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Climate Change and insurance: Oxymoron?

https://timesofindia.indiatimes.com/blogs/outlier/climate-change-and-insurance-oxymoron/: The Planet and the entire ecosystem is facing an existential crisis – why must insurers aid and abet? Why can’t they get it?

“Language and Masala of your Cuisine binds you – Religious bonds cause divide”.

From footnotes to the header

The two-part Dorabji Tata piece to commemorate his 161st birth anniversary is beginning to yield a dividend. From the footnotes, Dr. R.D. Samarth (RDS) moves to the centre-stage! He literally represents the third generation of the Company, after Dorabji. The beginning of an end of the golden era of a unique institution, as it transitioned from nationalism to nationalisation.

It is a thrilling story which brings at times tears and at times a feeling of pride. I had this experience during my assignments in Lagos, Lusaka, Mauritius, and Port of Spain.

One of its many ‘maverickian’ elements also contributed to its greatness – by following its people rather than the flag! They were quite an assortment. Indentured – who began moving up the social ladder, traders – of whom some took to manufacturing, and fresh settlers. RDS spent much of his working life in New India’s foreign service. To capture his sense of nostalgia, It is a thrilling story which brings at times tears and at times a feeling of pride. I had this experience during my assignments in Lagos, Lusaka, Mauritius, and Port of Spain.

Unpeeling the institutional memory

Coming from the frontlines of this dynamic theatre, he is a repository of stories – in the classic oral tradition. As a protagonist, he is the company’s voice from its glorious past – regrettably many known and unknown have been long lost in the mists of time. They, like him, were a part of the Dorabji dream touching the lives of ordinary people putting in extraordinary effort to make their mark in the distant lands.

The dividend came in the form of the nonagenarian’s response to the Dorabji story. In unpeeling the institutional memory, RDS allows us glimpses into the building blocks of greatness. The mind is sharp, it is the fingers that occasionally hit the other key – as he valiantly ‘narrates’ it all to the keyboard!

Overseas Indian enterprise in Mauritius and the West Indies emerged from the capacity of survival of Indian labour. Enterprises in East Africa emerged from the commercial DNA of Gujarati community to survive patiently in times of financial strain. While those in West Africa were a sheer by-product of commercial adventure – seen in the spirit of Sindhi community.

Overseas Indian enterprise in Mauritius and the West Indies emerged from the capacity of survival of Indian labour. Enterprises in East Africa emerged from the commercial DNA of Gujarati community to survive patiently in times of financial strain. While those in West Africa were a sheer by-product of commercial adventure – seen in the spirit of Sindhi community. It is now the anthropologist in him that takes over!

What was brewing in the melting pot?

“There was no mix up cultures amongst the Indo-Mauritians. Biharis, Tamils and Marathees retained their identity. In the West Indies – Biharis were dominant and retained their culture but lost their language. In Suriname majority was from Uttar Pradesh. They retained their language and culture including wearing the dhoti”.

“It was an interesting experience for us that Marathi language was retained by Marathi Muslims who settled in South & North Rhodesia (now Zimbabwe). There was a school to teach Marathi in Bulawayo. When news spread of our arrival in Central Africa – we got bottles of pickles and masala. Issues of Kirloskar came from the Konkani Muslim families. We were pleasantly surprised when a young Muslim commercial traveller from Durban told us about his grandfather being an agent for Bal Gangadhar Tilak’s Kesari. Our Marathi Muslim friends looked after us like members of family during our stay in Zambia”.

When news spread of our arrival in Central Africa – we got bottles of pickles and masala. Issues of Kirloskar came from the Konkani Muslim families. We were pleasantly surprised when a young Muslim commercial traveller from Durban told us about his grandfather being an agent for Bal Gangadhar Tilak’s Kesari.

“Then there was this Tejpal, our agent from Mangalore. He made exceptionally good success as employee of the Tea estate. Many members of his family came for work to Nyasaland (Malawi today). They were particularly good sportsmen. The Blantyre Club of Indian community was reputed for Cricket. In spite of the racial problems in Central Africa, Blantyre Indian Cricket team was participating in the tournaments in Salisbury and were supported by Indian Rhodesians”.

The Truths We Hold: Senator Kamala Harris’s African connection is longer than generally believed!

“Your communication on NIA’s global operation motivates me to share with you and all dear friends some interesting news about our relationship with the likely Vice President of USA”. And he lets out to me yet another truth he holds!

“Her Grandfather for whom she has affection – Mr. Gopalan was posted in Lusaka as a UNDP advisor for newly formed Government of Zambia. Since I had been resident of Lusaka from 1962 to start our operation in then Federation of Rhodesia & Nyasaland, I had the role of assisting Indians coming to Zambia. Gopalan’s family thus developed intimate relations with us. Kamala’s mother was then in the USA. Her aunt Sarala was in Lusaka. Gopalan was an exceptionally fine gentle person and we had a very enjoyable association for 4 years when we left for Mauritius. He was a very good bridge player and his weakness or pleasure was tobacco. My special duty was to supply him tobacco from Malawi”.

Her Grandfather for whom she has affection – Mr. Gopalan – was posted in Lusaka as a UNDP advisor for newly formed Government of Zambia... Gopalan’s family thus developed intimate relations with us. Kamala’s mother was then in the USA.

And how can I give Hong Kong a miss, where I followed him after a decade and half. This was RDS’s last foreign stint. Walking past 50 Nathan Road, Tsim Sha Tsui in Kowloon for the first time – my colleague WY Lee pointed at the Holiday Inn and informed it had an Indian owner by name Harilela. Hari Harilela (now late) best known as HK’s richest Indian started as a young tailor. Stitching suits for the American GIs during the Vietnam war. Two privileges came as the country head in HK – an annual invitation to a Diwali party at his lavish Kowloon Tong mansion and a share of business in all his annual insurances. “How is my friend Mr. Samarth?”, is how our first conversation commenced! I need to confirm with RDS whether it was bridge that bonded him with Harilela, as well. His fan following did not stop there.

My friendship with JRD and Russi Lala was the outcome of my article on Dorab TataRussi phoned to tell me that not only did he like it but JRD too is very pleased... My response to him was that if JRD liked it then I have a request – that he should accept our invitation for lunch.

And what bridged him to the Bombay House? “I  would like to tell you that my friendship with JRD and Russi Lala was the outcome of my article on  Dorab Tata in the NIA house journal ‘The Vision’. I described him as the pioneer  of Scientific Humanism in India. Russi phoned to tell me that not only did he like it but JRD too is very pleased. My response to him was that if JRD liked it then I have a request – that he should accept our invitation for lunch. The one and only memorable visit, since the nationalisation in 1972, emerged from this dialogue”.

First, my name is pronounced “comma-la,” like the punctuation mark. It means “lotus flower,” which is a symbol of significance in Indian culture. A lotus grows underwater, its flower rising above the surface while its roots are planted firmly in the river bottom”. How poetic! This is the closest she gets to her Indian origin, in the best selling biography. Should we read too much in her Indianness? Perhaps not, sound experts!

Whether the company would wish to leverage this and attempt an entry into the US is not the moot point. RDS has deep dived into forgotten waters and presented an invaluable pearl straight from the depths of its institutional memory. Such magical moments can make any vision happen. Any takers for the unfulfilled Dorabji legacy?

Thank you, Dr. Samarth! Yeh Dil Maange More!!!

Mind your language. The customer expectations are rising – Amazon, Tesla, Netflix and more…

Insurance Alertss: September 12, 2020

http://insurancealerts.in/MasterPage/MediaView/19247 Interviewed here in context of the following Op-Ed:

https://bfsi.economictimes.indiatimes.com/blog/insurance-customers-desire-an-amazon-moment/4461.

“We are grateful to the many great climate warriors… that have led us all… and have brought the climate change agenda to the very centre of our political, economic and societal choices”.

Duarte Costa is the Climate Analysis Lead at Climate Scale – a climate services tech company based in Brussels, sponsored by the EU Commission’s Copernicus programme and Vortex. Its endeavour is to empower people to act on climate change. He red flags the fact that financial services are not properly equipped with adequate and science-based standards to incorporate climate change data and metrics into their climate risk analysis. Duarte further highlights the lack of pragmatic and objective standards to assess, report and disclose on physical climate risks. That TCFD (Taskforce on Climate-related Financial Disclosures) will result into greening of the finance sector – yet he reiterates that it requires to ensure that reporting on climate physical risks is based on the best climate science and adequately managing future uncertainties.

