ASCI 

Journal of Management

Volume 23, 1994

Select Articles

Productivity and Competitiveness:

A Model for Developing Economies
C Bhaktavatsala Rao

Manager, (Corporate Planning), Ashok Leyland, Madras

In the context of intemationalisation, competitiveness is a synthesis of comparative advantage and competitive efficiency.  Productivity helps firms, industries, and nations achieve sustainable competitive advantage.  Industry is a thrust area for countries in their quest for competitiveness.  Against the Indian backdrop, a simple but universally applicable productivity competitiveness model is developed.  The model comprises three basic elements - government policies, industry strategies, and management methods which are proposed as core areas for achieving higher productivity and competitiveness.  Each element has crucial sub components which serve as building blocks for productivity.  The government policies effectively support competitiveness if they are structured around productivity driven reform mechanism, cost deflating tariff structure, and technology and industry visions.  The industry strategies can provide sustainable competitive advantage if they are shared to cope with reshaping the industry structuring and radical transformation of industries while achieving co-operative technological innovation at industry level.  At the firm level dramatic improvements can be achieved by productivity driven generic competitive strategies, technological simplification, efficient Organisation of production, and appropriate human resource strategies.  The productivity competitiveness model as developed in this paper is seen to have wide applicability for, industries, and nations.

Productivity is integral to concepts of comparative advantage and competitive efficiency.  No longer confined to a simple analysis of man-machine interface on factory shop-floor, productivity now spans a wider economic framework comprising a host of structural and strategic factors.  Following the scientific studies of Frederick W Taylor, elemental work study formed a crucial underpinning of productivity management (Taylor, 1911).  Standardisation as introduced by Henry Ford in 1913 marked a major watershed in linking productivity and competitiveness.  Yet, the ascendance of General Motors in 1926 on the basis of product diversity to meet market demand pointed to the relevance of a wider range of corporate variables that determine the overall industrial competitiveness (Sloan, 1963).

Over the years, productivity concepts ex-tended to a wide gamut of corporate operations with a focus on sustained improvement of price-quality relationships.  The highly successful Toyota Production System and the model of industrial competitiveness pioneered by the Japanese are a reflection of the dynamic linkages of productivity with global competitiveness (Monden, 1983; Shingo, 1989: Cusumano, 1985, 1988).  With increasing globalisation, productivity has moved from a micro, operational view of cost control to a strategic view of building core competencies for sustainable competitive advantage, be it of a firm, an industry or a nation.

In the context of internationalisation, competitiveness should be seen as a synthesis of principles of comparative advantage and competitive advantage.  While comparative advantage flows from the availability of natural resources in a country, it is the competitive advantage as exemplified by a country's entrepreneurial ability to add value to the available or acquired resources that creates sustainable surpluses.  Productivity provides such an entrepreneurial and competitive ability.  The transition of Japan into a global economic power despite the absence of natural resources, such as oil, and ores is illustrative of the principle of sustainable competitive advantage.

Synthesising the research by Bhaktavatsala Rao (1991) on the structure and performance of the Indian Automobile industry with the approaches adopted by the World Economic Forum and other international agencies, key dimensions of competitiveness are comprehensively perceived in terms of the following structural and strategic factors.
 
 

The dynamic linkages between productivity and competitiveness are illustrated in Fig 1. The Fig also illustrates in relation to each factor some principal avenues in which productivity can influence competitiveness.  Productivity is thus seen to be strategic to a whole range of economic activities.
 

This paper develops and explores a productivity-competitiveness model in the Indian industrial setting.  The paper, however, does not focus on the measurements of productivity or competitiveness on which a substantial body of literature is available.  Industry is chosen as the prime sector of analysis because of its role in a typical national economy and the possibilities of global comparisons.

Industry and Productivity
Industry is a major thrust area for countries in their quest for competitive advantage.  Table I summarises the structure and growth of production, manufacturing earnings, and inflation in select countries.  The low-income and middle-income economies are characterised by an increasing share of industry in gross domestic product (GDP), as a concomitant of economic development.  Even in respect of industrial economies, characterised by rapid growth of service sector, industry continues to be a dominant contributor of GDP.  The growth of the industry is, in general, higher than the rate of growth of GDP indicating the importance of the industry in overcoming sectoral imbalances.  For the developing economies to achieve the status of industrial economies, the industry will need to be a key factor (Ballance, Sinclair, 1983).

Table 1: Structure and Growth of Production, Earnings and Inflation (Select Countries)

Industrial manufacture is marked by intense competitive pressures.  Table 2 summarises the structure of manufacturing value added, earnings, and output of select countries.  The high-income industrial economies are wage-intensive.  Total earnings as a percentage of value added are the highest for the high-income industrial economies and the lowest for the low and middle-income developing economies.  This is logically linked to the labour cost differential between the developed, and the developing economies.  Surprisingly, India has a high share of earnings in value-added, almost comparable to industrial countries, which points to the possibilities of low productivity eroding the advantage of low labour costs.

  Table 2: Structure of Manufacturing ,Earnings, and Output [select Countries]

 A review of data on gross output per employee indicates similar disparate trends.  The increases in gross output per employee are more pronounced in the middle and high-income economies than in India.  This, again, points to the possible influence of productivity in determining manufacturing output. (Abemalhy, 1978).  Data on average annual growth rate in earnings per employee demonstrate, in general, an accelerated earnings growth in the 80s, compared to the 70s.  The trend is especially notable in the case of the developing economies.  The picture in respect of industrial economies indicates a deceleration in incomes growth rate in the 80s.  This points to the inevitability of the developing economies having to cope with the increased labour expectations by way of better earnings and improved quality of life.

A comparison of earnings growth rate with general inflation rate indicates that countries have so far succeeded in keeping the wage inflation lower than the general inflation.  Considering that in most developing economies, wages are linked in one form or the other to the cost of living (inflation) index, the role of productivity in containing wage costs cannot be over emphasised.

