China + COVID-19: Time for India to listen to the music

Shayak Mazumder
Thursday, 25 June 2020

“And those who were seen dancing were thought to be insane by those who could not hear the music,” said Friedrich Nietzsche. Time for us to listen to the music carefully and stop criticising and polarising everything!

“Never waste a good crisis”, came the reply to my request for advice, from one of the most sagacious men I’ve known in my life. This was my old commanding officer, who recently retired from active service and has since started a second career of sorts. The year 2020 was supposed to be my year, or so I thought! We had spent close to four years to build one of the most comprehensive platforms ever built connecting Artificial Intelligence, e-commerce, supply chain across many countries around the world. Four years is a long time in the start-up world and, without some great investors and backers, we wouldn’t have reached this stage where we were about to launch this fantastic platform. (Remember this as it will have a significant bearing going forward in this article.)

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Although we were sure that we had built an amazing platform, we now had to prove that it worked and genuinely helped people to succeed. Looking back, in 2016, when I left my job in Paris and came back to build something that I was certain would help Indian SMEs to globalise their products, I had not anticipated how hard it would be and how arduous the task ahead of me was. I had anticipated that just because I was able to successfully take SMEs from 21 countries and help them to succeed in cross border sales in my last job, it would be equally easy to repeat that success in India. I had not accounted for two things. First, the systemic apathy from policymaking, bureaucracy all the way to investors and the general public who had little faith in SMEs being able to sell globally from India. Second, even worse, this feeling permeated into the SMEs and made them risk-averse. It was almost like I was talking to the mythical Lord Hanuman and trying to remind him of his powers!

As we launched the platform with a lot of hope in March 2020, the national lockdown began in full force. Initially, as is the case with most entrepreneurs, I was hopeful that the lockdown would cease in two weeks. However, as we crossed the first month of lockdown, I started working on the maths. This was when I reached out to several people from various backgrounds for advice. Guess what? The best advice I got wasn’t from any business guru. Rather, it came from one of my mentors and my old commanding officer. His words reminded me how much each crisis presented an opportunity to those that are ready to grab it with both hands. It also reminded me of one of the greatest speeches ever made in India, “As the world sleeps and India awakens to freedom...”

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2020 hasn’t been a great year, but it may very well turn out to be another 1991 for India. The year started with a lot of fanfare and hope, the same as it had for me and my company. This was the year that we were supposed to start the climb to a US$ 5 trillion economy. There was a lot of scepticism, but there was also the hope that it was possible. There were discussions around a strong government, economic reforms and a host of other things. There were some people still speaking about the lack of actual change and real policy reforms that were needed. In the last six years, we have seen some good reforms being initiated, and some of them even took root.

The country has been seeing a lot of economic doldrums over the last 18 months. I see a lot of these pains as nothing more than birthing pains. Most of us are rather myopic in our view of the world. Also, a lot of what I will mention in this article will find sceptics citing how poorly India has actually done in the last few years. However, I request everyone to think along these lines. Nothing great can ever be built without a vision and some sacrifice. Several sectors of the economy have been doing poorly, but that’s mostly due to structural changes in policy and business, not to mention the instability in the global economy, which over a ten-year period will bear fruit.

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The country is so highly politically charged and polarised that even statements of hope and good news are torn apart. How then will we face these twin crises that have created existential questions for our nation? It all goes back to the same point. Never waste a good crisis! Here we have two severe crises, and that gives us an opportunity for introspection, correction and action. Let me give you a personal example. When I received that advice from my mentor, I started thinking of how best to utilise what we already had and combine it with a real need in the market to turn around our fortunes. We started looking at global markets and tried to connect the SMEs, who really needed more channels of sales in this period. In less than two months, we had successfully turned the company around and were blazing a path where thousands of merchants started benefiting.

The questions that have been facing India: How do we cope with the economic fallout of the COVID-19 crisis? How do we face an aggressive China? How do we build a good relationship with our other neighbours like Nepal? We cannot obviously fight a three-pronged war against China, Pakistan and Nepal! Let’s evaluate the geopolitical situation, then evaluate our own internal policies that need change and try to game a solution that will be in the best interests of India. And, no, I’m not calling for a blanket boycott of Chinese goods, money, services in every form because that’s not a very practical solution.

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Today’s geopolitical scenario is quite unlike any we have faced in the last century. We have the weakening United States, which is a highly divided house. We have a resurgent China, although their bark is stronger than their bite. The Chinese economy has been waning for the last few years and they have been seeking solutions to improve their situation. For a long time, the Chinese economy was held up by a lot of smoke and wires, while they blustered their way around the developing economies. However, the sheen was starting to run off, and the undercarriage was clearly becoming visible. Countries were rejecting China's aggressive economic dominance once they saw what was happening to Sri Lanka. Several Asian countries were banding together to prevent Chinese domination in 2019 and rejecting Chinese economic aid. We also saw many countries starting to pay close attention to China's aggressive export strategies. China has, for some time​,​been subsidising locally manufactured products and taking advantage of loopholes in global agreements and supply chains. The USA-China trade war in 2019 highlighted a lot of these issues. A critical shift happened when the global body of postal unions (UPU) agreed to change their rules, which were more than a century old and allowed China an unfair advantage in shipping globally. The cost of shipping anything from China to the USA was much lower than shipping within the USA, allowing China to flood the US market with cheap goods at prices that American manufacturers couldn't match. This, by the way, is the same thing for Indian markets and all other markets across the world.