Duarte is excited with the fast pace at which climate risk reporting is being adopted and even legally incorporated in some jurisdictions. At the same time, he is concerned with the lack of precise and science-based standards in measuring and reporting physical climate change risks including their inherent uncertainty. We may see businesses building their resilience using data on future physical climate risks that are physically less plausible or robust, he warns. Even worse, businesses may ‘pick and choose’ the future climate trajectory of their choice and report and disclose their physical risks regardless of the actual scientific robustness and plausibility of these projections. This is a considerable risk that may in fact jeopardize the success and effectiveness of the TCFDs to protect the financial sector (and thereby us all) from climate change risks.

Duarte also reminds us to not forget that, climate change risks particularly, have a higher probability and impact than those of the current corona crisis. The fiduciary responsibility of the insurance sector, like that of financial lenders and regulators, is of utmost importance when dealing with climate change risk. Indeed, the lack of well-defined standards is a problem. Thereby, there is no guarantee that our financial institutions are safe and being adequately regulated to ensure they are resilient against climate change shocks. 

Climate change risks particularly, have a higher probability and impact than those of the current corona crisis.

Praveen Gupta: Any insights into what you are trying to achieve?

Duarte Costa: In an essence, my team and I strive to protect businesses from climate risks and build effective climate resilience. My main role at Climate Scale is to facilitate the complex information and understanding produced from these projections of climate change with our client’s needs and concerns about future climate. My approach builds on actively listening to clients and being there almost as an interpreter, translating multi-Tb of over 1000 climate model projections into accessible information to decide upon. This work has an element of empowering people to act on climate change and that is, in my opinion, the most significant contribution this role allows me to make.

My approach builds on actively listening to clients and being there almost as an interpreter, translating multi-Tb of over 1000 climate model projections into accessible information to decide upon.

PG: Are the financial services willing and equipped to incorporate climate change data and metrics into their climate risk analysis?

DC: Yes and no. Yes, they are willing. But no, they are not properly equipped. In fact, I have serious doubts that they can do it adequately (using the best available science) if it is not required of them to do so. The word adequately here plays a huge importance. It is possible to incorporate some climate change data into reports even for instance by applying some of the tools and methods of the past (where ESG accounting was also highly marginal). That was the time when physical climate risks were more a box to tick in sustainability reports. In 2020 that is far from being adequate and helpful to the goal of protecting businesses from climate risks and building climate resilience effectively. There is no doubt that there is a widespread awareness and concern in the financial sector about climate change, mostly in terms of climate mitigation (where can we reduce our carbon footprint?) and to a certain extent in terms of climate risks (how will we be affected by climate change?) and climate adaptation (what do we need to do to reduce such risks?).  The three cover a large landscape of sectors beyond finance and are in fast growth, particularly mitigation, but steadily – risk and adaptation too.

The lack of pragmatic and objective standards to assess, report and disclose on climate risks is leaving it unclear for many businesses how to actually incorporate this information into their financial risk assessments.

Yet, the lack of pragmatic and objective standards to assess, report and disclose on climate risks is leaving it unclear for many businesses how to actually incorporate this information into their financial risk assessments. So far, for those that have already started reporting financial climate risks, they do so under vague and rather qualitative standards of reporting. For instance, in some cases physical risks are reported based on heat maps highlighting low, medium, and high risks with little information on why this categorization and on the physical consistency and range of change in model simulations behind these categories. It is a good start, but not yet effective in ensuring business resilience against climate change. 

PG: Is the TCFD an effective way forward?

DC: The Taskforce for Climate Related Financial Disclosure (TCFD) is steadily emerging as a set of voluntary standards that are becoming widely adopted by businesses and regulators as a common ground for global reporting on climate risks. Many of us (including me!) are wishing that the TCFD will result into greening of the financial sector. However, in my view, these still remain rather qualitative and overly focused on the transitional risks of climate change, leaving the estimation, analysis, and disclosure of physical risks very much behind. This is worrisome and urgently needs to be addressed.

Many of us (including me!) are wishing that the TCFD will result into greening of the financial sector. However, in my view, these still remain rather qualitative and overly focused on the transitional risks of climate change, leaving the estimation, analysis, and disclosure of physical risks very much behind.

In fact, last year’s EY Global Climate Risk Disclosure Barometer revealed that businesses assessing and reporting their climate risks are overlooking and sometimes even omitting physical risks from their assessments of risk. The reason seems to be that these are (in theory but not always) experienced in the long term rather than immediately. In addition to this, according to the recent TCFD status report, there is insufficient information to factor in climate-related risks namely on assessing long-term returns. In either cases, while the adoption and demand for climate risk disclosure is growing, it seems that this rise reflects a reactive instead of proactive response to the risks of the climate emergency. Simultaneously, we are being forced to learn, in this current COVID-19 crisis, through extremely hard numbers (in number of lives lost and economic losses), of the cost of being reactive instead of proactive.

Accounting for climate change risks requires proactivity in considering long-term risks and in sourcing the right data to factor adequately in climate risks. For instance, on physical risk it is fundamental to set standards on data quality, data sources, types of climate models, levels of spatial and temporal resolution, types, and sizes of model ensembles. More importantly, how future physical uncertainty (an inherent element of future predictions of climate) is documented, reported, and managed. Reporting climate change physical risks must advance from being a tick-box add-on to risk assessment to a fundamental risk to be thoroughly assessed, based on the best science, and with implications to the core operation and decision-making of a business.

Reporting climate change physical risks must advance from being a tick-box add-on to risk assessment to a fundamental risk to be thoroughly assessed, based on the best science, and with implications to the core operation and decision-making of a business.

Moreover, TCFD recommendations need to continue to evolve to effectively guide businesses and protect the economy from large shocks. 

I am excited with the fast pace at which climate risk reporting is being adopted and even legally incorporated in some jurisdictions. However, I am concerned with the gaps and loopholes in doing so (especially on physical risks) using the best available science. This may (mis)lead into a general understanding of climate risk as a transitional one with little or no inclusion of the most intrinsic source of climate change risk: changes in the natural environment.

We may thereby see businesses building their resilience using data on future risks that are physically less plausible or robust. Or even worse, they may ‘pick and choose’ the future climate trajectory of their choice and report and disclose their physical risks regardless of the actual scientific robustness and plausibility of these projections for a given location on the planet. This is a considerable risk that may in fact jeopardize the success and effectiveness for the TCFD’s to protect the financial sector (and thereby us all) from climate change risks.

We may thereby see businesses‘pick and choose’ the future climate trajectory of their choice and report and disclose their physical risks regardless of the actual scientific robustness and plausibility of these projections.

Finally, let us be reminded that, climate change risks particularly, have a higher probability and impact than those of the current corona crisis and, like for the latter, uncertain and unknown risks are better dealt with using the best science available and a precautionary approach. These are aspects that the TCFD standards can have a crucial role in.   

PG: Climate Change presents a material risk about which the big business including big insurers have a fiduciary responsibility to warn investors. Are they emerging as important reformers?

DC: This is an especially important point. Insurers are certainly one who must pay a higher price for climate change risks. When we see the devastation caused by unprecedented extreme events like recent hurricanes in the USA, fires in Australia and floods in the UK and Europe we immediately know that these may also pose serious risks to insurance businesses that have not accounted for such inconceivable events. So, for the insurance sector, I would say that it is in their best interest to not only incorporate physical risk from climate change in their material risk assessments, but as importantly, to do so under the best physical robustness. In the experience I have with Climate Scale, this can play a significant difference in the outcome of future risk, if the overall uncertainty of projections and their physical robustness is not considered.

For the insurance sector, I would say that it is in their best interest to not only incorporate physical risk from climate change in their material risk assessments, but as importantly, to do so under the best physical robustness.

The fiduciary responsibility of the insurance sector, like that of financial lenders and regulators, is of utmost importance when dealing with climate change risk. Both as a warning on riskier assets from unknown risks (climate change risks are unapparent, non-immediate and often unprecedented) as well as an opportunity to steer businesses and the financial sector into a safer portfolio.

PG: No mandatory single standard exists, what is disclosed varies greatly from company to company. What do you believe needs to be done to make the lives of investors easier on this front?

DC: Except for a few countries (like France, Canada, and soon New Zealand), this is correct, but also changing quickly. Indeed the lack of well-defined standards is a problem: (i) for investors that need to have clarity (and some added pressure) on how to start doing something they have not done before and (ii) for us all that have no guarantee that our financial institutions are safe and being adequately regulated to ensure they are resilient against climate change shocks. 

Indeed the lack of well-defined standards is a problem: (i) for investors that need to have clarity(ii) for us all that have no guarantee that our financial institutions are safe and being adequately regulated to ensure they are resilient against climate change shocks. 

I am optimistic about the TCFD, despite the serious issues that I have raised. It is also very encouraging how rapidly it has been gaining leverage across the globe.  

