which we capture by using variables on the quantity and quality of local suppliers and the extent of their interaction, is important for a variety of reasons.When companies and suppliers from a particular sector are interconnected in geographically proximate groups (clusters), efficiency is heightened, greater opportunities for innovation are created, and barriers to entry for new firms are reduced. Individual firms operations and strategies (branding, marketing, the presence of a value chain, and the production of unique and sophisticated products) all lead to sophisticated and modern business processes. Twelfth pillar: Innovation The last pillar of competitiveness is technological innovation. Although substantial gains can be obtained by improving institutions, building infrastructures, reducing macroeconomic instability, or improving the human capital of the population, all these factors eventually seem to run into diminishing returns. The same is true for the efficiency of the labor, financial, and goods markets. In the long run, standards of living can be expanded only with technological innovation. Innovation is particularly important for economies as they approach the frontiers of knowledge and the possibility of integrating and adapting exogenous technologies tends to disappear. Although lessadvanced countries can still improve their productivity by adopting existing technologies or making incremental improvements in other areas, for countries that have reached the innovation stage of development, this is no longer sufficient to increase productivity.

Firms in these countries must design and develop cutting-edge products and processes to maintain a competitive edge.This requires an environment that is conducive to innovative activity, supported by both the public and the private sectors. In particular, this means sufficient investment in research and development (R&D) especially by the private sector, the presence of high-quality scientific research institutions, extensive collaboration in research between universities and industry, and the protection of intellectual property. The interrelation of the 12 pillars Although the 12 pillars of competitiveness are described separately, this should not obscure the fact that they are not independent: not only they are related to each other, but they tend to reinforce each other. For example, innovation (12th pillar) is not possible in a world without institutions (1st pillar) that guarantee intellectual property rights, cannot be performed in countries with poorly educated and poorly trained labor force (5th pillar), and will never take place in economies with inefficient markets (6th, 7th, and 8th pillars) or without extensive and efficient infrastructure (2nd pillar). Although the actual construction of the Index will involve the aggregation of the 12 pillars into a single index, measures are reported for the 12 pillars separately because offering a more disaggregated analysis can be more useful to countries and practitioners: such an analysis gets closer to the actual areas in which a particular country needs to improve.

Q.3 Evaluate the macro-competitiveness using 10Ps framework to identify and monitor major drivers of competitiveness. Ans: A conceptual framework for global competitiveness
The function of a framework is to enable the strategist to structure a problem through a few key situational variables or factor. His task subsequently is to identify the hierarchy, priorities, and interactions between the variables. Compared to a model, the variables in a framework are imprecise and loosely-bounded. Unlike a model, no ceteris paribus conditions are assumed and the user has the flexibility of testing his decisions on the relationships under varying contexts. The 10-P framework for globalization symbolize the aspirations and needs of employees and organizations in the new competitive settings. It comes a long way from the initial impetus provided to the subject by Michael Porter in his book Competitive Strategy (1980), and goes beyond his purely industrial organization perspective. The 10-Ps framework integrates theory of strategic management and practice of business policy and provides a structure for the practicing manager to evaluate competitiveness at regular intervals. True to the vision of a world class organization, the central fulcrum in the framework is a people-orientation-both inside and outside the corporation. This approach presents a humane perspective to issues at hand and differentiates between a satisficing approach and an excellent approach. It realizes and reflects that modern economies and corporations thrive mainly on innovation in all respects of value-augmentation-creative thinking at the design stage, ensuring production at highest efficiency and minimum costs, and satisfying the customer in a most effective manner. The rest of the 9Ps are levered in a highly interactive mode with people and amongst themselves. A change in any of the Ps affects performance of the other levers and therefore

the final outcome for the organization. The 9-Ps are: Purpose, perspective, Positioning, Plans (& Policies), Partnerships, Products, Productivity, Politics, and Performance. Figure-1 People: Organization is people An organization is created by the people, it exists for the people, and continuously draws sanction from the people. The people focus implies that the primary purpose of an organization can never be to provide employment at the expense of customers or society in general- a drill routinely exercised in third world countries, and especially in India by many public sector and government organizations during the height of regulated economic regimentation. Purpose Any human activity must have a purpose. Organizations define their purpose differently. Organizational purpose as used in strategy making sense is interchangeable with mission, vision, mission, core competence, strategic intent, and basic values. Business growth is a conscious management decision process and can be nurtured through a statement of purpose on which decisions are pivoted. Growth after a certain level are elusive intangible and difficult to come by unless sustained by professional management and entrepreneurial, dynamism, and sense of direction. Perspective The nature of reality rests on the perceptions of the manager. Making a strategic choice and subsequently managing its outcome depends largely on the outlook of decision maker. For instance, making a choice between economics and consumerism implying consumption of goods and services and economics of production through increased savings and investments in permanent assets is a matter of alternative perspective, although from a mathematical point of view they should mean the same. Perception of opportunities and threats and their type in turn, is largely affected by the assumptions made by the manager about the world around him. In facing global competitive challenges, it is important that the firm possesses a global perspective, even though it might be competing and managing locally. A global outlook keeps the manager informed and prepared for any eventuality and not get surprised with technological innovations or managerial onslaughts. Positioning An important dimension in achieving world class competitiveness relates to the positioning of the firm. This dimension has high interface with organizational purpose, planning and perspective resulting in definitional confusion. Positioning of the firm is distinct from positioning of products in marketing. The term has remained mostly confined to abstract strategic management literature despite its obvious critically to practice. An important dimension in strategy is to understand where am I, why I here, where do I want to be, and how do I reach there. In other words, the strategic manager has to ascertain the existing position and future positioning of the firm. Partnerships

The partnership approach suggests a sense of belief and trust in other persons capability and skills. It opens the doors for people to look beyond the usual routined responses, and create an environment where people voluntarily come up with innovative solutions for seemingly intractable problems. Wal Mart, the no. 1 retail business in USA, emphasizes on the key organizational value of treating each employee as an associate. Each associate is encouraged to act independently by taking initiatives as partners. The Partnership Perspective Insert Figure Productivity A countrys prosperity is indicated by the amount of value-added goods that are produced/made available for consumption. Labor productivity is generally the accepted measure of value addition with the assumption that the same individual would have different capacities in different technological environments and organizational contexts. Thus, capital and other factor inputs are assumed to be reflected in the final output of the worker. Increase in productivity through better management and organization boosts the aggregate supply without increase in inputs, thereby helping control inflation (it reduces the demand supply gap). By several estimates, USA has the highest labor productivity in the world. Germany and Japan are reported to be lagging behind by as much as 20 percent for the manufacturing sector in terms of value added per hour worked (converted at purchasing power parity). Japanese manufacturer have higher productivity in automobiles, chemicals and plastics, metal products and electronic equipment. Innovation based productivity Time and space as a key resources Product A product is a package of information which the customer interprets in his mind while going through the process of consumption. Therefore, the concept of any product must start with the customer mind, and end with his total satisfaction. In this definition all products are ultimately services converted into information. For world class performance, simply manufacturing products to the customers define the quality parameters. All across the valueaddition chain, the relationship between suppliers and consumers (even within the shop-floor departments) goes beyond the usual contractual responsibilities. Maximum contribution can be extracted only through strategic partnering which in turn suggests an acceptance of mutual interdependence between the management and the employees, the suppliers and customers, and the organization and the society at large. Beyond quality, products must offer customers a satisfaction to a level where they become the best salesmen for the company forever. While consuming a product the customer draws relationships of the actual information (Perceived through consumption) with his apriori expectations, especially with the price that he has paid. Customers cannot therefore be treated as guinea pigs or test drivers. Serving the customer beyond product-consumption. Product-partnership interface through team approach.

Plans (and Policies) Plans are maps which the organization creates for guiding its members towards attainment of: Objectives (which must be consistent with its mission-a hazy, vague idea of what it wants to be finally. The position it wants amongst the competitors (which in turn must be consistent with the values held by the main decision makers); and Responsibilities towards society at large. One of the primary issues that any plan must address to is the type of tools, training, and incentives that would be needed by the organizational team members. The plan serves the background on which team work flourishes. World class companies determine as much as 80 percent of a products quality and costs during the product development stage. The high emphasis on planning saves rejections, wastages, costs, and most important, permanent loss of customers. Coca cola has largest distribution network in the world. The company illustrates the fine interface between product quality and planning. Politics The orthodox organizational behavior school holds that politics is an attempt to bypass the official channel or to influence outcomes for personal gains (Impliedly, at the cost of organizational efficiency). Hence, this school holds that, politics being a negative powerbearing agent, should be discouraged. This cannot be true in a larger perspective. Political behavior, in the positive sense of the word, is a highly democratic and peaceful form of conflict resolution process especially useful in high-uncertainty environments. It signifies willingness to admit that others also have their own needs and aspirants, which may be in a consonance with my or organizational goals. Insert figure Performance Improving performance outcomes is the core of all strategic management theories. Achievement of goals and objectives is the basis of all strategic planning. It is important to realize that different stakeholders will possess different measures of performance. In one respect performance is the dependent variable whose outcome rests on the interface of all the rest of 9Ps. But, performance in business settings is never an isolated outcome. It gets affected, and in turn affects, all other variables. World class companies organize themselves and perform in a manner that accumulation of wealth is an automatic consequence of policies and plans. For world class performance, an organization has to be clear about its strategic objectives. Some important yardsticks with which performance can be objectively measured are: Market Share Time taken to develop and introduce new products Technological Competitiveness Employee motivation and skills

 Throughput value-addition Conclusion The ten Ps are not only dynamic, inter-related, but also overlapping. The task of the strategic manager is to strike a fit between the various soft and hard components appropriate to the organizational values and need of the times. At this stage, he has to himself become a specialist-entrepreneurial-visionary-general manager.