Competitive industrialisation spurs globalisation.  Table 3 summarises data on globalisation of select countries alongside statistics on direct foreign investment (DFI) and debt.  India is low on globalisation with exports as a percentage of GDP at only 6 per cent, and imports as a percentage of GDP at 8 per cent.  The other South Asian and South East Asian countries have been able to achieve much higher levels of globalisation.

Internationalisation is marked by the flow of direct foreign investments (DFI).  Countries which offer either a large domestic market to absorb imports or a highly productive manufacturing base which offers competitive advantage for relocation of production in host country attract greater DFI.  Despite a large market, India, with its regimented, inward-looking industrial and economic policies, received the lowest level of DFI among the Asian countries.  China which has aggressively opened up the economy and has created exclusive economic zones has been able to attract much higher levels of DFI.

Table 3: Globalisation: Export, Import, and Debt data (Select Countries)

The third facet of globalisation, which reflects partly the lack of uncompetitiveness, is the dependence upon external debt to sustain economic development.  India's debt as a percentage of GNP is high at 25'per cent.  Though the level of debt is not as alarming as that of some other countries, the debt service ratio faced by India not only is one of the highest but also has shown an increase over the years.  This reinforces the need for high level of global competitiveness.  The industry is also an appropriate stimulant for productivity in other key sectors, such as agriculture, and services.  Measures needed to increase agricultural productivity (and hence globalisation of this vital sector), such as farm mechanisation, scientific seed development and evaluation, biotechnology, fertilisers, agro-processing, and introduction of management concepts have an industrial origin and support.  Similarly, strides in the services sector are based on new and breakthrough developments in the telecommunication, and computer industries.

India: Enigma of Regulated Development
India is a developing country of immense potential but inadequate achievement.  It is a vast country with a total area of 3.29 million square kilometers (2.9 per cent of the world area) and a population of 867 million (16.2 per cent of the world population).  India's Gross Domestic Product (GDP) was US$ 229.9 billion in 1991 (7.9 per cent of the world GDP).  India has abundant natural resources and a vital industrial raw material and agricultural commodity base, which provide a comparative advantage for industrialisation and globalisation.  Low labour costs across all economic sectors and vast domestic markets ought to have logically supported competitive industrial development.

Over the decades, India has built up a highly diversified and self-reliant industrial base among the developing countries, and has also taken major strides in establishing a world class higher educational infrastructure for science, technology, and medicine.  Notwithstanding the low adult literacy rate of only 52 per cent, India has the world's second largest pool of scientific and technical manpower (Bhaktavatsala Rao, 1984).

Despite these positive features, India is ranked low in economic and human resource development, in a global context.  The World Bank (1993) classifies India among the world's low-income economies, as its per capita GNP of US$ 330 compares quite unfavorably with the group average of US$ 2,480 of the middle-income economies, and US$ 21,050 of high-income economies.  UNDP (1993) places India in the group of low human development countries.  Among 173 countries ranked by UNDP in terms of human development index, India has a low rank of 134.  The World Economic Forum (1992) ranks India 11 th, in a comparative analysis of 14 economies (Table 4).

The major blame for India's sub-optimal growth can be laid on the government's historical policy approach to India's industrial development.  Concepts of productivity and competitiveness were obliterated by an ideological emphasis on socialism, public sector, and a polemical antipathy towards large, scale-efficient, private sector projects, business houses, and foreign multinationals.  Fragmentation of industries into several small firms led to difficulties in the exploitation of scale economies and product development.

Ahluwalia (1985) empirically established a hypothesis of industrial stagnation in India since the mid-60s.  While the policy towards protecting "infant industries" from foreign competition was not conceptually undesirable, the Indian policy failed to carry out the process of import substitution efficiently.  The industrial licensing and foreign trade controls created barriers to entry, barriers to exit, and perpetuated obsolescence and lack of competition.  The lack of integrated productivity approach dilutes the available comparative advantage.  Three examples from the textile production, software engineering, and automobile manufacturing fields illustrate the typical shortcomings in the Indian scenario.

Table 4: Competitiveness Index (Select Countries)

India has the largest acreage of 7.4 million hectares, cultivating cotton, some of which of the finest varieties.  Yet, its yield at 224 Kg per hectare is less than 50 per cent of the world average, and is only 15 per cent of the world's high.  Moreover, most of the textile firms have antiquated machinery, high labour deployment, and low productivity affecting competitiveness.  As a result, despite great potential, India has only a meagre market share of 2 per cent in the world textile market of US$ 350 billion.

With its large scientific, technical, and highly analytical manpower, and is English speaking, India has a tremendous potential for computer software production and export.  The average monthly wage for a programmer in India is only a fraction of industrial country wage levels.  Yet, India's current share is only 0. 16 per cent of the world's software market of US$ 105 billion.  Inadequate and unreliable data communication facilities dilute the responsiveness and productivity that the Indian software engineers are intrinsically capable of. thus affecting the competitive market   development.

The paradox of India's industrial competitiveness is best illustrated by the Indian automobile industry.  Data in Table 5 illustrate that India has globally favourable levels of production in bus and truck as well as two-wheeler manufacture.  In fact, India with a total two-wheeler output of 1.7 million is the second largest producer in the world, next only to Japan.  Yet, India's share in the world trade of these products is almost negligible (less than 0.2 per cent).

The poor export performance of the Indian automobile industry is due to low levels of product specification in terms of aesthetics, performance, and quality.  This indeed is paradoxical considering the fact that several Indian automobile firms have secured licensing and technical collaboration relationships with leading Japanese and European automobile manufacturers. Apparently, industrial strategies of new entrants as well as competitive responses of the established players have failed to break free of an industrial mind-set which inexorably   focuses on domestic markets.  The competitiveness  challenge faced by the Indian industry is thus a resultant of not only the government policies and industry strategies but also management methods adopted by the Indian firms in their strategic development (Bhaktavatsala Rao, 1993).