The next step, which I think needs to be discussed and implemented right now, is to ensure that these standards actually safeguard our financial institutions, particularly in ensuring that businesses use the best information available, document and manage the inherent uncertainty of future climate under the best science. This is not trivial, neither to implement nor to be overlooked.

PG: How can technology tools like the ones you work on instill a sense of Climate urgency?

DC: The technology I work on serves to help businesses handling this component of physical risk – thus far largely omitted and overlooked by TCFD. My work focuses more on helping address this element of the TCFD process with solutions rather than instilling the climate urgency. I think, for that we are grateful to the many great climate warriors. Especially the newest generations, that have led us all – citizens, business-owners, employers, employees, politicians – and have brought the climate change agenda to the very centre of our political, economic, and societal choices.

PG: My best wishes Duarte. May your dedication and focus translate into a sustainable world!

The case for a Dorabji legacy whose time has come: Leveraging Sino-Indian synergies!

Man of Steel: Dorabji Tata – Founder of ‘New India’ (1919).

Background

Much is being written around the globe about the increasing anger and mistrust towards China across nations, due to its role in the start of the pandemic particularly, in terms of transparency and communication about the severity and risk that the virus posed. In India there is keenness to capitalise on this perceived opportunity by positioning ourselves as a good alternative to China. Global players are seeking to diversify their supply chains and thereby attract investment and jobs to India, boosting foreign trade at the same time. While this appears an opportunity, it lacks imagination and is a rather unidimensional approach. A long-term sustainable win-win one would be in the form of engaging with China and leveraging its unique strengths. To top it all we are neighbours. Is there a way we could use it as a blessing? It is what this exploration is about!

The Dorabji way

In traditional wisdom it was either a business that followed a flag or a flag that followed business. Whereas the East India Company paved the path for the Union Jack to India, it was American companies that followed the Sino-US rapprochement. Once in a while you see an outlier achieve success, by following its own calling irrespective of the political imperatives. The New India Assurance Co. Ltd. was one such rare case when its founder Dorabji Tata implemented his audacious vision for an international imprint despite the constraints of a colonial economy. That it did not fully succeed could be ascribed to the fact that it was way ahead of its time and the nationalisation of the insurance industry stalled it in the tracks.

Before I narrow this down to a limited firsthand exploration and insight, I wish to put out the canvas that Dorabji1 set out to address. At its zenith, when the geography extended from the Caribbean to Fiji – the sun never set on the New India ‘empire’. It extended to over 70 countries when the number of countries were far fewer than today. A cadre of foreign service officers was specially created to nurture it. Yes, it was a time of low touch or virtually no regulations which suited an entrepreneurial spirit.  The Snowy Mountains project, in Australia, for instance, led to setting up a full-fledged company with 100 employees – when the country practiced a ‘White Australia’ policy. Starting an agency, within two years of existence, in London was not just a leap of faith but an endeavour to build capabilities and skills to justify the self-belief. It acquired licenses to trade in many parts of North America including every province in Canada. A post war entry into Japan and Germany defied conventional wisdom. All this and much more stirred by a vision and conviction.

As a beneficiary of this farsightedness, I owe it the opportunities to run business in Thailand as well as Hong Kong and deal first-hand with markets such as Taiwan, Mainland China, Indonesia, and Vietnam. Given my focus I have chosen this as a rationale for a possible Sino-Indian inter-corporate exploration and even beyond – notwithstanding the polity in which the companies operate. Interestingly, what I am putting forth did not end up with a wonderful six and a half years personal experience. The journey continues.

In a post war world taking sides with the winner was the general rule. However, the choices ‘New India’ made defied this prevailing wisdom. Its timing of entry, for instance, into Japan and Germany was non-conformist.

In a post war world taking sides with the winner was the general rule. However, the choices ‘New India’ made defied this prevailing wisdom. Its timing of entry, for instance, into Japan and Germany was non-conformist. The key focus of this piece is the Company’s ability to maintain cordial engagement with Mainland China in its space (post the Cultural Revolution it had to shut shop in China – with insurance becoming non-existent. The Company continued a relationship with the regulator People’s Bank of China).

Despite all the prevailing stress in the then English Colony, ‘New India’ maintained a branch operation in Hong Kong. It also had in place a business arrangement with Tai Ping Insurance Co. of Taiwan, serviced out of HK. No Indian business house or for that matter any other global business brand had such a three-dimensional play in place. Maverick vision yes, but surely a lost opportunity that could not keep it going! It is this aspect of corporate consciousness that deserves more attention in management literature. Despite being the master of an inherited conglomerate in making, Dorabji Tata bestowed a unique and exclusive exploration upon his insurance enterprise.

The Dragon and the Elephant: A case for synergy continues!

Late Chairman Deng Xiao Ping’s launch of China’s market-oriented reforms was a master stroke resulting into an outcome unparalleled in human civilisation. To blame China for all the woes – particularly of the western world – is not only naïve but lacks in context. Rather than a rise of China it is its resurgence that needs to be understood. Like many of us, my knowledge of Chinese history was coloured by the western interpretation. Further conditioned by the traumatic Indo-China war resulting from the border dispute inherited from our colonial master. If one were to set that aside – an incredible reality emerges which is about co-existence and synergies between the dragon and the elephant. Can that ‘New India’ vision from the past be juxtaposed into the present? Can a corporation side-step the narrative between two states howsoever adversarial and yet facilitate a benign chemistry between them? It may sound utopian, but the New India case study lends strong evidence. And there is a compelling reason for us to seize the momentum unleashed by Deng Xiao Ping. More on that soon.

It may sound utopian, but the New India case study lends strong evidence. And there is a compelling reason for us to seize the momentum unleashed by Deng Xiao Ping.

I am old enough to recall media stories as to how imports from China helped the American economy maintain its inflation rate at almost 1% per annum. In the not so distant a past was the OPEC crisis which forced the Americans to scale down their car sizes from the gas guzzlers to the Japanese made efficient but smaller versions. The Americans, particularly the United Auto Workers (UAW) detested the impact caused by the Japanese. During my first ever visit to the US, in 1984, I saw posters saying ‘Unemployment made in Japan’ stuck on the walls of an auto assembly plant in the Mid-West.

In its persistent wooing of China in the early days, this is what George W Bush, then VP, said in 1985 while addressing the Sichuan University: ‘American firms were eager to invest in China’. ‘American consumers would soon hanker after Chinese goods’, he predicted. ‘We are interested in helping China,’ Bush told his audience. ‘Very, very interested.’ The low-cost of virtually everything else that followed courtesy China, was a welcome relief after a rude inflationary shock fired from the barrel of the oil.

Insights from the New India experience

I can vividly recall numerous incidents about how the Chinese built their position – from the sidelines of my erstwhile industry. During 1991-93, I was stationed in Bangkok. One of our local clients, of Chinese descent, exported earth moving equipment worth millions of US Dollars to Guangdong province, China. To cover the transit, he would buy the most basic form of transit insurance from my company. I tried hard to reach out and convince him for a wider coverage. He was not easy to find. When I did manage to see him, I realised how busy he was sourcing second-hand equipment from wherever in the world it was available. He imported them into Thailand, reconditioned and shipped them to locations in China. ‘There would never be an insurance claim because the Chinese are in a big hurry’, he would assure me! One began to decipher what that meant when media reports said coastal Chinese GDP was growing by 30 to 40% per annum.

In 1993 when I landed in Hong Kong for my next stint – I could feel the tectonic shifts. Car thefts (from HK to China), for instance, started with small versions of Toyota and Honda. Mercedes and Lexus were in vogue by the time I arrived. As they peaked, there were not many insurers willing to insure them for the standard coverage or at the normal price. It did not matter if HK was left hand drive and the Mainland right hand! Manufacturing started migrating to the neighbouring Shenzhen and beyond, in Guangdong. The labour cost was a mere 10% of HK. Incentives were plentiful and for the asking. Suddenly the placid duck-farms visible from the border lookout of Luk Ma Chow became home to construction cranes. Thanks to Shenzhen’s meteoric rise, HK pales before it.

Industry migration from HK and Taiwan to the Mainland

Just then Ranbaxy was establishing a small manufacturing facility in Guangzhou and sought my help to arrange a local insurance contract. I was obviously curious as to what made them enter China. The answer was simple, ‘we can charge Rs. 10 here for a capsule that gets us Rs.1 in India’! Mind you, this was a little over 25 years ago when the target audience was the Chinese domestic market.

Despite all other political differences and sabre rattling – the business reality was a binder.

My attention was also drawn to a portfolio in Taiwan which had begun to shrink. This was about prosperous Indian origin traders who would majorly export container loads of cheap goods, such as footwear, to Africa. The manufacturing moved from Taiwan to across the straits in the Fujian province. Despite all other political differences and sabre rattling – the business reality was a binder. The one thing that continued to be made in a high cost economy like Taiwan was the sticker ‘Made in Taiwan’. So, what were the erstwhile shoe manufacturers up to? Believe it or not, virtually overnight most of them started assembling laptops! A quantum leap and pace of change seen nowhere else other than the Greater China.