The Chinese government and manufacturers have worked ceaselessly over the last four decades to identify areas they needed to improve and loopholes they could take advantage of. Another good example is how China cleverly manipulated global intellectual property laws to copy Western innovations, make advances without paying royalty and then use that to their strategic advantage. A year back, I was attending a large trade fair in China, where I came across several international business people who had set up their businesses in China. One of the important things that came out of that discussion is how if you released any innovation in China, you would have a hundred copycats within a year. This ability is amazing, and something that others have yet to learn.

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The Chinese have also converted every challenge into an opportunity. They used Hong Kong's status as a British colony to evade tough tax laws in Europe. When faced with cynicism over the ‘Made in China’ tag, they quickly started tagging their goods as made in Andorra. I have dozens of such examples where, more than anything else, we get to see why a society succeeded against all the odds, even after managing to lock themselves away from the world. While the government in China has remained dictatorial and an Orwellian nightmare, what I've seen in my many travels to China is a population that's scared to speak against the government as they are afraid of retribution. However, at the same time, they are a proud race with millennia of history. They are ruthless and will go to any extent to succeed. With a dictatorial government, predatory practices where they have land-right issues with every single neighbour, it is quite clear that China isn't scared of forcing their way or flexing their military might in the region. From Japan to Mongolia, from South Korea to India, from Tibet to Taiwan, China's land issues are burning along all its borders, and they see no reason to do anything to douse those fires. These fires give the government in China an ethical footing during periods of crisis to control public opinion and channel them.

There’s plenty to learn from how China managed to become such an economic superpower. There’s also plenty of reason to be cautious while dealing with China. I have always found Chinese innovations in technology and the coordinated approach fascinating. As a country, they didn't care much for global sentiments and bulldozed their way through laws, processes and found a way to take their economy to heights no one believed they could reach. Let's be honest with ourselves. No country ever reached the top of the global pyramid by playing nice. We know how the Europeans colonised, killed, economically looted countries to fill their coffers from the Romans to the British. The United States’ global political machinations are legendary. They created many more monsters globally than they slew, to their own benefit. So, it stands to reason that if we are to become a global superpower, we need a coordinated approach between government, people and companies.

With COVID, China’s goodwill has been severely destroyed globally. This means a lot of countries will now want to shift their sourcing away from China. This presents an opportunity for India. With the rising mistrust of Chinese goods in India, we can hear the call of boycott China everywhere. However, what no one has figured out is how to get things done if we ignore China. These two topics of a global opportunity rising and a national fervour against China needs to be combined for India to achieve the best results. We need to work at three levels to make this India's moment of glory.

First, at the government level, we need changes in labour laws, export policies and compete for the digitisation of customs processes. All these three things are vestiges from the 80s. Due to people-pleasing labour laws, no sane manufacturer will ever want to take the risk of setting up manufacturing in sunrise sectors. The government needs to remove these risks and allow manufacturers to take risks and not prevent them from doing so through a maze of red tape.

For the last forty years, several governments have been trying to unlock the exports potential of this country. Several schemes like the MEIS etc. have been promulgated which provide stimulus to the manufacturers if they focus on exports. However, all this has been brought to nothing by the bureaucrats of customs and foreign trade who have refused to digitise customs on one or the other excuse. In reality, if we managed to digitise customs, not only would it benefit the lakhs of Indian manufacturers whose products are in global demand, it would also bring accountability into what's being imported into the country and the source of these goods. The government also needs to sign immediate agreements with countries which can help us to source the critical raw materials and spare parts that we typically source from China. Our major industries like automotive and pharma are highly dependent on Chinese raw materials. These are also categories that India exports well, and we'll be crippled if we don't have an alternative to the current supply chain. Countries like Taiwan can be useful for sourcing.

Second, private sector companies in India need to show the path. For a very long time, India has focused on services and not on manufacturing. While it has allowed us to create a global technological footprint, it has also allowed most of those talented youngsters to leave for more lucrative shores. Companies need to focus on R&D and hiring the best and brightest from the colleges and keeping them satisfied. The facts that this can be done was proved in the automotive and pharma sector with great success. Companies like Bajaj, Biocon and TVS created lasting success and have beaten Chinese as well as other manufacturers globally by hiring the best talent, paying well and investing in research.

Unfortunately, in most other categories, we have been happy with mediocrity and short term focus. Every investor, as well as every company in India, is focused on immediate revenues and quick results/exits. While this is great in theory, it rarely creates lasting success. The business communities and investors/banks alike need to support innovation, research and talent. If there were excellent opportunities in India, far lesser people would want to migrate to other countries. This kind of focus and impetus is almost always top-down and can be started by the large-cap companies, which unfortunately haven't focused as much on innovation and talent as is the norm in developed countries.

Lastly, we need to, as a population, be aware and support our local manufacturers. I'm not saying that we shouldn't buy from Amazon or Flipkart. I'm saying that we should look at the labels and support local brands that have been doing well. We cannot root out Chinese goods overnight, and that shouldn't even be the goal. Instead, the focus should be on learning and collaborating with them and building Indian businesses that can create lasting success. We need to ask our young men and women to become entrepreneurs with a global vision. We need to be more risk-tolerant as a country and allow our next generation to take us where the last generation very obviously hasn't been able to.

“And those who were seen dancing were thought to be insane by those who could not hear the music,” said Friedrich Nietzsche. Time for us to listen to the music carefully and stop criticising and polarising everything!

(Shayak Mazumder is the Founder and CEO of Eunimart Multichannel Pvt. Ltd. An INSEAD graduate, Mazumder is an ex-Naval officer, the youngest Staff Officer in the Indian Navy and a helicopter operator, who specialised in chemical, biological and nuclear warfare.)

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