Table 5: Production Levels of Global and Indian Auto Producers (1991)

Productivity-Competitiveness Model
Against the aforesaid background, a productivity competitiveness model is proposed for the developing countries with a  particular focus on.  India.  Synthesising   the complex and dynamic linkages between  productivity and competitiveness, this paper proposes a simple, yet perceptive, model comprising three elements which could be almost universally applicable to establish productivity-competitiveness nex4s in any sector of operation.  These elements are: (a) government policies, (b) industry strategies, and (c) management methods.  Each of these has important sub-components. The productivity- competitiveness model is presented in Fig 2. The level of productivity orientation in each of the three elements would influence the overall level of competitiveness.  The three core elements and sub-components of the model are discussed intheensuing paras.

Fig 2: Three Element Dynamic Model of Productivity and Competitiveness

Government Policies
The winds of reform are presently blowing through India too.  The Government of India, effective mid-1991, has launched a liberalisation programme which has dismantled controls and engineered a shift towards market-driven economy.  Delicensing of industries, automatic approval for foreign technology and foreign investments (subject to certain guidelines), convertibility of the Indian rupee, free import of raw materials, components and capital goods, reduction in exclusivity of the public sector, impetus to privatisation, and lowering of customs and excise duty rates are the major components of the liberalisation programme.  These policy reforms, by themselves, are not an assurance of competitiveness.  It is proposed below that the policy reforms should incorporate (a) productivity-driven reform mechanism, (b) cost deflating tariff structure, and (c) technology and industrial visions.

(a) Productivity-Driven Reform Mechanism:

Typically, opening the flood gates of liberalisation in a regulated economy often has certain disadvantages.  There are, for example, risks of transfer of obsolete technology, import of second-hand capital goods, and dumping of components and products.  There are possibilities of promised foreign investments getting ploughed back as the outgo of foreign exchange towards huge lumpsum payments for technologies no longer competitive or relevant to the country for internationalisation.  The market economy model, of course, assumes that such errant behaviour will eventually be corrected by the market forces.  The time span for such structural readjustment and the resource implications are, however, far from certain.

A typical reform process also results in inflationary price adjustments by the industry to derive higher operating profits.  Unfortunately, inflationary price adjustments without productivity management only result in regularisation of the existing cost inefficiencies.  Here again, market economy expects that the profit opportunity would induce greater domestic manufacture or higher imports resulting in greater competition and an eventual drivedown of excess profiteering.  The road to such market correction is, however, time-consuming, resource-intensive, and socially painful.

Resource-scarce developing countries can scarcely afford such a resource-profligate method of system reform.  A golden mean where productivity compulsions are built into the reform process is vital.  Productivity-oriented reformist policy should aim at cultural change as well as fiscal incentives to effect productivity improvements.  For example, as part of cultural change, free market system should have an incentive system for expansion, modernisation, and diversification ventures which support (a) higher levels of productivity, (b) energy-efficient technologies, (c) research and development centres, (d) import-substitution or export-intensive products, and (e) international standards of manufacture and quality, such as ISO 9000 series or JIS DIN, standards, etc.

The fiscal incentives for productivity could be based on competitive bidding by claimant firms and take the form of excise duty rebates and corporate tax exemptions, on the one hand, and duty-free-import of productivity aids, on the other.  The fiscal incentives should be applicable only based on achievement of meaningful productivity indicators.  Rather than focus on conventional measures, such as output per employee, the productivity measures should be structured around zero defects, quality circle suggestions, and so on.  Apart from insisting on disclosure in the annual reports regarding productivity gains as listed above, the government could also establish or sponsor an Organisation dedicated to technology and productivity which could serve as an Ombudsman through random sample checks.  To start with, the existing productivity organisations (for instance, the National Productivity Council in India) could be utilised for the purpose.  The existing organisations may require substantial upgradation of the skills and infrastructure to perform the new tasks.  Productivity organisations of the advanced industrial countries could help the developing countries in that effort.

[b] Fiscal Reform for Industrial Competitiveness:
As governments dismantle controls and liberalise economies, fiscal policy would be the only remaining effective instrument for influencing industrial competitiveness.  In India, the onerous levels of taxation affected product cost and price structure, while high lending rates also increased costs of project financing and working capital management, with the inevitable impact on product costing.  High tariff rates are not only an effective barrier for commercialising new technologies on competitive conditions, but also provide opportunity of usurious price skimming to indigenous manufacturers.  Together with a depreciating rupee, a high tariff structure facilitates cost profligacy of domestic substitution.

Industrial activity in the developing countries typically involves import of high technology capital goods and components and high debt leveraging.  Ventures with foreign transnational support envisage a higher import dependence which is aggravated in the Indian scenario where tariff barriers are high and cost of financing is dear.  Table 6 illustrates hypothetical costs of project financing in India and a competitor country based on certain simplistic assumptions.  The project costs in India are shown to be higher by at least 40 per cent in 1991-92 due to duty and interest rate impact.  Reduction in project import duties seeks to bridge this differential. Tangible results will be sustained only if the rupee exchange rate does not become weak.

Table 6: Comparison of Project Cost

  The Indian markets being highly price sensitive, introduction of new technology Products, especially by new Projects, faces high entry barriers.  Apart from the component imports attracting a stiff tariff penalty, the project costs add their share of higher overhead burden.  Table 7 illustrates a hypothetical product cost comparison for a passenger car manufactured in India vis-avis a competitor country.  Though the comparison is based on certain simplistic assumptions, the sensitivity of the end-price to the duty, and lending rates is evident.