Unit-II Q.4 Technological capabilities determine global competitiveness. Explain with the help of a relevant example in Indian context. Ans INTRODUCTION
The name of the game in global competitiveness is technological capability. This relates to the agility, and competencies that firms and other productive enterprises in an economy apply in accessing, adopting, adapting and deploying technical knowledge to gain competitive advantage. Firms and entities compete on the basis of their ability to learn and deploy technical knowledge to meet ever-changing and stringent customer demands. Technological capability is built from four broad sources: the existing knowledge base of productive entities; the acquisition of technology from outside the organization; their intensity of effort to develop technology in house; and the institutions, and systems that exist in the environment within which the productive entities operate. Firms and other productive entities currently face the quick sand of a pervasive state of flux. Technology is changing so rapidly that firms have to be constantly innovating in order to remain competitive. In fact, it is those firms that can become learning organizations that can stay competitive. Knowledge-base has to be constantly updated. Technology effort has to be constantly intensified for firms to maintain their competitive position and minimize the risk of obsolescence. The Case of The IT Industry in India.
The IT industry, particularly IT enabled services (ITES), in India has shown remarkable growth over the past decade and continues to show resilience even in the face of a global downturn in the sector. While India has not been able to match China in manufacturing prowess, it may have found its competitive advantage in the area of knowledge-based services to which its factor endowments are uniquely suited. Yet, the tremendous potential and promise of this sector in spurring economic growth and national competitiveness may not be realized, if the numerous obstacles to the sector's growth are not removed. This paper traces the evolution

of the IT industry in India, its positives and negatives and its potential to contribute to India's global competitiveness. Structural barriers in the national environment to the growth of this industry are identified and discussed. Conclusions and policy implications are presented.

INTRODUCTION
Why are some national environments more conducive to firm growth and prosperity than others Why are some national environments more conducive to firm growth and prosperity than others? (Porter, 1990). Nations, like firms, are unique bundles of heterogeneous resources and capabilities. They seek to capitalize on these resources and capabilities in order to build and maintain core competencies in certain industry sectors, which can provide a unique identity to the country and lead to sustainable competitive advantage, if those resources and capabilities cannot be easily imitated. In the more open global trading environment of the 21st century, nations are under pressure to develop and market their "national brands" in order to "position" themselves favorably in the mental maps of demanding global consumers. A nation's positive image in any particular industry may impact the ability of its firms to compete in global markets. Spillover effects may also benefit firms in other industries thereby enhancing the competitive advantage of national firms in general (Kotler et al, 1997). Consumers have positive or negative stereotypes associated with products / brands originating from different countries (Jackson, Biswas and Lumb, 1995). For instance, Japan has positioned itself in the minds of consumers as a nimble, global market leader in consumer electronics, automobiles, watches and so on. Japan's products have served as good brand ambassadors for the country and today the "Made in Japan" brand is associated with superior quality at a competitive price. By contrast, India has operated for decades as a closed, private investment unfriendly socialist economy recognized more in the global media for its poverty and squalor than for its achievements in science and technology. Foreign investors perceive India as a difficult environment to do business. This may be changing, as a World Bank 2001 report points out, "Indian technological sophistication, though still narrowly defined, has begun to alter international perceptions of the country. Instead of viewing India as a country burdened by decades of heavy-handed government regulation of the economy, foreigners now view the country somewhat more favorably, though not as yet

as a country where future growth will approximate that of China ..." (Miller, 2001). China, its neighbor and closest competitor, in a matter of less than two decades has established itself as a manufacturing powerhouse in global markets, offering an unmatched price-quality value proposition. While India has not been able to match China's manufacturing capability, it may have found its source of competitive advantage in its knowledge-based industries, which capitalize on the country's rich source of human capital. Seeking to explain "competitiveness" at the national level, Porter (1990) argues that there is a critical link between the national environment and firm level competitive advantage and that the answer to national competitiveness may not rest on the economy as a whole, but in specific industries. This paper, therefore will consider India's IT / software industry and its potential to contribute to the country's national competitiveness. It will analyze the growth of the IT / software industry in India by tracing its evolution, the part played by a growing and vibrant private sector in IT/software services and software industry associations, such as the National Association of Software and Service Companies (NASSCOM), and the role of the government in facilitating the sector's growth. The question facing the country is what the Indian government at the central and local levels and domestic firms can do to leverage this industry's success to enhance national competitiveness in global markets. While the prospects and potential for this sector are high, the paper highlights the many barriers that have to be dealt with before the IT industry and the country realize their full potential. India's political leaders have expressed their strategic intent to use the IT industry to create the next information technology superpower. Jack Welch responding to the paradox of change and development in India remarked, "India is a developing country with developed country R&D infrastructure." The disconnect between the Indian political elite's talk of India becoming the next "information technology superpower" and skeptical outsiders such as Jack Welch of General Electric could not be more stark. In a talk to Indian businesspeople, Jack Welch recognized India's "intellectual capital" and its sophisticated R&D infrastructure, while pointing out the old economic concerns such as lack of power generation capacity and a communications infra-structure that could hamper growth (Gardner, 2000). Welch's warning that India could fail to capitalize on the information technology revolution, in spite of its prowess in software skills and R&D capability should serve as a reality check for a country that is betting on IT to power its way into the new global economy.

India is still a developing country mired in developmental problems of poverty and illiteracy, yet has a nuclear arsenal and the world's second largest pool of skilled software talent after the United States. India's achievements in science and technology, and the "emerging knowledge-based" industries have drawn the world's attention to this developing nation of a billion people that has had difficulty keeping pace with the growth rates of the "tiger" and "dragon" economies of the ASEAN region, or that of China, its giant neighbor to the North. National competitiveness has long been an elusive goal for India; it has been a forgotten investment continent, perhaps due to its economic insularity stemming from its autarkic policies. The past decade however has been one of sea change for India. A balance of payments crisis in 1991 catalyzed it into breaking out of its insular mold, forcing it to change course from insularity to economic liberalization. India is at last on the verge of freeing the tremendous potential of its human capital that has been an inherent, but untapped part of this sub-continent. While India could not match China in manufacturing prowess, its economic growth or its ability to attract foreign direct investment, it has discovered an untapped resource in its skilled human resource advantage, capable of powering the information technology revolution sweeping across the world. How the country uses this rich source of economic advantage will determine its economic fortunes at the beginning of this new century. Kapur and Ramamurti (2001) analyze the Indian IT sector's competitiveness drawing upon the framework provided by Porter's diamond of competitive advantage. They point out that India has become competitive in software because of its advantage in IT related, knowledgebased resources. It has plenty of the requisite factor conditions in terms of human capital, low wages, and English language capability. Since barriers to entry are relatively low for firms in the software / IT sector, there is healthy domestic rivalry to hone the players for demanding global markets. Related and supporting industries, such as the educational institutions that turn out world class technical talent, improving communications and dutyfree access to component parts help the growth of this fledgling industry. Weak domestic demand is not a key problem, since strong U.S. demand comprised of demanding customers fills the gap. In this paper, we will focus on the positives and negatives by considering the elements in Porter's diamond that are weak or missing and hence could serve as major hindrances to the growth of this sector.

GROWTH AND EVOLUTION OF IT IN INDIA

The software and information technology industry in India is without question one of the most dynamic sectors in India's economy. The industry has been growing at 50 percent annually since 1991. Worldwide, the sector is worth $850 billion with a projected growth of 50-60 percent per year. Software services exports have been growing at 29 percent in rupee terms even during the downturn in the global IT industry in 2001. The growth engine seems to be the IT enabled services (ITES), which grew at 69 percent this year compared to IT services, which grew at 22 percent (Deccan Herald, July 22, 2001). The sector consists of about 1000 companies employing 280,000 software engineers and, by 2008, is expected to employ four million people. The industry has grown at an annual rate of over 45 percent for the past three years and is expected to account for 7 percent of GDP by 2008 (NasscomMcKinsey 2002 Report). The Indian IT sector's growth since 1990 has been primarily export driven. Exports for this sector in 1999 totaled $4 billion and is projected to grow to $50 billion by the year 2008. According to NASSCOM 62 percent of the exports go to the United States, 23 percent to Europe, 4.0 percent to South East Asia, 3.5 percent to Japan and the rest to West Asia, Australia, New Zealand and the rest of the world (www.nasscom.org). In light of the recent global downturn in the IT sector, the Nasscom-McKinsey 2002 Report notes three fundamental shifts in the IT industry: 1) shift in near term demand from new application development to maintenance and product enhancement, 2) significant increase in offshoring, and 3) competition from emerging locations, particularly China. IT enabled services (ITES) include services such as customer care, web sales and web marketing, billing services and accounting transactions. Recent projections for the growth of the ITES sector were scaled up from $17 billion in the Nasscom-McKinsey 1999 survey to $20 billion (The Economic Times, May 14, 2002). Multinationals, particularly from the U.S. have been shopping India as a low cost outsource base for their labor-intensive IT related back office work and did so prior to the year 2000 for on-site work related to Y2k issues. The Europeans have done the same for euro conversion. India's advantage in IT related high technology, innovation and knowledge base, its large market, its well-developed R&D infrastructure, its large pool of cost competitive technical talent and the sophistication of Indian IT vendors make it a desirable destination for IT firms from developed countries.