China’s amazing growth story: Emotions versus rational!

The overwhelming cry now in the wake of the pandemic is to de-risk by moving manufacturing out of China. However, is that the solution? China has gone up the value chain and will continue to do so. Yes, not everything ought to be in and around Wuhan or for that matter any single hub. The Far East (FE) and South East (SE) Asia are so interdependent that their respective unique politics does not any longer come in the way of trading with each other. Such is the intensity of interdependence that the FE and SE Asia now account for a major chunk of the global trade.

Can Vietnam, Thailand, Myanmar, Indonesia by themselves or collectively rival what China does? In some ways it is like asking can India be replaced as the back office of the world. There will be competing hubs be these in Philippines, Costa Rica, Sri Lanka or elsewhere. Could they ever assume the scale and depth we have here? India has evolved so rapidly from the early days of body shopping to the cutting-edge high value offerings of today. Big Tech finds India too compelling to ignore. They have here their state-of-the-art application development centres. The pandemic and the US visa restrictions have now made foreign companies more dependent on development centres. These centres are not outposts anymore but integral extensions of headquarters and being billed as Offshoring 4.0.

In some ways it is like asking can India be replaced as the back office of the world... These centres are not outposts anymore but integral extensions of headquarters and being billed as Offshoring 4.0.

‘No one comes close in the developing world to China. And that is why U.S. companies are so headstrong about staying there’: Why American Companies Choose China Over Everyone Else – Forbes. A more recent issue of Time highlights how and why the costs of decoupling would be steep, and unwanted during a time of deep global recession. And the U.S. bullishness fails to account for the reality of how interconnected the two economies still are. China produces 97% of America’s antibiotics. Apple, the most valuable U.S. company, and the world’s first trillion-dollar one, still produces most of its wares in China. And Chinese enterprise is still finding success in the U.S. Lockdown favorite videoconferencing service Zoom, for example, was created in Silicon Valley by an entrepreneur born in China’s Shandong province.

Some manufacturers who shifted businesses to Vietnam because of rising costs have now returned to China, chastened by labor disputes and other headwinds. With labour cost 10 times more than equivalent skilled workers in China in much of Europe, moving work there will not be viable either.

Learning from history

Yes, there was an era when together China and India accounted for much of the global trade. Flourishing trade along the iconic silk route and a thriving maritime link made them the two foremost economies of the world.

“Sir Thomas Roe, the ambassador sent by James1 to the Mughal court, presented before the Emperor Jahangir in 1614 – at a time when the Mughal empire was still at its richest and most powerful. Jahangir inherited from his father Akbar one of the two wealthiest polities in the world, rivalled only by Ming in China. His lands stretched through most of India, all of what is now Pakistan and Bangladesh, and most of Afghanistan. He ruled over five times the population commanded by the Ottomans – roughly 100 million people – and his subjects produced around a quarter of all global manufactures.” 

Having maneuvered and manipulated its hold over India, the East India Co. then played its opium card with China... In all fairness, the return of the ‘Elephant’ and the ‘Dragon’ on the global centerstage needs to be seen in this context.

William Dalrymple’s The Anarchy is a remarkable story of how one of the world’s most magnificent empires disintegrated and came to be replaced by a dangerously unregulated private company … unfolding a timely cautionary tale of the first global corporate power. Having maneuvered and manipulated its hold over India, the East India Co. then played its opium card with China. The Opium Wars gave a serious blow to the stability of the Chinese empire. In all fairness, the return of the ‘Elephant’ and the ‘Dragon’ on the global centerstage needs to be seen in this context.

What are good options in the India/China context?

As the pandemic rages and with it all the attendant controversies, it is time to introspect as to what synergies, if any, lie in store for us both? Should it be a back to back2 or could it be a face to face positioning? Controls in today’s business environment are far and few. Ability to execute robust risk management practices could make that possible. The prevailing condition only demonstrates how an agile top down approach works and how hyper individualism leads to anarchy. China’s strength lies in its top down pre-emptive approach to risk management. With all the prevailing uncertainties that keep popping up from time to time, such an agility is a rare virtue to have in a long-term dependable partnership. Indeed, that is what reinforces the case for our big neighbour.

“I do not think that the typical Western focus on short-term incentives and outcomes and use of linear logic is up to the challenges our world faces now and into the future’’.

Michele Wucker

Michele Wucker3 is the author of bestseller Gray Rhino: How to Recognize and Act on the Obvious Dangers We Ignore. In an interview to my blog this is what she said “I do not think that the typical Western focus on short-term incentives and outcomes and use of linear logic is up to the challenges our world faces now and into the future’’.

Once again, back to the Time “The U.S. response to COVID-19 has been so muddled, it’s not yet possible to say how much of the sluggishness is due to unreadiness, how much to incompetence, and how much to the American system of governance, with its emphasis on individual freedoms over centralized authority. What does seem clear is that the performance of the Chinese system of broad state controls – over both citizens and the economy – offers Beijing a unique chance to steal a march on the future”. Would we like to miss out this opportunity?

A pipeline of opportunities beckons

The Chinese economy, built on manufacturing expertise, connectivity, and first-class infrastructure, already appears to be bouncing back from the pandemic. China is set to emerge even stronger after COVID-19, adds Time. On PPP basis it is already the world’s largest economy and well on its way to be the number one. Geographically proximate – ideal for a supply chain partnership. The Belt and Road Initiative (BRI) could open vast new opportunities, if leveraged well. We have a sizeable young population while China is ageing. An excellent pacesetter for adopting new technologies. Why cannot we consider say opening Chinese speaking back offices to support their businesses? Last several years I have travelled to many new locations in the Mainland – thanks to the curiosity honed from operating at its periphery during the 1990s. I am very humbled by the humility with which qualified actuarial and doctoral resources apply themselves in resolving the challenges at the very bottom of the societal pyramid. Something still outside our focus.

The best outcomes are a result of harmonious commerce. The ancient silk route not only facilitated the spread of Buddhism but blossomed the trade which made us the two largest economies in the world. What can emerge today can be rather serendipitous.

The best outcomes are a result of harmonious commerce. The ancient silk route not only facilitated the spread of Buddhism but blossomed the trade which made us the two largest economies in the world. What can emerge today can be rather serendipitous. Two years ago, at an annual academic4 event in Baoding (one-hour bullet train ride from Beijing), I caught up with a group of youngsters over dinner. Two of them were pursuing their post-doctoral programme in the US, the other two taught at Peking and Shanghai Universities. One question they posed to me was how can we get admitted to your IITs and IIMs? Having studied in the US, all had not one but several amazing professors of Indian origin – alumnus from these institutions! That itself makes such an irresistible business case!

President Xi Jinping recently instructed cadres to ‘turn the crisis into an opportunity.’ We heard our own Prime Minister express similar aspirations. Xi’s ‘China Dream’ to take ‘center stage of the world’ includes strategies like Made in China 2025 to upgrade to high-tech manufacturing, and China Standards 2035 to become the dominant writer of rules that govern future technologies. Again, echoes Premier Modi’s vision. Beijing’s new goal, analysts say, is to leverage the pandemic to catalyse 10 years of reform into just two.

This is not about exercising a choice between China, the West, or the rest. It is about leveraging them all and not missing out on China. Yet another set of three dimensions to focus upon the Dorabji way.

China is also capitalising on its leadership in green technology. Its apex Politburo Standing Committee has backed $1.4 trillion spending on so-called new infrastructure, including a wide range of low-carbon technologies, transitioning away from fossil fuels, and expanding its economic influence. As the world’s top three polluters if there is one lesson for us two from this pandemic, it is about decarbonising and protecting our ecology.

The speed at which the Chinese turnaround a business opportunity into reality is phenomenal. That is where lies the golden opportunity! This is not about exercising a choice between China, the West, or the rest. It is about leveraging them all and not missing out on China. Yet another set of three dimensions to focus upon the Dorabji way.

In conclusion

Dorabji Tata’s vision remains an unfinished agenda. Whatever stopped it from fruitionFor whoever in the world wishes to leverage its depth, sweep and versatility – it is truly an idea whose time has come.