Table 7: Product Cost Competitiveness Hypothetical study of Passenger Car Manufacture

The other factors remaining the same, lowering of import tariffs and excise duties renders, therefore, the Indian industrial cost structure more competitive and stimulates domestic demand.  It also makes India an attractive manufacturing base for foreign investors exploring competitive niches for their global manufacturing networks.  New infrastructure inputs have a particular strategic significance as key infrastructural 'industries need massive investments to modernise and expand.  The impact of such investments is bound to be inflationary.  Sankar (1993), in a study of future power project investments in India, points to the inflationary impact the higher capital cost would have on power tariff.  According to the study, the capacity cost per MW of new projects is found to vary between Rs 20 million and Rs 35 million with a corresponding range of tariff between Re 1.27 and Rs 1.82 (US$ 1 = Rs 32).  A 50 per cent increase in capacity cost per Mw is shown to increase tariff by 31 per cent, assuming no change in other factors.

Oil has, of course, an overriding influence on the future course of industrial competitiveness.  Import dependence in oil and buoyant pricing of domestic oil products have a cascading impact on the entire economy.  India consumes 58 million tonnes of oil, but produces only 34 million tonnes, the balance 24 million tonnes being imported at a staggering cost of Rs 126,650 million (US$ 3,950 million at US$ 1 = Rs 32).  Hardening of the international oil prices and the weakening of the rupee are the threats which the oil sector plan ning has to take into account.

Power and oil pricing has so far been administered by the government which bore considerable subsidies.  As the government extends the free market system to these sectors as well, the temptation to resort to cost plus" pricing, especially in the context of huge investment implications discussed above, needs to be resisted.  The gigantic needs of the infrastructural sector must be addressed through tariff/fiscal incentives for energy-efficient technologies in order to sustain the overall industrial cornpetitiveness drive.

(c) Technology and Industrial Visions:

Technology is the seed of the industrial development.  It is also an important determinant of the industrial competitiveness (Abernathy, Chakravarthy, 1979).  Technology, in laissez-faire economies, is con sidered as a corporate responsibility.  However, research is now focusing on the positive role the government policies can play in shaping the technological development.  The Indian industrial studies reveal that the past patterns of industrial development and competitiveness were adversely influenced by the technology direction and technology import limitations that were set by the government.  While indigenous technologies were, by default, encouraged, the competitiveness of indigenous technologies was never a matter of high priority.  It also followed that indigenous technologies could not enable the country build new industries (Alam, 1988).

The role played by the Japanese govemment in establishing industries and then nurturing competitiveness is instructive.  Doz (1986) considers that Japan set out to become a major competitor by first closing its national market to foreign companies (but gaining access to technology), then by establishing an efficient domestic industry fuelled by a rapidly growing domestic market, and finally by assisting this national industry in competing internationally.  Even in industries which were not specifically nurtured, the Japanese government played a major role by utilising its expertise and apex visions to conduct structural analysis of the industries (Johnson, 1985).  To meet the challenges of a global economy, the Japanese government has now assumed a more direct role in protecting and promoting infant industries, such as software, biotechnology, and new materials (Bluemenithal, 1976) The government establishes and Competitiveness   national research projects, sets collaborative goals, and allocates research fields among participating companies, which are provided with financial assistance, special depreciation allowances and tax incentives.  Helping the participating companies to succeed is a major goal of the government.  The developing countries like India should replicate such approaches (Desai, 1982; 1988).

Though the developing countries lag behind the advanced countries in technology, visionary governments can turn this disadvantage into an advantage through some radical and bold thinking.  For instance, the Indian government can achieve major strides in telecommunication services by opting for mass introduction of radio telephone (cellular mobile telephone services), rather than persevere with the conventional switching systems and cable networks.  Similar initiatives to opt for futuristic technologies can be considered in several industrial sectors (for example, 3phase asynchronous electric locomotives vis-a-vis thyrister locomotives or cryogenic rocket engines rather than conventional liquid fuel engines).  By taking a conscious decision to leap-frog technologies, the developing countries can bridge the development gap and at the same time provide greater value and service to the customers.

At the firm and industry levels too, government policies can play a major role.  A study of the Indian automobile industry (Bhaktavatsala Rao, 1991) indicates that policies of liberalisation should be directed towards specific areas of research and development, and manufacturing integration.  Unfortunately in India, the fiscal policy incentives in terms of customs, and excise duty concessions for end-product manufacture have been far more powerful than incentives for basic research.  Basic research must be encouraged through measures, such as additional weighted deduction for firms channelling higher proportion of income to R&D activity, import of capital goods for R&D purposes free of duty, and additional deduction for manpower costs associated with in-house R&D ventures (Katrak, 1985).  On a different plane, co-operative industrial R&D ventures must be encouraged.  Until market conditions and competitive compulsions exert a strong 'research pull", the fl-,cal incentives for "research push' appear to be in order.

Industry Strategies
In understanding the national productivity and competitivenessy levels, the industry is an important unit of analysis.  Industries have their own distinctive generic characteristics linked to nature of technology, product, and competition.  Structural/strategic approaches to industrial development, therefore, vary depending upon the nature of industry.  In this context, productivity-competitiveness model as developed in this paper considers three important components of productivity at industry level which enhance the competitiveness of the Indian industry.  These are: (a)structural reshaping, (b) structural transformation, and (c) co-operative innovation.

