'India should focus on ease of doing business, says KPMG's Goodburn

Mark Goodburn, Global Head - Advisory at KPMG was recently in India to chair the firm's global advisory executive meet. KPMG's India advisory practice has been one of the fastest growing in its global network, at 20 per cent. He spoke to Mahesh Nayak. Edited excerpts:

Q. What is your view of the US economy?

A. The US economy has over the last few quarters shown resilience and one can see a marked improvement in the economic outlook. This is reflected by the manufacturing sector gaining strength, as well as the increase in factor productivity.
 
Q. What is your view of Japan and its economy?

A. The Japanese economy will have to look at external investments to spur growth. This augurs well for India, if it is able to position itself favourably for Japanese investors. There are a number of large infrastructure projects in India which may prove attractive to Japanese investors who are looking for long term projects such as the Delhi-Mumbai industrial corridor.
 
Q. When you say the world has no boundaries what exactly you mean? What is your view of emerging markets, especially India?

A. In today's global economy, access to talent, as well as materials across the value chain has led to the concept of global value chains.  As such, it is now common place to find companies sourcing both talent and material from different geographies.  While there are a number of factors which determine investments in a particular geography, it is the degree of competitiveness that a particular geography offers that makes it attractive vis-a-vis its competitors.

Natural endowments might be the preliminary magnet but this clearly gives way to factors linked to productivity whether it is capital productivity or the factor productivity of its human resources.  In this context if India is to continue to attract investors, it will have to focus on "ease of doing business" in terms of its economic legislation, deepening of its clusters and resolution of major infrastructure bottlenecks.  The competition in India's neighbourhood is hotting up for investments. However, India's domestic market continues to be a major draw.
 
Q. Across the globe, corporate are trying to cut cost to increase margins. As an advisory firm do you think it's advisable to adopt this strategy?

A. As a strategy, the focus on being cost competitive is undoubtedly a sound one, however, there is a limit up to which cost can be tweaked.  If enterprises compete only on cost to remain competitive, it would be imperative for them to be the lowest cost producer.  However, on a long term basis it is really the competition advantage that an enterprise is able to leverage, it will go at a larger market share.
 
Q. What are the common complaints that you come across from clients in this region of the world vis-a-vis in the US and other developed countries?

A. The most common complaint received by investors is the unpredictability of legislation and the difficulties encountered in doing business.  Whilst individual pieces of legislation may require amendments from time to time, for business to thrive, there must be a clearly articulated long term economic policy.  Unfortunately we have seen long terms pronouncements relating to tax holidays, investment subsidies, special economic regions being changed from time to time even before the envisaged payback period of a project.  Unpredictability of legislation therefore becomes another factor in an already uncertain economic environment.  The complexities related to state level compliance and federal compliances add to the hurdles in doing business in India.  Whilst there have been changes in some progressive States, the degree of variability in India is enormous.  If a focused effort is devoted to repealing unnecessary legislations, the impact on inbound investment will be manifold.  A case in point would be South Korea where dramatic changes were made in removal of anachronistic legislation.
 
Q. Recently we saw two big mergers - Sun Pharma and Ranbaxy in India and Lafarge and Holcim. Do we see this as a new trend emerging were global giants will join hands to bite a bigger share of the market pie? Also your thoughts on both the mergers?

A. The drivers for consolidation vary per industry.  Two of the most significant drivers for consolidation are rationalization of cost and access to larger markets.  In the pharmaceutical industry, these mergers mean effective utilization of a combined sales force, access to global markets where either entity has product registrations, savings in R&D cost and a competitive advantage of rationalization of manufacturing costs.
 
Q. Talking of trends we have also seen Indian corporate after decades of running their business selling it overnight. Why is this trend emerging in India? What advice will you give Indian corporate at this point of time?

A. It would be difficult to generalize in terms of promoters exiting from business since the compulsion of each business would vary.  In some enterprises the next generation may not have interest in pursuing the business whilst in many other cases for the business to grow, significant investments may be required.  The answer then really depends on the appetite of the promoter to either venture forth or to encash the prevalent premium.
 
Q. You connected with 20 plus CXOs, what has been your advice to them on running businesses in today's scenario?

A. Today all enterprises are impacted by global trends, irrespective of their industry or geography. Operational efficiency and profit improvement has taken centre stage in corporate boardrooms and our conversation with clients and industry leaders is on how to deal and stay ahead of the curve in a globalised economy. Technology has transcended geographies and trends in data and analytics, mobile technology and the like are equally relevant across geographies. KPMG's intervention is across the business continuum of growth, preservation and governance.