The last two centuries saw the rapid decline of the world’s two oldest and prosperous civilisations with a long history of meaningful co-existence. Coming out of that black hole, it would be ironical if we do not see what synergies exist in the immediate neighbourhood. Our respective aspiration to be self-reliant does not preclude inter-dependence. As businesses it will be a serious aspirational pitfall if our strategy does not include the other country. Each one of us has its own risk, but two nations that wish to regain their places in the sun can go farther and longer as strategic partners in commerce. The forces unleashed by the initiatives of Deng Xiao Ping are for us to tap, too. And we too have much more to offer than Buddhism and Bollywood! Meanwhile, Dorabji Tata’s vision remains an unfinished agenda. Whatever stopped it from fruition – ahead of time or the nationalisation? For whoever in the world wishes to leverage its depth, sweep and versatility – it is truly an idea whose time has come.

Footnotes:

1. One name that I came across, again and again, in many parts of the Far East was late Mr. BK Shah. The most longstanding MD of New India Assurance. He carried the Dorabji baton forward. Ensured New India’s position at most high tables. The Asian Hull Syndicate, for instance, was one such and as the head of HK operation I also had the opportunity to be an alternate director to the CMD and ‘hob nob’ with the CEOs of participating blue chip insurers of the region. An actuary by qualification, BK Shah was inducted to the Insurance Hall of Fame. The only Indian till date.

Mr. AC Mukherji (ACM) another illustrious New Indian started as an apprentice officer in 1948. When New India was both a life and non-life insurer. ACM retired as the CMD of the company in 1985. Continued to play an active role, in several capacities, post that. He worked very closely with late BK Shah and is encyclopedic – full of amazing insights. Having nationalised the non-life insurance industry – the government invited Mr. Shah to advise on the structure of the future industry. One of the several recommendations made was to create a separate holding company for the governance of the four newly created entities. This led to the creation of General Insurance Corporation of India. Mr. Mukherji’s first assignment, as an apprentice officer, was as a Cargo Manager to Ceylon. Thereafter he was assigned to Germany and posted at Allianz which represented New India in the country. ACM is fluent in spoken German.

‘’Your bosses like AC Mukherji and KC Ponappa can run the country’’: Such was the calibre of the leadership. Recalling a glowing tribute by Professors Jai and Ghosh at a Management Development Programme in 1984. Late Mr. KC Ponappa was then the CMD of United India.

Dr. R.D. Samarth was originally recruited as part of the exclusive ‘New India foreign service’ cadre. Amongst the several postings across the globe he was the head of HK, too. Following him after a decade plus, I had the pleasure of going through the available company archives. One of the most stimulating discovery was a lucid articulation of the multi-pronged approach to the three Chinese entities Mainland China, Taiwan, and HK). The inherent lateral thinking and the conviction in it was remarkable. Samarth retired as the General Manager at the Company’s Head Office.

2. Developments is some Asian Insurance Markets and their possible implications for India: A Bystander’s view. In this essay I alluded to the rise of Chinese, Vietnamese, and Indonesian insurance markets along with India. Also highlighted is the importance of India and China working face to face rather back to back! The paper won SK Desai Memorial Prize (1995-96) by Insurance Institute of India.

3. thediversityblog.com/2020/04/26/just-think-about-what-the-world-might-look-like-if-more-people-focused-on-solving-obvious-gray-rhino-challenges-instead-of-obsessing-about-black-swans/: Michele Wucker interview April 26, 2020  www.thediversityblog.com .

4. China International Conference on Insurance and Risk Management (CICIRM) is an annual event organised by Tsinghua University, Beijing. Prof. Chen Bingzheng is a key pillar of this event: www.thediversityblog.com/2019/07/26/buddha-of-the-chinese-insurance-market. At about USD 600 billion, China’s current GWP is approximately 30 times of what it was a little over 20 years ago – since it joined the WTO. Its economy has successfully lifted 800 million people out of poverty. The focus on the bottom of the societal pyramid is remarkably unwavering. 

Insurance customers desire an amazon moment!

Op-Ed in ETBFSI.com:

Insurance unlike other financial services needs to be delivered and not distributed. Unfortunately, it is the ‘Point of Sale’ (POS) that gets priority over the ‘Moment of Truth’ (MOT). The physics has not changed despite all the changes over the years – growth of retail segment, arrival of private insurers/ micro-insurance, application of tech et al. Rather than reinventing itself – the industry has settled for a fragmented response to all these ‘new and increasing demands’.

https://bfsi.economictimes.indiatimes.com/blog/insurance-customers-desire-an-amazon-moment/4461

DIVERSITY PERSPECTIVES: “30 percent is a start…Once that happens then the ceiling can be raised. Otherwise there can be a high ceiling but an empty room!”

Sonu Bhasin is one of the early and senior women professionals in the industry. In her career of over 30 years she set up and managed large businesses, and diverse teams, across financial and non-financial sectors in India and overseas.

Sonu led various businesses in senior leadership positions during her corporate career. She began as an elite TAS (Tata Administrative Service) Officer with the Tata Group and spent 13 years with the Group before becoming a banker. As a banker, she was a Director at ING Barings, President Axis Bank, Group President Yes Bank before going back to the Tatas as COO Tata Capital Limited.

Sonu is an Independent Director on Boards of well-known and reputed domestic and multinational companies. She now focuses on family businesses and is the Founder of FAB – Families And Business. She is a family business historian and is the Editor-in-Chief of Families & Business magazine – India’s only standalone magazine that addresses the concerns of family business owners/promoters/entrepreneurs. Sonu has worked extensively with both, the patriarchs and the inheritors of family businesses and has enabled them to look at their businesses through the prism of family dynamics.

Her first book The Inheritors – Stories of Entrepreneurship and Success, published by Penguin Random House, is a bestseller in the business books category. Her second book, Unstoppable – Kuldip Singh Dhingra and the Rise of Berger Paints, published by Penguin Random House is the biography of the owner and promoter of Berger Paints. Sonu is also a columnist with The Economic Times.

“The lazy excuse of ‘women have constraints’ need to be relooked, especially in the private sector”.

Praveen Gupta: From your time at the Tata Administrative Service (TAS) to now, as a member of many boards, how in your perception has corporate India evolved?

Sonu Bhasin: I have been part of Corporate India since 1987 and I do believe that it has evolved significantly in the last thirty plus years. One of the key areas is the focus on Corporate Governance which has increased, no doubt mandated by the Regulators.  The Boards, since you asked about them specifically, have also undergone some changes, again due to the regulators. The focus on the qualifications of the directors has increased and the Board is no longer a place just to have chai & samosas and catch up with friends.

PG: In terms of gender diversity on an overall basis the multinationals seem to be doing the best whereas Public Sector Companies are laggards (according to a recent IiAS Women on Boards study of Nifty 500 companies). Does this pose any risk to the governance outcome/ bottom-line performance?

SB: I actually have a different view.  If you see the leadership positions in the private sector companies, there are still very few women there. When asked about this the CEOs and the HR people typically talk of the constraints faced by women due to maternity leave and lack of mobility. They talk of the inability of women to take on postings outside the city they live in.  Thus, they say that due to these reasons the rise of women in the organisations slows down.

If you see the leadership positions in the private sector companies, there are still very few women there.

However, surprisingly women do not seem to face the same problems – maternity and transferability of jobs – in the government and public sector.  These jobs are transferrable, and women know it. Women working in the government also have children. Even then, we have women as Secretaries in the Central and State Governments, we have women as CEOs of public sector banks and in PSUs.  Thus, the lazy excuse of ‘women have constraints’ need to be relooked, especially in the private sector.

Regarding performance of organisations, there are enough studies by reputed firms to show that organisations with diversity deliver better results for all stakeholders.

However, surprisingly women do not seem to face the same problems – maternity and transferability of jobs – in the government and public sector.

PG: How are the Indian home-grown businesses doing on this front? Is the glass ceiling still in place? Is there a room for cognitive diversity?

SB: There is a glass ceiling everywhere and there is no running away from it. In some organisations it is thick and almost unbreakable while in the others there are cracks evident. In a very few organisations, the ceiling has been broken. The Indian home – grown businesses follow the general trend as it is not a business matter alone; rather it is a matter related to societal norms. However, Indian family businesses have an advantage over the non-family ones – if a patriarch takes a call to have his daughter as his successor, no one can object!

There is a glass ceiling everywhere and there is no running away from it. In some organisations it is thick and almost unbreakable while in the others there are cracks evident. In a very few organisations, the ceiling has been broken.

PG: Are family owned businesses providing equal opportunity in leadership positions to the daughters?

SB: I cannot generalize this as it depends on the patriarch.  When the patriarch has only daughters, the decision is easier – Apollo Hospitals and Luxor are two examples. Then there are the patriarchs who chose their daughters over their-sons to be their business successors. These numbers are few but do exist.  I would say that the family businesses are indeed giving their daughters opportunities but will not go as far to say equal opportunities.

I would say that the family businesses are indeed giving their daughters opportunities but will not go as far to say equal opportunities.