Structural Reshaping:
In the developing countries, the industry maturity presents complex issues of productivity and competitiveness.  Research has established that in the regulated economies where the government policy acts as an externally imposed barrier to entry, new entry and capacity additions tend to be bundled resulting in sudden fragmentation of industry structure and heightened competition (Bhaktavatsala Rao, 1992a).  Manufacturing scale and diffusion are important structural characteristics of industry with technological and productivity ramifications (Bhaktavatsala Rao, 1992b).  Divisibility of production process and choice of manufacturing technologies offer potential for industries to evolve in varied structural configurations.  The productivity of automobile manufacture tends to be influenced significantly by volumes and manufacturing technology.  Diffusion of manufacture should logically bear a relationship with economies of scale and business size.  Yet, in the developing economies where market volumes are low, the number of plants and size of plant are rarely based on uniform understanding of scale efficiency.  Lucke (1988) observes: "While in the automobile industry, economies of scale are more important and technology is more standardised internationally than in some other manufacturing branches, inefficiency, as a result of small-scale, is likely to be widely relevant problem for protected industries in the developing countries".

Against this conceptual backdrop, multi-unit location should logically be a less favoured option in the low volume scenario of India.  The reality, however. has been otherwise.  Table 8 gives the plant locations of the 13 Indian automobile firms in relation to physical output of automobiles, gross business turnover, and turnover of automobiles and spare parts.  Data indicate that only four out of the seven established firms have an average per plant output crossing I 0,000 vehicles per annum.  The Government of India has identified the minimum economic scales of production for commercial vehicles at 25,000 and for passenger cars, at 50,000.  These norms at plant level are met by only one firm each in commercial vehicle, car, and LCV segments.

Table 8: Indian Automobile Industry: Production Plants, Scale and Turnover (1989-90)

If 'industries evolve in a structurally inefficient manner, the penalties for the developing economies would be in terms of continued sickness of redundant units, high product prices, low service levels, and technological obsolescence.  The present rash of plant closures in the US, Europe, and even in Japan indicate the high-risk and capital-prolifigate nature of multi-unit operations.

Though an exit policy could present a corrective route, the political and social compulsions often preclude quick and easy exit options.  Other potential options exist before the radical exit route is considered.  Here again, the Indian automobile industry offers a classic illustration of structural pitfalls and potential for readjustment.  Four Japanese light commercial vehicle models (Toyota Dyna, Mitsubishi Canter, Mazda T'3500, and Nissan Cabstar) are being produced in India under joint venture arrangements.  The four ventures have been substantially losing money ever since the commencement of commercial operations in 1985-86, due to the appreciation of the Yen, and the lack of adequate indigenisation.  With the four manufacturers in 1992-93 having together produced only around 8,000 vehicles, the industry is clearly in a untenable situation (Kohama, Urata, 1988).

Structural productivity in such a situation can be achieved by either the established manufacturers taking over the new units or by the new units themselves developing a mutually collaborative relationship.  The second option leads on to an exciting possibility of co-production whereby each of the manufacturers can specialise in one principal item (say, cab, engine, gearbox or axle) to meet not only the captive requirements but also the requirements of the other three manufacturers.  Each manufacturer can thus have reasonable scales of output with high profitability and at the same time retain the distinctive corporate identity.  Fundamentally, however, industries should recognise and accept the need for voluntary realignment towards more productive industrial structure.

Structural Transformation:
In the advanced countries, structural transformation of entire industries is an important facet of industry-level productivity movement.  Structural transformation implies deliberate phase-out of 'sunset" industries, and focused nurturing of the . sunrise" industries.  The reasons for phaseout of industries differ based on either country conditions or technological developments.  Relatively polluting industries, such as casting, forging, and Chemicals- industries could be phased out in the advanced countries, such as Japan due to environmental considerations, while industries, such as ship-breaking could be phased out, based on labour cost considerations.  Such a phase-out, however, provides opportunity to the developing countries to upgrade their own industries by aligning with the advanced countries.  Superior technologies (including pollution control measures) can be sought in return for the developing countries serving as their production bases.  Dictates of supplying to the advanced nations will logically impose productivity compulsions for overall benefit.

Development of substitute products and emergence of sunrise industries also results in structural phase-out.  Product developments, such as digital watches, walkman, cellular phones, video systems, compact discs, facimile machines, to quote a few, have revolutionised the respective industries because of the break-through nature of product innovations.

Technological change and the resultant structural obsolescence of industries are rapid and require considerable efforts at the industry level with governmental support, to successfully manage a structural transformation.  In spite of importing technologies from time to time, industry in the developing countries continues to lag behind contemporary developments.  Greater productivity in managing structural change would obviate such a perpetual lag.

To do so, the developing countries, such as India, should depart from the practice of following the same sequence of technological upgradation and industrial transfonnation as followed by the advanced countries.  The industry straightaway should focus attention on new developments (for example, lap tops, CD-ROM, and multimedia in computer industry) and accelerate structural transformation.  The reluctance to dramatically reduce the technology gap by rapidly advancing to contemporary product introductions is a major barrier to industrial productivity, which must be overcome.

Three barriers exist in the way of such speedier structural transformation.  The first relates to a knowledge gap, which must be squarely met by a persistent exposure to and assimilation of new international product and process ideas.  The second is a resource gap in having requisite mother machines for product/process development, manufacturing facilities for bulk production, and raw materials. he industry should take advantage of policy liberalisation to bridge the resource gap.  The third bamer is the most formidable one linked as it is to a market gap.  Industries aiming at only domestic markets or are reluctant to bear the costs of market reorientation are unlikely to be able to leap-frog technologies.  In essence, structural transformation through technological telescoping is vital for a more productive and competitive industrial presence.

Co-operative Innovation
Innovation is at the root of productivity and competitiveness.  In line with the growing complexities and competitiveness of business in a global setting, innovation is evolving from a firm-level individualistic activity to an industry-level collective endeavour (IPE, 1982; Rothwell, 1977).  Each incremental innovation is posing to be all the more challenging and costly to commercialise.  For instance, the Japan automobile manufacturers have forecast a four-to five-fold increase in R&D expenditure, if each company were to independently introduce improvements needed to meet the futuristic emission regulations.  From an industry, as well as national, viewpoint co-operative innovation with various firms pooling their R&D efforts would be sensible and productive.