The growth and evolution of the IT sector has been incremental and organic in nature, but if it maintains its momentum and succeeds in realizing its projected potential its impact on the economy and politics of India would be dramatic. But, frankly this is a big "if." The IT sector in India came into the global limelight by the on-site Y2K services performed by an army of Indian software engineers sent by Indian companies to write software code or to plug Y2K problems for foreign companies. While margins from on-site work were necessarily low due to the high cost of transferring personnel to overseas location, it gave India much needed visibility and an opportunity to showcase its IT capabilities on the global stage. Capitalizing on the credibility built through Y2K work, Indian software companies have been steadily migrating up the value chain to provide more lucrative offshore services, i.e. work done in India. Indian firms now are developing proprietary software technology for e-commerce applications and other web based services for overseas clients. In the process they are proving that they are adept at scalability, while maintaining their competitive advantage in cost and quality (Merchant, 2000). The offshore model (operations in India) is more profitable and also helps India build its local infrastructure to support a strong and growing IT sector. It includes IT enabled services, such as medical transcription, call centers, legal database work, logistics management and web-content development, which are labor intensive and require IT skilled personnel. (In fact, your medical records for visits to your local (US) physician may be transcribed in India). United States (200 out of the Fortune 500), and European firms now outsource this type of work to India to take advantage of the low cost labor and the time-zone difference in India, which allows the U.S. or European firm to work on a 24-hour basis. As Indian firms move up the value ladder they are offering higher value added services such as IT consultancy services. Many Indian IT firms have set up overseas offices to offer customized IT consultancy services and more lucrative e-commerce work to clients and to gain increased visibility. And often they have the goal of ultimately developing branded software products designed for exports, but this goal may not be realized in the immediate future given the fact that marketing branded software in competitive overseas markets is heavily capital intensive (Taylor, 1999). The IT industry in India is labor intensive and is well suited to its competitive advantage. However, this may be changing as India's attraction becomes more skills-based rather than cost-based, as leading players in the IT industry, such as Wipro, seek a U.S. listing, set up overseas offices and make foreign acquisitions. Three broad characteristics are

said to define the new growth phase among the top players in India's IT industry: a foreign stock market listing, a global base of customers, and a multinational workforce (Merchant, 2001). The industry may be able to move up to branded product development if it maintains its current upward momentum. The Indian IT industry as it matures and migrates up the value ladder is gaining depth and sophistication in its portfolio of capabilities. This is reflected in the fact that cost is no longer the sole competitive tool for these companies. Their depth and diversification is beginning to allow them to compete on quality, speed, reliability and innovation. Many Indian software companies are ISO 9001 certified and are able to offer world class services at competitive prices. As these companies moved from value-based Y2K activities to value-added ecommerce work their revenues are on the increase and the basis of competition is speed of delivery and faster cycle time, which supports a premium pricing strategy. The Indian IT industry also shows signs of consolidation and growth through overseas acquisitions, both clear signs of maturity in the industry.

FACILITATING CONDITIONS
Domestic demand for software and for PC's A recent analysis of the IT / software industry in India points out several areas of emerging opportunity in the domestic software market, such as the energy sector which is in the process of being privatized, services such as insurance, banking and financial services that see IT as a way to cost efficiency through cross-selling services, and e-governance drives by state and central governments that are interested in the spread of best practices and local language applications (Deccan Herald, July 22, 2002). On the Indian domestic front, the hardware market is growing as domestic PC sales and sales of servers, printers and notebook computers are on the increase. PC penetration in India is currently quite low at 3.6 per 1000 compared with the U.S. at 363 per 1000. However, the buying power of India's for-midable 250 million middle class is substantial. Firms such as Hewlett Packard and IBM have entered the market focusing on this segment. As the interest in home Internet use increases and the popularity of alternative channels of Internet access grows, such as "cybercafes" in Indian cities, the potential for rapid growth in urban areas is real. Clearly, the key drivers of PC growth in India are the Internet users; they

wish to enhance their computer skills and to use it as a tool in children's studies. While PC prices are still relatively high, (it is estimated that a PC costs 24 months of per capita income in India vis-a-vis 4 months in China!) Indian households remain the fastest growing market for the PC manufacturers. The increase in corporate users and the government's stated desire to move to incorporate computers in facilitating governance are also important factors in increasing demand in the hardware market. Role of state governments Attracted by the infinite possibilities of growth and job-creation offered by this sector, Indian States have been vying with each other to offer a hospitable environment for IT rums, both foreign and domestic. E-governance has been gaining popularity in certain entrepreneurial States in India, such as Andhra Pradesh, where the state has expressed desire and interest in leveraging technology to spur development. The state's web site states its mission in the following terms: "Andhra Pradesh will leverage Information Technology to attain a position of leadership and excellence in the information age and to transform itself into a knowledge society." (www. apinfrastructure.com). The governor of this state, dubbed the "laptop minister" (Levander, 2000) has invested in a communications infrastructure to support egovernance and has succeeded in attracting Microsoft's product development center and GE Capital's international data center, which otherwise may have gone to the State of Kamataka, India's first IT champion which now stands to lose that position as other states vie with each other to attract foreign investors to their backyard by investing in the right infrastructure mix. Companies such as Microsoft cite better infrastructure as the primary reason for moving to Andhra Pradesh. Key cities such as Bangalore (Karnataka State), Hyderabad (Andhra Pradesh) and Chennai (Tamil Nadu) in the south are referred to as the "silicon triangle" for having the highest concentration of IT industry in the country. The reformist States in India are proving successful in attracting foreign investors as well as World Bank monies to improve their infrastructure. Software associations The National Association of Software and Service Companies (NASSCOM) plays a pivotal role in the growth of the software / IT sector. The mission of NASSCOM is to be a one-stop provider of comprehensive information on all aspects of the software industry in India. As a

non-profit organization, its goal is to facilitate India's emergence as a front runner in the information technology industry. The organization actively and effectively lobbies the government for improvements in IT infrastructure and changes in policy designed to promote the sector's growth. Its web site nasscom.org provides a gateway to the IT policies of the various states in India along with information on past and upcoming events in the IT sector and industry research and news. It has a membership list that includes most of the IT companies in India and uses this information to match Indian companies with foreign IT companies and vice versa. NASSCOM as an IT industry promoter is a key force for generating credibility in India's capability to participate fully in the global IT industry. Capital sources A vibrant private sector to support entrepreneurial developments in the software/IT area is growing in India, where a mixed economy has created a deep-rooted free market sector in spite of heavy government control and ownership in certain key sectors. The expansion of this sector is helped by infusions of knowledge and capital from returning non-resident Indians (NRI) eager to share in the growth opportunities presented by the newly emerging IT sector. Of late, venture capital activity has been growing in India. Foreign venture funds, some created by wealthy Indians based in the U.S. such as The Indus Entrepreneurs (TIE) and Chrysalis Fund have entered India seeking to invest in technology start-ups with good prospects for growth. Newer varieties of venture capitalists are also moving into India with foreign capital to fund Indian startups. At India, a VC founded by a Silicon Valley NRI calls itself a "business value accelerator" that seeks to provide value beyond capital. The VC has a joint venture with Silicon Valley based Hambrecht & Quist and a venture capital base of $50 million (The Economic Times, November 21, 2000). American firms with Indian subsidiaries, such as GE Capital and Intel are investing in new ventures in India that have the potential to sell their products. Intel has just announced that it will invest $100 million in its India operations making it one of Intel's largest overseas ventures. As current restrictions on venture capital funds are eased by the government coupled with the change in market structure and the availability of risk capital for entrepreneurial firms this will increase growth and new venture creation in the IT sector.

IT EDUCATION IN INDIA

New world class educational institutions are being set up in the more reformist oriented states in India. In March 2000, Motorola signed an agreement to set up Motorola School of Communication Technology at the Indian Institute of Information Technology (IIIT) in Hyderabad, one of the cities in the silicon triangle and capital of the state of Andhra Pradesh. The Motorola School of Communication Technology is designed to be a state-of-the-art center to create new talent by providing advanced IT and telecom education. In addition, the school will offer research and development opportunities to innovate new approaches to wireless communications for the Indian market. (www.ap-it.com/iitmou.html). The Indian School of Business located in Hyderabad, brainchild of Rajat Gupta, Managing Director of McKinsey and Co., is designed to provide business education in India in collaboration with the Wharton School, University of Pennsylvania and the Kellogg School of Business at Northwestern University. Both schools are supported and financed by leading companies in India and abroad, as well as the government. As world-class educational institutions enter and locate in India to satisfy the educational need, it will impact the number and quality of information technology graduates. Several leading IT firms from developed countries are outsourcing and out locating their IT requirements to India, a reverse brain drain of Indian NRI's is spurring new entrepreneurial activity in the country and the energies of the local entrepreneurial talent is being unleashed by the government's willingness to provide incentives and relax regulatory controls for the IT sector. The government is serving to facilitate the industry's growth having realized that this may be the country's best chance to improve its economic fortunes and to achieve global integration and economic parity with the developed world in the long term. To summarize, the Indian IT industry's competitive advantage derives from its depth of English speaking, well-trained human resource base, a powerful cost/quality combination coupled with a growing ability to compete on speed of delivery. The "Made in India" brand is gaining equity as the country scales up the value ladder to offer services that stand for high quality and good value. Added to this is the return of non-resident Indians (NRI) to India drawn by entrepreneurial opportunities in India's growing IT sector. The brain drain, which has usually been Westward, is now showing some reversal to India's benefit. Many of the returning IT professionals have experience in the well-developed Western markets, such as the U.S. and Europe and will able to take back the fruits of their experience to India. Kapur and Ramamurti (2001) argue that if India maintains its current momentum in IT, it could

emerge in the short term as a back office of global companies, and in the medium to long term move up to knowledge-based tradable services. Numerous obstacles, however, stand in the face of this scenario and are discussed in the following section.