PG: How big do you believe is the gap between men and women when it comes to remuneration?

SB: The gap is significant. There are many studies carried out and it comes out consistently that for the same work, men get paid more than women.

PG: Globally ESG (Environmental, Societal, Governance) is what really constitutes governance now. How serious are Indian corporates about key components like #sustainability?

SB: Sustainability is an area that corporates cannot ignore any longer. There is a social pressure as well as pressure from the authorities. Thus, there is focus on sustainability and increasingly it does get discussed at the Board levels.

PG: Is #ClimateChange on the discussion agenda at Indian boards?

SB: From what I have seen and what I have heard the Climate Change is a matter which the boards consider important but there is not much discussion on it unless there is a specific reference to the business model.

PG: Is the #pandemic and its ramifications like work from home (WFH) narrowing the options for professional women or proving to be more challenging for working women?

SB: Work from Home is both an advantage and a disadvantage for a woman. The advantage for the women is the same for men working from home – no time spent on commuting, flexi-time etc.  However, there are more disadvantages for women working from home than their male counterparts. If the woman is home, it is automatically assumed that all housework is her responsibility. Thus, unless the family adjusts to the WFH culture, we will see a lot of women actively wanting to come back to the office

There are more disadvantages for women working from home than their male counterparts. If the woman is home, it is automatically assumed that all housework is her responsibility.

PG: Why should women concede to say aiming for 30% of independent directors to be women (from the current 17% at the Nifty 500). Why not 50%? The floor tends to become the ceiling!

SB: 30 percent is a start. It is better than what it was before the regulator mandated the appointment of a woman director on the boards. I believe that it will take some time for all companies to be compliant in the letter and the spirit of the regulation. Once that happens then the ceiling can be raised. Otherwise there can be a high ceiling but an empty room!

PG: Many parts of our country remain dominantly paternalistic. What do you think needs to be done to make it a level playing field for the girl child to grow in?

SB: You are right when you say that large parts of our country remain paternalistic. In fact, I would say that a large part of the world remains paternalistic. Seen in that context I would say that India, even though largely paternalistic, ‘allows’ its women to go further than most countries do. We have all seen that one of the most developed nation in the world, the USA still has not had a woman leading the country. In fact, women were allowed to vote after many years of their country’s independence. In India, on the other hand, we have had women prime ministers, presidents, chief ministers, leaders of political parties, secretaries in the government and more.

I would say that a large part of the world remains paternalistic. Seen in that context I would say that India, even though largely paternalistic, ‘allows’ its women to go further than most countries do.

To make the world a level playing field for the girl child the effort has to begin at home. Mothers in law need to stop asking their bahus to produce a grandson; mothers need to stop treating their daughters and sons differently; mothers in law need to stop expecting their working daughters in law to come back home after a full day’s work at office and then make dinner for the family while the son lounges around, tired after a full day’s work at office. Equality and treating daughters and sons with equanimity at home right from the start will sow the seeds for a world which has a level playing field.

Equality and treating daughters and sons with equanimity at home right from the start will sow the seeds for a world which has a level playing field.

PG: The world has been abuzz with the five countries that have coped exceptionally well with the pandemic – needless to mention their performance on SDGs. Is that not a signal strong enough for what the rest of the world ought to do?

SB: The work done by the leaders and people of the five countries has been exceptional and is indeed a shining example for all of us to follow.

PG: Many thanks for sharing some amazing perspectives, Sonu! My best wishes for your ongoing explorations.

The case for a Dorabji legacy whose time has come: Leveraging Sino-Indian synergies! (Part 1).

Background

Much is being written around the globe about the increasing anger and mistrust towards China across nations, due to its role in the start of the pandemic particularly, in terms of transparency and communication about the severity and risk that the virus posed. In India there is keenness to capitalise on this perceived opportunity by positioning ourselves as a good alternative to China. Global players are seeking to diversify their supply chains and thereby attract investment and jobs to India, boosting foreign trade at the same time. While this appears an opportunity, it lacks imagination and is a rather unidimensional approach. A long-term sustainable win-win one would be in the form of engaging with China and leveraging its unique strengths. To top it all we are neighbours. Is there a way we could use it as a blessing? It is what this exploration is about!

Dorabji Tata (1859-1932).

The Dorabji way

In traditional wisdom it was either a business that followed a flag or a flag that followed business. Whereas the East India Company paved the path for the Union Jack to India, it was American companies that followed the Sino-US rapprochement. Once in a while you see an outlier achieve success, by following its own calling irrespective of the political imperatives. The New India Assurance Co. Ltd. was one such rare case when its founder Dorabji Tata implemented his audacious vision for an international imprint despite the constraints of a colonial economy. That it did not fully succeed could be ascribed to the fact that it was way ahead of its time and the nationalisation of the insurance industry stalled it in the tracks.

The New India Assurance Co. Ltd. was one such rare case when its founder Dorabji Tata implemented his audacious vision for an international imprint despite the constraints of a colonial economy.

Before I narrow this down to a limited firsthand exploration and insight, I wish to put out the canvas that Dorabji1 set out to address. At its zenith, when the geography extended from the Caribbean to Fiji – the sun never set on the New India ‘empire’. It extended to over 70 countries when the number of countries were far fewer than today. A cadre of foreign service officers was specially created to nurture it. Yes, it was a time of low touch or virtually no regulations which suited an entrepreneurial spirit.  The Snowy Mountains project, in Australia, for instance, led to setting up a full-fledged company with 100 employees – when the country practiced a ‘White Australia’ policy. Starting an agency, within two years of existence, in London was not just a leap of faith but an endeavour to build capabilities and skills to justify the self-belief. It acquired licenses to trade in many parts of North America including every province in Canada. A post war entry into Japan and Germany defied conventional wisdom. All this and much more stirred by a vision and conviction.

As a beneficiary of this farsightedness, I owe it the opportunities to run business in Thailand as well as Hong Kong and deal first-hand with markets such as Taiwan, Mainland China, Indonesia, and Vietnam. Given my focus I have chosen this as a rationale for a possible Sino-Indian inter-corporate exploration and even beyond – notwithstanding the polity in which the companies operate. Interestingly, what I am putting forth did not end up with a wonderful six and a half years personal experience. The journey continues.

In a post war world taking sides with the winner was the general rule. However, the choices ‘New India’ made defied this prevailing wisdom. Its timing of entry, for instance, into Japan and Germany was non-conformist. The key focus of this piece is the Company’s ability to maintain cordial engagement with Mainland China in its space (post the Cultural Revolution it had to shut shop in China – with insurance becoming non-existent. The Company continued a relationship with the regulator People’s Bank of China).

Despite all the prevailing stress in the then English Colony, ‘New India’ maintained a branch operation in Hong Kong. It also had in place a business arrangement with Tai Ping Insurance Co. of Taiwan, serviced out of HK. No Indian business house or for that matter any other global business brand had such a three-dimensional play in place. Maverick vision yes, but surely a lost opportunity that could not keep it going! It is this aspect of corporate consciousness that deserves more attention in management literature. Despite being the master of an inherited conglomerate in making, Dorabji Tata bestowed a unique and exclusive exploration upon his insurance enterprise.

Maverick vision yes, but surely a lost opportunity that could not keep it going! It is this aspect of corporate consciousness that deserves more attention in management literature.

The Dragon and the Elephant: A case for synergy continues!

Late Chairman Deng Xiao Ping’s launch of China’s market-oriented reforms was a master stroke resulting into an outcome unparalleled in human civilisation. To blame China for all the woes – particularly of the western world – is not only naïve but lacks in context. Rather than a rise of China it is its resurgence that needs to be understood. Like many of us, my knowledge of Chinese history was coloured by the western interpretation. Further conditioned by the traumatic Indo-China war resulting from the border dispute inherited from our colonial master. If one were to set that aside – an incredible reality emerges which is about co-existence and synergies between the dragon and the elephant. Can that ‘New India’ vision from the past be juxtaposed into the present? Can a corporation side-step the narrative between two states howsoever adversarial and yet facilitate a benign chemistry between them? It may sound utopian, but the New India case study lends strong evidence. And there is a compelling reason for us to seize the momentum unleashed by Deng Xiao Ping. More on that soon.

I am old enough to recall media stories as to how imports from China helped the American economy maintain its inflation rate at almost 1% per annum. In the not so distant a past was the OPEC crisis which forced the Americans to scale down their car sizes from the gas guzzlers to the Japanese made efficient but smaller versions. The Americans, particularly the United Auto Workers (UAW) detested the impact caused by the Japanese. During my first ever visit to the US, in 1984, I saw posters saying ‘Unemployment made in Japan’ stuck on the walls of an auto assembly plant in the Mid-West.