The trend towards co-operative innovation is already evident in Japan in fields, such as high definition television, electronic dictionaries, fifth generation computers, TRON (The Real Operation Nucleus Computer), translation phones, optocomputers, neural networks, fuzzy engineering research, super conductivity, and so on.

The Indian industry which has diminutive levels of turnover and fractional levels of R&D investments must follow the trend of co-operative innovation and combine technological developments and resource productivity.  Lead can be taken in research projects aimed at low emission engines, development of dual or alternative fuel engines, manufacture of super computers, and new breeds of telecommunications and office automation equipment.

The R&D facilities in the government sector, autonomous sector, and the private sector should be networked to create industry-level national research infrastructure.  Such co-operative endeavours are vital as the developing countries need to overcome their resource limitations and str-uctural constraints which are at present inhibiting the introduction of world class products and services.  A reference has been made earlier on how India's comparative advantage in software development is eroded by inadequate data transmission infrastructure.  Improved data facilities would restore the comparative advantage.  However, through co-operative innovation, it can be converted into sustainable competitive advantage.  For example, by co-operating to develop a national software data base, it would be possible for the industry to minimise the manual coding and enhance productivity.  Many other sub-goals, such as enhancing software quality, accumulating software know-how, reducing duplicate software investments, and improving engineering skills would be achieved in parallel (Cusumano, 1987).

Management Methods
The third important component of productivity-competitiveness model focuses on the management strategies at the firm level for achieving greater productivity.  The management strategies can be conceived in terms of four focus areas. (a) productivity oriented generic strategies, (b) technological simplification, (c) production Organisation, and (d) human resource development.

Productivity-Oriented Generic Strategies
In the framework of strategic management, firms have three generic competitive strategy options.  These are: cost leadership, product differentiation, and focus (Porter, 1980).  Though these strategies are commonly seen to be alternative routes to business development, these are to be simultaneously applied, if firms are to achieve optimum results (Monden, Shibakawa, et al, 1985).  Fig 3 illustrates, with reference to a typical refrigerator manufacturing scenario, the generic strategy approach as originally conceived (Porter, 1980) with an integrated productivity-oriented generic strategic framework as proposed in this paper.

Fig 3: Conventional Versus Productivity Driven Competitive Strategies

The Indian industry offers interesting examples of how new firms can achieve leadership positions based on such integrated generic productivity strategies.  Videocon is a consumer electronics firm, established in the 80s.  The firm rapidly grew to become a leader in the highly diversified and competitive consumer electronics market.  The company manufactures a wide range of audio and video electronic products, washing machines, and refrigerators.  In each product class, it has been able to introduce superior technology and value-added features at lower costs (15 to 20 per cent lower), and is ahead of competition (one to two years).  With freedom to access technologies and options of flexible manufacturing systems, firms should now increasingly target "mass customisation", a concept which combines product differentiation with cost leadership.

Technological Simplification
Time is increasingly acknowledged as the most potent dimension of technology.  Ability of firms to introduce new products in shorter time spans is a major competitive weapon.  This, in turn, is determined by the productivity of design and manufacture in the f=.  Benefiting from the Japanese philosophy of integrating design and manufacture for shorter product development and launch cycles, Simultaneous Engineering and Design for Manufacturing have evolved as new tools.  While the former envisages the development of the product and process simultaneously, the latter envisages the design and manufacture to be carried out at the design stage itself.  These are being used to reduce the new product development time from 3-5 years to 2-3 years.  The new philosophy also rightly recognises that the design phase commits up to 70 per cent of the costs of the product including a considerable part of the production-related costs (Nevins, Whiteney, 1989; Pugh, 1991; Raouf, Ahmed, 1985).

The new tools are supported by integration of computers in design and manufacture.  While Computer-Aided-Design (CAD) leads to significant improvements in quality, reliability and productivity of designs, computer-integrated-manufacure results in almost analogous control over the entire design, procurement, production, and market delivery operations for effective inventory control and productivity improvement.  Table 9 illustrates the dramatic increases in productivity that can be achieved by strategies of technological simplification.

Table 9: Key Success Factors in Automobile Industry

A dynamic dimension of technological Simplification is revealed by the Japanese concepts of mintaturisation and simplificatlon (Tatsuno, 1990).  Miniaturisation as a business strategy is reflected in compact, light weight radios, cameras, televisions, video equipment, automobiles, and computers which have revolutionised the markets, and industries.  Integration of modem and fast evolving technologies, such as integrated circuits, light-emitting diodes, and energy-efficient chips have been integral to such miniaturisation.

Simplicity is the handmaiden of miiniaturisation.  Streamlining  of product design, reduction of parts, minimisation of inner movements help simplification.  Development of family of automobile engines with shares bore and stroke is an example of manufacturing-oriented simplification, which has been found particularly appropriate to India.  Instant cameras and single lens auto-focus cameras are some examples of simplicity, focused on market and manufacture simultaneously.  The Indian industry has to concentrate on these aspects vigorously.

Production Organisation
Strides taken by the manufacturers of the advanced nations are attributable not only to technology of design and manufacture, but also to Organisation of production.  The contributions made by Toyota Production System and the Japanese System of Management to the competitiveness of the Japanese industry are a unique reflection of the role of production organisation.  The Toyota Production System is an integrated management system that fulfills the three critical functions of planning, control, and inspection.  The Toyota Production System does not tolerate overproduction, and eliminates waste.  Moreover, it is virtually stockless, due to the now world famous Kanban Oust-in-time) system (Monden, 1983; Shingo, 1989; Sugimori, et al, 1977).