OBSTACLES TO GROWTH OF IT IN INDIA

In spite of the many successes in this area India faces numerous obstacles to growth of the IT sector in the short to medium term. At the firm level, even star performers, such as Infosys sell very little packaged software. Most of its business is still in consultancy, one-time software projects and in helping international vendors develop their own products (Phillipson, 2002). The capability gap could hinder Indian firms' global competitiveness and leave them vulnerable to competitors from other countries. At the macro level, the government's plans for privatization and deregulation of key sectors, such as banking and telecommunications are slow and halting due to a political process that demands consensus on these issues from various groups at different levels. Many of the telecom providers of long distance services are still state-owned and under state-controlled international bandwidth, which is insufficient to meet the country's needs. In the domestic arena, lack of competition in telephone service translates to lack of phone lines and high cost of local access. The high cost of local phone calls could be a major disincentive to Internet usage to those who have a PC and Internet access. The cost of Internet access is relatively high since usage is still metered. Lack of bandwidth for data also influences availability, cost and speed of access. India's total international bandwidth is only 350MB, compared with China's 40GB and 200GB in the U.S. (www.nua.ie/surveys). Interruptions and fluctuation in power supply compound the problem creating a major disincentive for growth of the domestic market for Internet usage and web-based retailing. High quality, reliable, and uninterrupted supply of power is critical to the sector's growth. The local, domestic market for PCs is growing in India, but for B2C internet commerce to grow in India, it requires a reliable delivery system, bandwidth for easy and fast access to data and graphics and higher levels of credit card usage to facilitate payment. In a recent report by the U.S. government to facilitate Internet development, five key principles were outlined in a document titled, "A Framework for Global Electronic Commerce." They include private sector leadership, avoidance of undue restrictions, establishment of a legal

environment based on a contractual model of law, recognition of the unique qualities of the Internet and facilitation of global e-commerce (www.ecommerce.gov). The government of India, recognizing the urgency of the sector's growth to India's economic development has stated its intention to follow many of the same principles set forth above in the U.S. government report (India Business Opportunities, 2000). A labor skills shortage could short circuit the IT sector's growth, if the country does not take steps to deal with the issue on an urgent basis. The local shortage of trained and experienced IT human resources is bidding up the cost of labor, which could erase one of India's key advantages. India currently trains 68,000 software professionals a year and needs to have 2.2 million a year by 2008 to meet projected demand. China could emerge as a formidable competitor in this area, since the Chinese government has announced its intent to set up 100 IT training institutes in China (Ramesh, 2001). As the global IT industry grows, there is a shortage of trained IT human resources in the global market and developed countries, such as Germany and Japan are increasingly turning to countries like India to recruit labor for their domestic market. As a global market lures Indian IT skills away with higher wages and more attractive benefits, the skill shortage in India could be exacerbated. Literacy rates of Indian children at 45 percent are lower than many other Asian countries. India is bifurcated between a middle class that has the resources to access technical training and a majority of the population with little or no formal education. Servicing a "wired" economy would require a far more educated workforce (Miller, 2001).

CONCLUSIONS AND POLICY IMPLICATIONS

If information technology is to fuel India's economic growth into the ranks of the developed countries, there needs to be a confluence of policy changes. As the industry grows and matures, it faces bottlenecks to growth in the form of inadequate power, weak telecom and transport infrastructure and even an exhaustible supply of IT talent, if educational institutions in India fail to rise to the challenge. In the critical area of power for instance, leading Western firms that entered in the aftermath of liberalization lured by the massive power shortages in the context of a growing economy are leaving India due to frustration with bureaucratic roadblocks, government pricing controls which prevent them from earning fair market returns, and disillusionment with a difficult market.

The Information-based new economy requires a free business environment, unhampered by old economy regulations. In order to realize India's hopes for the IT sector, the government has to free the economy and allow economic and social change to transform the business environment. So far, the industry has succeeded against all odds. However, the growth of India based multinationals would require a freer, more entrepreneurial climate that is friendly to new venture creation that offers easier access to capital markets and hard currency, sets fewer bureaucratic and regulatory roadblocks and provides better IT infrastructure, i.e. telecom, power and transport. Moving faster on privatizing sectors, such as telecom and power and allowing for foreign competition would allow efficiency gains and technology leapfrogging. Computerizing governance mechanisms would create domestic demand for IT products and services, while increasing the efficiency and responsiveness of government. The McKinsey-NASSCOM report published in 2000 makes the following recommendations for enabling the Indian IT industry's growth: * Build a base of highly competitive "knowledge workers" * Create a regulatory environment friendly to the IT sector * Create India based IT multinationals * Build a world class telecommunications infrastructure * Build the "Made in India" brand for IT products * Encourage entrepreneurship and new venture creation What the government needs to do to foster growth of IT in India: * Improve infrastructure, i.e., education, telecom, transport and postal system. * Privatize and deregulate key sectors such as banking, telecom, and power * Allow foreign competition in these areas formerly under State control. * Cut bureaucracy and red tape to facilitate FDI and entry of foreign firms * Increase government spending on infrastructure, primary education, and health * Computerize governance mechanisms when possible

The growth of the Internet economy will have a major impact on the physical economy. Old economy roadblocks could block India's passage to the new economy. IT has no political, economic, or social boundaries, and if India is to support its development it has to create the right environment for its growth. A slowdown in the Indian economy will further boost IT investment by old economy companies interested in increasing productivity. A slowdown in the U.S. economy could have a similar effect by opening new opportunities for Indian IT firms with their dual advantage of a proven track record and low cost relative to the U.S. An interesting fact noted in the NASSCOM 2002 survey was the increase in software and service exports to the U.S. despite a slowing of the U.S. economy. If the IT sector in India is to grow and realize its potential, it has to be driven by a national agenda that includes various key stakeholder groups, such as business / private sector, and government at the central and state levels. The government needs to change its focus from a protectionist, regulation-driven "license raj" mind-set to one of fostering national competitiveness on a global scale. Businesses that are currently preoccupied with negotiating bureaucracy would then have the incentive to alter their focus to competing with world-class competition in an open economy. A strong IT industry, unfettered by domestic regulation, may very well power the country to global competitiveness.

Q.5 Explain two Power roles of innovation. The Strategic Power of Innovation
Innovation has been overlooked and neglected for years by many companies as a key component of business strategy. For too long, the primary thrust of strategic thinking and planning has centered on how best to become low-cost producers. Of course, reducing costs and increasing operating efficiencies are important pieces of any smart business puzzle. But innovation brings with it more potential power to reach strategic and financial goals. The role of innovation in setting and bolstering strategy has not been well understood or accepted in the past. However, signs of support for innovation are definitely being seen in corporations. CEOs are turning to innovation as a growth mode for adding incremental revenues and profits to their income statement. But, many still dont think about innovation as a core business strategy.

Every CEO should seriously consider innovation as a competitive weapon for shaping business strategies. For many years, CEOs and strategic planners have used Michael Porters model for setting competitive strategy. When many companies evaluate their core competencies, they tend to assess their sources of competitive advantage according to some of the following areas Manufacturing economies R&D Technology Channel clout Brand name equity Distribution leverage Price competitiveness The smart executive of the future should assess one more source of competitive advantage-that is, the companys potential for achieving competitive innovation. The Two Power Roles of Innovation Senior executives should think of innovation as a valuable corporate asset rather than a cost or a risk. If you truly perceive innovation as a source of competitive advantage, it will more likely be viewed as a long-term investment rather than a short term cost. This long-term investment perspective sets up the right mindset for innovation to work effectively. Without it, innovation is perceived as a high risk. And as a consequence, your managers will take the low risk approach of merely cutting costs or focusing on line extensions and product improvements. Broadly speaking, there are two key power roles that innovation can play: (1) Competitive advantage protection (CAP), which stems from competitive innovation, and (2) shareholder, employee, and customer (SEC) satisfaction. The first, competitive advantage protection, provides a company with a long-term competitive insurance policy. Most importantly, it allows a company to play an offensive game in the market place rather than a reactionary game of always trying to catch up to competition. Competitive Advantage Protection A strategic approach for preempting, protecting against, or jumping ahead of competition. Competitive advantage protection enables a company to accelerate growth, experience incremental margin enhancement, and build additional core competency, which bolsters competitive advantage. Exhibit 1 graphically depicts the role that competitive advantage protection can play in shaping business strategy. In each quadrant, competitive advantage protection can play a significant role in enhancing competitive advantage. Each of the quadrants is described here: Radical Leapfrogging: with this strategy, competitive advantage protection is aimed at achieving new products that will leapfrog competition. The end outputs of this strategy usually are products or services that convey totally new consumer perceived benefits. They are radically different from anything currently offered in the market. Consumers or end-users will clearly perceive the functional, emotional, psychological, or performance benefits of these new products as better or greater than those offered by any competitive products.

Benefits Differentiation: competitive innovation can play a major role in adding new benefits, the existing or newly developed products will provide a new source for competitive advantage. The degree of uniqueness and benefit differentiation will most likely determine the duration and strength of the competitive advantage. Market Share Simulation: there are many different approaches for simulating market share, ranging from advertising and promotions to distribution channel diversification and pricing. However, competitive innovation can also be used to build market share by launching line extensions, flankers, and new-and-improved products. This approach offers end-users new reasons to purchase your products line rather than your competitions. Cost/Value Enhancement: value-engineering or cost-reduced new products and processes can also be achieved through competitive innovation. Sometimes the lower cost benefit can be passed on directly to consumers, resulting in a price reduction. Alternatively, the cost savings can be applied internally to boost gross profit margins. These incremental margin dollars can then be used to build awareness or stimulate trial through increased marketing.

Exihibit-1 Shareholder, Employee, Customer Satisfaction The second power role, shareholder, employee, customer (SEC) satisfaction, provides a means for increasing the satisfaction level of companies three key constituencies. If satisfaction can be increased for these constituencies with increased profitability, its fairly safe to assume that the senior management will be rewarded handsomely. Executive should adopt a new mindset regarding these three constituencies. This shareholder-employee-customer triumvirate should represent the collective group that executives are trying to best serve. The leader of an organization becomes a servant whose primary job is to satisfy the needs, expectations, and desires of this collective group. The three constituencies fall on a continuum, from externally to internally focused, as shown in Exhibit 2 So, we can see the role of two power role of innovation

Unit-III Q.6 Discuss the impact of G-20 summit in London on investment markets and on overall economy across the globe.

Global plan for recovery and reform (02/04/2009)

The official communique issued at the close of the G20 London Summit.