It may sound utopian, but the New India case study lends strong evidence. And there is a compelling reason for us to seize the momentum unleashed by Deng Xiao Ping. More on that soon.

In its persistent wooing of China in the early days, this is what George W Bush, then VP, said in 1985 while addressing the Sichuan University: ‘American firms were eager to invest in China’. ‘American consumers would soon hanker after Chinese goods’, he predicted. ‘We are interested in helping China,’ Bush told his audience. ‘Very, very interested.’ The low-cost of virtually everything else that followed courtesy China, was a welcome relief after a rude inflationary shock fired from the barrel of the oil.

Insights from the New India experience

I can vividly recall numerous incidents about how the Chinese built their position – from the sidelines of my erstwhile industry. During 1991-93, I was stationed in Bangkok. One of our local clients, of Chinese descent, exported earth moving equipment worth millions of US Dollars to Guangdong province, China. To cover the transit, he would buy the most basic form of transit insurance from my company. I tried hard to reach out and convince him for a wider coverage. He was not easy to find. When I did manage to see him, I realised how busy he was sourcing second-hand equipment from wherever in the world it was available. He imported them into Thailand, reconditioned and shipped them to locations in China. ‘There would never be an insurance claim because the Chinese are in a big hurry’, he would assure me! One began to decipher what that meant when media reports said coastal Chinese GDP was growing by 30 to 40% per annum.

In 1993 when I landed in Hong Kong for my next stint – I could feel the tectonic shifts. Car thefts (from HK to China), for instance, started with small versions of Toyota and Honda. Mercedes and Lexus were in vogue by the time I arrived. As they peaked, there were not many insurers willing to insure them for the standard coverage or at the normal price. It did not matter if HK was left hand drive and the Mainland right hand! Manufacturing started migrating to the neighbouring Shenzhen and beyond, in Guangdong. The labour cost was a mere 10% of HK. Incentives were plentiful and for the asking. Suddenly the placid duck-farms visible from the border lookout of Luk Ma Chow became home to construction cranes. Thanks to Shenzhen’s meteoric rise, HK pales before it.

Industry migration from HK and Taiwan to the Mainland

Just then Ranbaxy was establishing a small manufacturing facility in Guangzhou and sought my help to arrange a local insurance contract. I was obviously curious as to what made them enter China. The answer was simple, ‘we can charge Rs. 10 here for a capsule that gets us Rs.1 in India’! Mind you, this was a little over 25 years ago when the target audience was the Chinese domestic market.

My attention was also drawn to a portfolio in Taiwan which had begun to shrink. This was about prosperous Indian origin traders who would majorly export container loads of cheap goods, such as footwear, to Africa. The manufacturing moved from Taiwan to across the straits in the Fujian province. Despite all other political differences and sabre rattling – the business reality was a binder. The one thing that continued to be made in a high cost economy like Taiwan was the sticker ‘Made in Taiwan’. So, what were the erstwhile shoe manufacturers up to? Believe it or not, virtually overnight most of them started assembling laptops! A quantum leap and pace of change seen nowhere else other than the Greater China.

Despite all other political differences and sabre rattling – the business reality was a binder.

China’s amazing growth story: Emotions v rational!

The overwhelming cry now in the wake of the pandemic is to de-risk by moving manufacturing out of China. However, is that the solution? China has gone up the value chain and will continue to do so. Yes, not everything ought to be in and around Wuhan or for that matter any single hub. The Far East (FE) and South East (SE) Asia are so interdependent that their respective unique politics does not any longer come in the way of trading with each other. Such is the intensity of interdependence that the FE and SE Asia now account for a major chunk of the global trade.

Can Vietnam, Thailand, Myanmar, Indonesia by themselves or collectively rival what China does? In some ways it is like asking can India be replaced as the back office of the world. There will be competing hubs be these in Philippines, Costa Rica, Sri Lanka or elsewhere. Could they ever assume the scale and depth we have here? India has evolved so rapidly from the early days of body shopping to the cutting-edge high value offerings of today. Big Tech finds India too compelling to ignore. They have here their state-of-the-art application development centres. The pandemic and the US visa restrictions have now made foreign companies more dependent on development centres. These centres are not outposts anymore but integral extensions of headquarters and being billed as Offshoring 4.0.

In some ways it is like asking can India be replaced as the back office of the world... These centres are not outposts anymore but integral extensions of headquarters and being billed as Offshoring 4.0.

‘No one comes close in the developing world to China. And that is why U.S. companies are so headstrong about staying there’: Why American Companies Choose China Over Everyone Else – Forbes. A more recent issue of Time highlights how and why the costs of decoupling would be steep, and unwanted during a time of deep global recession. And the U.S. bullishness fails to account for the reality of how interconnected the two economies still are. China produces 97% of America’s antibiotics. Apple, the most valuable U.S. company, and the world’s first trillion-dollar one, still produces most of its wares in China. And Chinese enterprise is still finding success in the U.S. Lockdown favorite videoconferencing service Zoom, for example, was created in Silicon Valley by an entrepreneur born in China’s Shandong province.

Some manufacturers who shifted businesses to Vietnam because of rising costs have now returned to China, chastened by labor disputes and other headwinds. With labour cost 10 times more than equivalent skilled workers in China in much of Europe, moving work there will not be viable either.

Footnotes:

1. One name that I came across, again and again, in many parts of the Far East was late Mr. BK Shah. The most longstanding MD of New India Assurance. He carried the Dorabji baton forward. Ensured New India’s position at most high tables. The Asian Hull Syndicate, for instance, was one such and as the head of HK operation I also had the opportunity to be an alternate director to the CMD and ‘hob nob’ with the CEOs of participating blue chip insurers of the region. An actuary by qualification, BK Shah was inducted to the Insurance Hall of Fame. The only Indian till date.

Mr. AC Mukherji (ACM) another illustrious New Indian started as an apprentice officer in 1948. When New India was both a life and non-life insurer. ACM retired as the CMD of the company in 1985. Continued to play an active role, in several capacities, post that. He worked very closely with late BK Shah and is encyclopedic – full of amazing insights. Having nationalised the non-life insurance industry – the government invited Mr. Shah to advise on the structure of the future industry. One of the several recommendations made was to create a separate holding company for the governance of the four newly created entities. This led to the creation of General Insurance Corporation of India. Mr. Mukherji’s first assignment, as an apprentice officer, was as a Cargo Manager to Ceylon. Thereafter he was assigned to Germany and posted at Allianz which represented New India in the country. ACM is fluent in spoken German.

‘’Your bosses like AC Mukherji and KC Ponappa can run the country’’: Such was the calibre of the leadership. Recalling a glowing tribute by Professors Jai and Ghosh at a Management Development Programme in 1984. Late KC Ponappa was then the CMD of United India.

Dr. R.D. Samarth was originally recruited to be part of the exclusive ‘New India foreign service’ cadre. Amongst the several postings across the globe he was the head of HK, too. Following him after a decade plus, I had the pleasure of going through the available company archives. One of the most stimulating discovery was a lucid articulation of the multi-pronged approach to the three Chinese entities Mainland China, Taiwan, and HK). The inherent lateral thinking and the conviction in it was remarkable. Samarth retired as the General Manager at the Company’s Head Office.

“The biggest positive impact would come if humans and businesses start to understand waste as own failure”.

Michael Rada is the founder of INDUSTRY 5.0. In 2013, after 23 years of business experience, he decided to break out of a corporate career and set out to create a Wasteless World. By applying systematic waste prevention methodology, in the real-world environment, he has prevented more than one million tons of material and products from becoming waste. Prevention for him is the only cure for combating generation of waste. His work is all about getting this right.

Michael is a much sought-after public speaker and an active blogger both in English and native Czech. He remains involved in teaching Logistics, Global Supply Chain Efficiency, Sustainability, and Innovations to schools and universities. The very disciplines that he applies in making INDUSTRY 5.0 work.

Praveen Gupta: What exactly is International Business Center of Sustainable Development (IBCSD) about?

Michael Rada: IBCSD LAB Ltd, is a company established as a ground stone for the international network of LABs and WERKS set to proceed with systematic waste prevention methodology and its implementation in the local markets. If we imagine this network as a human body IBCSD LAB (CZECH) is the brain, National LABS are the synapsis and the WERKS are the hands and legs.

IBCSD LAB Ltd, is a company established as a ground stone for the international network of LABs and WERKS set to proceed with systematic waste prevention methodology

PG: To what extent does industrial waste impact sustainability of our Planet? What is the scale and how is it compounding?

MR: Industrial waste (produced in various forms in an industrial environment) volume accounts for 60-80% of the total waste generated by humans. It consists of multiple types of waste from NG and obsolete material, CO2 emissions, increased traffic volumes and consumption of land by industrial operations. INDUSTRY 5.0 and Industrial Upcycling categorise waste into Physical, Social, Urban, and Process Waste.