The Toyota system is notable for simple but highly innovative improvements 'm production shop-floor that enhance the productivity levels remarkably - Poka-Yoke (mistake-proofing switches), SMED (Single Minute Exchange of Dies), OTED (One Touch Exchange of Dies), Autonomation (automation with human touch), stockless production, small-lot-production, mixed model production, and Nagara (one-piece simultaneous flow system).  It is not surprising, therefore, that the Toyota production s stem has been enthusiastically absorbed by the other Japanese companies.

Experience of the new Indian automobile ventures with the Japanese collaborations demonstrates the tremendous productivity improvements that could be achieved by the new ventures in India relative to the established firms.  By utilising the Japanese production Organisation, an established automobile manufacturer in India has been able to achieve a five-fold increase in engine output per employee.  Table 10 provides in a graphic fashion the productivity differential between the Toyota and the American/European plants.  While at Toyota each car requires an equivalent of 1.6 persons, comparable figures for the US, Sweden, and Germany are 3.8, 4.7, and 2.7, respectively.  An established car plant in India has such a lag in productivity that it requires 177.5 employees per car while the recently,5etup Maruti-Suzuki car plant achieved a dramatic improvement in productivity requiring only 9.5 persons per car utilising the Japanese production methods (Bhaktavatsala Rao, 1983b, Venkataramani, 1990).

Table 10: Assembly Time Per Vehicle By Country

At the core of the production efficiency lie two important factors.  The first is the unique ability to achieve rapid changeover of dies and setups which supports a highly flexible model mix.  Table 1 1 compares the country-wise changeover times of stamping machines.  Data indicate that under the Toyota system, die change time is drastically cut down to only 9 minutes, compared to 360 minutes taken in the US.  The lot size is much smaller leading to inventory reduction and model change.

The other facet is the just-in-time system which enables the stock levels to be brought down to no more than 2 to 3 per cent of conventional system (Table 12).  In the Indian industry, inventory management through kanban offers unprecedented scope for improvement of material productivity and cost reduction.  Between 1960 and 1970, Toyota could increase its inventory turnover from 41 times to 63 times whereas the Indian firms are still stagnant at a low level of only 4 times (Table 13).  The Indian companies lag in inventory management due to fear of production/supply disruptions, need to provide "work" for labour and risk-averse nature of managements.

Given that the material cost accounts for 60 to 70 per cent of product cost in India, the need for economies in inventory management is imperative.

Table 11: Comparison of Changeover Times of Stamping Machines by Country (Hood and Fender)

Table 12: Inventory Savings Due to Kanban System

Human Resources
Quality, motivation, and attitudes of human resources and culture of the Organisation in which they work determine the success of the productivity-competitiveness system.  In this context, the tendency on the part of firms and nations to pursue models of automated, capital-intensive industrial development which do away with employment creation should cause concern.  UNDP (1993) observes that the trend of jobless economic growth is a new and disturbing phenomenon and advocates that the most efficient forms of participation through the market is access to productive and remunerative employment.  The main objective of industrial development strategies should also be to generate employment that is highly productive and remunerative (Bhaktavatsala Rao, Amrolia, 1992).

For the developing countries such as India, human resource development is proposed in the following framework to sustain productivity improvement.

a) upgrading skills of employees to achieve higher levels of individual and group performance on an ongoing basis,

b) nurturing shared values between the workforce and management, and

c) coalescing people and departments into a cohesive task-oriented group.

Table 13: Inventory Turnover of Auto Manufacturers by Country

Studies of top-ranking western and Japanese firms indicate that firms which are committed to certain corporate values tend to perform more efficiently and effectively than those which drift along.  Such overriding values could concern technological leadership, customer service, manufacturing innovation, high product quality, and so on.  Such overriding corporate values should be supported by core values for all functional areas.  These could, for example, be first time success in product design for R&D, integration of customer needs in product redesign, no-waste production for manufacturing, and so on.  Clear articulation of overriding and core values among all the employees would contribute to focused action and higher productivity.

Competitive market conditions and liberalised economic and industrial policies demand more strident attention to productivity improvement and restructuring of industries.  Continuous upgradation of technical knowledge, discovery of new ways for productivity improvement, and flexible redeployment of skills in new activities are vital for the competitive age.  Similarly, introduction of systems of employee participation, such as quality circles, and TQM systems would be necessary to keep the employees on the leading edge of their skills and motivation.

The Japanese human resource development model lays equal stress on technology, human competence, and social contract.  Experience of Maruti-Suzuki venture in India suggests that ft is possible to foster a new work culture.  Demonstrative concepts, such as common uniform and shared cafeteria, ethical activities, such as punctuality and early morning exercises, participatory systems, such as open communication, and "management-by-walking around" in the shop floor, and intellectual exercises, such as suggestion schemes and quality circles have been successfully integrated into a new work culture which enabled the company achieve higher productivity levels and rapid model changes.

Conclusions
'Ibis paper has demonstrated the integral role of productivity in fostering industrial competitiveness.  Dynamic linkages between productivity and twelve facets of competitiveness have been reviewed to develop a universally applicable productivity competitiveness model.  Productivity and competitiveness are core strategic goals of industrial development.  Implementation of an integrated framework comprising productivity-oriented macro-economic policies, industry strategies, and management methods would go a long way in enhancing the competitiveness of firms, industries, and nations.

References
Abernathy W J (1978): The Productivity Dilemma: Road Block to Innovation in the Automobile Industry.  Baltimore, Md: The John Hopkins Press.

Chakravarthy B S (1979): Government intervention and innovation in industry: A policy framework.  Sloan Management Review Spring 20(3), 3-18.

ACMA (1993): Automotive Industry of India: Facts and Figures 1992.  New Delhi, Automotive Component Manufacturers Association of India.

Ahluwalia I J (1985): Industrial Growth in India: Stagnation Since the Mid Sixties.  Delhi, Oxford University Press.