1. We, the Leaders of the Group of Twenty, met in London on 2 April 2009. 2. We face the greatest challenge to the world economy in modern times; a crisis which has deepened since we last met, which affects the lives of women, men, and children in every country, and which all countries must join together to resolve. A global crisis requires a global solution. 3. We start from the belief that prosperity is indivisible; that growth, to be sustained, has to be shared; and that our global plan for recovery must have at its heart the needs and jobs of hard-working families, not just in developed countries but in emerging markets and the poorest countries of the world too; and must reflect the interests, not just of todays population, but of future generations too. We believe that the only sure foundation for sustainable globalisation and rising prosperity for all is an open world economy based on market principles, effective regulation, and strong global institutions. 4. We have today therefore pledged to do whatever is necessary to:

restore confidence, growth, and jobs; repair the financial system to restore lending; strengthen financial regulation to rebuild trust; fund and reform our international financial institutions to overcome this crisis and prevent future ones; promote global trade and investment and reject protectionism, to underpin prosperity; and build an inclusive, green, and sustainable recovery.

By acting together to fulfil these pledges we will bring the world economy out of recession and prevent a crisis like this from recurring in the future. 5. The agreements we have reached today, to treble resources available to the IMF to $750 billion, to support a new SDR allocation of $250 billion, to support at least $100 billion of additional lending by the MDBs, to ensure $250 billion of support for trade finance, and to use the additional resources from agreed IMF gold sales for concessional finance for the poorest countries, constitute an additional $1.1 trillion programme of support to restore credit, growth and jobs in the world economy. Together with the measures we have each taken nationally, this constitutes a global plan for recovery on an unprecedented scale.

Restoring growth and jobs

6. We are undertaking an unprecedented and concerted fiscal expansion, which will save or create millions of jobs which would otherwise have been destroyed, and that will, by the end of next year, amount to $5 trillion, raise output by 4 per cent, and accelerate the

transition to a green economy. We are committed to deliver the scale of sustained fiscal effort necessary to restore growth. 7. Our central banks have also taken exceptional action. Interest rates have been cut aggressively in most countries, and our central banks have pledged to maintain expansionary policies for as long as needed and to use the full range of monetary policy instruments, including unconventional instruments, consistent with price stability. 8. Our actions to restore growth cannot be effective until we restore domestic lending and international capital flows. We have provided significant and comprehensive support to our banking systems to provide liquidity, recapitalise financial institutions, and address decisively the problem of impaired assets. We are committed to take all necessary actions to restore the normal flow of credit through the financial system and ensure the soundness of systemically important institutions, implementing our policies in line with the agreed G20 framework for restoring lending and repairing the financial sector. 9. Taken together, these actions will constitute the largest fiscal and monetary stimulus and the most comprehensive support programme for the financial sector in modern times. Acting together strengthens the impact and the exceptional policy actions announced so far must be implemented without delay. Today, we have further agreed over $1 trillion of additional resources for the world economy through our international financial institutions and trade finance. 10. Last month the IMF estimated that world growth in real terms would resume and rise to over 2 percent by the end of 2010. We are confident that the actions we have agreed today, and our unshakeable commitment to work together to restore growth and jobs, while preserving long-term fiscal sustainability, will accelerate the return to trend growth. We commit today to taking whatever action is necessary to secure that outcome, and we call on the IMF to assess regularly the actions taken and the global actions required. 11. We are resolved to ensure long-term fiscal sustainability and price stability and will put in place credible exit strategies from the measures that need to be taken now to support the financial sector and restore global demand. We are convinced that by implementing our agreed policies we will limit the longer-term costs to our economies, thereby reducing the scale of the fiscal consolidation necessary over the longer term. 12. We will conduct all our economic policies cooperatively and responsibly with regard to the impact on other countries and will refrain from competitive devaluation of our currencies and promote a stable and well-functioning international monetary system. We will support, now and in the future, to candid, even-handed, and independent IMF surveillance of our economies and financial sectors, of the impact of our policies on others, and of risks facing the global economy.

Strengthening financial supervision and regulation

13. Major failures in the financial sector and in financial regulation and supervision were fundamental causes of the crisis. Confidence will not be restored until we rebuild trust in our financial system. We will take action to build a stronger, more globally consistent, supervisory and regulatory framework for the future financial sector, which will support sustainable global growth and serve the needs of business and citizens. 14. We each agree to ensure our domestic regulatory systems are strong. But we also agree to establish the much greater consistency and systematic cooperation between countries, and the framework of internationally agreed high standards, that a global financial system requires. Strengthened regulation and supervision must promote propriety, integrity and transparency; guard against risk across the financial system; dampen rather than amplify the financial and economic cycle; reduce reliance on inappropriately risky sources of financing; and discourage excessive risk-taking. Regulators and supervisors must protect consumers and investors, support market discipline, avoid adverse impacts on other countries, reduce the scope for regulatory arbitrage, support competition and dynamism, and keep pace with innovation in the marketplace. 15. To this end we are implementing the Action Plan agreed at our last meeting, as set out in the attached progress report. We have today also issued a Declaration, Strengthening the Financial System. In particular we agree:

to establish a new Financial Stability Board (FSB) with a strengthened mandate, as a successor to the Financial Stability Forum (FSF), including all G20 countries, FSF members, Spain, and the European Commission; that the FSB should collaborate with the IMF to provide early warning of macroeconomic and financial risks and the actions needed to address them; to reshape our regulatory systems so that our authorities are able to identify and take account of macro-prudential risks; to extend regulation and oversight to all systemically important financial institutions, instruments and markets. This will include, for the first time, systemically important hedge funds; to endorse and implement the FSFs tough new principles on pay and compensation and to support sustainable compensation schemes and the corporate social responsibility of all firms; to take action, once recovery is assured, to improve the quality, quantity, and international consistency of capital in the banking system. In future, regulation must prevent excessive leverage and require buffers of resources to be built up in good times; to take action against non-cooperative jurisdictions, including tax havens. We stand ready to deploy sanctions to protect our public finances and financial systems. The era of banking secrecy is over. We note that the OECD has today published a list of countries assessed by the Global Forum against the international standard for exchange of tax information;

to call on the accounting standard setters to work urgently with supervisors and regulators to improve standards on valuation and provisioning and achieve a single set of high-quality global accounting standards; and to extend regulatory oversight and registration to Credit Rating Agencies to ensure they meet the international code of good practice, particularly to prevent unacceptable conflicts of interest.

16. We instruct our Finance Ministers to complete the implementation of these decisions in line with the timetable set out in the Action Plan. We have asked the FSB and the IMF to monitor progress, working with the Financial Action Taskforce and other relevant bodies, and to provide a report to the next meeting of our Finance Ministers in Scotland in November.

Strengthening our global financial institutions

17. Emerging markets and developing countries, which have been the engine of recent world growth, are also now facing challenges which are adding to the current downturn in the global economy. It is imperative for global confidence and economic recovery that capital continues to flow to them. This will require a substantial strengthening of the international financial institutions, particularly the IMF. We have therefore agreed today to make available an additional $850 billion of resources through the global financial institutions to support growth in emerging market and developing countries by helping to finance counter-cyclical spending, bank recapitalisation, infrastructure, trade finance, balance of payments support, debt rollover, and social support. To this end:

we have agreed to increase the resources available to the IMF through immediate financing from members of $250 billion, subsequently incorporated into an expanded and more flexible New Arrangements to Borrow, increased by up to $500 billion, and to consider market borrowing if necessary; and we support a substantial increase in lending of at least $100 billion by the Multilateral Development Banks (MDBs), including to low income countries, and ensure that all MDBs, including have the appropriate capital.

18. It is essential that these resources can be used effectively and flexibly to support growth. We welcome in this respect the progress made by the IMF with its new Flexible Credit Line (FCL) and its reformed lending and conditionality framework which will enable the IMF to ensure that its facilities address effectively the underlying causes of countries balance of payments financing needs, particularly the withdrawal of external capital flows to the banking and corporate sectors. We support Mexicos decision to seek an FCL arrangement. 19. We have agreed to support a general SDR allocation which will inject $250 billion into the world economy and increase global liquidity, and urgent ratification of the Fourth Amendment.

20. In order for our financial institutions to help manage the crisis and prevent future crises we must strengthen their longer term relevance, effectiveness and legitimacy. So alongside the significant increase in resources agreed today we are determined to reform and modernise the international financial institutions to ensure they can assist members and shareholders effectively in the new challenges they face. We will reform their mandates, scope and governance to reflect changes in the world economy and the new challenges of globalisation, and that emerging and developing economies, including the poorest, must have greater voice and representation. This must be accompanied by action to increase the credibility and accountability of the institutions through better strategic oversight and decision making. To this end:

we commit to implementing the package of IMF quota and voice reforms agreed in April 2008 and call on the IMF to complete the next review of quotas by January 2011; we agree that, alongside this, consideration should be given to greater involvement of the Funds Governors in providing strategic direction to the IMF and increasing its accountability; we commit to implementing the World Bank reforms agreed in October 2008. We look forward to further recommendations, at the next meetings, on voice and representation reforms on an accelerated timescale, to be agreed by the 2010 Spring Meetings; we agree that the heads and senior leadership of the international financial institutions should be appointed through an open, transparent, and merit-based selection process; and building on the current reviews of the IMF and World Bank we asked the Chairman, working with the G20 Finance Ministers, to consult widely in an inclusive process and report back to the next meeting with proposals for further reforms to improve the responsiveness and adaptability of the IFIs.

21. In addition to reforming our international financial institutions for the new challenges of globalisation we agreed on the desirability of a new global consensus on the key values and principles that will promote sustainable economic activity. We support discussion on such a charter for sustainable economic activity with a view to further discussion at our next meeting. We take note of the work started in other fora in this regard and look forward to further discussion of this charter for sustainable economic activity.