Industrial waste (produced in various forms in an industrial environment) volume accounts for 60-80% of the total waste generated by humans.

PG: Would INDUSTRY 5.0 mean safer processes, more automation, and lesser power consumption? Does it have own standards like for instance the ISO?

MR: INDUSTRY 5.0 means more efficient production matching the consumption. It results in safer environment where machines support human work, but do not decide what humans should do. This is connected to reduced and balanced power consumption as well. There are standards. However, no methodology as in ISO have been developed as yet – because we concentrate on delivering results first. To achieve the change no capital investment is usually needed, it is basically about changing the process. Digitalisation is one of the tools, but not a pre-condition.

INDUSTRY 5.0 means more efficient production matching the consumption... To achieve the change no capital investment is usually needed, it is basically about changing the process.

PG: Industrial waste is a product of technology. To what extent does technology need to be fixed to mitigate the harmful effects of waste?

MR: It is an interesting question. In my opinion, waste is not a product of technology, not in direct relation. In fact, in many cases, it is the result of not so efficient cooperation between man and machine or technology. At the same time, many wastes are generated by wrong or “none” planning at all.

Waste is not a product of technologyit is the result of not so efficient cooperation between man and machine or technology.

The biggest positive impact would come if humans and businesses start to understand waste as own failure. This will help waste prevention. The harm from waste is often on account of the wrong human interaction and understanding of the topic. For instance “Plastic Is Evil” is not true. Plastic is just one of the crude oil derivates and can be turned back to oil. In fact the true evil is the Single-Use, no matter which material we talk about.

PG: Much of what we extract does not circulate? Do you believe a circular economy will be less wasteful?

MR: The current numbers indicate that only less than 10% are directly recovered, globally less than 50% is being recycled. This will change if systematic waste prevention is applied and people and businesses recognise how waste can be prevented. Circular economy concentrates more on the ECONOMY, this is why it is struggling.

INDUSTRY 5.0 concentrates on production and processes. That makes the application fast and efficient. This is also why it has already prevented over a million tons of products from becoming waste. The number is growing fast. If the circular economy keeps concentrating on the economy, it will not decrease the volume of waste. This is primarily because for Circular Economy – Waste Is Treasure! Therefore, there is no real reason to avoid or “kill” treasure.

For Circular Economy – Waste Is Treasure! Therefore, there is no real reason to avoid or “kill” treasure.

PG: As individual consumption levels rise and populous countries like China and India urbanise, the non-industrial waste is an equally threatening development.

MR: The most visible share of the non-industrial waste is represented by municipal waste and 70-75% of this is related to packaging. The issue with this waste is that it contains a wide variety of materials, sizes, and shapes, frequently polluted by other materials. There are only two ways to process  it –  landfill or burn. Thanks to the recent developments – even this type of material can be processed into oil and carbon fraction. Thereby it can be used as raw material for further production. The latest numbers presented by the World Bank Group indicates more than 2 billion metric tons of municipal waste will be generated yearly.

PG: Are any of the multilateral agencies focused on addressing the challenge. For instance, does any of the SDG talk about waste management?

MR: As of now it is only IBCSD LAB which is implementing the systematic waste prevention methodology using INDUSTRIAL UPCYCLING and INDUSTRY 5.0 as the tools. SDG goals have been set later. Those refer to waste and prevention, but just as the Circular Economy it considers waste as treasure – which means true waste prevention is not being applied.

SDG Goal12 is the closest to the topic. However, it speaks about recycling and this can be realised only if waste is being generated. Likewise, other global institutions and organisations concentrate on “Clean Up” but not on prevention.

SDG Goal12speaks about recycling and this can be realised only if waste is being generated...other global institutions and organisations concentrate on “Clean Up” but not on prevention.

PG: Shouldn’t industrial companies be responsible for the waste their businesses generate? The most amount of plastic seen in our oceans are plastic bottles from Coke and Pepsi.

MR: Industrial companies should be directly responsibile. At the same time, the indirect responsibility in the form of handing the responsibility to others (likes of CO2 EMISSION TRADING, GREEN PUNKT, and EKO-KOM) should be limited or eliminated. The responsibility for keeping the bottles out of the ocean should shared between Plastic Granulate Producer – Bottle Producer - Beverage Producer – Retail Store - Consumer. Shared responsibility will eliminate the possibility of one blaming the other. In the end nobody is responsible for the damage that happens.

Shared responsibility will eliminate the possibility of one blaming the other. In the end nobody is responsible for the damage that happens.

PG: In a recent post you have highlighted the blindness of giants. The bigger a company need not make it a bigger waster?

MR: Giants are none other than the bigger entities. Because we speak of giants, the volume of “nutrition = money = profit” has to be adequate. Many giants see only nice tables and charts presented by those who live from giants disability to see the reality, but there is one common wake up call and question which work with all of them. “Do You Want To Generate Waste Or Profit?” It is not the Ecology, but the Economy which moves them to change. The big advantage of INDUSTRY 5.0 and Industrial Upcycling is that there is no need for capital investment at the beginning to generate savings. This is why so many consider the change or realise the value already.

“Do You Want To Generate Waste Or Profit?” It is not the Ecology, but the Economy which moves them to change.

PG: Do you factor wastage of natural resources. Water being one?

MR: WATER is one of the most precious resources we prevent from being wasted. At the moment there are three successful projects - Low-Pressure Dry Fog Firefighting (95% of water reduction), Water Pump Floris (Deep Drill Water Supply) and Grey Water Recovery systems. It is very important for me to completely eliminate the wastage of water. This is why I am trying to increase the efficiency of processes and water delivery. Likewise, I am also supporting many other projects including vertical farming and green roofs.

WATER is one of the most precious resources we prevent from being wasted.

All these projects are running starting from Czech Republic, many destinations already benefit from these including parts of India. Here are the links DRY FOG – https://alatyr-extinguishing-systems.com/en/ Water pump – http://pfloris.com/ Grey water recovery – only in Czech Republichttps://werowater.eu/.

PG: The fossil fuel industry is the biggest polluter today. How can INDUSTRY 5.0 fast track its transition to renewable energy?

MR: Same as in other segments it is not the fossil resources, but the decision that it should be only fossil fuel or only renewable source that deliver imbalance in the systém. In fact there can be synergy between these. There is possibility to combine efficiently various energy sources but until the arrival of INDUSTRY 5.0 it was ignored and this is starting to change.

There is possibility to combine efficiently various energy sources but until the arrival of INDUSTRY 5.0 it was ignored and this is starting to change.

PG: Is INDUSTRY 5.0 aligned to the goals of the Paris Agreement? Can it slow down the Planet’s rapidly rising temperature owing to the industrial activity?

MR: I am very sorry, but Paris Agreement has not contributed to positive change, nor has Kyoto Protocol. In fact they do very opposite, they legalise the evil by putting a price on it. Not only have we lost precious time, rather than positive impact the very opposite of declared improvement has been achieved. INDUSTRY 5.0 and systematic waste prevention have positive impact on global climate. The best proof is the COVID-19 lockdown, that cleared the sky in so many locations and cities only due to drop of production on a global level. We can not stop the climate to change, but we can stop the process of speeding up due to so called unlimited production and hunt for profit.

Paris Agreement has not contributed to positive change, nor has Kyoto Protocol. In fact they do very opposite, they legalise the evil by putting a price on it.

PG: What’s your vision?

MR: I have only one aim, to build up a world free of waste in all forms. A world in which all people can live meaningful lives in harmony with nature. For this we need to have wasteless industries and this is what INDUSTRY 5.0 principles and implementation will continue to deliver.

I have only one aim, to build up a world free of waste in all forms. A world in which all people can live meaningful lives in harmony with nature.

PG: Thanks Michael. My best wishes in your endeavours towards achieving a world free of waste.

DIVERSITY PERSPECTIVES: The Challenge!

Praveen Gupta analyses a new study on gender diversity among Indian corporations: https://thejournal.cii.co.uk/blog/diversity-challenge/

“India remains well behind other markets that have targeted female representation of atleast 30 percent on boards”, says Ms. Hetal Dalal, COO, Institutional Investors Advisory Services (IIAS).

“Corporate India: Women on Boards” a report recently released by IIAS shows that at the Nifty 500 companies, women account for 17 percent of the board directors.

The report also recognises that while at the board level #gender#diversity is improving – it is still lagging behind at the leadership and middle management levels.

Needless to mention that much remains to be done to do away with the systemic barriers on the way up the hierarchy. In a largely paternalistic society, a female child needs to navigate through a lifetime of challenges. Breaking through a glass ceiling is never easy.