Alam G (1988): India's Technology Policy: Its Influence on Technology Import and Technology Development.  In Desai A V. Ed.  Technology absorption in Indian Industry.  New Delhi, Wiley Eastern.

Asian Development Bank (1992): Asian Development Outlook.  New Delhi, Oxford University Press.

Ballance R, Sinclair S (1983): Collapse and Survival: Industry Strategies in a Changing World: In Walter I. Ed.  World Industry Studies.  London, George Allen & Unwin.

Bhaktavatsala Rao C (1983a): Productivity and the Automobile Industry In Select Readings on Productivity.  Bombay, The 'Times Research Foundation.

(1983b): Promise of Maruti-Suzuki: A profile of Japanese car industry - From Suzuki to Maruti Structural determinants of strategy. 7he Economic Times (Bombay), April 14, 15, 16.

(1984) Leadership Challenges in India - Corporate Sector.  In.  Leadership Challenges in India.  A Collection of Prize Winning Essays.  Bombay, The 'Times Research Foundation.

(1991): Indian Automobile Industry: A Study of Structure and Performance of the Four-Wheeler Sector. [Unpublished Doctoral Thesis], Madras, Indian Institute of Technology.

(1992a): Indian automobile industry: Patterns of expansion, entry and performance, MDI Management Journal 5(2), July, 97-112.

(1992b): Technology and industry structure - A strategic management perspective. ASCI,Journal of Management 22(2-3), (Sept-Dec), 119-37.

-, (1993): Union budget focus on industrial competitiveness.  Southern Economist 15 March.

Amrolia J N (1992): Human resource development in the automobile industry.  MDI Management Journal 5(l), Jan, 61-79.

Blumenithal T (1976) Japan's technological strategy.  Journal of Development Economics Sept.

Cusumano M A (1985): The Japanese Automobile Industry: Technology and Management at Nissan and Toyota.  Cambridge, Mass, The Council on East Asian Studies, Harvard University, The Harvard University Press.

(1987): The Software Factory Reconsidered: An Approach to Strategic Management of Engineering. MIT, Sloan School of Management, Working Paper, 952-87.

(1988): Manufacturing Innovation: Lessons from the Japanese Auto Industry Sloan Management Review Fall, 29-39.

Desai A V (1982): Technology Import Policy in the Sixties and Seventies: Changes and Their Consequences.  New Delhi, Indian Council for International Economic Relations and National Council for Applied Economic Research.

(1988): Technology Absorption in Indian Industry.  New Delhi, Wiley Eastern Lid.
IPE (1982): Innovation in Manufacture.  London, The Institution of Production Engineers.
JAMA (1992): Motor Vehicle Statistics of japan 1992.  Tokyo, Japan Automobile Manufacturing Association, Inc.

Johnson C (1985): The institutional foundations of Japanese industrial policy.  California Management Review,I(4), Summer, 59-69.

Katrak H (1985): Imported Technology, Enterprise Size and R&D in a Newly Industrialising Country: The Indian Experience.  Oxford Bulletin of Economics and Statistics 47(3), August
1985, 213-29.

Kohama H, Urata S (1988): The Impact of the Recent Yen Appreciation on the Japanese Economy.  The Developing Economies XXVI (4), Dee, 323-40.

Lucke M (1988): Economies of Scale in Protected Manufacturing Industries in Developing Countries: The Case of the Brazilian Passenger Car Industry.  Industry and Development 24, UNIDO, 35-55.

Monden Y (1983): Toyota Production System: Practical Approach to Production Management. Georgia, Industrial Engineering and Management Press, Institute of Industrial Engineers.

--, Shibakawa R, Takayanagi S, et a] (1985): Innovations in Management: The Japanese Corporation, Industrial Engineering and Management Press, Institute of Industrial Engineers.

Nevins J K, Whiteney D E (Eds.) (1989): Concurrent Design of Products and Processes: A Strategy for the Next Generation in manufacturing.  New York, McGraw Hill.

Porter M E (I 980): Competitive Strategy: Techniques for Analysing Industries and Competitors. New York, Addison-Wesley.

Pugh S (I 99 1): Total Design: Integrated Methods for successful Product Engineering.  New York, Addison-Wesley.

Raouf A, Ahmed S I (1985): Flexible Manufacturing: Recent Developments on F.M.S., Robotics, CAD / CAM, CIM.  New York.
Rothwell R (1977): Characteristics of successful innovators and technically progressive firms.  R&D Management.
Sankar T L (1993): Privatisation of Power: Shrouded in ambiguity.  The Economic 71nies March 1, p 7.

Shingo S (1989): A Study of the Toyota Production System from an Industrial Engineering View Point.  Cambridge, Productivity Press.

Sloan A P (1963): My Years with General Motors.  New York, Anchor Books.

Sugimori Y. et al (1977j: Toyota Production System and Kanban System-Materialisation of Just-in-Time and Respect-For Human System Proceedings, 4th International Conference on Production Research, Tokyo.  London, Taylor & Francis, I- 12.

Tatsuno S M (1990): Created in Japan: From Imitators to World Class Innovators.  Harper & Row, New York.

Taylor F W (1911): The Principles of Scientific Management.  New York, Harper & Bros.

United Nations Development Programme (1993): Human Development Report 1993.  Delhi, Oxford University Press.
Urban P A (1992): Automation and World Class Manufacturing MS 89=374.  Technical Paper No. SME, Dearborn, Michigan.

Venkataramani R (1990): Japan Enters Indian Industry: The Maruti-Suzuki Joint Venture.  New Delhi, Radiant Publishers.

World Bank (1993): World Development Report 1993.  Investing in health New York, Oxford University Press.

World Economic Forum (1992): The World Competitiveness Report 1992.  Switzerland, IMD.