Resisting protectionism and promoting global trade and investment

22. World trade growth has underpinned rising prosperity for half a century. But it is now falling for the first time in 25 years. Falling demand is exacerbated by growing protectionist pressures and a withdrawal of trade credit. Reinvigorating world trade and investment is essential for restoring global growth. We will not repeat the historic mistakes of protectionism of previous eras. To this end:

we reaffirm the commitment made in Washington: to refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing World Trade Organisation (WTO) inconsistent measures to stimulate exports. In addition we will rectify promptly any such measures. We extend this pledge to the end of 2010; we will minimise any negative impact on trade and investment of our domestic policy actions including fiscal policy and action in support of the financial sector. We will not retreat into financial protectionism, particularly measures that constrain worldwide capital flows, especially to developing countries; we will notify promptly the WTO of any such measures and we call on the WTO, together with other international bodies, within their respective mandates, to monitor and report publicly on our adherence to these undertakings on a quarterly basis; we will take, at the same time, whatever steps we can to promote and facilitate trade and investment; and we will ensure availability of at least $250 billion over the next two years to support trade finance through our export credit and investment agencies and through the MDBs. We also ask our regulators to make use of available flexibility in capital requirements for trade finance.

23. We remain committed to reaching an ambitious and balanced conclusion to the Doha Development Round, which is urgently needed. This could boost the global economy by at least $150 billion per annum. To achieve this we are committed to building on the progress already made, including with regard to modalities. 24. We will give renewed focus and political attention to this critical issue in the coming period and will use our continuing work and all international meetings that are relevant to drive progress.

Ensuring a fair and sustainable recovery for all

25. We are determined not only to restore growth but to lay the foundation for a fair and sustainable world economy. We recognise that the current crisis has a disproportionate impact on the vulnerable in the poorest countries and recognise our collective responsibility to mitigate the social impact of the crisis to minimise long-lasting damage to global potential. To this end:

we reaffirm our historic commitment to meeting the Millennium Development Goals and to achieving our respective ODA pledges, including commitments on Aid for Trade, debt relief, and the Gleneagles commitments, especially to subSaharan Africa; the actions and decisions we have taken today will provide $50 billion to support social protection, boost trade and safeguard development in low income countries,

as part of the significant increase in crisis support for these and other developing countries and emerging markets; we are making available resources for social protection for the poorest countries, including through investing in long-term food security and through voluntary bilateral contributions to the World Banks Vulnerability Framework, including the Infrastructure Crisis Facility, and the Rapid Social Response Fund; we have committed, consistent with the new income model, that additional resources from agreed sales of IMF gold will be used, together with surplus income, to provide $6 billion additional concessional and flexible finance for the poorest countries over the next 2 to 3 years. We call on the IMF to come forward with concrete proposals at the Spring Meetings; we have agreed to review the flexibility of the Debt Sustainability Framework and call on the IMF and World Bank to report to the IMFC and Development Committee at the Annual Meetings; and we call on the UN, working with other global institutions, to establish an effective mechanism to monitor the impact of the crisis on the poorest and most vulnerable.

26. We recognise the human dimension to the crisis. We commit to support those affected by the crisis by creating employment opportunities and through income support measures. We will build a fair and family-friendly labour market for both women and men. We therefore welcome the reports of the London Jobs Conference and the Rome Social Summit and the key principles they proposed. We will support employment by stimulating growth, investing in education and training, and through active labour market policies, focusing on the most vulnerable. We call upon the ILO, working with other relevant organisations, to assess the actions taken and those required for the future. 27. We agreed to make the best possible use of investment funded by fiscal stimulus programmes towards the goal of building a resilient, sustainable, and green recovery. We will make the transition towards clean, innovative, resource efficient, low carbon technologies and infrastructure. We encourage the MDBs to contribute fully to the achievement of this objective. We will identify and work together on further measures to build sustainable economies. 28. We reaffirm our commitment to address the threat of irreversible climate change, based on the principle of common but differentiated responsibilities, and to reach agreement at the UN Climate Change conference in Copenhagen in December 2009.

Delivering our commitments

29. We have committed ourselves to work together with urgency and determination to translate these words into action. We agreed to meet again before the end of this year to review progress on our commitments.

Q.7 Critically review the internationalization process of telecom firms on Indian origin and identify bottlenecks in their journey towards global competitiveness.
The Telecom industry in India, best described as a menagerie of related business streams coming together to create an ecosystem, has borne witness to significant change over the last few years. With a burgeoning subscriber base, and over 12 to 15 million new subscriber additions per month currently, India is bound to remain one of the fastest growing wireless markets in the world. Disruption in pricing and enabling regulation helped accelerate subscriber growth. International players realized that not only was Indian telecom market large, but it was profitable. Consequently, the last four to five years have truly been the years of internationalisation of telecom in India. Marked by the entry of Maxis Telecom (Aircell) in December 2005, and Telekom Malaysias strategic partnership with Spice Telecom in June 2006, the sector has experienced a flurry of mergers and acquisition activity ever since. Following on from the landmark Vodafone-Hutch transaction in 2007, the last couple of years have seen a combination of domestic consolidation and international strategic partnerships both in-bound as well as outbound. Several new domestic players such as Unitech, Swan, Shyam, S-tel, Loop, etc applied and got the new licences to enter the market and were open to international partnerships. Consequently several international operators such as Telenor ASA (Sweden), Sistema JSFCCLS (Russia), Etisalat (UAE) and Bahrain Telecommunications Company (Batelco), Bahrain, successfully entered Indian markets. Meanwhile, Japans NTT DoComo picked up a 26% stake in the sizeable mobile operations of Tata Teleservices as part of their India strategy. On the domestic front, Idea Cellulars purchase of Spice Communications brought together two well established regional players and consequent entry of Telecom Malaysia into Idea. In the next wave, Indian players decided to go global and started exploring opportunities in Africa and other emerging economies. The proposed mergers of Mobile Telephone Networks South Africa (MTN) with Bharti Airtel Limited and then later with Reliance Communications Limited, though unsuccessful, put India firmly on the global telecom M&A map, leaving no doubt about the intention of established Indian operators to foray into alternate high growth markets. Going forward, given the large number of players in each circle, there could be opportunities for players to consolidate over the next 2 to 3 years. On the operators side, the advent of 3G and WiMAX auctions is likely to initiate yet another spell of activity with large capital requirement to fund licence fee and expansion plans. On the infrastructure side, in the next round of evolution, the need to make new telecom operators viable will drive solutions around active infrastructure sharing.
Telecom sector: An overview
From public sector monopoly to an IUC regime and limited mobility Print this page

services, the Indian telecom sector has come a long way

The $ 8.6 billion telecommunications market in India has undergone a major transformation in the past couple of decades. From being a complete monopoly of the public sector, to the breaking down of these monopolies, the telecom industry has witnessed significant policy reforms. These reforms have seen the entry of private players to make a foray in all kinds of telecommunications services, such as cellular and wireless in local loop (WLL) services, in addition to providing basic telephony services. History of reforms: The telecom sector reforms so far have been undertaken in three phases. The first phase began in the early 80s, when private manufacturing of customer premise equipment was given the go-ahead in 1984. A proliferation of individual STD/ISD/PCO networks also took place throughout the country, by way of private individual franchises. Mahanagar Telephone Nigam (MTNL) was created out of the Department of Telecommunications (DOT) to handle the sectors of Mumbai and Delhi respectively. A high-powered telecom commission was set up in 1989, and Videsh Sanchar Nigam (VSNL) was made the international service provider catering to all telecom services originating from India. The second phase of reforms in the telecom sector commenced in 1991 with the announcement of a new economic policy. To begin with, the government delicensed the manufacture of telecom equipment in 1991. It also opened up radio paging services in 1992. In 1994, basic telephony was opened to the private sector by granting six companies with operating licenses. These companies were Bharti Telenet, Essar Commvision, Shyam Telecom, Hughes Tele.com, Tata Teleservices and Reliance. The National Telecom Policy announced in 1994 was part of this second phase of reforms. It emphasized Universal Service and Qualitative Improvement in telecom services, among other objectives. An independent statutory regulatory was established in 1997,

and pursuant to the policy intentions, Internet services were opened up. This was however only in 1998, rather belatedly in comparison to the rest of the world. Since then, more companies have been given the go-ahead to offer various telephony and other telecom services in the voice and data segments. The third phase of reforms began with the announcement of the New Telecom Policy in 1999. The underlying theme of NTP was to usher in full competition through unrestricted entry of private players in all service sectors. The policy favoured the migration of existing operators from the era of fixed license fee regime to that of revenue sharing. The policy further outlined the strengthening of the regulator, opening up of International Long Distance (ILD) and National Long Distance (NLD) services to the private sector and corporatisation of telecom services. Accordingly, the year 2001 witnessed the entry of private operators in offering basic telephony and NLD services and the introduction of additional players, in every cellular circle. This phase of reforms also saw VSNL's monopoly ending prematurely in April 2002, when the ILD sector was thrown open to the private sector to herald the era of unlimited competition in the industry. Outcome of reforms: With these reforms, the telecom sector began witnessing a trend of growth never seen before. Basic services have been opened for unlimited competition; more licenses have been issued to the private sector for cellular services. Tele-density, too, has increased from 1.07 in 1995 to 2.8 in 2000 and stood at 5.72 as of August 2003. While it is expected to continue rising sharply in a very short period, the issue of telephone accessibility remains to be addressed satisfactorily. The telecom sector has thus completely changed, both in terms of coverage, and efficiency of services offered. Provision of landlines on demand in certain places, telephone exchanges going digital, and the acceptability of optic fibre and wireless technology are but a few instances of the change that swept the industry.

In the area of cellular services, the number of licenses stood at four operators in each circle, with the services are being run in eighteen telecom circles and four metro cities. The state of Jammu and Kashmir was the nineteenth telecom circle to be made operational, although this was only in August 2003. The current subscriber base in the cellular market has risen to 183 lakh as of September 2003. The cellular service providers also providing a lot of value-added services such as SMS, location based services, etc, and these to now form an important constituent of the cellular service providers revenues. In the Internet Service Provider (ISP) business, 460 licenses have already been granted, more than 240 clearances have been issued to set up their own international data gateways. In the first quarter of 200304, around 194 ISPs were operational of which 40 ISPs were also providing Internet Telephony services. In the meantime, the private basic service providers have started a rollout of fixed wireless telephones. The rollout of these services along with the fast growth in the cellular subscriber base has affected the growth of the fixed line subscribers to a large extent. Current issues: However, technological advancements in a sector do not in any way guarantee a smooth ride for all the players in the industry. And the telecom sector in particular has seen more than its share of controversies. In fact, it may even be argued that the third stage of reforms took place only due to the problems faced by the sector at that point of time. The most recent spate of controversies took place as a result of the entry of more WLL operators on the scene with low costs. This threatened the survival of cellular players who entered at a peak time. The major worry for the cellular industry was that just like the advent of SMS saw the paging industry lose most of its business; the entry of WLL would have a similar effect on them. As a result, in January 2002, the legal wrangling between the cellular operators based on the Global System for

Mobile communication (GSM) and the basic operators providing limited mobility WLL services commenced. The first signs of the things to come was when the cellular operators threatened not to offer interconnectivity to WLL operators and block calls on those networks unless the government solved the issue of access charges. This was followed by a spate of other issues, which required clarifications, legal opinions, and delivery of judgements. Of all the issues, two specific grievances of the cellular operators stood out. Firstly, all cellular operators were made to pay an access charge of Rs 1.20 for every 3 minutes for any call terminated in the network of the basic operator. To provide interconnectivity between cellular and fixed services, basic phone operators asked cellular operators for an access charge for terminating calls on their network. On the other hand, for calls made from a basic phone to a cellular phone, the basic operator paid nothing to cellular operators. The reason being that basic operators have to provide cheap telephonic services to far-flung areas, it could not be made more expensive by paying access charges. Their other grievance was with regards to fee. When cellular phone operators forayed into the telecom sector, they had to pay hefty fees of around Rs 3000 crore for getting their licenses. On the other hand, WLL firms providing limited mobility services, had to pay a measly Rs 500 crore. It is this hefty fee, combined with a levy of access charge, which has made cellular telephony more expensive. As a result, the Interconnect Usage Charges (IUC) regime was eventually ushered in. This also led to the system of the calling party paying for the calls made on all networks, whether basic, cellular, or wireless. However, the initial set of IUCs was not found to be efficient and easily implementable. This led to the announcement of new IUC by TRAI towards the fag end of October 2003. In addition to the IUC, TRAI also decided to impose an access deficit charge. The players have been given a free hand to decide their tariffs by TRAI, and it has announced its intention to interfere only in extreme cases.

There was another controversy that surrounded the telecom sector in 2003, which was regarding the roaming facility being offered by limited mobility players. At the time of the introductory launch of its WLL services (Reliance India Mobile) in December 2002, Reliance Infocomm promised national roaming facility to its customers. As WLL services were designed only to offer limited mobility within a specific Short Distance Charging Area (SDCA), the advertisements put the cellular operators in a fix. According to them, the offering of roaming services was a clear breach of existing regulations. The Cellular Operators Association of India (COAI) eventually moved the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) accusing WLL operators for violating license conditions by offering roaming facility. The clarification given by Reliance Infocomm that the company had planned to offer multiple subscription to customers, thereby making the roaming facilities being offered within the purview of the WLL license was eventually not found to be satisfactory by the authorities. The TDSAT verdict on the issues relating to the coverage provided by the WLL players was given in August 2003. A majority verdict of the TDSAT, while clearing the WLL limited mobility services directed the Government to restrict their mobility to a Short Distance Charging Area (SDCA). This decision meant that the surrogate roaming facilities offered by the WLL players were no longer permissible. Additionally, the TDSAT also asked the Government to look into the issue of providing a level playing field to all the interested parties. What the future holds: With two of the three major issues getting resolved, the only issue that remained was pertaining to the disparity in the entry fees paid by the cellular and basic operators. This gave further impetus to have unified licensing for basic, cellular, and wireless services, and eventually, in a landmark decision, the Group of Ministers constituted to look into the issue approved TRAIs recommendations on the same.

The players have been given the option of migrating to a new agreement under the aegis of the unified license, or continuing under the previous agreements. The cellular license has been broadened, and these players now have the option to commence basic telephony services. The basic service providers in order to avail of the unified license, now have to pay the difference between the license fees paid by them and the fourth cellular operator, doing which will permit them to offer full mobility services. This process of unified licensing will be completed in a period of six months, provided there are no hitches. This move is a positive step towards a license free environment in the telecom sector. And in all probability the future holds a unified license not merely a unified license in select telecom services, but instead for all the services offered in the sector. In November 2003, the Department of Telecommunications finally issued the order approving unified licencing. Reliance Infocomm had to pay a penalty of Rs 526 crore for offering roaming facilities. Reliance Infocomm, Tata Teleservices, Shyam Telelink and Himachal Futuristic Communications are issued unified licences. Reliance Infocomm receives licences for 17 circles and Tatas for six circles, including two metros. However, the seemingly mild penalty imposed upon Reliance Infocomm continues to remain a bone of contention. And the cellular operators are not too happy with the new regime, and have approached the Supreme Court for relief. Policy reform For a dynamic sector, reforms are necessitated by dynamics of changes including technological innovations. The telecom sector in India has been witnessing a continuous process of reforms since 1991. During the recent years, various policy initiatives have been carried out to give boost to the sector. Some of them are as under: National Long Distance service was opened to operators w.e.f. 13.8.02.

 National Frequency Allocation Policy 2002 evolved. The monopoly of VSNL in ILD terminated from March 31st 2002. National Internet Backbone (NIB) covering all states has been commissioned. Instruction issued to all state Governments to provide expeditious approval for Right of way. Guidelines for Unified Access Service Licence regime was issued on 11.11.03. Calling Party Pump (CPP) regime was implemented w.e.f. 1st May, 2003. Indian Telegraph Act was amended for establishment of USO Fund. Nonlapsable USO Fund created on April 2002. IUC regime introduced. Several directives/regulations have been issued by TRAI regarding different telecom services, their tariffs, quality and internet services, which have contributed positively towards the growth of telecommunication sector. ISPs allowed setting up submarine cable landing stations for international gateways for internet. Radio frequency spectrum management has been modernized and automated to efficiently address dynamic needs of the liberalized user. Broadband policy was announced on October 14, 2004. ISPs have been permitted to use underground copper cables for establishing last mile linkages. FDI ceiling has been raised to 74% for various telecomm services. The operation of Aut0mated spectrum management was commenced in January 2005. Access service provider can provide internet telephony internet services and broadband services. They can use the network of NLD/ILD service. Prior experience in telecomm sector no more a pre-requisite for grant of telecom service licenses. Annual license fee for National Long Distance, International Long Distance, Infrastructure Providers, VSAT Commercial and ISP has been reduced to 6% of Adjusted Gross Revenue (AGR) with effect from 01-01-2006. IPRPN Service permitted to ISPs.

 Delicensing of 2.40 - 2.4835 GHZ for indoor and outdoor use, 5.15 5.13 GHZ for indoor use. Moreover, exemption/concessions have been given on the customs duty for importing equipment as well as components etc; besides excise duty exemptions and benefit under indirect taxes. All these reforms and policy initiatives have certainly had positive effect on the growth of Telecom sector.

Q.8 How to choose an alliance structure? Explain with the help of one successful and one unsuccessful strategic alliance.
What is a strategic alliance
Webster's defines "stratagem" as 'a subtle piece of planning designed to "gain an end" and Webster's defines an "alliance" as the uniting of qualities in a perceived relationship.' 1 In this context, a strategic alliance is then the "uniting of qualities in a perceived relationship to gain an end-result." I define a strategic alliance as an agreement to utilize the strengths of both companies (the strategy) to build a bridge for customers to benefit (the end) through mutual partnership (the perceived relationship). A winning strategic alliance creates a win for Company A, a win for Company B, and a win for the customers of the companies in alliance. An alliance may be a consortium, but for the purposes of this discussion we will examine alliances between two organizations. How to Choose An Alliance Structure The following checklist outlines some of the most popular options that managements may want to consider in structuring their alliances. Alliance Joint Venture

Many firms seek to establish separate legal entities-joint ventures-for their partnerships. The essential feature of the joint venture is the creation of entirely new entity. This is because entity possess its own identity and management structure, complete with the inherent operating and strategic problems inevitably presented by a new company. Alliance partners can structure these ventures in infinite variety. However, alliance practitioners have identified some key common issues to examine when considering a joint venture company: Reach an amiable equity breakdown. Restrict alliance activities Combine all functions Focus narrowly on products and markets Allow extra control in home markets

Functional Agreements: Garden variety Alliances Some common features of functional alliances are outlined below: Joint Manufacturing Technical Assistance Joint Marketing Cross Distribution Cross Licensing Research Pooling Consortia Is a Functional alliance enough Many companies building alliances-regarding of the strategies importance of the coalitionsdo not see the need for either equity stakes or the creation of joint venture. A leading proponent of functional alliances is Volkswagen. In the past decade the Germany based carmarker has switched from JVs to functional pacts building such links with Chrysler, Volvo, Nissan and Toyota. But functional alliances are not for everyone. Some of the pros and cons include the following: Functional agreements are more flexible than alliances built around joint venture or equity holdings. They may be your best response to the need swift changes in competition in the global market. Easily re-writable functional pacts allow continual refocusing of an alliance. Participants can easily transform successful alliances into equity or JV based partnerships Functional agreements are ideal for learning processes. Conversely: Less commitment to the alliance is shown, functional agreements offer more scope for bad faith. Functional alliances cannot hold common assets Functional pacts demand an exceptional degree of mutual trust.
Successful strategic alliances are usually comprised of the following features: 1. Clear benefit to both companies and customer. 2. Both companies increase the sale of (defined) products and services. 3. Customers can clearly see who handles what (to eliminate confusion). 4. Both partners increase their visibility and strengthen the name of their company by forming the alliance. 5. The alliance represents a revenue flow to one or both companies that would not otherwise occur. 6. The alliance represents an outsourced cost/revenue structure in order to maximize a relationship, resource, or cost through leveraging a partner's economies of scale and ability to more successfully deliver the relationship, resource, or cost structure. As a strategic alliance manager for my former company, I focused on technology companies with clearly beneficial reasons to partner with my company: one or some of our strengths matched their weaknesses and one or some of their strengths matched our weaknesses. By partnering, we were giving a stronger option to our unified client. Also, the economies of scale (financial benefit)

of partnering outweighed the cost of keeping a service support structure in-house. An example would be a company who manufactures computer network equipment outsourcing the support of their equipment to my company, and in return, my company agrees to build a solution featuring their switches as a bundled product to the customer. The result is the customer buys from my company, receives support from my company for the products we sell AND support for the warranty from my company for the partner's products.

The Triangle of Strategic Alliances

You will notice in the two diagrams (above) that there is an intersection of needs, capabilities, and reach of two companies tapping the customer both in the same way can deepen the joint service offering. This is one approach to offer to a client called the MUTUAL OVERLAY ALLIANCE. Together, we have two strong solutions become IRON-CLAD solutions. That's more powerful and a win to all parties. You may also have noticed that there are areas Company A touches the Customer where B presently does not touch, and vice-versa. This is an example of an EXPANDED REACH ALLIANCE. EXPANDED REACH alliances enable one firm to touch more customers, find more needs, and potentially offer more services to that client through the strengths and capabilities of the other company as strategic alliance partner. Last, there is an area of intersect below the Maximum Benefit Triangle that many companies overlook. It is where you're both offering the same or similar solutions. There may be ways to broaden this intersection by working together. This can be mutually beneficial IF it increases the outreach or broadens the circle of influence for both Company A and Company B. In addition, there are areas that do not intersect and are untouched opportunities and challenges. Often, by starting with one service or product offering, a company can discover more ways to deepen these hooks into customer relationships to build a stronger business relationship. Every alliance has quirks to work through. For example, two companies with competing products/services will face communication challenges with their customers when they form an alliance. The customer will be confused as to who or where to buy the product. This type of alliance violates my rule number 3 - customer can clearly see who handles what. It is important to have clearly defined processes for implementation as well as account management (from both parties) to create successful alliances. Another challenge in alliances is to define how much revenue will result and how soon it will occur -- the primary problem with alliances that break down. The break down often occurs because Company A over-promises the amount of work in order to negotiate a lower-cost pricing structure and gain commitments from Company B, the provider of the service. This causes breakdown

because one party begins to mistrust the alliance partner either because the revenue flow does not match the promised amount or because service levels are compromised due to broken commitment of revenue flow, which creates a lack of adherence to service level agreements. A few mishandled escalations for support can leave Company B disillusioned with Company A's ability to support their products. This results in fewer referrals to the service alliance. A good way to resolve this challenge is to establish defined metrics of success, monitor success, and recognize potential trouble spots to take corrective action. It is also highly important to establish pricing based upon a scale of realistically achievable levels of volume. With a pricing structure based upon a scale, both sides are fairly protected. There is a method to create accountability within each respective company. These alliances involve employees from both companies representing the alliance within each other's organization through cross-pollination of employees. The presence of the employee from Company A on the team of Company B builds synergies and removes the potential for miscommunication. It is also important to have shared office space, regularly scheduled meetings, and maintain clear lines of communication so that surprises are minimized. It has been said "an optimist and pessimist make the best partnership because one sees the profits while the other sees the risks." So, the last key to a successful alliance is to make sure representatives from various parts of each company are intricately involved in building the solution. I included the law department, business development, human resources, finance (controller), administration, manufacturing, operations, and sales when building alliances for Data General and DecisionOne. I also made sure my alliance partner had representatives from each area included on their decision teams. Strategic alliances can be beneficiary to your company's image . The last thing I would want to do is spend 6 months to a year building an alliance only to announce it the week between Christmas and New Year's Day. This is the last, and perhaps most vital, aspect of a successful alliance. Announcing the new alliance to customers at the right time leads to maximum exposure (and success). Announcing at the wrong time may have less than desired effect and draw fewer customers to the table. A good example of the right time to announce the alliance might be during the key day of a trade show. Both companies must be committed to the success of both the promotion and the delivery of the alliance. With a joint commitment to promotion and delivery you ensure the success of the program. To recap ways to improve your strategic alliance success, make sure to have good answers for these seven questions: 1. Is there clear benefit to both companies (financial, service/product, relationship) in building a strategic alliance? 2. Is the strategic alliance relationship clearly defined for customers to understand? 3. Are your companies networked peer-to-peer on multiple levels to strengthen the alliance bond? 4. How much strategic alliance business did you promise to deliver? How much can you fulfill? 5. Have you developed a thorough SLA (service level agreement) for the scope of work to be delivered through the strategic alliance? Have you developed a plan for success (with metrics to measure how you will define your strategic alliance success? 6. Do you have clear and honest communication between all strategic alliance partners? Is the management of implementation and continuous success of the program assigned to strong parties within each organization? 7. Is the image and success of the strategic alliance program being promoted by both partners?

Building successful strategic alliances isn't easy; however, they add to the success and value of your company. Use these seven steps to improve your alliances. We often consult with companies on how to improve alliances and wish you success with your alliance aspirations. Successful Strategic Alliance

Toyota-GM-TRW GMs components division has been supplying components to Toyota, while TRW has been participating in Toyotas keiretsu strategy meetings. Toyota, meanwhile is selling GMs Cavalier under its own brand name in Japan. However, GM has a joint venture in Thailand which challenges Toyotas dominance and plans to sell its Saturn sedan in Japan in 1997. Canon-Hewlett Packard They have a common laser engine printer technology and HP buys engine from Canon. However, both compete in end products

Q.9 Strategic alliances are built on the marriage metaphor. Explain Ans: Building on the Marriage Metaphor
Executives continually characterize alliance as marriage, which conjures up all sorts of revealing ways to define these arrangement: Define the Conventional Couple: she stays at home; he goes out to the office each of the alliance partners performs a separate but complementary task. They are not direct competitors at least, not at first. They may become competitors, though, especially as the alliance progresses. One version of the conventional couple is the arranged marriage. Other parties arrange and supervise the partnership. This often pertains to projects in which development cost are enormous and customer needs paramount, as in aerospace and defence. An example of an arrange marriage is the Airbus consortium. Since the strategic direction comes from outside the alliance group, arranged marriages often suffers from chaotic management, with the partners sometimes at each others throats. The chaos does not necessarily affect the success of the project, since the primary goal of most alliance management is effectiveness, not smooth managerial style. Conventional Couples: an example. In an alliance between standard telephones and cables (STC) and US West, the two partners joined to bid for a licence to operate a new, low-cost, limited range portable telephone system in Britain. STC had

manufacturing capability, but lacked the right operating experience. It needed a partner to give it credibility as a consumer oriented operator. However, other eligible british firms in this field were already in the process of forming their own alliances. In response, STC allied itself with US west-solely for the purpose of entering the new personal communication field. In late 1989 US West-STC won the British contract personal communications. This exemplifies an alliance that stars out to be passive-little more than arms length trade. Gaining success, it then turns dynamic, as functions merge and management interlocks. The Career Couple: he goes out to work-and so does she---this is the alliance of companies that are not only in the same business, but also operating in exactly the same business areas. Their decisions to mesh their business assets immediately becomes a sensitive issue, for linkage brings the threat of compromised competitiveness. But both partners usually decide to co-operate because they perceive that they can be more competitive in the global market place as an alliance than as separate companies. A fairly deep level of collaboration usually characterizes such alliances. Inevitably, they also develop a characteristics problem: the leaderlaggard syndrome. The Odd Couples: the odd couple formation allies two different sorts of cultures. More likely than not, one partner is highly structured, disciplined rule governed and large. The other is likely to be small, unstructured and intuition governed. Neither partner directly threatens the other as a competitor, but competition issues sensitize the alliance, particularly if one partner perceives a risk of losing proprietary knowledge by allowing an unstructured corporate organization access to it. Odd couple alliances frequently involve a fairly deep level of collaboration, and the odd couple can expect corporate-culture tensions to arise between the partners. But the experience shows that the cultural issue is often of less imporatance than the business issue. The key question is: does this alliance make business sense? If the answer is yes then the participants can probably manage their inter-cultural problems. Just Good Friends: these career couples are too preoccupied with their separate careers to form full-time relationships. They are also alert to the potential for competition between partners. Typically, the good friends are direct competitors,

in the same business. If not current competitors, they would vie with one another if they occupied the same geographic market. To balance the trade off between the imperatives of competition and collaboration, this couple tends to set its collaboration at a distance, and within strict limits. Shot Gun Wedding: in most cases, partners enter alliances of their own volition. Yet there is one exception. In the shotgun wedding, the couple has joined hands for one reason only-the loaded gun that is pointing discreetly down the aisle. The shotgun wedding is easily recognizable-the companies blithely announce that they are building their alliance on synergies that are absolutely irresistible (while independent analysts find these synergies hard to pin down). Usually a hostile bidder or major competitor lurks not too far in the background. But forming an alliance under such circumstances does not necessarily mean that the arrangement must fail. Nonetheless the very fact that the participants built the relationship for purposes other than the integration and leverage of business assets tends to result in higher attrition rate for shotgun wedding.